U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1996
Commission file number: 0-1519
LEADVILLE CORPORATION
Name of small business issuer in its charter)
COLORADO 84-0388216
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No)
2851 S. PARKER RD., SUITE 610, AURORA, CO 80014
(Address of principal executive offices)
(303) 671-9792
Issuer's telephone number
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered Pursuant to Section 12(g) of the Exchange
Act: COMMON STOCK
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form
and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ X ]
Issuers's operating revenues for its most recent fiscal year:
NONE
The aggregate market value of the Common Stock (the
Registrant's only class of voting stock) held by non-affiliates
of the Registrant on March 17, 1997, was approximately
$4,550,845 based upon the reported closing sale price of such
shares on the NASDAQ Small-Cap System for that date. As of
March 17, 1997, there were 9,810,992 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Item 1. Description of Business
GENERAL
Leadville Corporation ("Leadville" or the "Company") is a
Colorado corporation that was organized in 1945 to acquire,
explore and develop mining properties, primarily in Lake and
Park Counties, Colorado. Leadville's Common Stock is traded on
the NASDAQ Small-Cap System, under symbol "LEAD".
Historic mining activities began in Lake and Park Counties
during the 1860's. The most productive area in the Counties
became known as the Leadville Mining District ("District") of
central Colorado. Since 1860, the District has produced over
2.5 million ounces of gold, 240 million ounces of silver, 2
billion pounds of lead, 1.4 billion pounds of zinc and 100
million pounds of copper. Leadville's properties, which are
located in the District, have produced gold, silver, lead, zinc
and copper during previous mining operations.
Leadville controls two blocks of mining properties, the
Sherman-Hilltop Consolidation ("Sherman Mine"), historically a
silver producer, and the Diamond-Resurrection Consolidation
("Diamond Mine"), primarily a gold producer, along with silver,
lead, zinc and copper. The Company's properties are located
near the town of Leadville, Colorado and are accessible year
around, although access to the mines can be interrupted at
times due to severe winter weather conditions. Access to the
mineral resources at the Diamond and Sherman Mines is gained
through underground workings.
Due to the collapse of silver prices in the 1890's,
coupled with the exhaustion of easily minable high grade
surface ore, the District was left inactive for almost 50
years. During that period, property and mineral rights were
abandoned or divided to the point of not being manageable.
Beginning in 1949 and continuing into the 1980's one of
Leadville's strategic corporate objectives was to consolidate,
under its control, promising land positions in the District
which would serve to support large, long-term mining
operations. Under the direction of its President, Dr. Robert
G. Risk, Leadville commissioned reviews of historical mining
data, conducted geo-physical studies and researched title
records for the Leadville area in an effort to identify land
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positions which held promising prospects for mining and
acquisition. After years of effort and considerable expense,
Leadville successfully consolidated ownership interests and
mining rights in the Sherman-Hilltop and Diamond-Resurrection
properties.
In the late 1960's Leadville acquired a third block of
ground, the Stringtown Mill site ("Stringtown Mill"). This
property was acquired to provide a location for construction of
a mill for processing of Sherman Mine ore.
The information contained in this Form 10-KSB contains
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be
identified by the use of words such as "may", "will", "expect",
"anticipate", "estimate" or "continue", or such variation
thereon or comparable terminology. In addition, all
statements other than statements of historical facts that
address activities, events or developments that the Company
expects, believes or anticipates, will or may occur in the
future, and other such matters, are forward-looking statements.
The future results of the Company may vary materially from
those anticipated by management, and may be affected by various
trends and factors which are beyond the control of the Company.
These risks include lack of capital of the Company, its
substantial dependence on its President to fund operations, the
uncertainties surrounding the EPA Superfund site in which
certain of the Companies properties are located, the
uncertainties of obtaining additional capital, the competitive
environment in which the Company operates, changing prices of
minerals, and other significant risks described herein.
Item 2. DESCRIPTION OF PROPERTIES
SHERMAN MINE
In 1974, Leadville leased the Sherman Mine, Diamond Mine
and Stringtown Mill properties to Day Mines, Inc. ("Day Mines")
of Wallace, Idaho. The Sherman Mine properties consist of
approximately 1,854 acres of patented mining claims and 1,760
acres of unpatented mining claims in Lake and Park Counties.
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The Stringtown Mill site includes approximately 300 acres of
patented and unpatented claims and is the location of the
Stringtown Mill and Malta Gulch tailings ponds. Unpatented
claims require payment of annual assessment fees to hold the
claim.
Hecla Mining Company ("Hecla"), began to operate the
Sherman Mine in 1981, as a result of the merger of Day Mines
into Hecla. During the early 1980's, low silver prices
resulted in the suspension of mining operations at the Sherman
Mine for periods of time. In November of 1984, Leadville
reached agreement, in principle, with Hecla whereby all
properties and mining rights subject to the 1974 lease
agreement would be reacquired by Leadville. During October of
1987, Leadville reached a final agreement with Hecla for
reconveyance of the lease, in consideration for $500,000
cash and a convertible debenture in the amount of $381,000.
In December 1993, as a result of Leadville's efforts to
re-structure its debt obligations, Hecla agreed to cancel the
$381,000 debenture, along with accrued interest of
approximately $402,000.
