x
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 2002
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-13078
LEADVILLE MINING AND MILLING CORP.
(Name of Small business issuer in its charter)
State of Nevada 13-31805030
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
76 Beaver Street, New York, New York 10005
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (212) 344-2785
Securities registered under Section 12(b) of the Exchange Act: none
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $.001 per share
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| NO |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulations S-B contained in this form, and no disclosure will be contained, to
the best of the 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. |_|
State issuer's revenues for its most recent fiscal year. $3,103.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average between the closing bid
($0.135) and asked ($0.145) price of the issuer's Common Stock as of October 23,
2002, was $5,336,796, based upon the average between the closing bid and asked
price ($0.14) multiplied by the 38,119,971 shares of the issuer's Common Stock
held by non-affiliates. (In computing this number, issuer has assumed all record
holders of greater than 5% of the common equity and all directors and officers
are affiliates of the issuer.).
The number of shares outstanding of each of the issuer's classes of common
equity as of October 21, 2002: 40,637,865.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format: Yes |_| No |X|
LEADVILLE MINING AND MILLING CORP.
Form 10-KSB
July 31, 2002
Table of Contents Page
----------------- ----
Glossary (iii)
Part I
Item 1. Description of Business. 1
Item 2. Description of Properties. 6
Item 3. Legal Proceedings. 13
Item 4. Submission of Matters to a Vote of 13
Security Holders.
Part II
Item 5. Market for Common Equity and 13
Related Stockholder Matters.
Item 6. Management's Discussion and Analysis of 15
Financial Condition and Results of Operations.
Item 7. Financial Statements. 27
Item 8. Changes in and Disagreement with Accountants 27
on Accounting and Financial Disclosure.
Part III
Item 9. Directors, Executive Officers, Promoters 27
and Control Persons; Compliance with
Section 16(a) of the Exchange Act.
Item 10. Executive Compensation. 29
Item 11. Security Ownership of Certain Beneficial 30
Owners and Management and Related
Stockholder Matters.
Item 12. Certain Relationships and Related Transactions. 31
Item 13. Exhibits and Reports on Form 8-K 32
Item 14. Controls and Procedures N/A
Signatures 34
Certifications 35
Supplemental Information 36
Financial Statements F-1
ii
GLOSSARY OF TECHNICAL TERMS
Andesites: Rocks of volcanic origin
Backfilling: Putting waste rock in an open stope.
Caliche: Sediment cemented by calcium carbonate near surface.
Diorite: Igneous Rock
Dikes: Tabular, vertical bodies of igneous rock.
Fissility: Shattered, broken nature of rock
Fracture Foliations: Fracture pattern in rock, parallel orientation,
resulting from pressure.
Heap Leaching: Broken and crushed ore on a pile subjected to
dissolution of metals by leach solution.
Hydrometallurgical
Plant: A smelter that reduces sulfide faults converging from
different directions.
Intercalated: Mixed in
Leadville Dolomite: Name of a specific limestone bed in Leadville, Colorado.
Lithostatic Pressure: Pressure brought on by weight of overlaying rocks.
Magnetite Skarn: The mineral magnetite (iron oxide) in combination with
quartz emplaced in limestone.
Major
Intrusive Center: An area where large funnels exist and through which
large amounts of mineralizing fluids rose.
Mesothermal: Medium Temperature.
Microporphyritic
Latite: Extremely fine grained igneous rock with a distribution
of larger crystals within.
Mudstone: Sedimentary bed composed primarily of fine grained
material such as clay and silt.
Mineral Deposit or
Mineralized Material: A mineralized underground body which has been
intersected by sufficient closely spaced drill holes and
or underground sampling to support sufficient tonnage
and average grade of metal(s) to warrant
iii
further exploration-development work. This deposit does
not qualify as a commercially mineable ore body
(Reserves), as prescribed under Commission standards,
until a final and comprehensive economic, technical and
legal feasibility study based upon the test results is
concluded.
Open Stope: A mined area that remains as an open space.
Patented Claim: Unpatented claim that is now privately owned mineral
land after a grant from the federal government.
Placer Claim: Claim on which minerals are found in sand and gravel -
on surface.
PPM: Part per million.
Pyritized: Invalid and partly replaced by the mineral pyrite.
Reverse Circulation
Drilling (or R.C.
Drilling): Type of drilling using air to expel cuttings.
Replacement
Body: Mineral ore, irregular in form, which is emplaced in
limestone.
Sandstone Lenses and
Thin Limestone
Interbreds: Thin beds of limestone mixed with thin beds of
sandstone.
Sericised: Altered by heat, pressure and solutions.
Silicified: Invalid and partly replaced by silica.
Stockwork Breccia: Earth's crust broken by two or more sets of parallel
faults converging from different directions.
Sills: Tabular, horizontal bodies of igneous rock.
Square Setting: A system of timbering a tunnel or opening underground to
prevent cave-in.
Stockwork: Ore, when not in strata or in veins but in large masses,
so as to be worked in chambers or in large blocks.
Surface Mine: Surface mining by way of an open pit without shafts or
underground working.
v
Unpatented Claim: Mineral land staked on public lands open to
appropriation by mineral location, subject to the
paramount title of the federal government and maintained
by timely payment of an annual fee.
vi
PART I
Item 1. Description of Business
Leadville Mining and Milling Corp. (the "Company," "we" or "us") was
incorporated in the state of Nevada in February 1982. The Company, directly or
indirectly owns rights to property located in the California Mining District,
Lake County, Colorado and concessions located in the State of Sonora, Mexico and
is engaged in the business of exploration for gold and other minerals from these
properties. During the fiscal year ended July 31, 2002, the Company actively
engaged in the evaluation of its Sonora, Mexico concessions. The future of the
Company is dependent upon its ability to continue to fund its exploration and
development activities and, eventually, produce gold, silver, lead and/or zinc
in sufficient quantities in an economically feasible manner. A description of
the mining properties and concessions owned by the Company is contained in "Item
2. Description of Properties." There can be no assurance that any of our
properties or concessions contain a commercially viable ore body or reserves
until additional work is done and an evaluation based on such work concludes
that development of and production from the ore body is technically,
economically and legally feasible. None of our properties or concessions are in
production, and consequently we have no operating income or cash flow.
Sonora, Mexico
El Chanate
On June 29, 2001, we exercised an option and purchased from AngloGold North
America Inc. and AngloGold (Jerritt Canyon) Corp. 100% of the issued and
outstanding stock of Minera Chanate, S.A. de C.V., a subsidiary of those two
companies. Minera Chanate's assets at the time of the closing of the purchase
consisted of 44 exploitation and exploration concessions in the States of
Sonora, Chihuahua and Guerrero, Mexico. We sometimes refer to these concessions
as the El Chanate concessions. See "Item 2. Description of Properties."
Pursuant to the terms of the agreement, on December 15, 2001, we made a $50,000
payment to AngloGold. AngloGold will be entitled to receive the remainder of the
purchase price by way of an ongoing percentage of net smelter returns of between
2% and 4% plus a 10% net profits interest (until the total net profits interest
payment received by AngloGold equals $1,000,000). AngloGold's right to a payment
of a percentage of net smelter returns and the net profits interest will
terminate at such point as they aggregate $18,018,355. In accordance with the
agreement, the foregoing payments are not to be construed as royalty payments.
Should the Mexican government or other jurisdiction determine that such payments
are royalties, we could be subjected to and would be responsible for any
withholding taxes assessed on such payments.
Under the terms of the agreement, we have granted AngloGold the right to
designate one of its wholly-owned Mexican subsidiaries to receive a one-time
option to purchase 51% of Minera Chanate (or such entity that owns the El
Chanate concessions at the time of option exercise). That option is exercisable
over a 180 day period commencing at such time as we notify AngloGold that we
have made a good faith determination that we have gold-bearing ore deposits on
any one of the identified groups of El Chanate concessions, when aggregated with
any ore that we have mined, produced and sold from such concessions, of in
excess of 2,000,000 troy ounces of contained gold. The exercise price would
equal twice our project costs on the properties
1
during the period commencing on December 15, 2000 and ending on the date of such
notice. Based on current information available to us, we do not believe that a
deposit of the size that would trigger these back-in rights is likely to be
identified at El Chanate, at this time.
On February 23, 2002, Minera Santa Rita S. de R.L. de C.V., one of our
wholly-owned Mexican affiliates ("Santa Rita"), now the leasee of the El Chanate
concessions, as discussed below, entered into a joint venture agreement with
Grupo Minero FG S.A. de C.V. to explore, evaluate and develop the El Chanate
concessions. Grupo Minero FG S.A. de C.V., referred to as FG, is a private
Mexican company that owns and operates the La Colorada open-pit gold mine
outside of Hermosillo in Sonora, Mexico. FG also is involved in road
construction and maintenance for the Sonoran government.
Pursuant to the agreement with FG, the venture is being conducted in five
phases. The first two phases entail continued exploration and evaluation of the
mining potential of lots within the concessions. If successful, Phase two will
culminate with a feasibility study. Phase one was completed during the Fall of
2002 and cost approximately $300,000 (see "2002 Activities and Planned 2003
Activities " below). We estimate that Phase two will cost approximately $573,250
and be completed by April 2003. Phase three consists of FG's contribution to the
venture of mining equipment sufficient to develop the lots pursuant to the
feasibility study. Phase three will occur only if the parties determine to
continue and they are able to obtain outside funding for Phase four. We are
unable to estimate Phase four costs at this time. Phase four would involve the
building of an access road, the acquisition of water extraction rights and the
drilling and equipping of water wells. Phase five would entail exploitation,
processing and sale of minerals on a commercial scale.
Pursuant to the agreement, FG paid us $75,000 to participate in the venture and
contributed an additional $75,000 towards the first phase of the venture for
which it received a 30% interest in the venture. The balance of the costs for
Phase one and the costs for Phase two will be split equally between the parties.
As mentioned above, Phase four would be funded from outside sources. Phase five
funding would be provided by the parties in proportion to their respective
interests in the venture.
FG's percentage of the venture can increase to 45%. It increased to 31% upon
completion of Phase one and will increase to 33% upon completion of Phase two;
37% upon its contribution of equipment in Phase three; 40% upon completion of
Phase four; and 45% upon attaining optimal levels of production in Phase five.
Optimal levels of productions will be determined by agreement of the parties.
The venture is terminable, among other reasons, if:
o its purpose is concluded or can no longer be obtained;
o it experiences continued non-profitability;
o the parties elect to terminate it at a meeting of the parties;
o it loses 2/3 of its assets; or
o the parties fail to obtain the requisite financing to fund Phase
four by September 1, 2003.
2
If FG determines that it does not want to continue to participate in the venture
after the parties agree to commence Phase two, or it cannot provide its share of
the funding for Phase two, Santa Rita has a 45 day option to purchase FG's
interest in the venture for $127,500. If Santa Rita does not exercise this
option within the 45 day period and pay the purchase price within 15 days
thereafter, FG may sell its interest to another party.
If additional contributions to the venture are needed as determined by a meeting
of the parties, the parties have 30 days to elect whether they will make these
contributions and an additional 15 days to make their contribution. To the
extent that a party, referred to as the waiving party, does not want to pay its
share or does not pay its share, the other party can make the payment and the
waiving party's percentage interest in the venture will be diluted
proportionately plus 10%. The waiving party can reacquire its lost interest by
repaying the amount previously not paid plus a 25% penalty. These dilution
provisions do not apply to Santa Rita unless and until FG has contributed
$600,000 to the venture. Because its interest in the venture now exceeds 30%, FG
now can be diluted for failure to make its required contributions.
On March 30, 2002, we and our wholly-owned subsidiary, Leadville Mining &
Milling Holding Corporation ("Holding") sold all of the issued and outstanding
shares of stock of Minera Chanate to an unaffiliated party for a purchase price
of US$2,131,616, payable in three installments. We received the first
installment of US$639,485 in April 2002 and the second payment of US$497,377
plus interest at the rate of 4.5% per annum, in August 2002. A third payment of
US$994,754, plus interest at the rate of 4.5% per annum, is due and payable on
or before December 9, 2002. Any portions of the third installment not timely
paid will accrue interest at the rate of 7% per annum. Payment of the balance of
the purchase price is secured by the stock of Minera Chanate. In connection with
the sale of Minera Chanate stock, we incurred approximately $173,000 in
commissions.
During March 2002, prior to the sale of Minera Chanate and pursuant to the FG
joint venture agreement, Minera Chanate, in a series of transactions, sold all
of its surface land and mining claims to Oro de Altar S. de R. L. de C.V.
("Ora"), another of our wholly-owned subsidiaries. Ora, in turn, leased the
foregoing land and mining claims to Minera Santa Rita.
2002 Activities and Planned 2003 Activities
During fiscal 2002, we focused our efforts on the evaluation of our Mexican
properties - the El Chanate concessions. This evaluation (Phase one of the
venture with FG) involved data reviews of existing geologic maps and reports,
drill logs, assay results, resource estimates, surface sample results and land
titles. We utilized independent consultants, in conjunction with company
personnel, in this evaluation. We, along with our technical consultants,
completed reviews and reconnaissance of the 44 remaining early stage exploration
concessions. Following this evaluation, we elected to maintain and focus
exploration and development attention on 12 of the concessions totaling about
approximately 3,506 hectares (8,663 acres or 13.5 square miles). Management
believes that the combination of existing data and analysis generally supports
the existence of a gold deposit that warrants further exploration work.
