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, 1997
Commission file number: 0-1519
LEADVILLE CORPORATION
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(Name of small business issuer in its charter)
COLORADO 84-0388216
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(State or other jurisdiction of (IRS Employer Identification No)
incorporation or organization)
2851 S. PARKER RD., SUITE 610, AURORA, CO 80014
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(Address of principal executive offices)
(303) 671-9792
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Issuer's telephone number
Securities registered under Section 12(b) of the Exchange Act:
NONE
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Securities registered Pursuant to Section 12(g)of the Exchange Act:
COMMON STOCK
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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. [ ]
Issuer'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 December 31, 1997, was
approximately $7,651,550 based upon the reported closing sale price of such
shares on the NASDAQ Small-Cap System for that date. As of December 31, 1997,
there were 10,202,065 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: NO X
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Item 1. Description of Business
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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 significant blocks of contiguous mining properties,
the approximately 5.5 square mile Sherman- Hilltop Consolidation ("Sherman
Mine"), historically a silver, lead and zinc producer, and the approximately 1.5
square mile Diamond-Resurrection Consolidation ("Diamond Mine"), primarily a
gold and silver producer, along with 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 Dr. Robert G. Risk, the Company's President from 1949 to
1997, Leadville commissioned reviews of historical mining data, conducted
geophysical studies and researched title records for the Leadville area in an
effort to identify land positions which held promising prospects for acquisition
and mining. 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.
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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 Dr. Risk to fund operations, the
uncertainties surrounding the EPA Superfund site in which approximately ten
percent of the Company's properties are located, the uncertainties of obtaining
additional capital, the competitive environment in which the Company operates,
changing metal and mineral prices, and other significant risks described herein.
Item 2. DESCRIPTION OF PROPERTIES
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SHERMAN MINE
In 1974, Leadville leased the Sherman 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. 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 1997, 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. In the event that 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 Environmental Protection Agency (EPA) is
utilizing rock materials located on the property for reclamation of Superfund
designated properties. Pending final earthwork activity 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 the EPA in an
effort to reduce the bonding requirements based on the EPA's restoration efforts
at the site.
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Substantially all of the Company's real properties, including the Sherman
Mine, serve as security for outstanding convertible debentures.
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 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.
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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.
As of March 15, 1998, 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
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 possibly the
Sherman Mine. At a minimum, 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 Chairman and past-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.
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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. Portions of 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 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 could continue
to complicate efforts to raise financing for the Company's properties.
Item 3. LEGAL PROCEEDINGS
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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.
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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 terms of the consent decree, a total of
$250,000 is 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.
Recent discussions with the EPA relative to de-listing some or all of the
Company'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.
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).
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.
On October 30, 1997, Mining Equipment commenced with foreclosure
proceedings against certain of Leadville's properties. On December 10, 1997,
this foreclosure action was withdrawn by Mining Equipment, Inc. On December 23,
1997, Leadville paid to Mining Equipment, Inc. the settlement amount and accrued
interest in the amount of approximately $867,000, which was raised through a
note to a shareholder secured by the Company's property.
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.
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Item 4. Submission of Matters to a Vote of Security Holders.
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There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of 1997.
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
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December 31, 1996 $ .75 $1.38
March 31, 1997 .38 1.13
June 30, 1997 .44 0.88
September 30, 1997 .66 1.19
December 31, 1997 .38 3.13
At March 15, 1998, the Company had approximately 2,150 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.
See page F-5 to Financial Statements for issuance of shares of common stock
during 1997, all of which are unregistered.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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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 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.
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Results of Operations
The Company earned no revenues from operations in 1997 and reported a net
loss of $1,106,700. The most significant expenses incurred during 1997 included
$440,685 of interest, $34,700 for property taxes, $67,700 for depreciation,
$28,700 in legal fees and $45,300 for write-down of parts inventory.
Approximately 56% of the loss for 1997 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 1997.
