-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FhvGTP9ca4zWngbbOk6J33oOqwysgGJAzOJaVQFphqQSUfAV7HF//xwbI/1A+WUM dz6ybDt0OmGFUtIry7SFpw== 0000058204-97-000010.txt : 19970818 0000058204-97-000010.hdr.sgml : 19970818 ACCESSION NUMBER: 0000058204-97-000010 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970815 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEADVILLE CORP CENTRAL INDEX KEY: 0000058204 STANDARD INDUSTRIAL CLASSIFICATION: MINERAL ROYALTY TRADERS [6795] IRS NUMBER: 840388216 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-01519 FILM NUMBER: 97665279 BUSINESS ADDRESS: STREET 1: 2851 S PARKER RD STE 610 CITY: AURORA STATE: CO ZIP: 80014 BUSINESS PHONE: 3036719792 MAIL ADDRESS: STREET 1: 2851 SOUTH PARKER ROAD STREET 2: SUITE 610 CITY: AURORA STATE: CO ZIP: 80014 FORMER COMPANY: FORMER CONFORMED NAME: LEADVILLE LEAD CORP DATE OF NAME CHANGE: 19710114 FORMER COMPANY: FORMER CONFORMED NAME: LEADVILLE LEAD & URANIUM CORP DATE OF NAME CHANGE: 19670802 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB Quarterly Report under Section 13 or 15(d)of the Securities Exchange Act of 1934 For Quarterly period ended June 30, 1997 Transaction report under section 13 or 15(d) of the exchange act For the transition period from to Commission file number 0-1519 LEADVILLE CORPORATION (Exact Name or Registrant as Specified in its Charter) COLORADO 84-0388216 (State of Incorporation) (I.R.S. Employer Identification No.) 2851 S. PARKER ROAD, SUITE 610, AURORA, COLORADO 80014 (Address of Principal Executive Office) (Zip Code) (303) 671-9792 (Issuer's telephone number) N/A (Former name, address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS 9,920,791 State the number of Shares of the issuer's classes of common equity, as of the latest practicable date: Transitional Small Business Disclosure Format (Check one): Yes No X LEADVILLE CORPORATION INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION PART I - FINANCIAL INFORMATION Page FINANCIAL STATEMENTS Balance sheets 3 - 4 Statements of operations 5 Statements of stockholders' equity 6 Statements of cash flows 7 Notes to financial statements 8 - 12 PLAN OF OPERATION 13 - 14 PART II - OTHER INFORMATION Legal proceedings 15 - 16 Exhibits and reports on Form 8-K 17 -2- PART I ITEM 1. FINANCIAL STATEMENTS LEADVILLE CORPORATION Balance Sheets June 30, 1997 (Unaudited) June 30, December 31, 1997 1996 ASSETS CURRENT ASSETS Cash $ 23,391 $ 146,340 Prepaid expenses and other 10,698 7,834 Total current assets 34,089 154,174 PROPERTY AND EQUIPMENT, at cost (Notes 2 and 3) Mining properties, including assets acquired under capital leases 7,356,979 7,356,979 Buildings and equipment: Mine, including assets acquired under capital leases 1,219,564 1,219,564 Mill 829,032 829,032 Other 108,143 108,143 Land 22,429 22,429 9,536,147 9,536,147 Less accumulated depreciation and depletion including amortization applicable to assets acquired under capital leases (2,836,780) (2,802,796) 6,699,367 6,733,351 OTHER ASSETS: Investments - certificates of deposit 133,000 133,000 Inventories 340,639 363,289 473,639 496,289 $ 7,207,095 $ 7,383,814 -3- June 30, December 31, 1997 1996 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Related parties: (Note 4) Convertible debentures (Note 3) $ 440,000 $ 440,000 Notes payable, stockholders (Note 3) 329,000 368,000 Accrued interest payable 3,346,819 3,160,482 Due to officers and directors 8,912 10,276 Notes payable-other 55,000 55,000 Accounts payable 76,956 106,017 Accrued expenses 50,063 89,179 Capital lease obligations (Note 3) 823,148 796,040 Total current liabilities 5,129,898 5,024,994 SETTLEMENT OF LITIGATION (Note 3) 80,000 80,000 LONG-TERM DEBT: Related parties - - Other - - COMMITMENTS AND CONTINGENCIES (Note 3) STOCKHOLDERS' EQUITY Capital stock, par value $1 per share; authorized 15,000,000 shares; issued and outstanding June 30, 1997 and December 31, 1996, 9,920,791 and 9,810,992 shares 9,920,791 9,810,992 Additional paid-in capital 8,450,682 8,450,682 18,371,473 18,261,674 Accumulated deficit (16,374,276) (15,982,854) Total stockholders' equity 1,997,197 2,278,820 $ 7,207,095 $ 7,383,814 See Notes to Financial Statements. -4- Part I LEADVILLE CORPORATION STATEMENTS OF OPERATIONS Six months ended June 30, 1997 and 1996 (Unaudited) Three Months Six Months ended June 30, ended June 30, 1997 1996 1997 1996 Operating revenue $ - $ - $ - $ - Operating costs and expenses: General and administrative 74,523 24,254 141,637 85,415 Depreciation 16,992 250 33,984 16,492 Total operating expenses 91,515 24,504 175,621 101,907 Operating loss (91,515) (24,504) (175,621) (101,907) Financial income ad expense: Debt settlement - - (7,470) - Interest income 1,890 1,455 3,646 2,825 Other income - 1,200 - 1,200 Interest expense (107,298) (118,132) (211,977) (224,810) Total financial income (expense) (105,408) (115,477) (215,801) (220,785) Net loss $(196,923) $(139,981) $(391,422) $(322,692) Net loss per capital share $ (.02) $ (.02) $ (.04) $ (.04) Weighted average number of capital shares outstanding (total shares) 9,871,933 9,054,047 9,851,072 8,970,317 