Metallurgical studies and tests also were undertaken to evaluate the potential
for gold recovery using heap leach technology and showed encouraging recovery
rates. These tests will continue. A 50 hole shallow definition drilling program
is being prepared at El Chanate to define the gold grade to a depth of two (30
ft.) benches of the proposed mine. Assuming adequate finding can be
3
obtained, samples would be on five foot centers and the pulps would be tested
metallurgically for gold recovery. A three hole deeper core drilling program is
also planned at El Chanate. The purpose of these additional activities is to
move toward the preparation, if warranted, of a feasibility study (Phase two of
the FG venture) and a detailed mine plan for the El Chanate project.
In August 2002, we retained SRK Consulting to conduct a Scoping Study of the
proposed project at El Chanate. SRK is an independent, international group of
consulting practices with 29 offices on six continents. SRK has worked with top
companies in the mining industry as well as performing due diligence for many of
the world's largest financial institutions and stock exchanges. A Scoping Study
is a preliminary evaluation, based upon existing data, to determine the
procedure to follow in the feasibility study for a mining project. The Scoping
Study was recently completed and we are awaiting the definitive report. Based on
recent discussions with SRK, the study results indicate that the prospects for a
surface/heap leach mining operation at El Chanate remain positive. SRK has
audited and confirmed the geological and deposit models, the metallurgical
database and the operating cost parameters used by us, and prepared a
preliminary surface mine design, using the floating cone method.
We anticipate that we will be engaging SRK to provide us with an objective
feasibility study of the El Chanate project. Upon completion of this study, we
plan to use the study to seek the requisite project financing.
Management believes that the capital costs to establish a surface, heap leach
mining operation at El Chanate, if economically feasible, could range from $8
million to $12 million or more. Financing, if available, would be sought through
bank loans. Currently, we are in discussion with certain banks regarding capital
financing. Normal expenditures for the next fiscal year in New York and Mexico,
such as Colorado holding costs, general administration, accounting and legal are
estimated to be approximately $340,000 with our portion of exploration and
related activities estimated at $613,000. Surface mine development would add
another $8 million to $12 million. Management believes, but cannot assure, that
we will be able to cover a significant portion if not all of such normal costs
other than establishing a heap leach mining operation for the fiscal year ending
July 31, 2003 with the funds obtained from the sale of Minera Chanate and that
we will be able to obtain funding to accomplish all projected tasks, primarily
commencement of activities towards establishing a Surface mine, heap leach
mining operation from bank financing.
There can be no assurance that current exploration work will lead to the opening
of a mine at El Chanate, that any mining will be profitable or that necessary
additional funding can be obtained. Assuming that we are able to obtain adequate
funding, we intend to continue work at the El Chanate project. (See "Part II,
Item 6, Management's Discussion and Analysis of Financial Condition and Results
of Operations; Liquidity and Capital Resources").
4
Leadville, Colorado
Developments
During the fiscal year ended July 31, 2002, activity at our Leadville, Colorado
properties consisted primarily of mine maintenance. Plans to offset drill R.C.
hole #34 were not carried out due to time constraints and our focus on work at
El Chanate. Primarily as a result of our focus on El Chanate, we temporarily
ceased activities in Leadville, Colorado. During the year ended July 31, 2002,
we performed a review of our Leadville mine and mill improvements and determined
that an impairment loss should be realized. Therefore, we significantly reduced
the carrying value of certain assets relating to our Leadville, Colorado assets
(see, "Part II, Item 6, Management's Discussion and Analysis of Financial
Condition and Results of Operations; Results of Operations").
Company Mill
We have a mill situated on a 20.73-acre site in Leadville, Colorado.
Construction of the mill began in 1987 and was completed in August of 1989. The
mill is not in operation at this time. Milling of ore would not be required if
heap leach technology were employed at our property in Colorado.
Competition
The acquisition of gold properties and their exploration and development are
subject to intense competition. Companies with greater financial resources,
larger staffs, more experience and more equipment for exploration and
development may be in a better position than us to compete for such mineral
properties. Our lack of revenues and limited financial resources further hinder
our ability to acquire additional mineral properties. However, should we
commence mining operations, we believe that there is no material competition in
the sale of metallic products because prices are based upon standards
established by the commodity exchange (London Metals Exchange market).
Employees
As of July 31, 2002, we had six full time employees, and one part time employee.
5
Item 2. Description of Properties
El Chanate Properties - Sonora, Mexico
Through our wholly-owned subsidiary, Oro de Altar S. de R. L. de C.V., and our
affiliate, Santa Rita, we own 100% of the following 12 mining concessions, all
of which are located in the Municipality of Altar, State of Sonora Republic of
Mexico, subject to the terms of our joint venture agreement with FG which allows
FG to earn up to a 45% interest in the venture.
Concession Name Title Number Hectares
--------------- ------------ --------
San Jose 200,718 96.0000
Las dos Virgen 184,213 132.2350
Rono #1 206,408 82.1902
Rono #3 198,040 197.2180
Elsa 197,010 2035.3996
Ena 199,045 190.0000
Eva 197,007 416.8961
Edna 199,698 24.0423
Olga 198,249 60.5866
La Cuchilla 196,945 172.0000
Elisa 197,138 78.4717
Mirsa 198,242 20.5510
Leadville, Colorado
We own or lease the following patented claims (except where noted), all of which
are located in California Mining District, Lake County, Colorado, Township 9
South, Range 79.
Gross Net
Claim Percent Acreage Acreage Location
Count Ownership CLAIM NAME CLAIM# of Claim % Owned of Claim T-Section-R
1 16% Ballard 589 3.20 0.16 0.50 20-9-79
2 50% BELLE PLACER 2778 129.00 0.50 64.50 14-9-79
13% BELLE PLACER 2778 0.13 16.80 14-9-79
3 3% Big Six (West End) 1616 3.70 0.03 0.11 20-9-79
6% Big Six (West End) 1616 0.06 0.22 20-9-79
8% Big Six (West End) 1616 0.08 0.30 20-9-79
4 100% Bonanza 1088 5.92 1.00 5.92 20-9-79
5 25% Boulder Nest 3574 6.48 0.25 1.62 18-9-79
6 8% Chestnut 712 9.40 0.08 0.80 30-9-79
7 50% CHICAGO 1295 10.20 0.50 5.10 23-9-79
8 100% Chieftain 978 8.55 1.00 1.00 19-9-79
9 100% Codfish Balls 767 2.60 1.00 2.60 19-9-79
10 12% Colman 9747 1.50 0.12 0.18 20-9-79
88% Colman 9747 0.88 1.32 20-9-79
11 100% COLUMBINE CMC-248958 7.30 1.00 7.30 14&23
12 100% Comstock 1542 3.50 1.00 3.50 20-9-79
13 100% Comstock (unpatented) 3613 9.70 1.00 9.70 20-9-79
6
14 100% Cora Belle 3919 6.70 1.00 6.70 20-9-79
15 100% Curran 449 8.80 1.00 8.80 20-9-79
16 100% Cyclops 1567 8.70 1.00 8.70 19-9-79
17 100% Devlin 1579 7.60 1.00 7.60 19-9-79
18 17% Dolphin ** 719 1.99 0.17 0.33 24-9-80
19 3% Elbert 4163 9.90 0.03 0.30 20-9-79
6% Elbert 4163 0.06 0.60 20-9-79
8% Elbert 4163 0.08 0.80 20-9-79
20 38% EMMA 756 8.30 0.38 3.10 29-9-79
21 75% Free America #2 1177 4.20 0.75 3.20 20-9-79
22 100% Golden rod 9441 4.00 1.00 4.00 20-9-79
23 100% Grand Prize 473 AM 4.50 1.00 4.50 20-9-79
24 13% Great Hope 489 10.30 0.13 1.30 20-9-79
25 50% Greenback 1043 4.00 0.50 2.00 19-9-79
26 3% Greenwood 630 9.40 0.03 0.30 19-9-79
6% Greenwood 630 0.06 0.50 19-9-79
27 100% Highland Chief 429 2.10 1.00 2.10 20-9-79
28 100% Highland Mary 539 6.60 1.00 6.60 20-9-79
29 100% Homestake 1540 7.60 1.00 7.60 20-9-79
30 10% Horseshoe ** 1493 5.48 0.10 0.54 30-9-79
31 100% Hubert * 11286 1.14 1.00 1.14 21-9-79
32 8% Ishpeming 1018 8.20 0.08 0.70 20-9-79
83% Ishpeming 1018 0.83 6.90 20-9-79
33 32% J G Fraction 13251 1.70 0.32 0.60 20-9-79
34 100% JFW * 15176 0.02 1.00 0.02 21-9-79
35 50% Josephine Plus ** 3226 0.50 - 32-9-79
36 100% JUDY CMC-248957 18.00 1.00 18.00 14&23
37 8% KRL 4299 4.70 0.08 0.40 20-9-79
38 100% Lady Jane 491 8.90 1.00 8.90 20-9-79
39 38% Little Bertha 504 8.40 0.38 3.10 20-9-79
40 11% Little Chief 358 6.98 0.11 0.76 24-9-80
41 100% Little Chippewa 655 9.90 1.00 9.90 20-9-79
42 13% Little Galesburg 1176 6.00 0.13 0.10 20-9-79
88% Little Galesburg 1176 0.88 5.24 20-9-79
43 3% Little Maud 758 4.90 0.03 0.10 20-9-79
6% Little Maud 758 0.06 0.30 20-9-79
8% Little Maud 758 0.08 0.40 20-9-79
44 50% Medium 13344 4.80 0.50 2.40 20-9-79
50% Medium 13344 0.50 2.40 20-9-79
45 100% MIKADO 8015 9.30 1.00 9.30 23-9-79
46 8% Mineral Farms 1359 9.10 0.08 0.80 20-9-79
47 8% Minnesota 2651 2.80 0.08 0.20 20-9-79
48 11% New Discovery 286 10.70 0.11 1.17 24-9-80
49 50% NEW YORK 1294 10.10 0.50 5.10 23-9-79
50 100% Ohio 584 1.10 1.00 1.10
51 8% Park 838 10.30 0.08 0.82 20-9-79
8% Park ** 838 0.08 0.86 19-9-79
52 8% Park#2 897 9.70 0.08 0.80 20-9-79
53 96% PHARMACIST 11617 1.20 0.96 1.20 19-9-79
54 9% Pittsburg 422 8.43 0.09 0.79 19-9-79
55 44% President 8942 6.90 0.44 3.04 20-9-79
6% President 8942 0.06 0.41 20-9-79
56 50% PRIDE OF THE WEST 3963 0.90 0.50 0.40 19-9-79
57 63% PROSPERINE & 5214 9.90 0.63 6.20 19-9-79
58 100% PT ZUNI PLACER Personal prop. 22.00 1.00 22.00
59 75% PUEBLO 12718 36.60 0.75 27.50 23-9-79
60 39% Pyrenees 1537 6.80 0.39 2.60 19-9-79
61 100% R A M 1566 5.90 1.00 5.90 19-9-79
62 50% Ready Cash ** 304 10.33 0.50 5.17 33-9-79
7
63 100% Robert Burns 538 9.90 1.00 9.90 20-9-79
64 100% Rocky & Snowflake * 5038 9.40 1.00 9.40 21.9-79
65 100% Security 3181 2.85 1.00 2.85 19-9-79
66 8% Silver Cloud 1016 4.90 0.08 0.40 20-9-79
67 100% Silver Spray 1539 2.10 1.00 2.10 20-9-79
68 8% Snow 4161 3.70 0.08 0.30 20-9-79
69 100% St. Ann 4640 6.70 1.00 6.70 21-9-79
70 100% St. Louis 558 8.00 1.00 8.00 21-9-79
71 25% Stray Horse 301 7.30 0.25 1.83 24-9-80
72 100% Tokio * 9923 1.01 1.00 1.01 21-9-79
73 100% Wade Hampton 1538 6.10 1.00 6.10 20-9-79
74 8% XYT 4162 7.10 0.08 0.60 20-9-79
92% XYT 4162 0.92 6.50 20-9-79
totals 635.97 403.44
* Highland Group Affiliation
** Purchase at Sheriff's tax sale, pending completion of payments.
Note: We may have multiple agreements for the same claim that cover
fractional ownership interests.
We own or have rights to explore, develop and mine the foregoing claims as
indicated. We have not formed any partnership or joint venture regarding these
claims, nor is there any associations whereby profits or expenses are to be
shared. The claims are located approximately 2.5 miles northeast of the town of
Leadville, Colorado and are accessible by County Road. The principal acreage
forms a contiguous group and is located on a prominent topographic feature known
as Breece Hill, as indicated in the discussion of the Hopemore Project below.
General Information
El Chanate Project - Sonora Mexico
The El Chanate project is located in the State of Sonora, Mexico, 37 kilometers
northeast of the town of Caborca. It is accessible by paved and all weather dirt
roads. Driving time from Caborca is approximately 40 minutes. Access is via the
village of 16 de September.
The project is situated on the Sonora desert in a hot and windy climate,
generally devoid of vegetation with the exception of cactus. The terrain is
generally flat with immense, shallow basins, scattered rock outcropping and low
rocky hills and ridges. The desert floor is covered by shallow, fine sediment,
gravel and caliche. The main body of the known surface gold covers and
irregularly shaped area of approximately 1,800 feet long by 900 feet wide.