During 1997, Leadville continued to incur significant interest expense
relating to outstanding notes and debentures payable and their related accrued
interest. As of December 31, 1997, principal amounts due on notes payable and
debentures payable was $1,305,000 and $440,000, respectively. In addition, the
Company accrued interest charges of approximately $53,000 associated with the
Mining Equipment, Inc. judgment. (See "Legal Proceedings" under Item 3, hereof).
Substantially all other expenses in 1997 were incurred to meet general,
administrative and property holding expenses.
1997 COMPARED TO 1996
The net loss for 1997, before extraordinary items, increased approximately
$351,500 compared to 1996. Interest expense for 1997 increased approximately
$13,200 over 1996, due primarily to interest expense associated with the Mining
Equipment, Inc. judgment and interest expense associated with additional
borrowing during 1997. Depreciation expense increased slightly in 1997, 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 1997 primarily due to additional employee compensation and
outside services fees related to environmental issues.
Liquidity and Capital Resources
Leadville is severely undercapitalized. As of December 31, 1997, the
Company has a working capital deficit of $5,507,000 and minimal operating cash.
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, although additional loans from previous sources can not be assured.
In 1997, the Company used cash to meet general, administrative and property
obligations. During 1997, the Company borrowed approximately $1,016,000 through
the placement of various secured and unsecured notes. 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.
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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.
During 1998, 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. 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.
As of December 31, 1997, Leadville is obligated to unsecured promissory
note holders in the face amount of $438,000, plus accrued interest of $976,000.
Outstanding convertible debentures at December 31, 1997, in the face amount of
$440,000, plus accrued interest of $2,553,700, are secured by all of Leadville's
real property. In addition, The Mining Equipment, Inc. obligation (see Item 3)
was satisfied with funds raised through the issuance of a secured promissory
note in the amount of $867,000 to a shareholder.
Substantially all of 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.
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See "Index to Financial Statements" on page F-1 hereof.
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
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None
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Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
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The following table sets forth information regarding the officers and
directors of the Company.
Name Age Positions Held Officer/Director since
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Robert G. Risk 88 Chairman 1949
Lloyd L. Morain 80 Director 1967
James C. Tiffany 67 Director 1990
John H. Gasper 38 President, Director 1997
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 Chairman 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 Colorado School
of Mines in 1951. Mr. Tiffany was employed by Leadville in the position of
operations manager during the years 1953 through 1959.
John H. Gasper, MSEM, P.E., President of Leadville Corporation since July ,1997,
is a registered professional mining engineer with fifteen years of experience in
mining engineering design and restoration of lands impacted by mining. He has
served as the chief mining engineer for Atec Associates, a national
geotechnical/environmental engineering consulting firm, for twelve years and
President of EnviRESTORE Engineering, LLP since 1996.
Item 10. Executive Compensation
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The only current officer of Leadville who received compensation during 1997
was Mr. Gasper. Mr. Gasper's salary was $60,000 for the year ending December 31,
1997, of which approximately $46,000 remains unpaid. Additionally, Mr. Gasper
received as compensation 150,000 shares of restricted common stock in 1997.
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Item 11. Security Ownership of Certain Beneficial Owners and Management.
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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 Chairman 2,686,179 (b) 26.33%
Lloyd L. Morain Director 459,408 (b) 4.50%
James C. Tiffany Director 27,631 (b) .27%
John H. Gasper President 150,000 (b) 1.47%
All officers and directors as
a group 3,323,218 32.57%
(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,
1997, officers and directors would hold the following number of shares and
percentages of outstanding stock: Robert G. Risk 3,596,438 shares,
(32.17%); Lloyd L. Morain 525,419 shares, (4.70%); James C. Tiffany 27,631
shares, (0.25%); John H. Gasper 150,000 shares, (1.34%).
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, 1997,
approximately 4,448,173 shares would have been issued and total outstanding
shares would have been 14,650,238. Officers and directors, as a group, would own
4,299,488 shares representing 29.35% of the outstanding Common Stock.
Item 12. Certain Relationships and Related Transactions.
