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, 1999
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)
7002 Graham Road, Suite 106, Indianapolis, IN 46220
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(Address of principal executive offices)
(317) 596-0735
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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
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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, 1999, was
approximately $4,438,573 based upon the reported closing sale price of such
shares on the NASD OTC-Bulletin Board for that date. As of December 31, 1999,
there were 10,927,063 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: NO X
<PAGE>
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. The Company's Common
Stock is traded on the NASD OTC-Bulletin Board, under symbol "LEAD".
Historical mining activities began in Lake and Park Counties during the
1860s. 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 or adjacent to the
District, have produced gold, silver, lead, zinc and copper during previous
mining operations.
The Company controls two significant blocks of contiguous mining
properties, the approximately 5.0 square mile Sherman-Hilltop Consolidation
("Sherman Mine"), historically a silver, lead and zinc producer, with some gold,
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 1890s, coupled with the
exhaustion of easily minable high-grade surface ore, the District was left
relatively 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 1980s one of the Company'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, President and Chairman
from 1949 to 1997, the Company 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, the
Company successfully consolidated ownership interests and mining rights in the
Sherman-Hilltop and Diamond-Resurrection properties.
In the late 1960s the Company acquired a third block of ground, the 0.5
square mile 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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<PAGE>
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
that 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 340 acres and is the location of the Stringtown Mill and
Malta Gulch tailing ponds. Unpatented claims require payment of annual
assessment fees to maintain the right to mine on these federally owned lands.
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 1980s, low
silver prices resulted in the suspension of mining operations at the Sherman
Mine for periods of time. In November of 1984, the Company reached agreement, in
principle, with Hecla whereby all properties and mining rights subject to the
1974-lease agreement would be reacquired by the Company. During October of 1987,
the Company reached a final agreement with Hecla for re-conveyance 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 the Company'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 1998, the Company's activities at
the Sherman Mine have been limited to care, maintenance and permit related work.
During 1985, the Sherman Mine was placed in temporary cessation due to
suspension of mining activities. During 1995, the temporary cessation period
expired and the Company 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
$91,600, which relates to the Sherman and Stringtown Mill sites.
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<PAGE>
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 1980s. 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 the Company initiated a program of study and exploration of the property.
The Diamond Mine property consists of approximately 1,181 acres and its shaft 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 the
Company. The property carries only minimal royalty obligations.
Beginning in 1983 and continuing into 1989, the Company's efforts focused
on achieving production at the Diamond Mine. As a result of work conducted and
investment made by the Company during this six year period, management believes
the property is positioned to re-open for production and further exploration and
development with additional capital investment. Furthermore, significant
financing will be required to take the mining operations to positive cash flow.
During the years 1986 through 1988, the Company 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, the Company lacked necessary financial resources to construct
additional 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 the Company due to environmental
litigation surrounding the Leadville, Colorado area since the mid-1980s.
During 1996, the Company signed a letter of intent with a Canadian mining
corporation to joint-venture the Company's Diamond Mine properties. In January
1997, the Canadian corporation advised the Company 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, the Company issued 500,000
shares of stock to the Canadian corporation 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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<PAGE>
STRINGTOWN MILL SITE
The Stringtown Mill site encompasses an area of approximately 340 acres and
is located immediately southwest of Leadville, Colorado. The Stringtown Mill and
tailings ponds were constructed and placed in service on the site in the late
1960s. 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 340-acre site.
As of March 15, 2000, the Company employed one individual to monitor the
properties and to perform necessary administrative and field duties.
COMPETITION
Leadville competes with other mining companies producing, or 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 the Company's properties have
been at a competitive disadvantage in the industry since the late 1980s, due to
environmental litigation involving the Leadville Mining District. (See "LEGAL
PROCEEDINGS", under Item 3., hereof).
Resumption of mining operations at the Company'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 Sherman Mine will require significant capital investment
for acquisition of equipment and financing mine development before it can be
made operational. Operating issues for the mine also include milling facility
location and capacity, and reserve augmentation.
The Diamond Mine has operating permits in place, identified ore reserves
and plant and equipment positioned to resume mining activities. The Company 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 1999, the Company has been heavily
dependent on its 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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<PAGE>
GOVERNMENTAL REGULATIONS
As discussed in "LEGAL PROCEEDINGS", under Item 3, hereof, the Company 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 the Company'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, the Company 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, the Company will be required to make annual cash payments to the
United States in order to maintain certain protections afforded by the consent
decree. Additionally, the Company 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, the Company 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 may require approval by the
United States. The Company's mine and mill facilities are currently permitted by
the State of Colorado for the respective operations.