See Notes to Financial Statements. -5- LEADVILLE CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY Six Months ended June 30, 1997 (Unaudited) June 30, 1997 December 31, 1996 Shares Amount Shares Amount Capital Stock 9,920,791 $ 9,920,791 9,810,992 $ 9,810,992 Additional Paid-In Capital 8,450,682 8,450,682 Accumulated deficit, December 31, 1996 (15,982,854) (15,982,854) 2,388,619 $ 2,278,820 Net Loss, June 30, 1997 (391,422) $ 1,997,197 See Notes to Financial Statements. - 6 - LEADVILLE CORPORATION STATEMENTS OF CASH FLOWS Six Months Ended June 30, 1997 and 1996 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (391,422) $ (322,692) Adjustments to reconcile net loss to net cash provided by (used) in operating activities: Depreciation 33,984 16,492 Change in assets and liabilities: (Increase) decrease in: Prepaid expenses (2,864) 5,050 Inventories 22,650 11,325 Increase (decrease) in: Accounts payable (29,061) 1,095 Accrued expenses (39,116) 23,280 Officer payables (1,364) 16,995 Accrued interest 207,136 188,315 Capital lease obligations 27,108 27,108 Net cash provided by (used in) operating activities (172,949) (33,032) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowing, related parties 50,000 35,000 Proceeds from sale of stock - 8,000 Net cash provided by financing activities 50,000 43,000 Increase (decrease) in cash and cash equivalents (122,949) 9,968 Cash and cash equivalents: Beginning 146,340 2,780 Ending $ 23,391 $ 12,748 SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Capital stock issued for forgiveness of notes payable and interest $ 109,799 $ 293,428 See Notes to Financial Statements. -7- LEADVILLE CORPORATION NOTES TO FINANCIAL STATEMENTS June 30, 1997 Nature of Business and Significant Accounting Policies: Nature of Business - Leadville Corporation (the Company) is engaged in the development and mining of hard rock mineral properties in Lake and Park Counties, Colorado. Inventories - Inventories are stated at the lower of cost (average method) or market value. Inventories consist of operating and maintenance supplies. In 1995, the Company began amortizing the carrying value of inventory to recognize a declining useful life and obsolescence. Property and Equipment - Mining properties consist primarily of patented and unpatented mining claims. Through ownership and claim control, the Company's land holdings include nearly 4,500 acres of land. Mining properties include the cost of acquisition and accumulated exploration and development expenditures incurred in the pre-production stage. In the event such mining properties are developed into producing properties, depletion of these related costs will be computed on the unit-of-production method, based on estimated tons of recoverable ore reserves. If the properties are determined to be incapable of producing commercial quantities of ore, the costs will be charged to operations in the period in which the determination is made. The Company provides for depreciation of buildings and equipment on the straight-line method, to apportion costs over the estimated useful lives of the assets which range principally from five to twenty years. During 1995, the Company began to recognize depreciation on fixed assets which are not in service in order to recognize the declining useful life of such assets. Income Taxes - The Company accounts for income taxes under the liability method, whereby deferred tax assets and liabilities are recorded for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Net Income (Loss) Per Capital Share - The net income (loss) per capital share is based on the weighted average number of shares outstanding during the period. Convertible debt has not been included in the computation of fully diluted earnings per share because its effect would be anti-dilutive. Capitalization of Interest - The Company capitalizes interest expense as part of the historical cost of acquiring certain assets which require an extended period of time to prepare them for their intended use . Subsequent to 1988, interest has been expensed due to the suspension of development activities on the Company's properties. Use of Estimates - The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires the Company's management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. The Company makes significant assumptions concerning the realizability of its investment in property and equipment, and the ultimate liabilities associated with asserted claims . Management believes that the interim financial statements include all adjustments necessary in order to make the financial statements not misleading. - 8 - 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 June 30, 1997, the Company has a significant investment in non-producing mining properties, recovery of which is dependent upon the production of ore reserves in commercial quantities or sale of these properties at an amount equal to or in excess of cost. In addition, the Company has suffered recurring losses from operations and at June 30, 1997 has a working capital deficiency of approximately $5,096,000 which includes