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Substantially all of Leadville's financing since 1983 has been provided by
loans from the Company's directors through proceeds from the private placement
of equity and debt instruments. The following table sets forth amounts due to
officers and directors of the Company as of December 31, 1997:
Name Obligation Principal Interest Total
- ---- ---------- --------- -------- -----
Robert G. Risk Debenture payable $ -0- $910,259 $910,259
Robert G. Risk Demand notes $5,000 824,993 829,993
Lloyd L. Morain Note payable 50,000 16,011 66,011
Substantially all of 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.
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During the years 1995 through 1997, Dr. Risk has advanced the Company
$30,500, $25,000 and $5,000, 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 1995 and 1996, Mr. Morain provided 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
1995 and 1996, Mr. Morain loaned the Company $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.
During the years 1995 through 1997, Leadville was successful in securing
conversion of certain debt obligations into Common Stock. During these and prior
years, officers and directors of the Company also exercised Common Stock
conversion rights for obligations they held.
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).
See Footnote 1 to the Financial Statements regarding new accounting standards
and their future affect on the Company's financial statements.
Impact of Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four digits to define years. This could possibly result in
computer malfunction and miscalculations. Based upon a recent assessment, the
Company has determined that it will not be necessary to modify or replace any
significant portions of its equipment or software so that its computers will
properly use dates beyond December 31,1999. The Year 2000 Issue is not expected
to have material impact on the Company's operations. In that the Company does
not rely significantly on third parties' computer systems for the continuance of
its operations, the Company has determined that it has very little exposure, if
any, to contingencies related to the Year 2000 Issue and no costs to the Company
are anticipated.
-13-
<PAGE>
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
(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:
Form 8-K filed November 10, 1997
-14-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report..........................................F-2
Balance Sheets - December 31, 1997 and 1996...........................F-3
Statements of Operations - For the Years Ended
December 31, 1997, 1996, and 1995....................................F-4
Statement of Stockholders' Equity - From January 1, 1994
through December 31, 1997............................................F-5
Statements of Cash Flows - For the Years Ended
December 31, 1997, 1996, and 1995....................................F-6
Notes to Financial Statements.........................................F-7
F-1
<PAGE>
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, 1997 and 1996, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1997, 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
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
March 16, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
LEADVILLE CORPORATION
BALANCE SHEETS
DECEMBER 31,
--------------------------------------
1997 1996
------------ ------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 9,182 $ 146,340
Prepaid expenses and other 12,089 7,834
------------ ------------
Total current assets 21,271 154,174
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 (2,870,514) (2,802,796)
------------ ------------
6,665,633 6,733,351
OTHER ASSETS:
Investments - certificates of deposits 133,000 133,000
Inventories 317,989 363,289
------------ ------------
Total other assets 450,989 496,289
------------ ------------
TOTAL ASSETS $ 7,137,893 $ 7,383,814
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Related parties:
Convertible debentures $ 440,000 $ 440,000
Notes payable, stockholders 1,256,037 368,000
Accrued interest payable 3,529,363 3,160,482
Due to officers/director/stockholders 31,522 10,276
Notes payable - other 49,000 55,000
Accounts payable 44,538 106,017
Accrued expenses 177,403 89,179
Settlement of capital lease obligations -- 796,040
------------ ------------
Total current liabilities 5,527,863 5,024,994
SETTLEMENT OF LITIGATION 90,000 80,000
COMMITMENTS AND CONTINGENCIES (Notes 2 and 5)