The costs of defending against the environmental claims alleged in the
consolidated cases, negotiating a settlement and general operations have
exhausted all of the Company'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, the Company 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, the Company 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, the Company 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, the Company attempted to negotiate a settlement of its
alleged liability to the United States. Management believed that the Company
might obtain financing if the claims asserted by the United States were settled
and the financial exposure limited.
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<PAGE>
During August 1993, a consent decree was entered by the U.S. 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.
In 1998, the EPA approached the Company regarding drainage and erosion
control at the Company's Resurrection No. 1 Mine site. The EPA initially wanted
the Company to reimburse the EPA for the remedial activity. The Company,
however, argued successfully that the proposed activity was covered under the
existing consent decree. The EPA concurred with this position, performed the
work in 1998 and has not attempted collections against the Company for this
effort.
See Note 5 "Environmental Litigation" on page F-11 of the Financial
Statements for additional comments related to the EPA and the status of cash
payments.
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.
Mining Equipment, Inc.
During January 2000, the Company was named as a defendant involving
equipment under lease that was deemed part of the real property at the mine site
by the courts. The plaintiff's claims included a claim for rent, conversion and
unjust enrichment. The Company intends to vigorously defend the claims in that
the courts have already issued a judgement regarding this lease and the Company
is in compliance with this earlier judgement.
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 1999.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
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The Company's Common Stock trades on the NASD OTC-Bulletin Board. The
following table sets forth the low and high bid price quotations per share of
Common Stock, as reported on the NASD OTC-Bulletin Board 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.
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<PAGE>
Quarter Ended
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Low High
--- ----
December 31, 1998 $ 0.0625 0.5625
March 31, 1999 0.4062 0.625
June 30, 1999 0.250 0.5625
September 30, 1999 0.1562 0.4375
December 31, 1999 0.1875 0.500
As of December 31, 1999, the Company had approximately 2,020 holders of
record of its Common Stock; management estimates that the number of beneficial
holders is 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 the Financial Statements for issuance of shares of common
stock during 1999, 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.
In particular, reference is made to Note No. 2, "Continuing Operations",
beginning on Page F-8 of the Financial Statements. 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.
Results of Operations
The Company earned no revenues from operations in 1999 and reported a net
loss of $1,635,387. The most significant expenses incurred during 1999 included
$687,685 of interest, $26,894 for property taxes, $67,718 for depreciation, and
$45,300 for write-down of parts inventory. Approximately 51% of the loss for
1999 was attributable to these expenses. The Company also expensed approximately
$680,031 in salaries in 1999, of which $43,501 was paid in restricted common
stock and approximately $447,000 was paid as options for the purchase of
restricted common stock of the Company.
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 $110,300 of such expenses was recognized in
1999.
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<PAGE>
During 1999, the Company continued to incur significant interest expense
relating to outstanding notes and debentures payable and their related accrued
interest. As of December 31, 1999, principal amounts due on notes payable and
debentures payable was $1,937,862 and $440,000, respectively.
Substantially all other expenses in 1999 were incurred to meet general,
administrative and property holding expenses.
1999 COMPARED TO 1998
The net loss for 1999, before extraordinary items, increased approximately
$53,000 compared to 1998. Interest expense for 1999 increased approximately
$127,000 over 1998, due primarily to interest expense associated with additional
borrowing during 1999. Depreciation expense did not change in 1999, as the
Company continued its policy to provide for depreciation on mining assets
maintained on a stand-by basis. General and administrative expenses increased
slightly in 1999.
Liquidity and Capital Resources
The Company is severely undercapitalized. As of December 31, 1999, the
Company has a working capital deficit of $7,427,393 and minimal operating cash.
Substantially all of the Company's cash needs have been met by loans from the
Company's management and by proceeds from short-term notes. Management is
hopeful that cash needs for 2000 will be met from existing cash resources and
short-term borrowings, although additional loans from previous sources can not
be assured.
In 1999, the Company used cash to meet general, administrative and property
obligations. During 1999 and 1998, the Company borrowed approximately $127,000
and $125,000, respectively, 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 $104,265, are held
as mining reclamation bonds and classified as long term assets.
In order for the Company 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.