Several satellite bodies on surface exist which have not been thoroughly
explored. Assays on chip samples taken from trenches at these locations by the
Company indicate the presence of gold mineralization.
The general El Chanate mine area has been mined for gold since the early 19th
century. A number of old underground workings exist characterized by narrow
shafts, to a depth of several tens of feet and connecting drifts and cross cuts.
No information exists regarding the amount of gold taken out; however,
indications are that mining was conducted on a small scale.
8
Geology
The project area is underlain by sedimentary rocks of the Late Jurassic - Early
Cretaceous Bisbee Group, and the Late Cretaceous Chanate Group, which locally
are overlain by andesites of the Cretaceous El Charro volcanic complex. The
sedimentary strata are locally intruded by Andesitic sills and dikes, a
microporphyritic latite and by diorite stock. The sedimentary strata are
comprised of mudstone, siltstone, sandstone, conglomerate, shale and limestone.
Within the drilled resource area, a predecessor exploration company
differentiated two units on the basis of their position relative to the Chanate
fault. The upper member is an undifferentiated sequence of sandstone,
conglomerate and lesser mudstone that lies above the Chanate fault and it is
assigned to the Escalante Formation of the Middle Cretaceous Chanate Group. The
lower member is comprised of mudstone with intercalated sandstone lenses and
thin limestone interbreds; it lies below the Chanate fault and is assigned to
the Arroyo Sasabe Formation of the Lower Cretaceous Bisbee Group. The Arroyo
Sasabe formation overlies the Morita Formation of the Bisbee Group. Both the
Escalante and Arroyo Sasabe formations are significantly mineralized proximal to
the Chanate fault, while the Morita Formation is barren.
The main structural feature of the project area is the Chanate fault, a 7km long
(minimum) northwest-striking, variably southwest-dipping structure that has been
interpreted to be a thrust fault. The Chanate fault is overturned
(north-dipping) at surface, and is marked by brittle deformation and shearing
which has created a pronounced fracture foliation and fissility in the host
rocks. In drillholes the fault is often marked the presence of an andesitedike.
Reports prepared by a predecessor exploration company describe the fault as
consisting of a series of thrust ramps and flats; however, geologic cross
sections which the Company has reviewed but did not prepare may negate this
interpretation.
Alteration/Mineralization
A predecessor exploration company has defined a 600 meter long, 300 meter wide,
120 meter thick zone of alteration that is centered about the Chanate fault. The
strata within this zone have been sericised, silicified and pyritized to varying
degrees. In surface outcrop the altered zone is distinguished by its bleached
appearance relative to unaltered rock. The mineralized zone contains only single
digit ppm levels of silver. Dense swarms of veinlets form thick, mineralized
lenses, within a larger area of subeconomic but anomalous gold concentrations.
Drillhole data indicates that the mineralized lenses are subhorizontal to gently
southwest-dipping and are grossly parallel to the Chanate fault. The fault zone
itself is only weakly mineralized, although strata in the near hanging wall and
footwall are appreciably mineralized.
Work to Date
The El Chanate property has been the site of small scale mining of high grade
quartz veins (La Cuchilla mine) during the last century. Modern exploration
includes a few core holes drilled by Phelps Dodge in the 1960's as part of a
copper exploration program. Kennecott conducted geologic mapping and geochemical
sampling in 1991 and dropped the property. A Mexican subsidiary of AngloGold
explored the property intermittently between 1992 and 1997, and has conducted
extensive surface geologic mapping, geochemical sampling, geophysical studies
and
9
drilling, including 11,000 meters of trenching, over 14 line-kilometers of
induced polarization geophysical surveys, 61 line-kilometers of VLF-magnetometry
geophysical surveys, 87 line-kilometers of enzyme leach geochemical surveys and
34,000 meters of R.C. drilling in 190 holes and 1080 meters of diamond drilling
in 9 holes. That company also commissioned various consultant studies concerning
petrography, fluid inclusions, air photo interpretation and structural analyses,
and conducted some metallurgical testwork.
In April and May 2002, to confirm previous results obtained by third parites and
to provide specifically located metallurgical test samples, we drilled six
diamond core holes totaling 1,508 feet into the main mineralized zone at El
Chanate. Management believes that the diamond drill results generally confirmed
the previous results and, in June 2002, we drilled an additional 17 reverse
circulation holes totaling 4,170 feet. This reverse circulation drill program
confirmed previous results and also expanded certain mineralized areas. The
total number of holes is now 222. Of these, 206 are reverse circulation drill
holes and 15 are diamond drill holes. Detailed check assays were obtained both
for core samples and for reverse drill samples that initially assayed greater
than 0.3 gm/tonne. Chemex Labs, Vancouver, Canada, preformed both the initial
and the check assays, and the check assays supported the initial assay results.
Metallurgical studies and independent tests of El Chanate mineralization
continue. Management believes that these tests continue to show promise that
heap leach technology can be utilized at El Chanate
Further Developments
As discussed above in "Item 1. Description of Business; 2002 Activities and
Planned 2003 Activities," we have had preliminary analysis of El Chanate
performed by SRK Consulting, an independent consultant. Management believes that
the results of that analysis are sufficiently encouraging that, management
intends to perform further exploration and development work at the El Chanate
project (see the discussion below) including a Feasibility Study. While
management remains optimistic about the foregoing results, we cannot predict the
outcome of the Feasibility Study.
Our Current Plans for the El Chanate Project
We, along with our joint venture partner, FG, plan to continue to collaborate
with SRK. We hope to have SRK conduct and complete a feasibility study for
possible bank financing. The study will include metallurgy, economics, planning
and design. Assuming that adequate funding is available, we believe that the
feasibility study will be financed by us and by our partner, FG. Assuming that
the feasibility and related engineering studies show progressive encouragement,
we anticipate they will be mostly completed by the end of our Fiscal Year 2003.
Assuming adequate funding can be obtained, that required permits are obtained,
and that the feasibility and related engineering studies yield positive
outcomes, we would anticipate beginning project construction before the end of
the calendar year 2003. Our current plans for the rest of Fiscal 2003 (and
calendar year 2003) include:
Metallurgical Testing. Planned metallurgical test work would utilize drill core
for further studies of the metallurgical recovery. It is important to know what
the recoveries would be in the
10
heart of the deposit from where initial production would come. The design of a
crusher and/or grinding system and a gold recovery plant would be based on the
test work. The plant would be located on site at El Chanate and would process
ores removed from the El Chanate mine.
Refined Economic Optimization Studies. We would calculate engineered capital
costs using contract mining and new metallurgical recovery information.
Thereafter, we would calculate operating cost estimates, including Mexican tax
considerations and labor rates as well as currency fluctuations.
Mine Planning and Design of Service Facilities. We plan to develop an engineered
mine plan with detailed month by month production schedules. Mine planning would
include: equipment types and sizes, bench heights and haul road design; leach
pad design and site location; access road location; fuel location and storage;
administration facility; maintenance shop and warehouse complex; assay
laboratory; gate house and ambulance shelter; power and electrical supplies and
distribution lines; water supply and distribution lines; security provisions;
sewage disposal sites; propane supply; and fire protection.
Environmental and Permitting. We already own the surface over the deposit. We
will need to obtain mining permits from state, federal and local governments,
including water permits for processing ores and electrical permits to purchase
or produce our own power. We also need to establish reclamation plans.
Site Construction. If warranted, we plan to construct a surface gold mine and
facility capable of producing about 2.0 million tons per year of ore and about
40,000 ounces of gold per year, over a four year mine life, at a targeted cash
cost of less than $220 per ounce.
Hopemore Project - Leadville, Colorado
The Leadville mining district is located 100 miles west of Denver, Colorado in
the heart of the Rocky Mountains. The weather is harsh with long winters and
short summers. The Hopemore Project can be reached by paved state highway and
other paved roads. Work by us started in 1984 with the acquisition of the
Comstock Hopemore Group of claims. Retimbering of the entire Hopemore shaft
followed along with establishment of the new 7th level, partial rehabilitation
of the other levels, several raises, the 5th level connection with the Hunter
shaft, construction of a mill and the retimbering of the Hunter escape shaft.
Historically, our properties were worked as separate mining areas, the Hopemore
and Hunter shafts in the Ibex area. The ores were not concentrated by milling
but were shipped directly to the Arkansas Valley Smelter in Leadville.
The Hopemore shaft was worked as part of the Ibex mines until approximately
1902. The Hopemore shaft was sunk in 1907 to reach the 7th level of the Ibex No.
4 mine. Ore bodies in the Leadville dolomite (Blue limestone) lie on the hanging
wall side (southwest) of the Ibex No. 4 vein. The ore is associated with a large
magnetite skarn replacement body in the Leadville dolomite. The Leadville
dolomite on the footwall (east) side of the Ibex No. 4 vein was mined via the
Hunter Shaft.
11
Ground conditions in the district generally do not allow open stopes, therefore,
square setting and backfilling with waste of low-grade ore was commonly
practiced. When the large historic ore bodies of the Hopemore were mined, zinc
sulfide ore was of no value. High zinc ore was penalized at the local lead
smelter, and it is believed that much of the backfill from historic operations
may be high-grade zinc mineralization.
The Hopemore area historically has been mined from the Ibex No. 7 level. The
lower host rocks of the Manitou and Dyer formations are thought to remain
unexplored. Steep sulfide veins commonly control the mineralized zones. Four
veins have been identified which could feed replacement mineral bodies in these
underlying formations. The potential mineral bodies are massive sulfide and
could contain between 25,000 to 80,000 tons each of mineralized material. [Scott
Hazlitt Geological Report, Leadville Mining & Milling Properties, January 1993].
Geology
The deposits in the Leadville district include precious and base metal massive
sulfide veins and carbonate hosted deposits near surface oxidized deposits, gold
bearing magnetite skarns, and gold rich veins. The major ore bodies are hosted
in Paleozoic aged, shelf carbonate rocks with a total thickness of 600 feet.
These sedimentary rocks have been intruded by a series of sills and dikes and
faulted, resulting in complex geology. Our properties are located on Breece
Hill, which is a major intrusive center, containing deposits of gold, silver and
base metal mineralization.
Weston Fault Massive Sulfide
The Weston fault forms the western boundary of the down-dropped block that
contains the deposits of the Black Cloud mine south and east of our properties.
The Black Cloud mine was operated from the early 1970's until 1998 by ASARCO,
primarily for lead and zinc. The Hopemore-Hunter workings are separated from the
Penn Group by the Weston fault that has had a complex history of movement. Early
compressional tectonics are believed to have resulted in minor over thrusting
and drag folding, possibly similar to that along the Tucson Main Fault on Iron
Hill. Later normal faulting resulted in a near vertical structure with the east
side down faulted. These two episodes of movement are believed to have produced
two strands of the Western Fault. The ground between the two strands of the
fault should have undergone good ground preparation and may contain the
favorable carbonate section for massive sulfide blanket mineralization. [Scott
Hazlitt Geological Report, Leadville Mining & Milling Properties, January 1993].
Weston Fault Stockwork Breccia
Along the southern strike of the Weston fault zone, intersecting faults have
hosted stockwork breccia zones that contain precious metals and are low in
sulfides. The Antioch mine was mined for precious metals during the early part
of the twentieth century, producing a siliceous gold ore contained in a broken
and brecciated porphyry body between two fault strands. Another similar
stockwork breccia ore zone is known as the South Ibex stockwork or Capital stope
that contained approximately 250,000 tons of mineralized rock. There are two
strands of the Weston fault on
12
our property. The strike length controlled is from 1,400-1,600 feet. [Scott
Hazlitt Geological Report, Leadville Mining & Milling Properties, January 1993].
Item 3. Legal Proceedings
We are not presently a party to any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our shareholders during the fourth
quarter of fiscal 2002.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Marketing Information -- The principal U.S. market in which our common
shares (all of which are of one class, $.001 par value Common Stock) are traded
or will trade is in the over-the-counter market (Bulletin Board Symbol: "LMMI").
Our stock is not traded or quoted on any Automated Quotation System.
The following table sets forth the range of high and low bid quotes of our
Common Stock per quarter for the past two fiscal years as reported by the OTC
Bulletin Board (which reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not necessary represent actual transactions).
MARKET PRICE OF COMMON STOCK
Bid
Quarter Ending High and Low
-------------- -------------------
July 31, 2002 0.37 0.102
April 30, 2002 0.29 0.10
January 31, 2002 0.25 0.11
October 31, 2001 0.38 0.15
July 31, 2001 0.43 0.19
April 30, 2001 1.03125 0.35
January 31, 2001 1.70 0.4375
October 31, 2000 0.85 0.40
(b) Holders -- The approximate number of recordholders of our Common
Stock, as of October 21, 2002 amounts to 1,550 inclusive of those brokerage
firms and/or clearing houses holding our common shares for their clientele (with
each such brokerage house and/or clearing
13
house being considered as one holder). The aggregate number of shares of Common
Stock outstanding is 40,637,865 as of October 21, 2002.
(c) Dividends - We had not paid or declared any dividends upon our Common
Stock since inception and, by reason of our present financial status and our
contemplated financial requirements, do not contemplate or anticipate paying any
dividends upon our Common Stock in the foreseeable future.