approximately $4,050,000 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 June 30, 1997 or as of the date of this report. The litigation concerning the environmental matters and certain mining equipment (Note 3) has made it difficult for the Company to obtain significant working capital through additional equity or debt financing. The Company has reached agreement with the EPA to reduce the $3,000,000 environmental liability to $500,000 and to waive past due amounts due under the Consent Decree. The Company is continuing its efforts to further improve terms of the Consent Decree and to ultimately have its properties severed from Superfund Site designation. Negotiations are continuing and no payments have been made to the United States pending results of ongoing discussions. The Company believes a substantial portion of the convertible debentures, notes payable and associated accrued interest may at some future time be converted into capital shares. Management is continuing to investigate alternatives to raise additional working capital which will be required to meet current and future obligations and is vigorously attempting to settle outstanding litigation matters without additional material impact to the Company's financial position. If the Company cannot successfully resolve its current litigation, re-structure its debt and continue to secure necessary working capital, there is substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments which might result from the outcome of these uncertainties. The Company's management is encouraged, however, by recent negotiations with the EPA which could significantly modify the Consent Decree and release part or all of Leadville's properties from Superfund designation. A report requested by EPA to begin this process has been submitted to the EPA for review. 2. Mining Properties: As of June 30, 1997, the Company owns two mining properties, the Sherman-Hilltop Consolidation, consisting of approximately 3,000 acres and the Diamond-Resurrection Consolidation consisting of 1,180 acres. The Company also owns the 340 acre Stringtown Mill Site which was a functioning milling facility in 1989 and is still permitted for this use. Activity at the Diamond-Resurrection property, primarily a gold property along with other metals including silver, copper, lead and zinc in recoverable quantities, has been suspended since 1989, due to insufficient cash resources to finance further exploration and development work. The Company maintains a $5,000 reclamation bond for the site. Since May of 1987 and continuing into 1997, Leadville's activities at the Sherman Mine, primarily a silver property with other metals including gold, copper, lead and zinc, have been limited to care, maintenance and permit related work, due to continuing low silver prices. During 1985, the Sherman Mine was placed in temporary cessation due to suspension of mining activities. During 1995, the temporary cessation period expired and Leadville will be required to conduct a program of study, exploration and sampling to maintain existing regulatory permits. In the event the required work is not performed, the Company may be required to reclaim the Sherman Mine site. The Company maintains a reclamation bond, in the amount of $128,000, which relates to the Sherman and Stringtown Mill sites. Although the Sherman Mine is not included as part of the California Gulch Superfund Site, the EPA is using rock materials located on the property for use on Superfund designated properties. Pending final earthwork by the EPA at the Sherman Mine, Leadville has taken no action at the Sherman Mine. Discussions are underway with the state of Colorado and EPA in an effort to reduce the bonding requirements based on the EPA's restoration efforts at the site. - 9 - 3. Notes Payable and Convertible Debentures: The notes payable are summarized as follows: June 30, December 31, 1997 1996 Notes payable, at 10%, to stockholders and/or officers/ directors, due dates range to June 1998 $ 329,000 $ 368,000 Notes payable-other, at 10% due dates ranging to December 1997. $ 55,000 $ 55,000 The above notes payable are convertible to the Company's capital stock at the option of note holders at conversion prices of $.80 to $1.00 per share during the term of the notes. The convertible debentures are summarized as follows: June 30, December 31, 1997 1996 10% convertible debentures, interest and principal due December 1997, convertible to the Company's Capital Stock at the option of the debenture holders at a conversion price of $1 per share, collateralized by mining properties. $ 440,000 $ 440,000 Of the $440,000, $340,000 is due to stockholders. During 1996 and early 1997, the Company secured extended due dates for the debentures to December 31, 1997. 