During 2000, management will continue its efforts to obtain financing for
the Company's properties through joint-venture, cash investment or a secondary
offering of the Company's stock. No assurance can be given that the Company will
be successful in securing financing
As of December 31, 1999, the Company is obligated to promissory note holders in
the face amount of $1,937,862, plus accrued interest of $1,239,659. Outstanding
convertible debentures at December 31, 1999, in the face amount of $440,000,
plus accrued interest of $3,198,382, are secured by all of the Company's real
property.
Substantially all of Leadville's note and debenture payable obligations,
including accrued interest, are convertible into Common Stock at a price of
generally $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.
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<PAGE>
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 has not had and
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.
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
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
- ---- --- -------------- ----------------------
Robert G. Risk 90 Director 1949
Lloyd L. Morain 82 Director 1967
James C. Tiffany 69 Director 1990
John H. Gasper 41 President, Chairman 1997
Scot B. Hutchins 44 CEO 1998
Mr. Tiffany is the nephew of Dr. Risk. Mr. Gasper and Mr. Hutchins are cousins.
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 since January 1949. He has
been a practicing dentist in Indianapolis, Indiana for many years.
Lloyd L. Morain has been a Director since 1967. He is currently a personal
business advisor and Chairman of the Board of the Illinois Gas Company, an
Illinois corporation with 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. He
received his Engineer of Mines degree from the Colorado School of Mines in 1951.
The Company employed Mr. Tiffany in the position of operations manager during
the years 1953 through 1959.
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<PAGE>
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.
Scot B. Hutchins, CEO of Leadville since March 1998, is an attorney who has
practiced law for three years at the U.S. Department of Justice and twelve years
at a major law firm in Washington, D.C.
Item 10. Executive Compensation
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The only current officers of Leadville Corporation who earned compensation
during 1999 were Mr. Gasper and Mr. Hutchins. Mr. Gasper's salary was $120,000
for the year ended December 31, 1999. Including compensation earned in 1997 and
1998, approximately $232,200 remains unpaid to Mr. Gasper. In addition, Mr.
Gasper earned as compensation 50,000 shares of restricted Common Stock in 1999
(or $2,678 in value). Mr. Hutchins' salary was $1,644 in 1997, $50,000 in 1998
and $100,000 in 1999, of which, the total amount remains unpaid. In addition,
Mr. Hutchins earned as compensation 350,000 shares of restricted Common Stock
(or $18,750 in value) and an option to purchase 800,000 shares of unregistered,
restricted Common Stock at their fair market value in 1998. In 1999, Mr.
Hutchins earned 300,000 shares of restricted Common Stock (or $18,750 in value)
and an option for the purchase of 800,000 shares of unregistered, restricted
Common Stock at their fair market value. The fair market value for these options
was determined for the Company by the outside accounting firm Kaufman Davis
Business Services, Inc. The exercise price was established at $0.0625 per share
at the exercise date of August 12, 1998 and $0.05357 per share at the exercise
date of January 5, 1999.
Additionally, in accordance with their employment agreements, each officer
can receive (i) 20,000 shares of restricted Common Stock for each additional
million dollars raised in debt financing, (ii) a one-time payment of 150,000
shares in the event that the average closing price of Common Stock is $2.00 or
more within any 14-day period, and (iii) 150,000 shares of restricted Common
Stock each time the price of Common Stock doubles from the prior price
triggering a payment of shares.
Accrued Salary - Due to limited working capital, Mr. Gasper and Mr.
Hutchins have deferred receipt of most of their salary until such time that the
Company is better able to fulfill this obligation.
The following table sets forth certain information for each of the last
three fiscal years with respect to the annual and long-term compensation of the
current officers of the Company.