During the quarter ended July 31, 2002, we issued the following shares of our
Common Stock pursuant to the exemption from registration provided by Section
4(2) of the Securities Act of 1933: We sold an aggregate of 350,000 shares for
an aggregate of $34,650 to three persons. We also issued 135,950 shares to two
individuals for commissions related to sales of common stock.
14
The following table gives information about our Common Stock that may be issued
upon the exercise of options, warrants and rights under all of our equity
compensation plans as of July 31, 2002.
Number of Number of securities
Securities to be remaining available
issued upon Weighted-average for future issuance
exercise of exercise price of under equity
outstanding outstanding compensation plans
options, warrants options, warrants (excluding securities
Plan Category and rights and rights reflected in column (a))
=================================================== ================= ================= ========================
(a) (b) (c)
=================================================== ================= ================= ========================
Equity compensation plans approved by security
holders: -0- $ -0- N/A
========== ===== =====
Equity compensation plans not approved by security 2,795,454 $.022 N/A
holders: 25,000 .50 N/A
97,826 .115 N/A
8,809,090 .22 N/A
========== ===== =====
Total 11,727,370 $.199 N/A
========== ===== =====
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Cautionary Statement on Forward-Looking Statements
Some information contained in or incorporated by reference into this report on
Form 10-KSB may contain "forward-looking statements," as defined in Section 21E
of the Securities and Exchange Act of 1934. These statements include comments
regarding exploration and mine development and construction plans, costs, grade,
production and recovery rates, permitting, financing needs, the availability of
financing on acceptable terms or other sources of funding, and the timing of
additional tests, feasibility studies and environmental permitting. The use of
any of the words "anticipate," "continue," "estimate," "expect," "may," "will,"
"project," "should," "believe" and similar expressions are intended to identify
uncertainties. We believe the expectations reflected in those forward-looking
statements are reasonable. However, we cannot assure you that these expectations
will prove to be correct. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of the risk factors
set forth below and other factors set forth in, or incorporated by reference
into, this report:
o worldwide economic and political events affecting the supply of and
demand for gold;
o volatility in market prices for gold and other metals;
15
o financial market conditions, and the availability of debt or equity
financing on terms acceptable to our company;
o uncertainties as to whether additional drilling, testing and
feasibility studies will establish reserves at any of our
properties;
o uncertainties associated with developing a new mine, including
potential cost overruns and the unreliability of estimates in early
states of mine development;
o uncertainties as to title to our properties and the availability of
sufficient properties to allow for planned activities at Leadville
in Colorado and at El Chanate in Mexico.
o variations in ore grade and other characteristics affecting mining,
crushing, milling and smelting operations and mineral recoveries;
o geological, metallurgical, technical, permitting, mining and
processing problems;
o the availability and timing of acceptable arrangements for power,
transportation, mine construction, contract mining, water and
smelting; the availability, terms conditions and timing of required
government approvals;
o uncertainties regarding future changes in tax and foreign-investment
legislation or implementation of existing tax and foreign-investment
legislation;
x the availability of experienced employees; and
o political instability, violence and other risks associated with
operating in a country like Mexico with a developing economy.
Many of those factors are beyond our ability to control or predict. You should
not unduly rely on these forward-looking statements. These statements speak only
as of the date of this report on Form 10-KSB. Except as required by law, we are
not obligated to publicly release any revisions to these forward-looking
statements to reflect future events or developments. All subsequent written and
oral forward-looking statements attributable to our Company and persons acting
on our behalf are qualified in their entirety by the cautionary statements
contained in this section and elsewhere in this report on Form 10-KSB.
Results of Operations
General
During the fiscal year ended July 31, 2002, we continued to analyze the El
Chanate concessions. In fiscal 2002, we conducted data reviews and exploration
reconnaissance on 44 remaining mineral concessions. The majority of these
concessions were many miles from the El Chanate project and were mostly located
over early stage prospects, or along conceptual geologic projections, which did
not contain any developed mineral resources. As a result of this review, we
succeeded in our objective of reducing property holdings to a coherent package
of 12 contiguous, high priority concessions totaling approximately 3,506
hectares (8,663 acres or 13.5 square miles) which now comprise the El Chanate
project. Further exploration and development
16
of the El Chanate project, assuming it is economically feasible, will mostly
occur on these concessions owned by us. We also own outright 466 hectares (1,151
acres or 1.8 square miles) of surface rights at El Chanate (except for our joint
venture agreement with FG) and no third party ownership or leases exist on this
fee land or the El Chanate concessions.
In addition to reducing outlying property holdings, through our engineering
consultants and with FG, we conducted metallurgical tests to determine the most
optimal and economically feasible crushing and or grinding sizes for processing
the El Chanate deposit. Management believes that these studies showed that El
Chanate deposits are generally well suited for treatment using dilute cyanide
solutions, and ore grade samples from El Chanate have shown recoveries from rock
tested after crushing to minus 1/2 inch size. The result of the crushing and
grinding studies show that the gold recovery increases significantly as the rock
is reduced to finer particle sizes. Test work was conducted at Resources
Development Inc. in Wheat Ridge, Colorado and in Mexico at the La Colorada mine
laboratory, which is owned by FG, our joint venture partner. We are generally
encouraged by these results and additional tests are continuing into fiscal year
2003.
In August 2002, we retained SRK Consulting to conduct a Scoping Study of the
proposed project at El Chanate. The Scoping Study was recently completed and we
are awaiting the definitive report. Based on recent discussions with SRK, the
study results indicate that the prospects for a surface/heap leach mining
operation at El Chanate remain positive. Additional exploratory drilling may be
conducted, assuming adequate funding is available, to expand the known deposit
in addition to, further infill drilling, which will concentrate the present
drill pattern and improve the density of drill holes. Upon completion of our
evaluation, provided the results are satisfactory, and that adequate financing
is available, we hope to be ready for further development and subsequent
production.
Fiscal year ended July 31, 2002 compared to fiscal year ended July 31,
2001
Revenues.
We generated no revenues from mining operations during the fiscal year ended
July 31, 2002 and 2001. We generated de minimis interest income during both
periods.
Costs and Expenses.
Over all, costs and expenses during the 12 months ended July 31, 2002
($2,575,000) decreased by $6,846,000 (approximately 72.7%) from the 12 months
ended July 31, 2001 ($9,421,000). This decrease primarily relates to a decrease
in stock based compensation.
In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," we review our long-lived assets
for impairments. Impairment losses on long-lived assets are recognized when
events or changes in circumstances indicate that the undiscounted cash flows
estimated to be generated by such assets are less than their carrying value and,
accordingly, all or a portion of such carrying value may not be recoverable.
Impairment losses then are measured by comparing the fair value of assets to
their carrying amounts. Primarily as a result of our focus on El Chanate, we
temporarily ceased activities in Leadville, Colorado. During the year ended July
31, 2002, we performed a review of our Colorado mine and mill improvements and
determined that an impairment loss should be
17
recognized. Accordingly, at July 31, 2002, we reduced by approximately $999,000
the carrying value of certain assets relating to our Leadville, Colorado
facility to $300,000, which approximates our management's estimate of fair
value.
Mine expenses during the 12 months ended July 31, 2002 ($710,000) decreased by
$273,000 (approximately 27.8%) from the 12 months ended July 31, 2001
($983,000). We believe that the decrease in mine expenses resulted primarily
from lack of available capital and our cessation of activities in Colorado.
Selling, general and administrative expenses during the 12 months ended July 31,
2002 ($640,000) decreased by $792,000 (approximately 55.3%) from the 12 months
ended July 31, 2001 ($1,432,000). We believe that the decrease was due to the
lack of available capital.
Stock based compensation decreased $6,781,000 approximately (96.8%) during the
12 months ended July 31, 2002 ($222,000) from the 12 months ended July 31, 2001
($7,003,000).
Net Income.
As a result, our net loss for the 12 months ended July 31, 2002 was $492,000,
which was $8,926,000 less than our $9,418,000 loss for the 12 months ended July
31, 2001. Had we not sold Minera Chanate, our net loss for the 12 months ended
July 31, 2002 would have been approximately $2,400,000.
Liquidity and Capital Resources
As of July 31, 2002, we had working capital of approximately $1,193,000.
Included in working capital is a receivable for the sale of Minera Chanate still
outstanding at the date hereof of approximately $995,000. As noted below,
management anticipates that we will need at least $953,000 in order to carry out
our plans for fiscal 2003 which includes the costs of administration and mine
related activities and an additional $8 million to $12 million in order to
develop a surface mine at the El Chanate project if deemed economically
feasible. To the extent that cash flow is unavailable, management intends to
raise all necessary capital through bank financing and/or the sale of our
securities.
Assuming that we are able to obtain funds, planned activities over the next year
in Mexico, in order of priority, are as set forth below. Some of these
activities may not be completed by July 31, 2003, the end of our current fiscal
year.
18
Activity Estimated Cost*
-------- ---------------
Leadville, Colorado
Holding cost, maintenance, insurance $ 33,000
Sonora, Mexico
Drilling, metallurgical, travel 70,000
SRK feasibility, technical (environmental,
water, geotechnical) 282,000
Taxes, legal, accounting, rent 75,000
Salaries - Mexico $186,000
--------
$646,000
Capital Funding (surface mine) 8,000,000/12,000,000
(if economic)
New York, NY - Admin
Wages & Salaries $147,000
Rent & office expenses 75,000
Legal & accounting 85,000
--------
$307,000
Total $8,953,000 - $12,953,000
========================
----------
* Does not include contributions by FG.
Management has been funding these basic requirements and hopes to continue to
fund these requirements through funds obtained from sale of Minera Chanate. We
received approximately $639,000 from the sale of Mineral Chanate during the
fiscal year ended July 31, 2002, an additional $497,000 to date in the current
fiscal year and we anticipate receiving an additional $995,000 from this sale
during the balance of fiscal 2003. During the year ended July 31, 2002, we
obtained approximately $400,000 from the issuance of Common Stock.
In the event that insufficient funds are available, some projects could be
curtailed or eliminated.
There is no assurance whatsoever that we will generate any operating revenues
during the fiscal year ending July 31, 2003 or that any of our proposed plans to
raise capital and otherwise fund operations will prove successful. Our inability
to obtain sufficient funding will delay our planned operations or, possibly,
force us to go out of business.
Environmental Issues
Management does not expect that environmental issues will have an adverse
material effect on our liquidity or earnings. Before any additional exploration
or any development or mining or construction of milling facilities could begin
at our Leadville properties, it would be necessary to meet all environmental
requirements and to satisfy the regulatory agencies in Colorado that our
proposed procedures fell within the boundaries of sound environmental practice.
We currently are bonded to insure reclamation of any areas disturbed by our past
activities. The current amount of this bond is $42,150. In Mexico, we are not
aware of any significant environmental concerns or existing reclamation
requirements at the El Chanate properties. However, we will be required to
obtain various environmental and related permits in order to engage in our
planned activities at El Chanate. This has presently been undertaken. The costs
and any delays associated with obtaining these required permits could have an
impact on our ability to timely complete our planned activities at El Chanate
and ultimately on the feasibility of opening a mine.
19
Part of the Leadville Mining District has been declared a federal Superfund site
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, and the Superfund Amendments and Reauthorization Act of 1986. Several
mining companies and one individual were declared defendants in a possible
lawsuit. We were not named a defendant or Possible Responsible Party. We did
respond in full detail to a lengthy questionnaire prepared by the Environmental
Protection Agency ("EPA") regarding our proposed procedures and past activities
in November 1990. To our knowledge, the EPA has initiated no further comments or
questions.
We do include in all our internal revenue and cost projections a certain amount
for environmental and reclamation costs on an ongoing basis. This amount is
determined at a fixed amount of $1.50 per ton of material to be milled on a
continual, ongoing basis to provide for further tailing disposal sites and to
reclaim the tailings disposal sites in use. At this time, there do not appear to
be any environmental costs to be incurred by us beyond those already addressed
above. No assurance can be given that environmental regulations will not be
changed in a manner that would adversely affect our planned operations.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Our financial statements and accompanying notes are prepared in accordance with
accounting principles generally accepted in the United States of America.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management's
application of accounting policies. Critical accounting policies for us include
impairment of long-lived assets, accounting for stock-based compensation and
environmental remediation costs.
In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," we review our long-lived assets
for impairments. Impairment losses on long-lived assets are recognized when
events or changes in circumstances indicate that the undiscounted cash flows
estimated to be generated by such assets are less than their carrying value and,
accordingly, all or a portion of such carrying value may not be recoverable.
Impairment losses then are measured by comparing the fair value of assets to
their carrying amounts. During the year ended July 31, 2002, we performed a
review of our Colorado mine and mill improvements and determined that an
impairment loss should be recognized. Accordingly, at July 31, 2002, we reduced
by $999,445 the net carrying value of certain assets relating to our Leadville,
Colorado facility to $300,000, which approximates management's estimate of fair
value.
Environmental remediation costs are accrued based on estimates of known
environmental remediation exposure. Such accruals are recorded even if
significant uncertainties exist over the ultimate cost of the remediation. It is
reasonably possible that our estimates of reclamation liabilities, if any, could
change as a result of changes in regulations, extent of environmental
remediation required, means of reclamation or cost estimates. Ongoing
environmental compliance costs, including maintenance and monitoring costs, are
expensed as incurred. There were no environmental remediation costs accrued at
July 31, 2002.