STOCKHOLDERS' EQUITY:
Capital stock, par value $1 per share;
15,000,000 shares authorized;
10,202,065 and 9,810,992 shares issued
and outstanding at December 31, 1997
and 1996, respectively 10,202,065 9,810,992
Additional paid-in capital 8,407,482 8,450,682
Accumulated deficit (17,089,517) (15,982,854)
------------ ------------
Total stockholders' equity 1,520,030 2,278,820
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 7,137,893 $ 7,383,814
============ ============
See accompanying notes to these financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LEADVILLE CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES $ -- $ -- $ --
OPERATING COSTS AND EXPENSES:
General and administrative 605,383 269,211 195,879
Depreciation 67,718 66,721 65,819
----------- ----------- -----------
Total operating costs and expense 673,101 335,932 261,698
----------- ----------- -----------
OPERATING LOSS (673,101) (335,932) (261,698)
OTHER INCOME AND EXPENSE:
Interest expense (440,685) (427,481) (417,755)
Other 7,123 8,207 9,176
----------- ----------- -----------
Total other income and expense (433,562) (419,274) (408,579)
----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY GAIN (1,106,663) (755,206) (670,277)
EXTRAORDINARY GAIN FROM SETTLEMENT OF DEBT -- 122,149 53,208
----------- ----------- -----------
NET LOSS $(1,106,663) $ (633,057) $ (617,069)
=========== =========== ===========
NET INCOME (LOSS) PER SHARE (BASIC AND
DILUTED):
Before extraordinary item $ (.11) $ (.08) $ (.08)
Extraordinary item -- .01 .01
----------- ----------- -----------
NET LOSS PER SHARE $ (.11) $ (.07) $ (.07)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF CAPITAL SHARES
OUTSTANDING 9,930,439 9,320,907 8,953,571
=========== =========== ===========
See accompanying notes to these financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LEADVILLE CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FROM JANUARY 1, 1995 THROUGH DECEMBER 31, 1997
Capital Stock Total
-------------------------- Paid-in Accumulated Stockholder's
Shares Amount Capital Deficit Equity
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1995 8,953,571 $ 8,953,571 $ 8,457,949 $(14,732,728) $ 2,678,792
Net loss -- -- -- (617,069) (617,069)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1995 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)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1996 9,810,992 9,810,992 8,450,682 (15,982,854) 2,278,820
Conversion of notes payable, convertible
debentures and accrued interest for
common stock 169,905 169,905 -- -- 169,905
Stock for services:
Officers 178,000 178,000 (37,500) -- 140,500
Others 43,168 43,168 (5,700) -- 37,468
Net loss -- -- -- (1,106,663) (1,106,663)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1997 10,202,065 $ 10,202,065 $ 8,407,482 $(17,089,517) $ 1,520,030
============ ============ ============ ============ ============
See accompanying notes to these financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LEADVILLE CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,106,663) $ (633,057) $ (617,069)
Adjustments to reconcile net loss to net
cash from operating activities:
Stock for services 177,968 -- --
Gain on debt restructuring -- (122,149) (53,208)
Depreciation 67,718 66,722 65,819
Provision for inventory obsolescence 45,300 45,300 45,300
Changes in assets and liabilities:
(Increase) decrease in -
Prepaid expenses and other (4,255) (194) (82)
Increase (decrease) in:
Accrued interest to related parties 404,786 311,993 329,463
Officer payables 21,246 3,925 23,311
Accounts payable (61,479) (79,158) (13,305)
Accrued expenses (697,816) 12,178 104,551
----------- ----------- -----------
Net cash used in operating activities (1,153,195) (394,440) (115,220)
CASH FLOW FROM INVESTING ACTIVITIES -
Sale of common stock -- 508,000 --
CASH FLOWS FROM FINANCING ACTIVITIES -
Proceeds from borrowings 1,016,037 30,000 118,000
----------- ----------- -----------
INCREASE (DECREASE) IN CASH (137,158) 143,560 2,780
CASH, beginning 146,340 2,780 --
----------- ----------- -----------
CASH, ending $ 9,182 $ 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 $ 169,905 $ 342,154 $ --
=========== =========== ===========
Conversion of accounts payable - related to
notes payable $ -- $ -- $ 69,000
=========== =========== ===========
See accompanying notes to these financial statements.
F-6
</TABLE>
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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 expendi tures
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.