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<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term Compensation
- --------------------------------------------------------------------------------------------
(a) (b) (c) (e) (f) (g)
- --------------------------------------------------------------------------------------------
Name and Principal Position Year Salary Other Annual Restricted Securities
($) Compensation Stock Underlying
($) Award(s) Options
(#) (#)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Scot B. Hutchins, 1997 1,644
CEO (1)
1998 50,000 24,500 350,000 800,000
(office allowance)
1999 100,000 24,500 300,000 800,000
(office allowance)
John H. Gasper, 1997 60,000 12,250 150,000
President (2) (office allowance)
1998 120,000 24,500 50,000
(office allowance)
1999 120,000 24,500
(office allowance)
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</TABLE>
(1) Scot B. Hutchins' Effective Date of employment: December 19, 1997
(2) John H. Gasper's Effective Date of employment: July 1, 1997
The following table sets forth certain information regarding stock options
granted to Mr. Hutchins during 1999. No other stock options were granted by the
Company.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Name Number of Securities Percent of Total Options
Underlying Granted to Employees
Options in the Fiscal Year Exercise Expiration
Price ($/Sh) Date
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scot B. Hutchins, 800,000 100% $.0625 --
Chief Executive Officer
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</TABLE>
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<PAGE>
The following table sets forth the aggregate options held by the Company's
Chief Executive Officer, the only officer who has been granted options. No
options were exercised by the specified officer in 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Options In-the-Money Options
Shares Acquired Value Exercisable/ at December 31, 1999
Name on Exercise Realized Unexercisable Exercisable/Unexercisable
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scot B. Hutchins, -- -- 1,600,000 / 0 $7,132 / None
CEO
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</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
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As of December 31, 1999, a total of 10,927,063 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, 1999:
Share
Ownership
Name Title Direct Percent
- ---- ----- ------ -------
Robert G. Risk Director 2,686,179 (b) 24.58%
Lloyd L. Morain Director 459,408 (b) 4.20%
James C. Tiffany Director 27,631 (b) 0.25%
John H. Gasper President/Chairman 200,000 (b) 1.83%
Scot B. Hutchins CEO 675,000 (b) 6.18%
All officers and directors as a group 37.04%
(a) The address of each management person is 7002 Graham Road, Suite 106,
Indianapolis, IN 46220.
(b) Members of the Board of Directors and officers hold debt instruments of the
Company which can be generally converted into Common Stock at a price of
$.80 to $1.00 per share. If such debt instruments were converted to stock
as of December 31, 1999, officers and directors would hold the following
number of shares and percentages of outstanding stock: Robert G. Risk
3,792,465 shares, (30.8%); Lloyd L. Morain 566,168 shares, (4.6%); James C.
Tiffany 27,631 shares, (0.22%); John H. Gasper 200,000 shares, (1.6%) Scot
B. Hutchins 855,667 shares, (6.9%).
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, 1999,
approximately 4,958,824 shares would have been issued and total outstanding
shares would have been 15,885,887. Officers and directors, as a group, would own
5,441,931 shares representing 34.26% of the outstanding Common Stock.
-13-
<PAGE>
Item 12. Certain Relationships and Related Transactions.
- --------------------------------------------------------
Substantially all of Leadville's financing since 1983 has been provided by
loans from the Company's officers and 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 for debt proceeds received
from officers and directors as of December 31, 1999:
Name Obligation Principal Interest Total
- ---- ---------- --------- -------- -----
Robert G. Risk Debenture -0- $1,106,285 $1,106,285
Robert G. Risk Demand notes $25,000 $936,749 $961,749
Lloyd L. Morain Notes $75,000 $31,760 $106,760
Scot B. Hutchins Notes $117,500 $30,909 $148,409
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. The demand notes and associated accrued interest due to Dr. Risk have no
stock conversion features. The notes and associated accrued interest due to Mr.
Hutchins are convertible at $.80 per share for $129,037 and $1.00 per share for
$19,372.
During the years 1997 through 1999, Dr. Risk has advanced the Company
$5,000, $15,000, and $37,500, 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 the Company's Common Stock at a price of $1.00 per share. Mr. Morain loaned
the Company $50,000 in 1997 and $35,000 in 1999. Mr. Morain has provided
significant financing to the Company in years prior to 1995 and he has converted
substantially all such loans and accrued interest into restricted Common Stock.
During 1998 and 1999, Mr. Hutchins advanced the Company $115,000 and
$2,500, respectively. An advance of $100,000 in 1998 bears an interest rate of
15% and is convertible into Common Stock at $.80 per share. Advances in 1998 and
1999 totaling $17,500 bear an interest rate of 10% and are convertible into
Common Stock at $1.00 per share.
During the years 1995 through 1999, 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 that 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.
-14-
<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:
None
-15-
<PAGE>
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 May 8, 2000
on its behalf by the undersigned, thereto duly authorized.