3. Commitments and Contingencies: Lease Commitment Litigation - In December 1988, the Company sold and leased back certain equipment from an unrelated entity. Proceeds of $415,000 were recorded as a capital lease obligation. In addition, the Company leases several other pieces of mining equipment which are classified as capital leases. The Company was delinquent on certain of its lease obligation payments, and the lessor has asserted that the Company was in default. In January 1991, the lessor won a summary judgment in the amount of approximately $642,000, which represents all unpaid past and future capital lease obligations (including interest). - 10 - During 1994, in an appeal, the judgment amount of $642,000 was upheld, and additional attorneys fees and interest of approximately $46,000 were awarded the lessor. During the first six months of 1997, the Company accrued an additional $27,000 of interest expense on this obligation. During 1992, the lessor also won a summary judgment for possession of leased equipment with a net book value of $525,000 and for interest and penalty charges on the unpaid summary judgments. The lessor has also asserted that it has a lien on all the real property of the Company and that this lien should be foreclosed. Leadville contests lessor's foreclosure assertions. The lessor has repossessed approximately $402,000 of the leased equipment. Approximately $123,000 of equipment the lessor has not repossessed remains recorded as an asset of the Company. Environmental Litigation - The Company has been named as one of several defendants in certain legal actions involving environmental matters. The plaintiffs in these actions, the State of Colorado and the Federal Government, have alleged that the defendants are liable under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) in connection with mining and property ownership positions in the California Gulch Superfund Site near Leadville, Colorado. The Company has answered the complaints and has vigorously defended the consolidated action. Further, the Company and litigation counsel believe they have substantial and meritorious defenses to the claims being made. However, in an effort to expedite a conclusion and to minimize legal costs, the Company agreed to a settlement of the cases. During August 1993, a consent decree was entered by the Federal District Court in Colorado whereby the United States agreed to settle the Company's alleged liability, with the exception of natural resources damages, if any, in consideration for $3,000,000. Under the original terms of the consent decree, a total of $250,000 was to be paid by the Company over 15 years, with a contingent liability of $2,750,000 to be paid based on profitable operations or sale of properties. Minimum cash payments are to be $10,000 for years 1-5, $15,000 for years 6-10, and $25,000 for years 11-15. During October 1995, the Company reached agreement, in principle, with the United States to reduce the consent decree obligation amount of $3,000,000 to $500,000, with minimum annual cash payments to begin in April 1996. In effect, the contingent liability of $2,750,000 was reduced to $250,000. In consideration, the Company agreed to provide to the United States certain dirt and rock material for use by the Environmental Protection agency (EPA) in remedial action work at the Superfund site. During late 1995, the EPA began to use the dirt material. The Company's management is continuing efforts to further improve terms of the Consent Decree and to ultimately have its properties severed from Superfund Site designation. The Company has accrued a $110,000 environmental settlement liability, which is the present value of the $250,000 future minimum payments. Recent discussions with EPA relative to de-listing some or all of Leadville's properties from Superfund designation have been very favorable, as the EPA has designated no work associated with the Diamond-Resurrection property and work planned for the Stringtown Mill site is minimal. Contract Mining Litigation - During March 1990, a subcontractor of the Company filed an action in Lake County District Court for non-payment of approximately $35,000 for mining services, plus associated costs. Leadville has filed a counter-claim against the plaintiff for approximately $185,000 relating to the same contract. No action has occurred in the case since 1993 and the Court ordered a status report on the issues by August 1996. Since August of 1996, no further action has occurred in this case. Certificates of Deposit - The Company is required by the Mined Lands Reclamation Board to maintain certificates of deposit for future reclamation costs. No future reclamation costs have been accrued as of June 30, 1997. Discussions with the EPA and the state of Colorado may allow the reduction of the bond amount, based upon EPA's use of clay and dolomite limestone at the Stringtown Mill site and Sherman-Hilltop mine, respectively. - 11 - 4. Related Party Transactions: Certain officers, directors and stockholders have provided significant loans and advanced expenses to the Company in recent years. The aggregate indebtedness, including accrued interest and other payables, amounted to approximately $4,050,000 at June 30, 1997. Substantially all of that indebtedness is convertible in the Company's Capital Stock at a price of $1.00 per share. The Company leases office space and facilities from it new President for a quarterly operating stipend of $6,125. Terms of this agreement may be renegotiated after one year. In addition, the Company leases office space on a month-to-month basis from an officer for $125 per month. This officer is a principal in an accounting firm which performs bookkeeping, accounting and other administrative services for the Company. As of June 30, 1997, the Company owed the firm approximately $8,982 for accrued fees and expenses. 