Since May of 1987 and continuing through 1996,
Leadville's activities at the Sherman Mine 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. Although the Sherman Mine is not included as part of
the California Gulch Superfund Site, the Environmental
Protection Agency is considering use of rock materials located
on the property for use on Superfund designated properties.
Pending final decision by EPA on use of Sherman Mine materials,
Leadville has taken no action at the Sherman Mine.
In the event the required work is not ultimately
performed to maintain existing permits, the Company may be
required to reclaim the Mine site. The Company maintains a
reclamation bond, in the amount of $128,000, which relates to
the Sherman and Stringtown Mill sites. Substantially all of
the Company's real properties, including the Sherman Mine,
serve as security for the outstanding convertible debentures
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which Leadville issued in 1987.
DIAMOND MINE
Leadville acquired the initial Diamond Mine claims in 1964
and continued to add land positions into the early 1980's.
Although the Diamond Mine properties were under lease to Day
Mines, and then Hecla, as part of the 1974 lease agreement, no
mining activities occurred on the properties during the years
1974 through 1982. In 1983, Hecla released the Diamond Mine
from the lease agreement and Leadville initiated a program of
study and exploration of the property.
The Diamond Mine property consists of approximately 1,180
acres and is located approximately 4.5 miles east of Leadville,
Colorado. Substantially all of the mining claims in the block
of ground are patented and owned by Leadville. The property
carries only minimal royalty obligations.
Beginning in 1983 and continuing into 1989, Leadville's
efforts focused on achieving production at the Diamond Mine.
As a result of work conducted and investment made by Leadville
during this six year period, management believes the property
is positioned to re-open for further exploration and
development with modest capital investment, although
significant financing will be required to sustain mining
operations.
During the years 1986 through 1988, Leadville constructed
a surface plant at the Diamond Mine, drove underground access
and development drifts and made modifications to the Stringtown
Mill facility. Sustained ore processing at the Stringtown Mill
was achieved in late 1988, after significant delays due to
equipment and circuit failures. Once ore processing at the
mill was sustainable, however, Leadville lacked necessary
financial resources to construct mine infrastructure required
to continue mining operations.
Ultimately, financing necessary to continue mining
activities in early 1989 could not be secured and operations
were suspended. Management believes that significant financing
has not been available to Leadville due to environmental
litigation surrounding the Leadville, Colorado area since the
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mid-1980's. During 1996, the Company signed a letter of intent
with a Canadian mining company to joint-venture Leadville's
Diamond Mine properties. In January 1997, the Canadian company
advised Leadville that it would not be able to secure the
financing required to participate on the property and the
letter of intent then expired.
Under terms of the letter, Leadville issued 500,000 shares
of stock to the Canadian company for cash consideration of
$500,000. Leadville used the proceeds for general corporate
purposes and to settle certain long past due obligations.
STRINGTOWN MILL SITE
The Stringtown Mill site encompasses an area of
approximately 300 acres and is located immediately south of
Leadville, Colorado. The Stringtown Mill and tailings ponds
were constructed and placed in service on the site in the late
1960's. The facility was used to mill Sherman Mine ore until
1984, when substantially all Sherman Mine activities were
suspended due to low silver prices.
During the years 1986 though 1988, modifications and
improvements were made to the Stringtown Mill in anticipation
of processing Diamond Mine ore. The mill operated sporadically
from mid-1988 until early 1989 processing Diamond Mine ore.
Administrative, laboratory, warehouse and residential
facilities are also located on the 300 acre site.
The Company rents office space from a corporate officer
for $125 per month. As of March 15, 1997, Leadville carried no
liability or property insurance.
As of March 15, 1997, Leadville employed one part-time
individual to monitor the properties and to perform necessary
administrative and field duties.
COMPETITION
Leadville competes with other mining companies attempting
to develop mines which produce precious and base metals. Most
competitors are larger mining companies with greater financial
and technical resources than Leadville. In addition,
management believes that Leadville's properties have been at a
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competitive disadvantage in the industry since the late 1980's,
due to environmental litigation involving the Leadville Mining
District. (See "LEGAL PROCEEDINGS", under Item 3., hereof).
Resumption of mining operations at Leadville's two mines
is dependent on attracting significant operating capital and
on the market prices of precious metals, primarily silver and
gold. At current silver prices, many of the industry's silver
mines can not be operated profitably, including the Sherman
Mine. Additionally, the mine will require significant capital
investment for acquisition of equipment and financing mine
development before it can be made operational. Operating issues
for the Sherman Mine also include milling facility
considerations, including location.
Independent consultants retained by Leadville concluded
that the Diamond Mine can be profitably operated at current
gold prices. The mine has operating permits in place,
identified ore reserves and plant and equipment positioned to
resume mining activities. Leadville will have to invest
significant additional funds for development work before the
mine can be put into production. Milling considerations must
also be addressed in conjunction with mining operations at the
Diamond Mine.
In years past and continuing into 1996, the Company has
been heavily dependent on its President, Dr. Robert G. Risk, to
raise necessary financing. The loss of Dr. Risk, for any
reason, would have a material impact on the Company's ability
to raise additional funds and continue as a going concern.