Net Loss Per Share - The loss per common share is presented in accordance
with the provisions of Statement of Financial Accounting Standards No.,
128, Earnings Per Share (FAS 128). FAS 128 replaced the presentation of
primary and fully diluted earnings (loss) per share (EPS) with a
presentation of basic EPS and diluted EPS. Basic EPS is calculated by
dividing the income or loss available to common shareholders by the
weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock. All potential dilutive securities are antidilutive as a
result of the Company's net loss for the years ended December 31, 1997,
1996, and 1995. Accordingly, basic and diluted earnings per share are the
same for each year.
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
F-7
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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 financial statements.
New Accounting Standards - Statement of Financial Accounting Standards 130
Reporting Comprehensive Income and Statement of Financial Accounting
Standards 131 Disclosures About Segments of an Enterprise and Related
Information were recently issued. Statement 130 establishes standards for
reporting and display of comprehensive income, its components, and
accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, Statement 130 requires
that all components of comprehensive income shall be classified based on
their nature and shall be reported in the financial statements in the
period in which they are recognized. A total amount for comprehensive
income shall be displayed in the financial statements where the components
of other comprehensive income are reported. Statement 131 supersedes
Statement of Financial Accounting Standards 14 Financial Reporting for
Segments of a Business Enterprise. Statement 131 establishes standards on
the way that public companies report financial information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued
to the public. It also establishes standards for disclosures regarding
products and services, geographic areas, and major customers. Statement 131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decisionmaker in deciding how to allocate resources and in
assessing performance.
Statements 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Statements 130 and 131 are not expected to
have a material impact on the Company.
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, 1997, the
Company has a significant investment in non-producing mining properties,
F-8
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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, 1997 has a working capital deficiency
of approximately $5,507,000 which includes approximately $5,257,000 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, 1997 or as of the date of this report. Past
litigation concerning environmental matters and certain mining equipment
(Note 5) has made it difficult to date 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 believes a substantial portion of the convertible debentures,
notes payable, accrued interest and certain other obligations may at some
future time be converted into capital shares. Manage ment 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 matters with the Environmental Protection
Agency (EPA) without additional material impact to the Company's financial
position.
If the Company cannot successfully restructure its debt, satisfactorily
resolve its outstanding issues with the EPA, obtain working capital, 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:
------------------
As of December 31, 1997, the Company owns two mining properties, the
approximately 5.5-square-mile Sherman Hilltop Consolidation and the
approximately 1.5-square-mile Diamond-Resurrection Consolidation.
In February 1986, the Company gained access to historic 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 construction and modification of
a milling 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 previous
lease agreement.
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 1995, the
F-9
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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.
Presented below is a summary of mining property costs as of December 31,
1997:
<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
=========== ========== ==========
</TABLE>
4. LONG-TERM DEBT, NOTES PAYABLE, AND CONVERTIBLE DEBENTURES:
----------------------------------------------------------
The notes payable are summarized as follows:
DECEMBER 31,
-------------------------
1997 1996
--------- --------
Note payable, at 18% to stockholder,
due December 1998, collateralized
by mining properties. $ 867,037 $ -
Notes payable, at 10%, to stockholders
and/or officers/directors, due dates
range from April 1996 through December 1997. 389,000 368,000
--------- --------
Total related party notes payable $1,256,037 $368,000
========== ========
Notes payable, at 10%, due dates range
from January 1, 1996 through
December 31, 1997. $ 49,000 $ 55,00
========== ========
F-10
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Notes payable and certain related accrued interest (totaling $1,454,488)
are convertible to the Company's capital stock at the option of noteholders
at a conversion price of generally $1.00 per share during the term of
notes. As of December 31, 1997, $289,000 of the notes were past due.
Subsequent to December 31, 1997, $75,000 of the past due notes were
extended for one year and management of the Company believes the remaining
past due notes will also be extended.
Convertible debentures are summarized as follows:
DECEMBER 31,
------------------------
1997 1996
--------- --------
10% convertible debentures, interest and
principal due December 440,000 1998, with the
exception of $115,000 of convertible
debentures which were due December 1997.