LEADVILLE CORPORATION
Date: May 8, 2000 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: May 8, 2000 By: /s/ John H. Gasper
- ------------------ ----------------------
John H. Gasper
President, Chairman
Dated: May 8, 2000 By: /s/ Dr. Robert G. Risk
- ------------------ --------------------------
Dr. Robert G. Risk
Director, Chairman Emeritus
Dated: May 8, 2000 By: /s/ Lloyd L. Morain
- ------------------ -----------------------
Lloyd L. Morain
Director
Dated: May 8, 2000 By: /s/ James C. Tiffany
- ------------------ ------------------------
James C. Tiffany
Director
-16-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report..............................................F-2
Balance Sheets - December 31, 1999 .......................................F-3
Statements of Operations and Comprehensive Loss -
For the Years Ended December 31, 1999 and 1998..........................F-4
Statement of Stockholders' Equity -
From January 1, 1998 through December 31, 1999..........................F-5
Statements of Cash Flows -
For the Years Ended December 31, 1999 and 1998..........................F-6
Notes to Financial Statements.............................................F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Leadville Corporation
Indianapolis, Indiana
We have audited the accompanying balance sheet of Leadville Corporation as of
December 31, 1999 and the related statements of operations and comprehensive
loss, stockholders' equity and cash flows for the years ended December 31, 1999
and 1998. 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, 1999, and the results of its operations and its cash flows for the
year ended December 31, 1999 and 1998, 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.
As discussed in Note 5, for the year ended December 31, 1998, the Company had
not recorded compensation related to stock options for the purchase of 800,000
shares of common stock and 100,000 shares of common stock that were earned
pursuant to the terms of certain officer employment agreements. Accordingly, the
accompanying 1998 financial statements have been restated, which resulted in an
increase in net loss of $314,000 for 1998.
/s/ Hein + Associates LLP
- -------------------------
Hein + Associates LLP
Denver, Colorado
May 4, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
LEADVILLE CORPORATION
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
------
Current Assets:
<S> <C>
Cash $ 33,445
Prepaid expenses and other 5,418
------------
Total current assets 38,863
Property and Equipment, at cost:
Mining properties 7,356,979
Buildings and equipment:
Mine 1,219,564
Mill 829,032
Other 108,143
Land 22,429
------------
9,536,147
Less accumulated depreciation and depletion (3,005,950)
------------
6,530,197
Other Assets:
Investments - certificates of deposits 104,265
Inventories 227,389
------------
Total other assets 331,654
------------
Total Assets $ 6,900,714
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Related parties:
Convertible debentures $ 440,000
Notes payable, stockholders 1,796,362
Accrued interest payable 4,411,220
Payables to officers/directors/stockholders 71,438
Accrued salaries - officers 400,821
Notes payable - other 141,500
Accounts payable 100,605
Accrued expenses 104,310
------------
Total current liabilities 7,466,256
Settlement of Litigation 121,000
Commitments and Contingencies (Notes 2 and 5)
Stockholders' Equity:
Capital stock, par value $1 per share; 15,000,000 shares authorized;
10,927,063 shares issued and outstanding at December 31, 1999 10,927,063
Additional paid-in capital 8,693,415
Accumulated deficit (20,307,020)
------------
Total stockholders' equity (686,542)
------------
Total Liabilities and Stockholders' Equity $ 6,900,714
============
F-3
</TABLE>
<PAGE>
LEADVILLE CORPORATION
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Years Ended
December 31,
------------------------------
1999 1998
------------ ------------
(See Note 5)
Operating Revenues $ -- $ --
Operating Costs and Expenses:
General and administrative 891,148 930,731
Depreciation 67,718 67,718
------------ ------------
Total operating costs and expense 958,866 998,449
------------ ------------
Operating Loss (958,866) (998,449)
Other Income and Expense:
Interest expense (687,685) (591,961)
Other 11,164 8,294
------------ ------------
Total other income and expense (676,521) (583,667)
------------ ------------
Net Loss and Comprehensive Loss $ (1,635,387) $ (1,582,116)
============ ============
Net Loss Per Share (Basic and Diluted) $ (.15) $ (.15)
============ ============
Weighted Average Number of Capital
Shares Outstanding 10,630,351 10,488,645
============ ============
See accompanying notes to these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
LEADVILLE CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FROM JANUARY 1, 1998 THROUGH DECEMBER 31, 1999
Total
Capital Stock Paid-in Accumulated Stockholder's
Shares Amount Capital Deficit Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances,January 1, 1998 10,202,065 $ 10,202,065 $ 8,407,482 $(17,089,517) $ 1,520,030
Options for services -- -- 264,000 -- 264,000
Stock for services:
Officers 400,000 400,000 (125,000) -- 275,000
Other 3,000 3,000 -- -- 3,000
Net loss -- -- -- (1,582,116) (1,582,116)
------------ ------------ ------------ ------------ ------------
Balances, December 31, 1998 10,605,065 10,605,065 8,546,482 (18,671,633) 479,914
Conversion of note payable
and accrued interest 21,998 21,998 -- -- 21,998
Options for services -- -- 315,000 -- 315,000