GOVERNMENTAL REGULATIONS
As discussed in "LEGAL PROCEEDINGS", under Item 3, hereof,
Leadville was named as a defendant in several legal actions
initiated by the state of Colorado and the United States
involving environmental matters in the California Gulch
Superfund site. Leadville's Diamond Mine property and
Stringtown Mill site are located within the boundaries of the
Superfund site.
In an effort to limit its financial exposure and move
forward with financing efforts, Leadville ultimately reached a
settlement with the United States which was entered by the
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United States District Court in August of 1993. The settlement
is in the form of a consent decree. As a result of that
settlement, Leadville will be required to make annual cash
payments to the United States in order to maintain certain
protections afforded by the consent decree. Additionally,
Leadville has agreed to advise the United States and certain
other parties of its mining plans, if planned activities could
potentially have an adverse impact on remedial work being
performed in the Superfund site.
Under the consent decree, Leadville retains the right to
use the Stringtown Mill facility for ore processing, although
use of the existing tailing ponds for future storage of mill
tailings will require approval by the United States.
Leadville's mine and mill facilities are currently permitted by
the state of Colorado for the respective operations. However,
the permit approval process required to operate new mining
facilities within the Superfund site will probably include
participation by the United States.
The costs of defending against the environmental claims
alleged in the consolidated cases and, subsequently,
negotiating a settlement have exhausted all of Leadville's
financial resources. In addition, management believes the
designation of the Leadville, Colorado area as a Superfund site
will continue to complicate efforts to raise financing for the
Company's properties.
Item 3. 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.
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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 and Leadville management anticipates that the
final agreement modifying the financial terms of the consent
decree will be addressed by the Court in late 1997.
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 lack
of financial resources, 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).
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During 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. Leadville has been informed in the past that the
Plaintiff intends to obtain possession of the other equipment.
As of December 31, 1996, Leadville is obligated to Mining
Equipment, Inc. in the amount of $796,000, including accrued
interest. The plaintiff asserts that it has the right to
foreclose on Leadville's properties to satisfy the obligation.
Leadville contests such assertions and, to date, the plaintiff
has not initiated any foreclosure action.
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 for approximately $45,000 for contract
mining fees. 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 an accident at the site. No action has been
taken in the case since October 1993 and the Court ordered that
a Status Report be filed on the matter by August 30, 1996. The
Report was timely filed, but no action has occurred in the case
since that date.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the Company's
security holders during the fourth quarter of 1996.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
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The following table sets forth the low and high bid price
quotations per share of Common Stock, as reported on the NASDAQ
Small-Cap System for the periods indicated. These quotations
reflect inter-dealer prices, without retail markup, mark down
or commission and may not necessarily represent the actual
price of transactions.
Quarter Ended
Low High
December 31, 1995 $ .25 $ .63
March 31, 1996 .31 .75
June 30, 1996 .25 1.63
September 30, 1996 .75 2.13
December 31, 1996 .75 1.38
At March 15, 1997 the Company had approximately 2,100
holders of record of its Common Stock; management estimates
that the number of beneficial holders is significantly greater.
There can be no assurance that, if the Company is
successful in raising significant investment capital, future
mining operations will be profitable. No dividends on the
Common Stock have been paid during the past several years and
due to the significant investment of cash required by planned
mining activities, management does not anticipate that any
dividends will be paid in the foreseeable future.
Item 6. Managements Discussion and Analysis of Financial
Condition and Results of Operations.
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 "Results of Operations" and
"Liquidity and Capital Resources" 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
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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.
Results of Operations
The Company earned no revenues from operations in 1996 and
reported a net loss of $633,000. Leadville reported $122,000
of Extraordinary Gain for the year which was primarily derived
from favorable settlement of accrued professional fees. The
Company incurred significant legal and professional fees to
negotiate a joint-venture agreement on the Diamond Mine
properties. Although a final agreement was not reached,
Leadville did receive $500,000 from the issuance of 500,000
shares of Common Stock to the potential joint-venture partner.
Proceeds were used for general corporate purposes and to settle
past due obligations.
The most significant expenses incurred during 1996
included $427,500 of interest, $41,500 for property taxes,
$67,000 for depreciation, $52,000 in legal fees and $45,300 for
write-down of parts inventory. Approximately 84% of the
$755,206 Loss before Extraordinary Items for 1996 was
attributable to these expenses.
The Company has had no active mining operations since 1989
and continues to carry a significant investment in property,
equipment and parts inventory. In 1995, the Company initiated
policies to recognize a declining useful life and value of
these assets. Approximately $110,000 of such expenses were
recognized in 1996.
During 1996, Leadville continued to incur significant
interest expense relating to outstanding notes and debentures
payable. As of December 31, 1996, principal amounts due on
notes payable and debentures payable was $423,000 and $440,000,
respectively. In addition, the Company accrued interest
charges of approximately $54,000 associated with the Mining
Equipment, Inc. judgment. (See "Legal Proceedings" under Item
3, hereof).
Substantially all other expenses in 1996 were incurred to
meet general, administrative and property holding expenses.
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1996 COMPARED TO 1995
The net loss for 1996, before extraordinary items,
increased approximately $85,000 compared to 1995. Interest
expense for 1996 increased approximately $9,700 over 1995, due
primarily to interest expense associated with the Mining
Equipment, Inc. judgment and interest expense associated with
additional borrowing during the first six months of 1996.