5. Income Taxes: At December 31, 1996, the Company has available tax net operating loss carryforwards of approximately $7,700,000, which can be utilized to offset future taxable income. Utilization of these loss carryforwards may be limited due to changes in ownership of the Company, and expire from 1997 through 2011. - 12 - ITEM 2. PLAN OF OPERATION The following discussion should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere herein. The Company's results may be affected by various trends and factors which are beyond the Company's control. These include factors discussed elsewhere herein. With the exception of historical information, the matters discussed below under the headings "Plan of Operations" may include forward-looking statements that involve risks and uncertainties. The Company cautions the reader that a number of important factors discussed herein, and in other reports filed with the Securities and Exchange Commission, could affect the Company's actual results and cause actual results to differ materially from those discussed in forward- looking statements. During June, 1997, the Company selected a new President to guide the Company through its efforts to resolve its outstanding liabilities and re-start its mining efforts. John H. Gasper, MSEM, P.E. replaced Dr. Robert G. Risk, President and Chairman for forty-eight years, effective July 1, 1997. Mr. Gasper is a registered professional engineer with a masters degree in mining engineering. He has extensive experience in the restoration of lands impacted by mining, including Superfund related projects. His efforts have produced award winning designs and have included many areas of mining and civil construction. Mr. Gasper has served as a lecturer at West Virginia University teaching mine design, surveying and mineralogy. He has served as the chief mining engineer for ATEC Associates for over twelve years and has been President of EnviRestore Engineering, LLP for the past year. His efforts to date have led to favorable commitments from the EPA and shareholders. The Company earned no operating revenues during 1995 and 1996 and incurred net losses in those years of $617,069 and $633,057 respectively. Management does not anticipate that any operating revenues will be generated during the year 1997. The Company's most viable prospect for generating income from operations is by achieving production at the Diamond-Resurrection property. The property should be primarily a gold producer, with significant quantities of silver, copper lead and zinc all present in the ores. In order to achieve production from the Diamond property, the Company must secure significant financing for further mine development and to reestablish milling capabilities. Leadville is severely undercapitalized. As of June 30, 1997, the Company has a working capital deficit of $5,096,000 and minimal operating cash. With the exception of the $500,000 in proceeds received in 1996 from issuance of stock, substantially all of Leadville's cash needs have been met loans from the Company's Chairman and by proceeds from short term notes. Management is hopeful that cash needs for 1997 will be met from existing cash resources and short-term borrowings until significant financing can be secured. In 1996 and in the first quarter of 1997, the Company used cash to meet general, administrative and property obligations. In addition, certain long standing past due obligations were settled on terms favorable to Leadville. No capital expenditures were made during the first six months of 1997. The Company's certificates of deposit, in the amount of $133,000, are held as mining reclamation bonds and classified as long term assets. In order for Leadville to continue as a going concern and re-start its mining operations, a significant amount of capital from sources outside the Company will be required. Management is seeking to resume discussions with several mining companies that previously expressed interest in the Diamond and Sherman Mine properties. It is management's assessment that financing will be difficult to obtain until the California Gulch Superfund site cleanup issues are more clearly defined. The EPA Court action involving the Leadville Mining District, for all practical purposes, eliminated Leadville's ability to obtain significant outside financing over the past several years. Management cannot predict if or when the litigation will be resolved to a point where outside parties will show a serious interest and ability to provide financing to Leadville. However, recent discussions with the EPA have been very encouraging and de-listing of some or all