20
ISSUES AND UNCERTAINTIES
The following issues and uncertainties, among others, should be considered in
evaluating our financial outlook.
We have not generated any operating revenues. If we are unable to
commercially develop our mineral properties, we will not be able to
generate profits and our business may fail.
We are an exploration company engaged in the acquisition and exploration of
mineral exploration properties. To date, we have no producing properties. As a
result, we have no current source of operating revenue and we have historically
operated and continue to operate at a loss. Our ultimate success will depend on
our ability to generate profits from our properties. Our viability is largely
dependent on the successful commercial development of a mine at least one of our
properties.
We lack operating cash flow and rely on external funding sources. If we
are unable to continue to obtain needed capital from outside sources, we
will be forced to reduce or curtail our operations.
We do not generate any positive cash flow from operations and we do not
anticipate that any positive cash flow will be generated for some time. Aside
from the proceeds from the sale of Minera Chanate we have limited financial
resources. Leases and licenses which we hold as well as our joint venture
agreement with FG, impose financial obligations on us. We cannot assure that
additional funding will be available to allow us to fulfill such obligations.
Further exploration and development of the mineral properties in which we hold
interests depends upon our ability to obtain financing through
o bank or other debt financing,
o equity financing, or
o other means.
Failure to obtain additional financing on a timely basis could cause us to
forfeit all or parts of our interests in some or all of (i) the El Chanate
concessions, (ii) the joint venture with FG and (iii) our Leadville properties,
and reduce or terminate our operations.
Our receivable from the sale of Minera Chanate represents a financial
concentration of risk. Our inability to collect the receivable will
adversely affect our ability to fund our planned operations.
Although we have collected approximately $1,136,000 to date from the sale of
Minera Chanate, there is no assurance that we will receive the remaining
$995,000. Our inability to collect the receivable will adversely affect our
ability to fund our planned operations.
As a mineral exploration company, our ability to commence production and
generate profits is dependent on our ability to discover viable and
economic mineral reserves.
21
Our ability to discover such reserves is subject to numerous factors, most
of which are beyond our control and are not predictable.
Exploration for gold is speculative in nature, involves many risks and is
frequently unsuccessful. Any gold exploration program entails risks relating to
o the location of economic ore bodies,
o development of appropriate metallurgical processes,
o receipt of necessary governmental approvals and
o construction of mining and processing facilities at any site chosen
for mining.
The commercial viability of a mineral deposit is dependent on a number of
factors including:
o the price of gold,
o exchange rates,
o the particular attributes of the deposit, such as its
o size,
o grade and
o proximity to infrastructure,
o financing costs,
o taxation,
o royalties,
o land tenure,
o land use,
o water use,
o power use,
o importing and exporting gold and
o environmental protection.
The effect of these factors cannot be accurately predicted.
All of the mineral properties in which we have an interest or right are in the
exploration stages only and are without reserves of gold or other minerals. We
cannot assure that current or proposed exploration or development programs on
properties in which we have an interest will result in the discovery of gold
mineralization reserves or will result in a profitable commercial mining
operation.
We have a limited number of prospects. As a result, our chances of
commencing viable mining operations are dependent upon the success of one
project.
Our only current properties are the El Chanate concessions and our Leadville
properties. At present, we are not doing any substantive work at our Leadville
properties. While the El Chanate concessions are owned by one of our
subsidiaries, FG, our joint venture partner, has a 31% interest with a right to
increase its interest to 45%. We currently do not have operations on either of
our properties, and we must commence such operations to receive revenues.
Accordingly, we are dependent upon the success of the El Chanate concessions.
22
Gold prices can fluctuate on a material and frequent basis due to numerous
factors beyond our control. If and when we commence production, our
ability to generate profits from operations could be materially and
adversely affected by such fluctuating prices.
The profitability of any gold mining operations in which we have an interest
will be significantly affected by changes in the market price of gold. Gold
prices fluctuate on a daily basis and are affected by numerous factors beyond
our control, including:
o the level of interest rates,
o the rate of inflation,
o central bank sales,
o world supply of gold and
o stability of exchange rates.
Each of these factors can cause significant fluctuations in gold prices. Such
external factors are in turn influenced by changes in international investment
patterns and monetary systems and political developments. The price of gold has
historically fluctuated widely and, depending on the price of gold, revenues
from mining operations may not be sufficient to offset the costs of such
operations.
Changes in regulatory or political policy could adversely affect our
exploration and future production activities.
Any changes in government policy may result in changes to laws affecting:
o ownership of assets,
o land tenure,
o mining policies,
o monetary policies,
o taxation,
o rates of exchange,
o environmental regulations,
o labor relations,
o repatriation of income and
o return of capital.
Any such changes may affect our ability to undertake exploration and development
activities in respect of present and future properties in the manner currently
contemplated, as well as our ability to continue to explore, develop and operate
those properties in which we have an interest or in respect of which we have
obtained exploration and development rights to date. The possibility,
particularly in Mexico, that future governments may adopt substantially
different policies, which might extend to expropriation of assets, cannot be
ruled out.
Compliance with environmental regulations could adversely affect our
exploration and future production activities.
23
With respect to environmental regulation, environmental legislation generally is
evolving in a manner which will require:
o stricter standards and enforcement,
o increased fines and penalties for non-compliance,
o more stringent environmental assessments of proposed projects and
o a heightened degree of responsibility for companies and their
officers, directors and employees.
There can be no assurance that future changes to environmental legislation and
related regulations, if any, will not adversely affect our operations. We could
be held liable for environmental hazards that exist on the properties in which
we hold interests, whether caused by previous or existing owners or operators of
the properties. Any such liability could adversely affect our business and
financial condition.
Mining Risks and Potential Inadequacy of Insurance Coverage could
adversely affect us.
If and when we commence mining operations at any of our properties, such
operations will involve a number of risks and hazards, including:
o environmental hazards,
o industrial accidents,
o labor disputes,
o metallurgical and other processing,
o unusual and unexpected rock formations,
o ground or slope failures,
o cave-ins,
o acts of God,
o mechanical equipment and facility performance problems and
o the availability of materials and equipment.
Such risks could result in:
o damage to, or destruction of, mineral properties or production
facilities,
o personal injury or death,
o environmental damage,
o delays in mining,
o monetary losses and
o possible legal liability.
Industrial accidents could have a material adverse effect on our future business
and operations. Although as we move forward in the development of any of our
properties we plan to maintain insurance within ranges of coverage consistent
with industry practice, we cannot be certain that this insurance will cover the
risks associated with mining or that we will be able to maintain insurance to
cover these risks at economically feasible premiums. We also might become
subject to liability for pollution or other hazards which we cannot insure
against or which we may elect
24
not to insure against because of premium costs or other reasons. Losses from
such events could have a material adverse effect on us.
Calculation of reserves and metal recovery dedicated to future production
is not exact, might not be accurate and might not accurately reflect the
economic viability of our properties.
All of the mineral properties in which we have an interest or right are in the
exploration stages only and are without reserves of gold or other minerals. If
and when we can prove such reserves, reserve estimates may not be accurate.
There is a degree of uncertainty attributable to the calculation of reserves,
resources and corresponding grades being dedicated to future production. Until
reserves or resources are actually mined and processed, the quantity of reserves
or resources and grades must be considered as estimates only. In addition, the
quantity of reserves or resources may vary depending on metal prices. Any
material change in the quantity of reserves, resource grade or stripping ratio
may affect the economic viability of our properties. In addition, there can be
no assurance that mineral recoveries in small scale laboratory tests will be
duplicated in large tests under on-site conditions or during production.
We are dependent on the efforts of certain key personnel and contractors,
the loss of whose services could have a materially adverse effect on our
operations.
We are dependent on a relatively small number of key personnel, the loss of any
one of whom could have an adverse effect on us. In addition, while certain of
our officers and directors have experience in the exploration and operation of
gold producing properties, we will remain highly dependent upon contractors and
third parties in the performance of our exploration and development activities.
As such there can be no guarantee that such contractors and third parties will
be available to carry out such activities on our behalf or be available upon
commercially acceptable terms.
There are uncertainties as to title matters in the mining industry. We
believe that we have good title to our properties; however, defects in
such title could have a material adverse effect on us.
We have investigated our rights to explore, exploit and develop our various
properties in manners consistent with industry practice and, to the best of our
knowledge, those rights are in good standing. However, we cannot assure that the
title to or our rights of ownership of either the El Chanate concessions or our
Leadville properties will not be challenged or impugned by third parties or
governmental agencies. In addition, there can be no assurance that the
properties in which we have an interest are not subject to prior unregistered
agreements, transfers or claims and title may be affected by undetected defects.
Any such defects could have a material adverse effect on us.
25
Should we successfully commence mining operations in the future, our
ability to remain profitable, should we become profitable, will be
dependent on our ability to find, explore and develop additional
properties. Our ability to compete for such additional properties will be
hindered by competition.
The acquisition of gold properties and their exploration and development are
subject to intense competition. Companies with greater financial resources,
larger staffs, more experience and more equipment for exploration and
development may be in a better position than us to compete for such mineral
properties.
Our property interests in Mexico are subject to the risks of doing
business in foreign countries.
We face risks normally associated with any conduct of business in foreign
countries with respect to our El Chanate project in Sonora, Mexico, including
various levels of political and economic risk. The occurrence of one or more of
these events could have a material adverse impact on our efforts or future
operations which, in turn, could have a material adverse impact on our future
cash flows, earnings, results of operations and financial condition. These risks
include the following:
o labor disputes,
o invalidity of governmental orders,
o uncertain or unpredictable political, legal and economic environments,
o war and civil disturbances,
o changes in laws or policies,
o taxation,
o delays in obtaining or the inability to obtain necessary governmental
permits,
o governmental seizure of land or mining claims,
o limitations on ownership,
o limitations on the repatriation of earnings,
o increased financial costs,
o import and export regulations, including restrictions on the export of
gold, and
o foreign exchange controls.
These risks may limit or disrupt the project, restrict the movement of funds or
impair contract rights or result in the taking of property by nationalization or
expropriation without fair compensation.
Gold is sold in the world market in U.S. dollars; however, we may incur a
significant amount of our expenses in Mexican pesos. If and when we sell
gold, if applicable currency exchange rates fluctuate our revenues and
results of operations may be materially and adversely affected.
If and when we commence sales of gold, such sales will be made in the world
market in U.S. dollars. We may incur a significant amount of our expenses in
Mexican pesos. As a result, our financial performance would be affected by
fluctuations in the value of the Mexican peso to the U.S. dollar. At the present
time, we have no plan or policy to utilize forward contracts or
26
currency options to minimize this exposure, and even if these measures are
implemented there can be no assurance that such arrangements will be available,
be cost effective or be able to fully offset such future currency risks.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001 the Financial Accounting Standards Board, ("FASB") issued Statement
No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 replaces APB Opinion No.
16 and eliminates pooling-of-interest accounting prospectively. It also requires
all business combinations initiated after June 30, 2001 to be accounted for
using the purchase method and provides guidance on purchase accounting related
to the recognition of intangible assets and accounting for negative goodwill.
There have been no acquisitions completed since June 30, 2001 and all previous
acquisitions have been accounted for using the purchase method.
In October 2001, FASB issued Statement No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 clarifies the
accounting for the impairment of long-lived assets and for long-lived assets to
be disposed of, including the disposal of business segments and major lines of
business. We will adopt SFAS 144 in fiscal 2003 and do not expect that the
application of the provisions of SFAS 144 will have a material impact on our
consolidated financial statements.
Item 7. Financial Statements.
For the Financial Statements required by Item 7 see the Financial Statements
included at the end of this Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
There have been no changes in or disagreements with accountants with respect to
accounting and/or financial disclosure.
27
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The following table sets forth certain information concerning the directors and
executive officers of the Company:
First
Became
Name Age Director Position
---- --- -------- --------
Gifford A. Dieterle 70 9/22/82 President, Treasurer
& Chairman of the Board
Robert Roningen 68 9/14/93 Director, Senior Vice President,
Secretary
Jack V. Everett 81 1/25/95 Director, Vice President - Exploration
Roger A Newell 59 8/28/00 Director, Vice President -
Development
Jeffrey W. Pritchard 44 1/27/00 Director, Vice President -
Investor Relations
J. Scott Hazlitt 50 Vice President - Mine Development
Directors are elected at the meeting of shareholders called for that purpose and
hold office until the next shareholders meeting called for that purpose or until
their resignation or death. Officers of the corporation are elected by the
directors at meetings called by the directors for its purpose.
GIFFORD A. DIETERLE, President, Treasurer and Chairman of the Board of Directors
of the Company. Mr. Dieterle was appointed President in September 1997 following
the resignation of Donald W. Wilson. He has been the Company's Chairman and
Treasurer since 1981. His highest educational degree is a M.S. in Geology
obtained from New York University. From 1977 until July 1993, he was Chairman,
Treasurer, and Executive Vice-President of Franklin Consolidated Mining Company.
From 1965 to 1987, he was lecturer in geology at the City University of N.Y.
(Hunter Division). Since 1962, he has been a consulting geologist engaged in the
geological evaluation of oil and mineral properties. Mr. Dieterle has been
Secretary-Treasurer of South American Minerals Inc. since 1997 and a director of
that company since 1996.