Depreciation expense increased slightly in 1996, as the Company
continued its policy to provide for depreciation on mining
assets maintained on a stand-by basis. General and
administrative expenses increased significantly in 1996 due to
fees and expenses associated with the joint-venture effort on
the Diamond Mine properties.
Liquidity and Capital Resources
Leadville is severely undercapitalized. As of December
31, 1996, the Company has a working capital deficit of
$4,871,000 and minimal operating cash. With the exception of
the $500,000 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 President 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, although additional loans from previous sources can
not be assured.
In 1996, 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 year.
The Company's certificates of deposit, in the amount of
$133,000, are held as mining reclamation bonds and classified
as long term assets.
In order for Leadville to continue as a going concern and
attempt to operate its mining properties, a significant amount
of capital from sources outside the Company will be required.
Management is seeking to resume discussions with several mining
companies that had expressed preliminary interest in the
Diamond and Sherman Mine properties. It is management's
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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 outside financing over the past seven 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.
During 1997, management will continue its efforts to
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, management is continuing
its efforts to lessen the financial and operating burdens of
the consent decree with the United States.
During the years 1983 through 1988, substantially all of
Leadville's financing needs were met by significant loans from
the Company's President and through the private placement of
convertible debt and equity securities.
As of December 31, 1996, Leadville is obligated to
unsecured promissory note holders in the face amount of
$423,000, plus accrued interest of $904,500. Outstanding
convertible debentures at December 31, 1996, in the face amount
of $440,000, plus accrued interest of $2,275,500, are secured
by all of Leadville's real property.
Leadville's note and debenture payable obligations,
including accrued interest, are convertible into Common Stock
at a price of $1.00 per share. The demand note obligations
due to Dr. Risk, including interest, have no stock conversion
features. Management is optimistic that a substantial amount
of the debt will be converted to stock, if Leadville can secure
significant financing for its properties.
Item 7. Financial Statements.
See "Index to Financial Statements" on page F-1 hereof.
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Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
None
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
The following table sets forth information regarding the
officers and directors of the Company.
Name Age Positions Held Officer/Director
since
Robert G. Risk 87 Chairman; President 1949
Lloyd L. Morain 79 Director 1967
James C. Tiffany 66 Director 1990
Daniel F. Nibler 40 Vice-President
Secretary/Treasurer
Chief Accounting Officer 1986
Mr. Tiffany is the nephew of Robert G. Risk. There is
no other family relationship between or among any of the
above listed officers and directors.
Robert G. Risk has been the President and a Director of
Leadville since January, 1949. He has been a practicing
dentist in Indianapolis, Indiana for many years.
Lloyd L. Morain has been a director of Leadville since 1967.
He is currently a personal business advisor and Chairman of the
Board of the Illinois Gas Company, an Illinois corporation
which he has been associated with for many years. Mr. Morain
holds office with several other utility companies.
James C. Tiffany has spent his entire business career in
various aspects of the mining business; most recently serving
with Reynolds Metal Company since 1964. Reynolds is engaged in
the manufacture of aluminum and aluminum products and in gold
mining. He received his Engineer of Mines degree from the
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Colorado School of Mines in 1951. Mr. Tiffany was employed by
Leadville in the position of operations manager during the
years 1953 through 1959.
Daniel F. Nibler is a practicing certified public accountant in
Colorado and has been engaged in public accounting since
graduating from Washington State University in 1980.
Item 10. Executive Compensation
The only officer of Leadville who received compensation
during 1996 was Mr. Nibler, whose accounting firm charged
approximately $41,000 for its accounting, administrative and
advisory services. As of December 31, 1996, Mr. Nibler's firm
was owed approximately $79,500, plus accrued interest,
including $69,000 in the form of convertible promissory note.
The note is convertible into Leadville's Common Stock at $1.00
per share and bears interest at 10% per annum.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
As of March 15, 1997, a total of 9,810,992 shares of the
Company's Common Stock were outstanding. The table below sets
forth the ownership by management and principal stockholders of
the Company as of December 31, 1996:
Share
Ownership
Name Title Direct Percent
Robert G. Risk President 2,686,179 (b) (d) 27.3%
Lloyd L. Morain Director 459,408 (b) 4.7%
James C. Tiffany Director 17,631 (b) .2%
Daniel F. Nibler Vice-President
Sec/Treasurer 28,363 (b) .3%
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All officers and directors as
a group 3,191,581 32.5%
__________________
(a) The address of each management person is 2851 S. Parker
Road, Suite 610, Aurora, Colorado 80014.
(b) Members of the Board of Directors and officers hold debt
instruments of the Company which can be converted into Common
Stock at a price of $1.00 per share. If such debt instruments
were converted to stock as of December 31, 1996, officers and
directors would hold the following number of shares and
percentages of outstanding stock: Robert G. Risk 3,511,863
shares, (32.6%); Lloyd L. Morain 519,406 shares, (4.8%); James
C. Tiffany 17,631 shares, (.02%); Daniel F. Nibler 106,161
shares, (1.0%).
If holders of all convertible debt instruments of the
Company had exercised their option to convert the obligations
to Common Stock as of December 31, 1996 approximately 3,285,655
shares would have been issued and total shares outstanding
shares would have been 13,096,647. Officers and directors, as
a group, would own 4,155,061 shares representing 31.7% of the
outstanding Common Stock.