of Leadville's properties impacted by the Superfund may take place in the near future. -13- During 1997, management will continue its efforts to obtain financing for the Company's properties through joint- venture, cash investment or a secondary offering of Leadville's stock. No assurance can be given that Leadville will be successful in securing financing. In order to improve the financing prospects for Leadville, management is continuing its efforts to lessen the financial and operating burdens of the Consent Decree with the United States and negotiations with the EPA are continuing. The Company continues to incur significant interest charges associated with the outstanding notes and debentures payable. Management believes that a substantial amount of the note, debenture and associated accrued interest obligations will ultimately be converted to Capital Stock by the holders. The holders of these instruments have the right to convert principal and accrued interest to Capital Stock at prices of $.80 to $1.00 per share. Substantially all holders of the notes and debentures payable are stockholders of the Company. Leadville intends to use the proceeds from significant financing to settle existing obligations, to finance an exploration and development program and to begin production from the Diamond properties. The objective of the exploration program is to identify reserves in addition to the 700,000 tons already identified at the Diamond-Resurrection. In anticipation of settling the environmental litigation, Leadville completed three studies of the Diamond property during 1992, 1993 and early 1997. The studies included verification of known mineralization, evaluation of mine development, and surface geo-physics intended to indicate potential exploration targets. Conclusions of these studies are very encouraging and provide additional evidence that the Diamond-Resurrection property may hold significant deposits of gold, silver and base metals. Full production at the Diamond-Resurrection Mine will require a significant capital expenditure to acquire surface plant and underground equipment. Realizing operating revenues from the Diamond-Resurrection Mine production will require that the Company re-establish milling capabilities at the Stringtown Mill site, construct a new milling facility or make other milling arrangements. No significant capital expenditures are anticipated to be made until such time as the Company secures significant financing or participation on the Diamond properties. Management does not anticipate that there will be any significant change in the number of Company employees, until such time as significant financing can be obtained. The Company's Board of Directors is in the process of expanding its number of members beyond three. In addition to retaining Mr. Gasper as President and a Director, the Company is seeking new members for senior management positions. In recent months, management has been involved in discussion with several mining companies who have expressed preliminary interest in the Diamond-Resurrection and Sherman-Hilltop properties. To date, no agreements have been reached. -14- PART II Item 1. LEGAL PROCEEDINGS UNITED STATES (ENVIRONMENTAL PROTECTION AGENCY) In 1983, Leadville was named as one of several defendants in an action (United States of America vs. Apache Energy and Mineral Company, et al) brought by the United States in Federal District Court in Colorado under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") in connection with the approximately 11.5 square mile California Gulch Superfund site in Lake County, Colorado. In 1986, Leadville was also named as a third party defendant in a suit (State of Colorado vs. Asarco, Inc., et al) involving the same site. The cases were subsequently consolidated. From 1983 through 1988, Leadville negotiated with the United States to have its involvement in the consolidated case dismissed or settled on a de minimis basis. That effort was ultimately unsuccessful. During the years 1989 and continuing into 1993, Leadville attempted to negotiate a settlement of its alleged liability to the United States. Management believed that financing might be obtained by Leadville if the claims asserted by the United States were settled and the financial exposure limited. During August, 1993, a consent decree was entered by the Federal District Court in Colorado whereby the United States agreed to settle Leadville's alleged liability, with the exception of natural resources damages, if any, in consideration for $3,000,000. Under the original terms of the consent decree, a total of $250,000 was to be paid by Leadville over 15 years, with a contingent liability of $2,750,000 to be paid based on profitable operations or sale of properties. Minimum cash payments are to be $10,000 for years 1-5, $15,000 for years 6-10 and $25,000 for years 11-15. During October 1995, Leadville reached agreement, in principle, with the United States to reduce the consent decree obligation amount of $3,000,000 to $500,000, with minimum annual cash payments to begin in April 1996. In