ROBERT RONINGEN, Senior Vice President, Secretary and Director, has been engaged
in the practice of law as a sole practitioner and is a self-employed consultant
geophysicist in Duluth, Minnesota. From 1988 to August 1993, he was an officer
and director of Franklin Consolidated Mining Company, Inc. He graduated from the
University of Minnesota in 1957 with a B.A. in geology and in 1962 with a degree
in Law.
28
JACK V. EVERETT, Vice President - Exploration and Director, has been a
consulting mining geologist since 1971, with expertise in all phases of
exploration for base and precious metals. Following his 1947 graduation from
Michigan State University, he was District Geologist for Pickands Mather &
Company on the Cuyuna Iron Range, Minnesota. From 1951 to 1970, he was Chief
Geologist and Exploration Manager for W.S. Moore Company, Duluth, Minnesota an
iron mining company with gold and base metal sulfide holdings in the U.S. and
Canada.
ROGER A. NEWELL, Vice President - Development and Director, has been in the
mining industry for over 30 years. From 1977 through 1989, he served as
Exploration Manager/Senior Geologist for the Newmont Mining Company and, from
1989 through 1995, was the Exploration Manager for Gold Fields Mining Company.
He was Vice President Development, for Western Exploration Company from 1997
through 2000. He has been self-employed as a geologist since 2001. His highest
educational degree is a Ph.D. in mineral exploration from Stanford University.
JEFFREY W. PRITCHARD, Vice President - Investor Relations and Director, has
worked for the Company since 1996. He has been in the marketing/public relations
field since receiving a Bachelor's degree from the State University of New York
in 1979. Jeff has served as the Director of Marketing for the New Jersey Devils
(1987-1990) and as the Director of Sales for the New York Islanders (1985-1987).
He also was an Executive Vice President with Long Island based Performance
Network, a marketing and publishing concern from 1990 through 1995.
J. SCOTT HAZLITT, Vice President - Mine Operations, has been a geologist since
1974. He has been providing geological consulting services to the Company since
November 1999. From 1995 to 1999, he was chief Geologist for Getchell Gold Corp.
Mr. Hazlitt received a B.S. degree in Geology from Fort Lewis college in 1974
and a M.S. degree in Economic Geology from Colorado State University in 1985.
Compliance with Section 16(a) of The Securities Exchange Act of 1934
To our knowledge, based solely on a review of such materials as are required by
the Securities and Exchange Commission, no officer, director or beneficial
holder of more than ten percent of our issued and outstanding shares of Common
Stock failed to timely file with the Securities and Exchange Commission any form
or report required to be so filed pursuant to Section 16(a) of the Securities
Exchange Act of 1934, except that Mr. Shevchenko failed to file Forms 4 and Mr.
Hazlitt failed to file a Form 3..
Item 10. Executive Compensation
The following table shows all the cash compensation paid or to be paid by the
Company or any of its subsidiaries, as well as certain other compensation paid
or accrued, during the fiscal years indicated, to the Chief Executive Officer
for such period in all capacities in which he served. Information concerning the
Chief Executive Officer relates to Gifford Dieterle.
29
SUMMARY COMPENSATION TABLE
Long-Term Compensation
--------------------------------------------
Annual Compensation Awards Payouts
----------------------------------- ---------------------- -------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
------------------- ---- ------ --- --------- --------- --------- ------- ---------
Other Restrict- All Other
Annual ed Stock LTIP Compensa
Name and Principal Compen- Award Options Payouts -tion
Position Year Salary ($) sation($) ($) SARs ($) (i)
------------------- ---- ------ --- --------- --------- --------- ------- ---------
Gifford A. Dieterle 2002 70,642 -0- -0- -0- -0- -0- -0-
Chief Executive 2001 96,350 -0- -0- -0- 2,000,00 -0- -0-
Officer 2000 47,473 -0- -0- -0- 1,000,00 -0- -0-
Donald W. Wilson 2000 13,368 -0- -0- -0- -0- -0- -0-
Chief Executive
Officer
The following table sets forth information with respect to the Company's
Executive Officers concerning the grants of options and Stock Appreciation
Rights ("SAR") during the past fiscal year:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
(a) (b) (c) (d) (e)
------------------------------------------------------------------------------------
Percent of Total
Options/SARs
Options/ Granted to
SARs Employee in Exercise or Base Expiration
Name Granted Fiscal Year Price ($/SH) Date
------------------------------------------------------------------------------------
Roger A. Newell 227,273 15.7% $.022 6-4-05
Scott Hazlitt 300,000 20.8% $.022 11-16-03
The following table sets forth information with respect to the Company's
Executive Officers concerning exercise of options during the last fiscal year
and unexercised options and SARs held as of the end of the fiscal year:
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR
(a) (b) (c) (d) (e)
-----------------------------------------------------------------------------------------------------
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Option/SARs
Shares at FY-End(#) at FY-End(#)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable
-----------------------------------------------------------------------------------------------------
Gifford A. Dieterle 227,273 $22,273 2,922,727 $90,427
Robert N. Roningen 227,273 $22,273 1,422,727 $90,427
Jack V. Everett 250,000 $24,500 500,000 --
Jeffrey W. Pritchard 227,273 $17,727 372,727 --
Roger A. Newell 227,273 $22,273 1,000,000 $29,400
Scott Hazlitt 300,000 $30,000 -0- --
Directors are not compensated for acting in their capacity as Directors.
Directors are reimbursed for their accountable expenses incurred in attending
meetings and conducting their duties.
30
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
(a) Security Ownership of Certain Beneficial Owners -- The persons set
forth on the charts below are known to the Company to be the beneficial owners
of more than 5% of the Company's outstanding voting Common Stock as of October
21, 2002.
(b) Security Ownership of Management - Information concerning the number
and percentage of shares of voting Common Stock of the Company owned of record
and beneficially by management as of October 21, 2002, is set forth on the
charts below.
Name of Amount & Nature
Beneficial of Beneficial Approximate
Title of Class Owner Ownership 10/21/02 Percentage(1)(2)
-------------- ---------- ------------------ ----------------
Common Stock Gifford A. Dieterle* 3,738,053(2) 8.6%
Common Stock Jack Everett* 975,000(2) 2.4%
Common Stock Robert Roningen* 2,016,668(2)(3) 4.8%
Common Stock Jeffrey W. Pritchard* 706,354(2) 1.7%
Common Stock Roger A Newell* 1,000,000(2) 2.4%
Common Stock Scott Hazlitt 1,025,000(2) 2.5%
Common Stock Richard Shevchenko 5,038,418(2)(4) 11.5%
All Officers and
Directors as a
Group (6) 9,461,075(2)(3) 19.9%
----------
* Officer and/or Director of the Company.
(1) Based upon 40,637,865 shares issued and outstanding as of October 21,
2002.
(2) For Messrs. Dieterle, Everett, Roningen, Pritchard, Shevchenko, Newell and
Hazlitt, includes, respectively, 2,922,727 shares, 500,000 shares,
1,422,727 shares, 372,727 shares, 3,150,000 shares, 1,000,000 shares and
725,000 (which includes options issued subsequent to the end of Fiscal
2002) issuable upon exercise of options and/or warrants.
(3) Includes shares owned by Mr. Roningen's wife and children.
(4) Includes shares owned by Mr. Shevchenko's wife.
31
Item 12. Certain Relationships and Related Transactions.
During the fiscal years ended July 31, 2002 and 2001, the Company paid Roger
Newell $60,000 and $60,000, respectively, for professional geologist services
rendered to the Company. In addition, during the fiscal year ended July 31, 2002
and subsequent thereto, the Company paid Mr. Newell a bonus of $30,000 (and will
pay an additional $20,000 if and when it receives the balance owed from the sale
of Minera Chanate). During the fiscal years ended July 31, 2002 and 2001, the
Company paid Scott Hazlitt $96,000 per year, for professional geologist and mine
management services rendered to the Company, plus expenses. Mr. Hazlitt receives
$8,000 per month, plus expenses, on a month to month basis, for geological and
mine management services. In addition, during the fiscal year ended July 31,
2002 and subsequent thereto, the Company paid Mr. Hazlitt a bonus of $10,000
(and will pay an additional $5,000 if and when it receives the balance owed from
the sale of Minera Chanate). During the fiscal year ended July 31, 2002, the
Company paid Jack Everett consulting fees of $30,000. In addition, during the
fiscal year ended July 31, 2002 and subsequent thereto, the Company paid Mr.
Everett a bonus of $30,000 (and will pay an additional $20,000 if and when it
receives the balance owed from the sale of Minera Chanate). During the fiscal
year ended July 31, 2001, the Company paid Jack Everett consulting fees of
$17,500. During the fiscal year ended July 31, 2002, the Company paid Robert
Roningen legal fees of $22,500. In addition, during the fiscal year ended July
31, 2002 and subsequent thereto, the Company paid Mr. Roningen a bonus of
$30,000 (and will pay an additional $20,000 if and when it receives the balance
owed from the sale of Minera Chanate). During the fiscal year ended July 31,
2002 and subsequent thereto, the Company paid Gifford Dieterle a bonus of $7,800
(and will pay an additional $15,600 if and when it receives the balance owed
from the sale of Minera Chanate). During the fiscal year ended July 31, 2002 and
subsequent thereto, the Company paid Jeff Pritchard a bonus of $10,000 (and will
pay an additional $5,000 if and when it receives the balance owed from the sale
of Minera Chanate).
On October 29, 2002, the Company issued to Scott Hazlitt options to purchase
400,000 shares that expire on March 15, 2002 and are exercisable at $.22 per
share, and options to purchase 300,000 shares that expire on February 1, 2007
and are exercisable at $.22 per share.
On February 14, 2002 the Company issued to Scott Hazlitt an option to purchase
300,000 shares. These options expire November 16, 2003 and were exercisable at
$.22 per share (the exercise price was subsequently reduced to $.022 per share).
Mr. Hazlitt exercised these options.
On June 4, 2002, the Company issued to Roger Newell an option to purchase
227,273 shares. These options expire June 4, 2005 and are exercisable at $.022
per share.
On April 17, 2001, the Company issued to Roger Newell an option to purchase
200,000 shares. These options expire on April 17, 2004 and are exercisable at
$.22 per share.
On November 16, 2000, the Company issued to the following members of the Board,
Officers and others as compensation for services rendered during the past 12
months. These services are in the form of geology, property acquisition and
leasing, public relations, administration and capital acquisition. The options
are granted for a period of three years and are exercisable at a price of $.22
per share, except as noted. The quantities of options issued per individual are
based upon their contribution to the Company: Gifford Dieterle- 2,000,000
shares, Robert Roningen - 500,000, Jack V. Everett - 500,000 shares, Jeffrey
Pritchard - 500,000 shares (the exercise price with regard to 127,273 options
was reduced on November 26, 2001 to $.022 per share), Roger Newell - 500,000
shares (the exercise price was reduced on April 17, 2001 to $.022 per share)
32
and Richard Shevchenko - 2,500,000 shares (the exercise price with regard to
227,273 options was reduced on November 26, 2001 to $.022 per share).
On September 13, 2000, the Company issued to Roger A. Newell an option to
purchase 300,000 shares of stock at $.22 per share (the exercise price was
reduced on April 17, 2001 to $.022 per share).
On March 6, 2000, the Company issued to Jeffrey W. Pritchard, a Vice President
and Director of the Company, options to purchase 100,000 shares. These options
expire on March 6, 2003 and are exercisable at $0.022 per share.
Item 13. Exhibits and Reports on Form 8-K.
Exhibits
3.a Certificate of Incorporation of Company(1)
3.b Amendments to Certificate of Incorporation of Company (1)
3.c By-Laws of Company (1)
10.a Mining Claims (1)
10.b Stock Purchase Option Agreement from AngloGold (2)
10.c Letter of Intent with International Northair Mines Ltd. (2)
10.d March 30, 2002 Minera Chanate Stock Purchase and Sale and Security
Agreement (Sale by us and Holding of all of the stock of Minera
Chanate) (In Spanish).(3)
10.e English summary of March 30, 2002 Minera Chanate Stock Purchase and
Sale and Security Agreement.(3)
10.f Agreement between Santa Rita and Grupo Minero FG.(4)
21.1 Subsidiaries of the Company
(1) Previously filed as an exhibit to the Company's Registration
Statement on Form S-18 (SEC File No. 2-86160-NY) filed on or about
November 10, 1983, and incorporated herein by this reference.
(2) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarter ended January 31, 2001 filed with the
Commission on or about March 16, 2001, and incorporated herein by
this reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarter ended April 30, 2002 filed with the
Commission on or about June 20, 2002, and incorporated herein by
this reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarter ended January 31, 2002 filed with the
Commission on or about March 25, 2002, and incorporated herein by
this reference.
33
Reports of Form 8-K
None.
Statements contained in this Form 10-KSB as to the contents of any agreement or
other document referred to are not complete, and where such agreement or other
document is an exhibit to this Report or is included in any forms indicated
above, each such statement is deemed to be qualified and amplified in all
respects by such provisions.
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LEADVILLE MINING AND MILLING CORP.
By: /s/ Gifford A. Dieterle, Pres.