Item 12. Certain Relationships and Related Transactions.
Substantially all of Leadville's financing since 1983 has
been provided by loans from the Company's President and
directors through proceeds from the private placement of equity
and debt instruments. Other officers and directors of the
Company continued to provide financing during early 1996. The
following table sets forth amounts due to officers and
directors of the Company as of December 31, 1996:
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Name Obligation Principal Interest Total
Robert G. Risk Debenture payable $ -0- $825,684 $825,684
Robert G. Risk Demand notes -0- 770,484 770,484
Lloyd L. Morain Note payable 50,000 9,998 59,998
James C. Tiffany Note payable -0- -0- -0-
Daniel F. Nibler Note payable 69,000 8,798 77,798
The debenture payable, notes payable and related accrued
interest amounts are convertible into the Company's Common
Stock at $1.00 per share. However, the demand notes and
associated accrued interest due to Dr. Risk have no stock
conversion features.
During the years 1994 through 1996, Dr. Risk has advanced
the Company $45,000, $30,500 and $25,000, respectively. The
advances bear interest at 10% and are due on demand. In
earlier years, Dr. Risk agreed to convert substantially all
principal on the demand notes into Common Stock.
During 1996, Mr. Morain continued to provide loans to the
Company in the form of unsecured promissory notes, bearing
interest at 10% per annum and convertible into Leadville's
Common Stock at a price of $1.00 per share. During the years
1994, 1995 and 1996, Mr. Morain loaned the Company $15,000,
$25,000 and $5,000, respectively. Mr. Morain has provided
significant financing to Leadville in years prior to 1993 and
he has converted substantially all such loans and accrued
interest into restricted Common Stock.
Mr. Tiffany continues to provide services to the Company
and has agreed in years past to accept convertible promissory
notes for amounts he has advanced to the Company, including
expenses. During 1994, Mr. Tiffany loaned the Company $5,000.
In years past, Mr. Tiffany has agreed to convert Leadville's
obligations due him into restricted Common Stock.
During the years 1994 through 1996, Leadville was
successful in securing conversion of certain debt obligations
-18-
into Common Stock. During these and prior years, officers and
directors of the Company also exercised Common Stock conversion
rights for obligations they held.
During September of 1995, Mr. Nibler agreed to convert
$69,000 of accrued fees and expenses into a note payable. The
note bears interest a 10% per annum and is convertible into
Common Stock at a price of $1.00 per share.
The Company believes that the terms of the transactions
discussed above are comparable to those which have been
attainable from non-affiliated sources.
During February 1997, the Securities and Exchange
Commission adopted amendments to Rule 144 which shortened the
holding period after which "restricted securities" can be
resold. Generally, the holding period will be one year from
the date of purchase under which a shareholder can sell under
Rule 144 and two years from the date of purchase under which a
shareholder can sell under Rule 144(k).
-19-
Item 13. 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
-20-
(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.
Submitted on Form 8-K, dated February 11, 1993.
(b) Reports on Form 8-K Filed During the Registrant's Fourth
Fiscal Quarter:
None
-21-
Leadville Corporation
Financial Statements
For the Years Ended
December 31, 1996, 1995, and 1994
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report . . . . . . . . . . . . . . 1
Balance Sheets - December 31, 1996 and 1995. . . . . . . 3
Statements of Operations - For the Years Ended
December 31, 1996, 1995, and 1994 . . . . . .. . . . . . .5
Statement of Stockholders' Equity - From
January 1, 1994 through December 31, 1996 . . . . . . . . 6
Statements of Cash Flows - For the Years Ended
December 31, 1996, 1995, and 1994 . . . . . . . . . . . . 7
Notes to Financial Statements. . . . . . . . . . . . . . 8
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Leadville Corporation
Aurora, Colorado
We have audited the accompanying balance sheets of Leadville
Corporation as of December 31, 1996 and 1995, and the related
statements of operations, stockholders' equity and cash flows
for each of the years in the three-year period ended December
31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Leadville Corporation as of December 31, 1996 and
1995, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company
has suffered recurring losses from operations and has a working
capital deficiency that raise substantial doubt about its
F-1
ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Hein + Associates LLP
Denver, Colorado
February 21, 1997
F-2
LEADVILLE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 146,340 $ 2,780
Prepaid expenses and other 7,834 7,640
Total current assets 154,174 10,420
Property and Equipment, at cost:
Mining properties 7,356,979 7,356,979
Buildings and equipment:
Mine 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 (2,802,796) (2,736,074)
6,733,351 6,800,073
Other Assets:
Investments - certificates
of deposits 133,000 133,000
Inventories 363,289 408,589
Total other assets 496,289 541,589
Total Assets $7,383,814 $7,352,082
<CAPTION>
See accompanying notes to these financial statements.