effect, the contingent liability of $2,750,000 was reduced to $250,000. In consideration, Leadville agreed to provide to the United States certain dirt and rock material for use by the Environmental Protection Agency (EPA) in remedial action work at the Superfund site. During late 1995, the EPA began to use the dirt material. Leadville management is continuing efforts to improve terms of the consent decree and ultimately, to sever the Company's properties from Superfund Site designation. Leadville has made no payments to the United States, pending resolution of current negotiations with the EPA. In early August 1997, Leadville submitted a report requested by EPA. This report, which focused on controlling water quality in the Yak drainage tunnel, was required by the EPA to begin the de-listing process. The report is currently under review. MINING EQUIPMENT, INC. During December 1988, Leadville raised financing for operations through the sale and lease back of certain mining and milling equipment. In late 1989, due to Leadville's inability to raise financing, scheduled payments under the agreement could not be made and the lessor of the equipment sued in the District Court of Lake County, Colorado to obtain financial relief and possession of the equipment. (Mining Equipment, Inc. vs. Leadville Corporation). In October 1994, Leadville and Mining Equipment, Inc. reached an agreement to settle the case for $678,000. The plaintiff has obtained possession of substantially all mining and milling equipment subject to the lease agreements, with the exception of the Diamond Mine hoist and certain other equipment. The plaintiff's right to possession of the hoist is subordinate to Leadville's debenture holders' first mortgage position. As of June 30, 1997, Leadville is obligated to Mining Equipment, Inc. in the amount of $823,100 including accrued interest. The plaintiff asserts that it has the right to foreclose on Leadville's properties to satisfy the obligation. Leadville contests such assertions and, to date, the plaintiff has not initiated any foreclosure action. - 15 - COWIN & COMPANY, INC. In 1990, Cowin & Company, Inc. Mining Engineers and Contractors filed suit against Leadville in Lake County, Colorado District Court asserting that Leadville was obligated to Cowin & Company, Inc. for approximately $45,000 for contract mining fees and costs. Cowin & Company, Inc. is requesting damages, equipment possession and general relief relating to a contract mining agreement entered into March 3, 1987. Leadville counter-claimed for damages resulting from improper construction of the Diamond Mine shaft and damages resulting from Cowin & Company activities at the site. Since no action had been taken in the case since October 1993, the Court ordered a Status Report be filed on the matter by August 30, 1996. The status report was filed with the Court, however, no action has occurred since then. - 16 - Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed herewith or incorporated by reference to previous filings with the Securities and Exchange Commission. Exhibit Number Description (2) Plan of Acquisition, reorganization, arrangement, liquidation or succession (3) Articles of Incorporation and By-laws (4) Instruments defining the rights of security holders, including indentures (9) Voting Trust Agreement (10) Material Contracts (11) Statement Regarding Computation of Earning Per Share is not required since the information is ascertainable from Leadville's financial statements filed herewith. (13) Annual Report to security holders, Form 10-Q or quarterly report to security holders (16) Letter re: change in accounting principles (19) Documents not previously filed (21) Subsidiaries of the Registrant (22) Published report regarding matters submitted to vote of security holders (23) Consents of experts and counsel (24) Power of Attorney (27) Financial Data Schedule (28) Information from reports furnished to state insurance authorities (29) Additional Exhibits ___________________ (3) The Articles of Incorporation of Leadville were filed with its Form 10-K on May 6, 1965; the By-laws of Leadville were filed with its Report on Form 10-K for the year ended December 31, 1980. (4) Filed with Form 10-K for year ended December 31, 1987. (28) Consent Decree, State of Colorado vs. Asarco, Inc., et al, Defendants and Third Party Plaintiffs vs. Leadville Corporation, et al, Third Party Defendants: United States of America vs. Apache Energy and Minerals Company, et al. (b) Reports on Form 8-K filed during the Registrant's first quarter of 1997. NONE - 17 - SIGNATURES Pursuant to the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LEADVILLE CORPORATION (Registrant) DANIEL F. NIBLER Daniel F. Nibler, Vice President, Secretary-Treasurer, (Principal Financial and Accounting Officer) Dated: AUGUST 15, 1997 - 18 - EX-27 2
5 6-MOS DEC-31-1997 JUN-30-1997 23,391 0 0 0 0 34,089 9,536,147 2,836,780 7,207,095 5,129,898 0 0 0 9,920,791 0 7,207,095 0 0 0 0 175,621 0 211,977 (391,422) 0 (391,422) 0 0 0 (391,422) (.04) (.04)
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