------------------------------------
Dated: Gifford A. Dieterle, President
Dated: Dated: October 29, 2002
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 dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Gifford A. Dieterle President, October 29, 2002
-------------------------- Treasurer,
Gifford A. Dieterle Principal Financial
and Accounting
Officer and Chairman
of the Board of Directors
/S/ Jack V. Everett V.P, Director October 29, 2002
--------------------------
Jack Everett
/s/ Robert Roningen Senior V.P,
-------------------------- Secretary, Director October 29, 2002
Robert Roningen
/s/ Roger A. Newell Director October 29, 2002
--------------------------
Roger A. Newell
/s/ Jeffrey W. Pritchard Director October 29, 2002
--------------------------
Jeffrey W. Pritchard
35
CERTIFICATIONS
Certifications pursuant to Securities and Exchange Act of 1934 Rule 13a-14 as
adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002:
I, Gifford A. Dieterle, Chief Executive Officer of Leadville Mining and
Milling Corp. (the "Company") certify that:
(1) I have reviewed this annual report on Form 10-KSB of the Company;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report.
/s/ Gifford A. Dieterle
-----------------------
Gifford A. Dieterle
Chief Executive Officer
October 29, 2002
I, Gifford A. Dieterle, Chief Financial Officer of Leadville Mining and
Milling Corp. (the "Company") certify that:
(1) I have reviewed this annual report on Form 10-KSB of the Company;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report.
/s/ Gifford A. Dieterle
-----------------------
Gifford A. Dieterle
Chief Financial Officer
October 29, 2002
36
SUPPLEMENTAL INFORMATION
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.
NOT APPLICABLE.
37
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FILED WITH THE ANNUAL REPORT OF THE
COMPANY ON FORM 10-KSB
FOR THE YEAR ENDED JULY 31, 2002
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CONSOLIDATED BALANCE SHEET AS OF JULY 31, 2002, LEADVILLE MINING AND MILLING
CORP.
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED JULY 31, 2002 AND JULY
31, 2001, AND FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002,
LEADVILLE MINING AND MILLING CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD
SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002, LEADVILLE MINING AND MILLING
CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED JULY 31, 2002 AND JULY
31, 2001, AND FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002,
LEADVILLE MINING AND MILLING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
Other schedules not submitted are omitted, because the information is included
elsewhere in the financial statements or the notes thereto, or the conditions
requiring the filing of these schedules are not applicable.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Shareholders of
Leadville Mining and Milling Corp.
We have audited the accompanying consolidated balance sheet of Leadville Mining
and Milling Corp. and Subsidiaries (A Development Stage Enterprise) as of July
31, 2002, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the two years in the period
ended July 31, 2002 and for the period September 17, 1982 (Inception) to July
31, 2002. 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 auditing standards generally accepted
in the United States of America. 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 consolidated financial position of Leadville Mining
and Milling Corp. and Subsidiaries (A Development Stage Enterprise) as of July
31, 2002 and the consolidated results of their operations and their cash flows
for each of the two years in the period ended July 31, 2002 and for the period
September 17, 1982 (Inception) to July 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is a development stage enterprise whose
operations have generated recurring losses and cash flow deficiencies from its
inception. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note 12. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
WOLINETZ, LAFAZAN & COMPANY, P.C.
Rockville Centre, New York
October 18, 2002
F-1
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
JULY 31, 2002
ASSETS
Current Assets:
Cash and Cash Equivalents $ 149,433
Receivable From Sale of Subsidiary 1,492,131
Loans Receivable - Others 15,000
Other Current Assets 3,324
------------
Total Current Assets 1,659,888
------------
Mining, Milling and Other Property and Equipment
(Net of Accumulated Depreciation of $358,230) 346,378
------------
Other Assets:
Mining Reclamation Bonds 42,150
Security Deposits 8,435
------------
Total Other Assets 50,585
------------
Total Assets $ 2,056,851
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 183,032
Accrued Expenses 185,063
Advance Payments 98,922
------------
Total Current Liabilities 467,017
------------
Minority Interest (32,285)
------------
Commitments and Contingencies
Stockholders' Equity:
Common Stock, Par Value $.001 Per Share;
Authorized 150,000,000 shares; Issued and
Outstanding 40,637,865 Shares 40,638
Capital Paid In Excess of Par Value 21,309,005
Deficit Accumulated in the Development Stage (19,720,278)
Accumulated Other Comprehensive Income (Loss) (7,246)
------------
Total Stockholders' Equity 1,622,119
------------
Total Liabilities and Stockholders' Equity $ 2,056,851
============
The accompany notes are an integral part of the financial statements.
F-2
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF OPERATIONS
For The Period
For The Year Ended September 17, 1982
July 31, (Inception)
-------------------------------- To
2002 2001 July 31, 2002
------------ ------------ ------------------
Revenues:
Sales $ -- $ -- $ --
Interest Income 3,103 2,969 717,577
Miscellaneous -- -- 26,276
------------ ------------ ------------
Total Revenues 3,103 2,969 743,853
------------ ------------ ------------
Costs and Expenses:
Mine Expenses 709,961 982,585 5,110,585
Write-Down of Mining, Milling and Other Property and
Equipment 999,445 -- 999,445
Selling, General and Administrative Expenses 639,652 1,432,327 7,399,578
Stock Based Compensation 222,338 7,002,500 8,554,347
Depreciation 3,105 3,823 367,726
------------ ------------ ------------
Total Costs and Expenses 2,574,501 9,421,235 22,431,681
------------ ------------ ------------
Loss Before Other Income (Expense) (2,571,398) (9,418,266) (21,687,828)
------------ ------------ ------------
Other Income (Expense):
Gain on Sale of Property and Equipment 46,116 -- 46,116
Gain on Sale of Subsidiary 1,907,903 -- 1,907,903
Option Payment 70,688 -- 70,688
Loss on Write-Off of Investment -- -- (10,000)
Loss on Joint Venture -- -- (101,700)
------------ ------------ ------------
Total Other Income (Expense) 2,024,707 -- 1,913,007
------------ ------------ ------------
Loss Before Minority Interest (546,691) (9,418,266) (19,774,821)
Minority Interest in Net Loss of Subsidiary 54,543 -- 54,543
------------ ------------ ------------
Net Loss $ (492,148) $ (9,418,266) $(19,720,278)
============ ============ ============
Net Loss Per Common Share - Basic and Diluted $ (.01) $ (.31)
============ ============
Weighted Average Common Shares Outstanding 37,499,663 30,100,496
============ ============
The accompanying notes are an integral part of the financial statements.
F-3
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002
Deficit
Accumulated
Common Stock Capital Paid In The
--------------------- In Excess of Development
Shares Amount Par Value Stage Total
--------- ------ ------------ ----------- ----------
Balance
September 17, 1982
(Inception) -0- $ -0- $ -0- $ -0- $ -0-
Initial Cash
Officers - At $.001 Per Share 1,575,000 1,575 -- -- 1,575
Other Investors -
At $.001 Per Share 1,045,000 1,045 -- -- 1,045
Initial - Mining Claims -
Officer - At $.002 Per Share 875,000 875 759 -- 1,634
Common Stock Issued For:
Cash At $.50 Per Share 300,000 300 149,700 -- 150,000
Net Loss -- -- -- (8,486) (8,486)
--------- ----- ---------- ------- ----------
Balance - July 31, 1983 3,795,000 3,795 150,459 (8,486) 145,768
Common Stock Issued For:
Cash Pursuant to Initial Offering
At $1.50 Per Share, Net of
Offering Costs of $408,763 1,754,741 1,755 2,221,594 -- 2,223,349
Net Income -- -- -- 48,890 48,890
--------- ----- ---------- ------- ----------
Balance - July 31, 1984 5,549,741 5,550 2,372,053 40,404 2,418,007
Net Income -- -- -- 18,486 18,486
--------- ----- ---------- ------- ----------
Balance - July 31, 1985 5,549,741 5,550 2,372,053 58,890 2,436,493
Common Stock Issued For:
Mineral Lease At $1.00 Per Share 100 -- 100 -- 100
Net Income -- -- -- 4,597 4,597
--------- ----- ---------- ------- ----------
Balance - July 31, 1986 5,549,841 5,550 2,372,153 63,487 2,441,190
The accompanying notes are an integral part of the financial statements.
F-4
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002
Deficit
Accumulated
Common Stock Capital Paid In The
--------------------- In Excess of Development
Shares Amount Par Value Stage Total
--------- ------ ------------ ----------- -----------
Net Loss -- $ -- $ -- $ (187,773) $ (187,773)
--------- ------ ----------- ----------- -----------
Balance - July 31, 1987 5,549,841 5,550 2,372,153 (124,286) 2,253,417
Common Stock Issued For:
Services Rendered At
$1.00 Per Share 92,000 92 91,908 -- 92,000
Net Loss -- -- -- (328,842) (328,842)
--------- ------ ----------- ----------- -----------
Balance - July 31, 1988 5,641,841 5,642 2,464,061 (453,128) 2,016,575
Net Loss -- -- -- (379,852) (379,852)
--------- ------ ----------- ----------- -----------
Balance - July 31, 1989 5,641,841 5,642 2,464,061 (832,980) 1,636,723
Common Stock Issued For:
Cash:
At $.70 Per Share 269,060 269 194,219 -- 194,488
At $.50 Per Share 387,033 387 199,443 -- 199,830
Services:
At $.50 Per Share 68,282 68 34,073 -- 34,141
Commissions:
At $.70 Per Share 15,000 15 (15) -- --
Commissions Paid -- -- (2,100) -- (2,100)
Net Loss -- -- -- (529,676) (529,676)
--------- ------ ----------- ----------- -----------
Balance - July 31, 1990 6,381,216 6,381 2,889,681 (1,362,656) 1,533,406
Common Stock Issued For:
Cash At $.60 Per Share 318,400 319 180,954 -- 181,273
Net Loss -- -- -- (356,874) (356,874)
--------- ------ ----------- ----------- -----------
Balance - July 31, 1991 6,699,616 6,700 3,070,635 (1,719,530) 1,357,805
The accompanying notes are an integral part of the financial statements.
F-5
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002
Deficit
Accumulated
Common Stock Capital Paid In The
--------------------- In Excess of Development
Shares Amount Par Value Stage Total
--------- ------ ------------ ----------- -----------
Common Stock Issued For:
Cash:
At $.30 Per Share 114,917 $ 115 $ 34,303 $ -- $ 34,418
At $.50 Per Share 2,000 2 998 -- 1,000
At $.60 Per Share 22,867 23 13,698 -- 13,721
At $.70 Per Share 10,000 10 6,990 -- 7,000
At $.80 Per Share 6,250 6 4,994 -- 5,000
At $.90 Per Share 5,444 5 4,895 -- 4,900
Services:
At $.32 Per Share 39,360 39 12,561 -- 12,600
At $.50 Per Share 92,353 93 46,084 -- 46,177
Exercise of Options:
At $.50 Per Share By
Related Party 100,000 100 49,900 -- 50,000
Net Loss -- -- -- (307,477) (307,477)
--------- ------ ----------- ----------- -----------
Balance - July 31, 1992 7,092,807 7,093 3,245,058 (2,027,007) 1,225,144
Common Stock Issued For:
Cash:
At $.30 Per Share 176,057 $ 176 $ 51,503 $ -- $ 51,679
At $.50 Per Share 140,000 140 69,964 -- 70,104
At $.60 Per Share 10,000 10 5,990 -- 6,000
At $.70 Per Share 17,000 17 11,983 -- 12,000
At $1.00 Per Share 50,000 50 49,950 -- 50,000
Services:
At $.50 Per Share 495,556 496 272,504 -- 273,000
Commissions:
At $.50 Per Share 20,220 20 (20) -- --
Commissions Paid -- -- (1,500) -- (1,500)
Net Loss -- -- -- (626,958) (626,958)
--------- ------ ----------- ----------- -----------
Balance - July 31, 1993 8,001,640 8,002 3,705,432 (2,653,965) 1,059,469
The accompanying notes are an integral part of the financial statements.
F-6
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002
Deficit
Accumulated
Common Stock Capital Paid In The
--------------------- In Excess of Development
Shares Amount Par Value Stage Total
--------- ------- ------------ ----------- -----------
Common Stock Issued For:
Cash:
At $.30 Per Share 249,330 $ 150 $ 43,489 $ -- $ 43,639
At $.50 Per Share 377,205 377 189,894 -- 190,271
Services:
At $.30 Per Share 500,000 500 149,500 -- 150,000
At $.50 Per Share 130,000 130 71,287 -- 71,417
At $.50 Per Share
By Related Party 56,000 156 77,844 -- 78,000
At $.70 Per Share 4,743 4 3,316 -- 3,320
Exercise of Options For
Services:
At $.50 Per Share 35,000 35 17,465 -- 17,500
At $.50 Per Share
By Related Party 150,000 150 74,850 -- 75,000
Net Loss -- -- -- (665,909) (665,909)
--------- ------- ----------- ----------- -----------
Balance - July 31, 1994 9,503,918 9,504 4,333,077 (3,319,874) 1,022,707
Common Stock Issued For:
Cash:
At $.30 Per Share 150,000 $ 150 $ 49,856 $ -- $ 50,006
At $.40 Per Share 288,200 288 115,215 -- 115,503
At $.50 Per Share 269,611 270 132,831 -- 133,101
At $.60 Per Share 120,834 121 72,379 -- 72,500
At $.70 Per Share 23,000 23 16,077 -- 16,100
Services:
At $.40 Per Share 145,000 145 60,755 -- 60,900
At $.50 Per Share 75,000 75 34,925 -- 35,000
Exercise of Options For:
Cash:
At $.50 Per Share
By Related Party 350,000 350 174,650 -- 175,000
Services:
At $.50 Per Share 35,000 35 17,465 -- 17,500
Commissions Paid -- -- (1,650) -- (1,650)
Net Loss -- -- -- (426,803) (426,803)
--------- ------- ----------- ----------- -----------
Balance - July 31, 1995 10,960,563 10,961 5,005,580 (3,746,677) 1,269,864
The accompanying notes are an integral part of the financial statements.