</TABLE>
F-3
LEADVILLE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Related parties:
Convertible debentures $ 440,000 $ 531,000
Notes payable, stockholders 368,000 508,500
Accrued interest payable 3,160,482 2,848,489
Due to officers/director/
stockholders 10,276 6,351
Notes payable - other 55,000 100,000
Accounts payable 106,017 307,324
Accrued expenses 89,179 146,871
Settlement of capital lease
obligations 796,040 741,824
Total current liabilities 5,024,994 5,190,359
Settlement of Litigation 80,000 100,000
Commitments and Contingencies
(Notes 2 and 5)
Stockholders' Equity:
Capital stock, par value $1 per share;
15,000,000 shares authorized;
9,810,992 and 8,953,571 shares issued
and outstanding at December 31,
1996 and 1995, respectively 9,810,992 8,953,571
Additional paid-in capital 8,450,682 8,457,949
Accumulated deficit (15,982,854) (15,349,797)
Total stockholders' equity 2,278,820 2,061,723
Total Liabilities and
Stockholders' Equity $7,383,814 $7,352,082
<CAPTION>
See accompanying notes to these financial statements.
</TABLE>
F-4
LEADVILLE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1996 1995 1994
<S> <C> <C> <C>
Operating Revenues $ - $ - $ -
Operating Costs and Expenses:
General and administrative 269,211 195,879 285,739
Depreciation 66,721 65,819 849
Total operating costs and
expense 335,932 261,698 286,588
Operating Loss (335,932) (261,698) (286,588)
Other Income and Expense:
Interest expense (427,481) (417,755) (333,237)
Other 8,207 9,176 (64,396)
Total other income
and expense (419,274) (408,579) (397,633)
Loss Before Extraordinary
Gain (755,206) (670,277) (684,221)
Extraordinary Gain from
Settlement of Debt 122,149 53,208 -
Net Loss $(633,057) $(617,069) $(684,221)
Net Income (Loss) Per Share:
Before extraordinary item $ (.08) $ (.08) $ (.08)
Extraordinary item .01 .01 -
Net Loss Per Share $ (.07) $ (.07) $ (.08)
Weighted Average Number of
Capital Shares Outstanding 9,320,907 8,953,571 8,894,637
<CAPTION>
See accompanying notes to these financial statements.
</TABLE>
F-5
LEADVILLE CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FROM JANUARY 1, 1994 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Total
Capital Stock Paid-in Accumulated Stockholder's
Shares Amount Capital Deficit Equity
<S>
<C> <C> <C> <C> <C> <C>
Balances, 1/1/94 8,892,621 $8,892,621 $8,421,966 $(14,048,507)
$3,266,080
Conversion of notes
payable, accounts
payable, and accrued
interest for common
stock 60,950 60,950 35,983 -
96,933
Net loss - - - (684,221)
(684,221)
Balance 12/31/94 8,953,571 8,953,571 8,457,949 (14,732,728)
2,678,792
Net loss - - - (617,069)
(617,069)
Balance 12/31/95 8,953,571 8,953,571 8,457,949 (15,349,797)
2,061,723
Conversion of notes
payable, convertible
debentures and accrued
interest for common
stock 349,421 349,421 (7,267) -
342,154
Sale of common
stock 508,000 508,000 - -
508,000
Net loss - - - (633,057)
(633,057)
F-6
Balance 12/31/96 9,810,992 $9,810,992 $8,450,682$(15,982,854)
$2,278,820
<CAPTION>
See accompanying notes to these financial Statements.
</TABLE>
F-6a
LEADVILLE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows from
Operating Activities:
Net loss $(633,057) $(617,069) $(684,221)
Adjustments to
reconcile net loss to
net cash from operating
activities:
Gain on debt
restructuring (122,149) (53,208) -
Depreciation 66,722 65,819 849
Provision for
inventory obsolescence 45,300 45,300 -
Changes in assets and
liabilities:
(Increase) decrease in -
Prepaid expenses and
other (194) (82) 326
Increase (decrease) in:
Accrued interest to
related parties 311,993 329,463 339,092
Officer payables 3,925 23,311 43,304
Accounts payable (79,158) (13,305) 91,116
Accrued expenses 12,178 104,551 59,731
Net cash used in
operating activities (394,440) (115,220) (149,803)
Cash Flow From Investing
Activities -
Sale of common stock 508,000 - -
Cash Flows from Financing
Activities -
Proceeds from borrowings 30,000 118,000 125,000
Increase (Decrease) in Cash 143,560 2,780 (24,803)
F-7
Cash, beginning 2,780 - 24,803
Cash, ending $146,340 $ 2,780 $ -
Supplemental Disclosures of
Non-cash Investing and
Financing Activities:
Capital stock issued for
forgiveness of notes
payable, convertible
debentures and other
liabilities to
stockholders and/or
officers $342,154 $ - $ 96,933
Conversion of accounts
payable - related to
notes payable $ - $ 69,000 $ -
<CAPTION>
See accompanying notes to these financial statements.
</TABLE>
F-7a
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENT
1. 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.
Inventories - Inventories are stated at the lower of cost
(average method) or market value. Inventories consist of
operating and maintenance supplies.
Property and Equipment - Mining properties consist
primarily of patented and unpatented mining claims. 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.
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.
F-8
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENT
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 year. Convertible debt
has not been included in the computation of fully diluted
earnings per share because its effect would be antidilutive.
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 (see Note 3). Subsequent
to 1988, interest has been expensed due to the suspension of
development activities.