Management of the Company believes this
debenture will be extended. The debentures
and accrued interest are convertible to the
Company's capital stock at the option of the
debenture holders at a conversion price of
$1.00 per share, collateralized by mining
properties. $440,000 $440,000
======== ========
5. COMMITMENTS AND CONTINGENCIES:
------------------------------
Environmental Litigation - In the mid-1980's, the Company was 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, 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 were
consolidated.
The Company and litigation counsel believe they had 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 terms of the consent decree, a
total of $250,000 is 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.
The EPA has acknowledged the receipt of soil and rock materials from two of
Leadville's mining properties. The Company has invoiced the EPA $3,880,330
for what it believes to be the fair market value of this soil and rock.
However, the EPA has not yet agreed to the fair value of the soil and rock
and as such, the Company will not record this transaction until
collectibility is assured. The Company believes that at a minimum, the
transfer to soil and rock material has satisfied the minimum cash payment
obligation under the consent decree.
F-11
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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, 1997.
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
$5,256,922 at December 31, 1997. Total interest expense to these officers,
directors and stockholders was $385,648, $368,436, and $342,501 for the
years ended December 31, 1997, 1996, and 1995, respectively.
The Company leases office space on a month-to-month basis from a past
officer of the Company for $125 per month. This individual is a partner in
an accounting firm which performs bookkeeping, accounting and other
administrative services for the Company. Fees for such rent and services
totaled $64,235, $42,548, and $33,820 for the years ended December 31,
1997, 1996, and 1995, respectively. As of December 31, 1997 and 1996, the
Company owed the firm $2,116 and $10,276, respectively, which is included
in amounts due to officers/directors/stockholders. The individual converted
$8,000 of accounting and administrative fees to a convertible note payable
in 1995.
As of December 31, 1997, the Company owed an officer $29,406 for
compensation, including an office, equipment, and management allowance of
approximately $2,000 per month.
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:
DECEMBER 31,
-----------------------------
1997 1996
----------- -----------
Inventory reserve for obsolescence $ 51,000 $ 34,000
Adjusted basis differential -
depletable properties 676,000 810,000
EPA settlement liability 41,000 41,000
Net operating loss carryforward 3,240,000 2,900,000
Other 14,000 --
----------- -----------
Deferred tax asset 4,022,000 3,785,000
Less allowance (4,022,000) (3,785,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
F-12
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
At December 31, 1997, the Company has available tax net operating loss
carryforwards of approximately $8,640,000, 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 they expire from
1998 through 2012.
8. STOCKHOLDERS' EQUITY:
---------------------
During the year ended December 31, 1997 certain
officers/directors/stockholders of the Company agreed to convert principal
amounts of notes payable and accrued interest totaling $169,205,
respectively to restricted capital stock at a price of $1.00 per share.
During the year ended December 31, 1997, the Company issued certain
officers and others 178,000 and 43,168 shares of common stock,
respectively, for services valued at $177,968.
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 approximates fair
value because of the short-term maturity of those instruments. The carrying
amount of the settlement of litigation liability approximates fair value as
a result of the Company discounting this liability at 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
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-13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registration has duly caused this Report to be signed on April 15,
1998 on its behalf by the undersigned, thereto duly authorized.
LEADVILLE CORPORATION
Date: April 15, 1998 By /s/ John H. Gasper
--------------------------------
John H. Gasper
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: April 15, 1998 /s/ John H. Gasper
-------------------------------------
President and Chairman
Dated: April 15, 1998 /s/ Dr. Robert G. Risk
-------------------------------------
(1997 Chairman and Chief Executive
Officer)
Dated: April 15, 1998 /s/ Lloyd L. Morain
-------------------------------------
Director
Dated: April 15, 1998 /s/ James Tiffany
-------------------------------------
Director
Dated: April 15, 1998 /s/ Scot B. Hutchins
-------------------------------------
CEO
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