Stock for services 300,000 300,000 (168,067) -- 131,933
Net loss -- -- -- (1,635,387) (1,635,387)
------------ ------------ ------------ ------------ ------------
Balances, December 31, 1999 10,927,063 $ 10,927,063 $ 8,693,415 $(20,307,020) $ (686,542)
============ ============ ============ ============ ============
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,
--------------------------
1999 1998
----------- -----------
Cash Flows from Operating Activities:
<S> <C> <C>
Net loss $(1,635,387) (1,582,116)
Adjustments to reconcile net loss to net
cash from operating activities:
Stock and options for services 446,933 542,000
Depreciation 67,718 67,718
Provision for inventory obsolescence 45,300 45,300
Changes in assets and liabilities:
(Increase) decrease in -
Prepaid expenses and other 3,861 2,810
Increase (decrease) in:
Accrued interest to related
parties 688,078 594,604
Officer payables and accrued salaries 252,056 141,681
Accounts payable 22,549 33,518
Accrued expenses 15,337 (8,432)
----------- -----------
Net cash used in operating activities (93,555) (162,917)
Cash Flow From Investing Activities -
Proceeds from certificates of deposit -- 28,735
Cash Flows from Financing Activities:
Payments on borrowings -- (50,000)
Proceeds from borrowings 127,000 175,000
----------- -----------
Net cash provided by financing activities 127,000 125,000
Increase (Decrease) in Cash 33,445 (9,182)
Cash, beginning -- 9,182
----------- -----------
Cash, ending $ 33,445 $ --
=========== ===========
Supplemental Disclosures of Non-cash Investing and
Financing Activities -
Capital stock issued for conversion of notes payable, and
accrued interest $ 21,988 $ --
=========== ===========
Conversion of accrued interest to notes payable $ 400,825 $ --
=========== ===========
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. In recent
years, the Company's activities have been limited due to environmental
issues (see Note 5) and lack of capital. The Company owns two mines near
Leadville, Colorado. These mines have been inactive since 1989.
Inventories - Inventories are stated at the lower of cost (average method)
or market value. Inventories consist of operating and maintenance supplies
and is stated net of an obsolescence allowance of $226,000. Inventory has
been classified as non-current for financial statement purposes.
Property and Equipment - Mining properties consist primarily of patented
and unpatented mining claims. Mining properties include the cost of
acquisition and accumulated development expenditures.
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 (SFAS)
No. 128, Earnings Per Share. SFAS No. 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, 1999 and
1998. 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.
F-7
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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) and costs associated with the reclamation of
the properties. 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 - Management periodically assesses
recoverability of all long-lived assets. In the event that facts and
circumstances indicate that the cost of long-lived 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.
New Pronouncements - SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities and No. 134, Accounting for Mortgage-Backed
Securities Retained After the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprises were issued. These pronouncements
are not expected to impact the Company.
Comprehensive Loss - Comprehensive loss is defined as all changes in
stockholders' equity, exclusive of transactions with owners, such as
capital investments. Comprehensive loss includes net loss, changes in
certain assets and liabilities that are reported directly in equity such as
translation adjustments on investments in foreign subsidiaries, and certain
changes in minimum pension liabilities. The Company's comprehensive loss
was equal to its net loss for all periods presented in these financial
statements.
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, 1999, 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, 1999 has a working capital deficiency
of approximately $7,427,393 which includes approximately $7,119,841 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. Past litigation concerning environmental matters (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
F-8
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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. Management is continuing to
investigate alternatives to raise additional working capital which will be
required to meet current and future obligations.
If the Company cannot successfully restructure its debt, 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, 1999, the Company controls two mining properties; the
approximately 5-square-mile Sherman Hilltop Consolidation and the
approximately 1.5-square-mile Diamond-Resurrection Consolidation. In
addition, the Company owns the 0.5-square-mile Stringtown Mill Site.
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
the milling facility at the Stringtown Mill Site, 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 1989 and continuing through 1999, the Company's activities have been
limited to care, maintenance, and permit-related work. The Company is
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 bonds in the amount of approximately
$91,600 for the Sherman and Stringtown Mill sites and $12,665 for the
Diamond-Resurrection Mine Site.