Use of Estimates - The preparation of the Company's
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. Actual
results could differ from those estimates. The Company makes
significant assumptions concerning the realizability of its
investment in property and equipment, and the ultimate
liabilities associated with asserted claims (see Note 5). Due
to the uncertainties inherent in the estimation process and the
significance of these costs, it is at least reasonably possible
that its estimates in connection with these items could be
further materially revised within the next year.
Impairment of Long-Lived Assets - In fiscal 1996, the
Company adopted Financial Accounting Standards Board Statement
121 "Impairment of Long-Lived Assets" (FAS 121). In the event
that facts and circumstances indicate that the cost of assets
or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is
required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's
carrying amount to determine if a write-down to market value or
discounted cash flow value is required. Adoption of FAS 121
had no effect on the December 31, 1996 financial statements.
F-9
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENT
2. 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 December 31, 1996, 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 December 31, 1996 has a working capital
deficiency of approximately $4,881,000 which includes
approximately $3,979,000 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
December 31, 1996 or as of the date of this report. The
litigation concerning the environmental matters and certain
mining equipment (Note 5) has made it difficult for the Company
to obtain working capital through additional equity or
financing. Annual fees are required to maintain possessory
titles to unpatented mining claims, however, without additional
working capital, the Company may be unable to pay the required
fees. Working capital must be obtained to allow for future
operations. The Company has reached agreement 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
agreement must now be approved by the United States District
Court (Court).
The Company believes a substantial portion of the
convertible debentures, notes payable, accrued interest and
F-10
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENT
certain other obligations 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 restructure its
debt, satisfactorily resolve its current litigation, obtain
working capital, obtain Court approval of its agreement with
EPA to modify terms of consent decree and ultimately achieve
profitable operations, 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.
3. MINING PROPERTIES:
At December 31, 1996, the Company owns two mining
properties, the Sherman Hilltop Consolidation and the
Diamond-Resurrection Consolidation.
In February 1986, the Company gained access to old
mine workings by way of the Diamond shaft located on the
Company's Diamond-Resurrection Consolidation property. At that
time, the Company began activities, including mineralization
sampling and the design of a production facility, necessary to
place this property in a revenue producing stage. During 1987,
the Company reacquired all mining, milling and other properties
and rights held by Hecla Mining Company (HMC) under a lease
agreement.
Since May of 1987 and continuing into 1996, Leadville's
activities at the Sherman Mine have been limited to care,
maintenance and permit related work, due to continuing
low silver prices. During 1985, the Sherman Mine was placed in
F-11
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENT
temporary cessation due to suspension of mining activities.
During 1995, the temporary cessation period expired and
Leadville has been conducting 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 Mine site. The Company maintains a
reclamation bond, in the amount of $128,000, which relates to
the Sherman and Stringtown Mill sites.
Presented below is a summary of mining property costs
as of December 31, 1996:
<TABLE>
<CAPTION>
Diamond- Sherman
Resurrection Hilltop
Consolidation Consolidation Total
<S> <C> <C> <C>
Mining claims $ 221,445 $ 78,110 $ 299,555
Exploration and
development costs 4,445,428 1,784,979 6,230,407
Interest 795,741 31,276 827,017
Total 5,462,614 1,894,365 7,356,979
Accumulated depletion - (1,821,078) (1,821,078)
$5,462,614 $ 73,287 $ 5,535,901
<CAPTION>
4. LONG-TERM DEBT, NOTES PAYABLE, AND CONVERTIBLE DEBENTURES:
The notes payable are summarized as follows:
F-12
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENT
December 31,
1996 1995
Notes payable, at 10%, to
stockholders and/or officers/
directors, due dates range from
April 1996 through December 1997. $368,000 $508,500
Notes payable, at 10%, due dates
range from January 1, 1996
through December 31, 1997. $ 55,000 $100,000
Notes payable and certain related accrued interest
(totaling $134,000) are convertible to the Company's capital
stock at the option of noteholders at a conversion price of
$1.00 per share during the term of notes. As of December 31,
1996, $60,000 of the notes were past due. Management of the
Company believes these notes will be extended.
Convertible debentures are summarized as follows:
December 31,
1996 1995
10% convertible debentures, interest
and principal due December 1997, with
the exception of a $100,000 convertible
debenture which was due December 1996.
Management of the Company believes this
debenture will be extended. The
debentures are 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 $531,000
5. COMMITMENTS AND CONTINGENCIES:
Lease Commitment Litigation - In December 1988, the
Company sold and leased back certain equipment from an
F-13
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENT
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 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 1996 and 1995, the Company accrued
an additional $54,216 and 54,213, respectively, 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. The lessor has also asserted
that it has a lien on all the real property of the Company and
that this lien should be foreclosed. 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.
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 related activities in the California
Gulch Superfund Site near Leadville, Colorado. The actions
have been consolidated and are being prosecuted in three
phases.
Phase I of the litigation relates to the clean-up of the
Yak Tunnel Operable Unit. The Company maintains that it should
not be liable for any portion of the clean-up costs since it
has never owned or operated the Yak Tunnel and because the
F-14
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENT
water that naturally drains from the Company's property into
the tunnel meets appropriate water standards.
Phase II relates to surface drainage issues. Management
believes that this issue will be resolved without significant
liability to the Company within the structure of the settlement
discussed below.