F-9
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Presented below is a summary of mining property costs as of December 31,
1999:
Diamond- Sherman
Resurrection Hilltop
Consolidation Consolidation Total
------------- ------------- -----------
Mining claims $ 221,445 $ 78,110 $ 299,555
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
=========== =========== ===========
4. Long-Term Debt, Notes Payable, and Convertible Debentures:
----------------------------------------------------------
The notes payable as of December 31, 1999 are summarized as follows:
Notes payable, at 16.5% to stockholder, due December 2000,
collateralized by mining properties. $1,425,312
Notes payable, generally at 10%, to stockholders and/or
officers/directors, due dates range from April 1997
through December 1998. 371,050
----------
Total related party notes payable $1,796,362
==========
Notes payable, generally at 10%, due dates range from
January 1, 1997 through December 15, 2000. $ 141,500
==========
Notes payable and certain related accrued interest (totaling approximately
$1,320,000) 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 the notes. As of December 31, 1999, $395,500 of the notes were past
due.
Convertible debentures due to shareholders as of December 31, 1999 are
summarized as follows:
Ten percent convertible debentures, all interest and
principal past due as of December 1999. The debentures
and related accrued interest (totaling $3,198,000) 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
==========
F-10
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
5. Commitments and Contingencies:
------------------------------
Employment Agreements - The Company has entered into employment agreements
with two of its officers. Combined base salaries for these two officers
were approximately $170,000 and $220,000 for the years ended December 31,
1998 and 1999. One of the officers received options for the purchase of
1,600,000 shares of common stock for services performed in 1998 and 1999.
Additionally, both officers each received 50,000 shares of common stock for
services rendered in obtaining in excess of $1,000,000 of debt financing.
Compensation related to options for the purchase of 800,000 shares of
common stock and issuance of 100,000 shares of common stock was
inadvertently not recorded in 1998, the year the options and common stock
were earned. Accordingly, the accompanying 1998 financial statements have
been restated to reflect compensation expense of $314,000 related to such
issuances. During the fourth quarter of 1999, the Company recognized
compensation expense of $225,000 earned in the first nine months of 1999
related to options for the purchase of 800,000 shares of common stock
granted to an officer. The total base salary obligation remaining on these
employment agreements for the years ended 2000 and 2001 is approximately
$270,000 and $210,000, respectively. Additionally, each of these officers
can receive (i) 150,000 shares of common stock in the event that the
average closing price of common stock is $2.00 or more within any 14-day
period and (ii) 150,000 shares of common stock each time the price of the
common stock doubles from the prior price triggering a payment of shares.
Additional compensation expense will be recorded when and if such shares
are issued.
Environmental Litigation - In the mid-1980s, 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 were 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 believed 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 U.S. 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 to be paid to the Environmental Protection
Agency (EPA). 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 payments are to be $10,000 for years 1 through 5, $15,000 for years
6 through 10, and $25,000 for years 11 through 15. This total amount has
been recorded as a liability and with the amounts currently past due
included in accrued liabilities and the long-term portion included as a
settlement of litigation liability. The Company has not made any cash
payments towards this liability. As a result of this settlement, the
Company believes it has insignificant reclamation liabilities associated
with these properties.
The EPA has acknowledged the receipt of soil and rock materials from one of
Leadville's mining property. 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
F-11
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
and as such, the Company will not record this transaction until the parties
have agreed to its value and collectibility is assured. Under the terms of
the settlement, the EPA has the right to demand full payment of the
$3,000,000 if the yearly payments are not paid according to the terms of
the agreement. The Company, however, believes that, at a minimum, the
transfer to soil and rock material has satisfied the minimum cash payment
obligation under the consent decree and the EPA has not demanded payment.
The EPA entered the Company's property and performed certain environmental
cleanup work. A letter from the EPA to the Company in September 1998
informed the Company that the EPA may recover the unspecified costs of the
cleanup work from the Company. The Company responded to the EPA that any
such work was covered by the consent decree as described above. The Company
has not received any subsequent demand from the EPA for reimbursement of
costs of this cleanup from the EPA.
Other Litigation - During January 2000, the Company was named as a
defendant involving equipment under lease that previously was deemed part
of the real property at the mine site by the courts. The plaintiff's claims
for unspecified damages include a claim for rent, conversion, and unjust
enrichment. The Company intends to vigorously defend the claims. The net
recorded back value of the equipment as of December 31, 1999 is
approximately $114,000.