With respect to Phase III, the Stringtown Millsite
issue, the Company has defended its position that all or
substantially all of the damage occurred before the Company
acquired its interest in the millsite property. Management
believes, however, that it would be more expedient to settle
its alleged liability for Phase III, along with Phases I and II
rather than incur additional costly and protracted litigation
expenses.
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 with
the United States to reduce the consent decree obligation
F-15
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENT
amount of $3,000,000 to $500,000. In effect, the contingent
liability of $2,750,000 was reduced to $250,000. In
consideration, the Company 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 and the Company's management anticipates that
the agreement modifying the consent decree will be ultimately
approved by the Court. If the Company is unsuccessful in
obtaining the Court approval of its modified agreement with the
United States, the United States has the right to accelerate
the $3,000,000 obligation under the August 1993 consent decree,
as the Company is currently behind on $30,000 in payments. The
Company has accrued a $110,000 environmental settlement
liability, which was the present value of the future minimum
payments payable using an effective interest rate of 10%.
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 December 31, 1996.
6. RELATED PARTY TRANSACTIONS:
As discussed in Note 4, certain officers, directors and
stockholders have provided significant loans to the Company.
The aggregate indebtedness, including accrued interest, and
other payables, amounted to approximately $3,978,758 at
December 31, 1996. Total interest expense to these officers,
directors and stockholders was $368,436, $342,501, and
$319,042, for the years ended December 31, 1996, 1995, and
1994, respectively.
The Company leases office space on a month-to-month
basis from an officer for $125 per month. This officer is a
partner in an accounting firm which performs bookkeeping,
F-16
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENT
accounting and other administrative services for the Company.
Fees for such rent and services totaled $42,548, $33,820, and
$63,328 for the years ended December 31, 1996, 1995, and 1994,
respectively. As of December 31, 1996 and 1995, the Company
owed the firm $10,276 and $884, respectively, which is included
in amounts due to officers/directors/stockholders. The officer
converted $69,000 of accrued accounting and administrative fees
to a convertible note payable in 1995.
See Note 8 for additional related party transactions.
7. INCOME TAXES:
The following items give rise to a long-term deferred
tax asset, which has been fully reserved:
</TABLE>
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Inventory reserve for obsolescence $ 34,000 $ 17,000
Adjusted basis differential -
depletable properties 810,000 810,000
EPA settlement liability 41,000 41,000
Net operating loss carryforward 2,900,000 3,000,000
Deferred tax asset 3,785,000 3,868,000
Less allowance (3,785,000) (3,868,000)
Net deferred tax asset $ - $ -
</TABLE>
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
F-17
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENT
changes in ownership of the Company, and expire from 1997
through 2011.
8. STOCKHOLDERS' EQUITY:
During the year ended December 31, 1996 and 1994 certain
officers/directors/stockholders of the Company agreed to
convert principal amounts of notes payable, accounts payable,
and accrued interest totaling $342,154 and $96,933,
respectively to restricted capital stock at a price of $.80 to
2.00 per share.
During the year ended December 31, 1996, the Company
sold 508,000 shares of common stock for $508,000.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values for financial instruments are
determined at discrete points in time based on relevant market
information. These estimates involve uncertainties and cannot
be determined with precision. The carrying amounts of cash,
certificates of deposit, accounts payable, accrued liabilities,
notes payable, convertible debentures, and payables in
connection with settlement of capital lease obligation and
litigation approximates fair value because of the short-term
maturity of those instruments or because the interest rates
approximate the Company's effective borrowing rate.
10. CONCENTRATIONS OF CREDIT RISK:
Credit risk represents the accounting loss that would be
recognized at the reporting date if counterparties failed
completely to perform as contracted. Concentrations of credit
risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or
F-18
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENT
counterparties when they have similar economic characteristics
that would cause their ability to meet contractual obligations
to be similarly effected by changes in economic or other
conditions.
Financial instruments that subject the Company to credit
risk consist of certificates of deposit which are $33,000 in
excess of Federally insured amounts.
F-19
SIGNATURES
Pursuant to the requirements of Section 13 of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LEADVILLE CORPORATION
Dated: March 28 , 1997 By Robert G. Risk
Dr. Robert G. Risk,
President
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and
on the date indicated.
Dated: March 28 , 1997 Robert G. Risk
Dr. Robert G. Risk, President
and Director (Chief
Executive Officer)
Dated: March 28 , 1997 Lloyd L. Morain
Lloyd L. Morain, Director
Dated: March 28 , 1997 James C. Tiffany
James Tiffany, Director
Dated: March 28 , 1997 Daniel F. Nibler
Daniel F. Nibler, Vice
President,
Secretary/Treasurer
(Principal Financial and
Accounting Officer)
-22-
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 146,340
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 154,174
<PP&E> 9,536,147
<DEPRECIATION> 2,802,796
<TOTAL-ASSETS> 7,383,814
<CURRENT-LIABILITIES> 5,024,994
<BONDS> 0
0
0
<COMMON> 9,810,992
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,383,814
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 335,932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 427,481
<INCOME-PRETAX> (755,206)
<INCOME-TAX> 0
<INCOME-CONTINUING> (755,206)
<DISCONTINUED> 0
<EXTRAORDINARY> 122,149
<CHANGES> 0
<NET-INCOME> (633,057)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