Certificates of Deposit - The Company is required by the State of
Colorado/Mined Land Reclamation Board to maintain certificates of deposit
for future reclamation costs. No future reclamation costs have been accrued
as of December 31, 1999.
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
$7,119,841 at December 31, 1999. Total interest expense to these officers,
directors and stockholders was $674,839 and $485,572 for the years ended
December 31, 1999 and 1998, respectively.
The Company leased office space on a month-to-month basis from a
stockholder and 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 approximately $15,000 and $23,225 for the years
ended December 31, 1999 and 1998, respectively.
As of December 31, 1999, the Company owed two officers $478,653 for
compensation and office equipment, and management allowance of
approximately $2,000 each per month.
See Notes 5 and 8 for additional related party transactions.
F-12
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
7. Income Taxes:
-------------
The following items give rise to a long-term deferred tax asset as of
December 31, 1999, which has been fully reserved:
Employee option $ 215,000
Inventory reserve for obsolescence 84,000
Adjusted basis differential - depletable properties 672,000
EPA settlement liability 80,000
Net operating loss carryforward 3,815,000
Officer's salaries 149,000
----------
Deferred tax asset 5,015,000
Less valuation allowance (5,015,000)
----------
Net deferred tax asset $ --
==========
At December 31, 1999, the Company has available tax net operating loss
carryforwards of approximately $10,280,000, 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
2000 through 2019. The valuation allowance was $4,450,000 at December 31,
1998 and increased by $565,000 for the year ended December 31, 1999.
8. Stockholders' Equity:
---------------------
During the year ended December 31, 1998, the Company issued officers and
others 400,000 and 3,000 shares of common stock, respectively, and options
for the purchase of 800,000 shares of common stock, valued at $542,000 for
services.
During the year ended December 31, 1999, the Company issued officers
300,000 shares of common stock and options for the purchase of 800,000
shares of common stock, valued at $446,933, for services.
Options granted in 1998 and 1999 for the purchase of 800,000 shares of
common stock have an exercise price of approximately $.04 and $.05 per
share, respectively. All options were granted at less than the quoted
market price of the Company's common stock and, therefore, compensation
expense was recorded in connection with these grants. All options are fully
vested. Tne Company has agreed to pay all payroll taxes associated with
exercise of these options. Therefore, these options are considered variable
options for financial statement purposes, resulting in a remeasurement of
compensation expense until the options are exercised. The weighted average
exercise price for all options is $.0585 per share for options granted in
1999 and 1998.
Pro Forma Stock-Based Compensation Disclosures - The Company applies APB
Opinion 25 and related interpretations in accounting for its stock options
and warrants which are granted to employees. Accordingly, no compensation
cost has been recognized for grants of options and warrants to employees
F-13
<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
since the exercise prices were not less than the market value of the
Company's common stock on the grant dates. Had compensation cost been
determined based on the fair value at the grant dates for awards under
those plans consistent with the method of SFAS No. 123, the Company's net
loss and EPS would have been increased to the pro forma amounts indicated
below.
Year Ended December 31,
------------------------------
1999 1998
---- ----
Net loss applicable to common shareholders:
As reported $ (1,635,387) $ (1,582,116)
Pro forma $ (1,962,570) $ (1,856,579)
Net loss per common shareholders:
As reported - basic and diluted $ (.15) $ (.15)
Pro forma - basic and diluted $ (.18) $ (.18)
The fair value of each option granted in 1999 was estimated on the date of
grant, using the Black-Scholes option-pricing model with the following
weighted average assumptions:
Expected volatility 134%
Risk-free interest rate 6.2%
Expected dividends -
Expected terms (in years) 2
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 other
payables 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 $4,265 in excess of Federally insured
amounts.
F-14
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 33,445
<SECURITIES> 0
<RECEIVABLES> 418
<ALLOWANCES> 0
<INVENTORY> 227,389
<CURRENT-ASSETS> 5,000
<PP&E> 9,536,147
<DEPRECIATION> 3,005,950
<TOTAL-ASSETS> 6,900,714
<CURRENT-LIABILITIES> 7,602,255
<BONDS> 0
0
0
<COMMON> 10,927,063
<OTHER-SE> (8,693,415)
<TOTAL-LIABILITY-AND-EQUITY> 6,900,714
<SALES> 0
<TOTAL-REVENUES> 11,164
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 958,866
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 702,685
<INCOME-PRETAX> (1,650,387)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,650,387)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,650,387)
<EPS-BASIC> (.15)
<EPS-DILUTED> (.15)
</TABLE>