F-7
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002
Deficit
Accumulated
Common Stock Capital Paid In The
--------------------- In Excess of Development
Shares Amount Par Value Stage Total
--------- ------- ------------ ----------- -----------
Common Stock Issued For:
Cash:
At $.40 Per Share 75,972 $ 76 $ 30,274 $ -- $ 30,350
At $.50 Per Share 550,423 550 270,074 -- 270,624
At $.60 Per Share 146,773 147 87,853 88,000
At $.70 Per Share 55,722 56 38,949 39,005
At $.80 Per Share 110,100 110 87,890 88,000
Services:
At $.40 Per Share 104,150 104 38,296 -- 38,400
At $.50 Per Share 42,010 42 20,963 -- 21,005
At $.60 Per Share 4,600 5 2,755 2,760
At $.70 Per Share 154,393 15 107,920 108,075
Commissions:
At $.35 Per Share 23,428 23 (23)
At $.50 Per Share 50,545 50 (50)
At $.60 Per Share 2,000 2 (2)
At $.70 Per Share 12,036 12 (12)
Exercise of Options:
Cash:
At $.35 Per Share
By Related Party 19,571 20 6,830 6,850
Services:
At $.35 Per Share
By Related Party 200,429 200 69,950 -- 70,150
At $.50 Per Share 95,000 95 47,405 -- 47,500
Compensation Portion of
Options Exercised -- -- 261,500 -- 261,500
Net Loss -- -- -- (956,043) (956,043)
--------- ------- ----------- ----------- -----------
Balance - July 31, 1996 12,607,715 12,608 6,076,152 (4,702,720) 1,386,040
The accompanying notes are an integral part of the financial statements.
F-8
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002
Deficit
Accumulated
Common Stock Capital Paid In The
--------------------- In Excess of Development
Shares Amount Par Value Stage Total
--------- ------- ------------ ----------- -----------
Common Stock Issued For:
Cash:
At $.35 Per Share 50,000 $ 50 $ 17,450 $ -- $ 17,500
At $.40 Per Share 323,983 324 128,471 -- 128,795
At $.50 Per Share 763,881 762 381,174 -- 381,936
At $.60 Per Share 16,667 17 9,983 -- 10,000
At $.70 Per Share 7,143 7 4,993 -- 5,000
At $.80 Per Share 28,750 29 22,971 -- 23,000
Services:
At $.50 Per Share 295,884 296 147,646 -- 147,942
Commissions:
At $.35 Per Share 44,614 45 (45)
At $.40 Per Share 41,993 42 (42)
At $.50 Per Share 37,936 38 (38)
Expense:
At $.35 Per Share 8,888 9 3,099 3,108
At $.40 Per Share 9,645 10 3,848 3,858
Property and Equipment
At $.60 Per Share 7,500 8 4,492 4,500
Exercise of Options
Services:
At $.35 Per Share
By Related Party 136,301 136 47,569 47,705
Net Loss -- -- -- (805,496) (805,496)
--------- ------- ----------- ----------- -----------
Balance - July 31, 1997 14,380,900 14,381 6,847,723 (5,508,216) 1,353,888
The accompanying notes are an integral part of the financial statements.
F-9
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002
Deficit
Accumulated
Common Stock Capital Paid In The
--------------------- In Excess of Development
Shares Amount Par Value Stage Total
--------- ------- ------------ ----------- -----------
Common Stock Issued For:
Cash:
At $.20 Per Share 10,000 $ 10 $ 1,990 $ -- $ 2,000
At $.25 Per Share 100,000 100 24,900 -- 25,000
At $.27 Per Share 45,516 46 12,244 -- 12,290
At $.28 Per Share 150,910 151 41,349 -- 41,500
At $.30 Per Share 60,333 60 18,040 -- 18,100
At $.31 Per Share 9,677 10 2,990 -- 3,000
At $.32 Per Share 86,750 87 27,673 -- 27,760
At $.33 Per Share 125,364 125 41,245 -- 41,370
At $.35 Per Share 75,144 75 26,225 -- 26,300
At $.38 Per Share 49,048 49 18,311 -- 18,360
At $.40 Per Share 267,500 268 106,732 -- 107,000
At $.45 Per Share 65,333 65 29,335 -- 29,400
At $.50 Per Share 611,184 610 304,907 -- 305,517
Services:
At $.23 Per Share 48,609 49 11,131 -- 11,180
Exercise of Options:
Services:
At $.22 Per Share 82,436 82 18,054 -- 18,136
At $.35 Per Share 183,846 184 64,162 -- 64,346
Compensation:
At $.22 Per Share 105,000 105 22,995 -- 23,100
At $.35 Per Share 25,000 25 8,725 -- 8,750
Commissions:
At $.22 Per Share 67,564 68 (68) --
At $.35 Per Share 291,028 291 (291) --
Net Loss -- -- -- (807,181) (807,181)
--------- ------- ----------- ----------- -----------
Balance - July 31, 1998 16,841,142 16,841 7,628,372 (6,315,397) 1,329,816
The accompanying notes are an integral part of the financial statements.
F-10
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002
Deficit
Accumulated
Common Stock Capital Paid In The
--------------------- In Excess of Development
Shares Amount Par Value Stage Total
--------- ------- ------------ ----------- -----------
Common Stock Issued For:
Cash:
At $0.20 Per Share 12,500 $ 13 $ 2,487 $ -- $ 2,500
At $0.22 Per Share 45,454 45 9,955 -- 10,000
At $0.25 Per Share 248,788 249 61,948 -- 62,197
At $0.27 Per Share 132,456 132 35,631 -- 35,763
At $0.28 Per Share 107,000 107 30,493 -- 30,600
At $0.29 Per Share 20,000 20 5,780 -- 5,800
At $0.30 Per Share 49,333 49 14,751 -- 14,800
At $0.32 Per Share 152,725 153 48,719 -- 48,872
At $0.33 Per Share 149,396 149 49,151 -- 49,300
At $0.35 Per Share 538,427 538 187,912 -- 188,450
At $0.40 Per Share 17,000 17 6,783 -- 6,800
At $0.50 Per Share 53,000 53 26,447 -- 26,500
At $0.55 Per Share 6,000 6 3,294 -- 3,300
At $0.65 Per Share 33,846 34 21,966 -- 22,000
At $0.68 Per Share 13,235 13 8,987 -- 9,000
At $0.70 Per Share 153,572 154 107,346 -- 107,500
At $0.90 Per Share 57,777 58 51,942 -- 52,000
At $1.00 Per Share 50,000 50 49,950 -- 50,000
At $1.10 Per Share 150,000 150 164,850 -- 165,000
Expenses:
At $0.21 Per Share 37,376 37 7,812 -- 7,849
At $0.30 Per Share 19,450 19 5,816 -- 5,835
At $0.36 Per Share 34,722 35 12,465 -- 12,500
Commission:
At $0.21 Per Share 158,426 158 (158) -- --
At $0.25 Per Share 28,244 28 (28) -- --
At $0.30 Per Share 132,759 133 (133) -- --
At $0.35 Per Share 40,000 40 (40) -- --
Services: 95,238 95 19,905 -- 20,000
At $0.25 Per Share 17,000 17 4,233 -- 4,250
At $0.30 Per Share 145,941 146 43,636 -- 43,782
At $0.50 Per Share 71,808 72 35,832 -- 35,904
The accompanying notes are an integral part of the financial statements.
F-11
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002
Deficit
Accumulated
Common Stock Capital Paid In The
--------------------- In Excess of Development
Shares Amount Par Value Stage Total
--------- ------- ------------ ----------- -----------
Compensation portion of
Cash Issuances -- $ -- $ 618,231 $ -- $ 618,231
Compensation Portion of
Options Granted -- -- 48,000 -- 48,000
Exercise of Options:
Cash
At $0.10 Per Share 510,000 510 50,490 -- 51,000
Services:
At $0.70 Per Share 100,000 100 69,900 -- 70,000
Compensation Portion of
Options Exercised -- -- 256,900 -- 256,900
Net Loss -- -- -- (1,964,447) (1,964,447)
--------- ------- ----------- ----------- -----------
Balance - July 31, 1999 20,222,615 20,221 9,689,625 (8,279,844) 1,430,002
Common Stock Issued For:
Cash:
At $.18 Per Share 27,778 28 4,972 -- 5,000
At $.20 Per Share 482,500 483 96,017 -- 96,500
At $.21 Per Share 47,500 47 9,953 -- 10,000
At $.22 Per Share 844,821 845 185,012 -- 185,857
At $.30 Per Share 100,000 100 29,900 -- 30,000
At $.35 Per Share 280,000 280 97,720 -- 98,000
At $.37 Per Share 56,000 56 19,944 -- 20,000
At $.38 Per Share 100,000 100 37,900 -- 38,000
At $.40 Per Share 620,000 620 247,380 -- 248,000
At $.42 Per Share 47,715 48 19,952 -- 20,000
At $.45 Per Share 182,445 182 81,918 -- 82,100
At $.50 Per Share 313,000 313 156,187 -- 156,500
At $.55 Per Share 122,778 123 67,377 -- 67,500
At $.58 Per Share 12,069 12 6,988 -- 7,000
Expenses:
At $.20 Per Share 4,167 4 829 -- 833
At $.22 Per Share 46,091 46 10,094 -- 10,140
Compensation Portion -- -- 94,430 -- 94,430
The accompanying notes are an integral part of the financial statements.
F-12
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002
Deficit
Accumulated
Common Stock Capital Paid In The
--------------------- In Excess of Development
Shares Amount Par Value Stage Total
--------- ------- ------------ ----------- -----------
Exercise of Options:
Services:
At $.25 Per Share 30,000 $ 30 $ 7,470 $ -- $ 7,500
At $.40 Per Share 95,000 95 37,905 -- 38,000
At $.50 Per Share 25,958 26 12,954 -- 12,980
Commissions:
At $.20 Per Share 26,750 27 (27) -- --
At $.22 Per Share 86,909 87 (87) -- --
Exercise of Options:
Cash:
At $.10 Per Share 100,000 100 9,900 -- 10,000
Exercise of Options:
Services:
At $.22 Per Share 150,000 150 32,850 -- 33,000
Stock Based Compensation -- -- 221,585 -- 221,585
Net Loss -- -- -- (1,530,020) (1,530,020)
---------- ------- ----------- ------------ -----------
Balance - July 31, 2000
(Unconsolidated) 24,024,096 24,023 11,178,748 (9,809,864) 1,392,907
Common Stock Issued For:
Cash:
At $.15 Per Share 120,000 120 17,880 -- 18,000
At $.17 Per Share 80,000 80 13,520 -- 13,600
At $.18 Per Share 249,111 249 44,591 -- 44,840
At $.19 Per Share 70,789 71 13,379 -- 13,450
At $.20 Per Share 1,322,500 1,323 261,677 -- 263,000
At $.21 Per Share 33,810 34 7,066 -- 7,100
At $.22 Per Share 2,472,591 2,473 541,497 -- 543,970
At $.23 Per Share 65,239 65 14,935 -- 15,000
At $.24 Per Share 123,337 123 29,477 -- 29,600
At $.25 Per Share 610,400 611 151,884 -- 152,495
At $.26 Per Share 625,769 626 162,074 -- 162,700
At $.27 Per Share 314,850 315 84,695 -- 85,010
At $.28 Per Share 7,143 7 1,993 -- 2,000
At $.30 Per Share 33,333 33 9,967 -- 10,000
At $.35 Per Share 271,429 272 94,728 -- 95,000
At $.38 Per Share 453,158 453 169,547 -- 170,000
At $.40 Per Share 300,000 300 119,700 -- 120,000
At $.50 Per Share 10,000 10 4,990 -- 5,000
The accompanying notes are an integral part of the financial statements.
F-13
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002
Deficit Accumulated
Accumulated Other
Common Stock Capital Paid In The Comprehensive
---------------------- In Excess of Development Income
Shares Amount Par Value Stage (Loss) Total
--------- ------- ------------ ----------- ------------- -----------
Compensation Portion: -- $ -- $ 24,000 $-- $-- $ 24,000
Expenses:
At $.27 Per Share 30,000 30 8,070 -- -- 8,100
Services:
At $0.20 Per Share 33,850 34 6,736 -- -- 6,770
At $0.23 Per Share 15,000 15 3,435 -- -- 3,450
At $0.11 Per Share 87,272 87 9,513 -- -- 9,600
At $0.34 Per Share 50,000 50 16,950 -- -- 17,000
Compensation Portion: -- -- 21,777 -- -- 21,777
Commission:
At $0.11 Per Share 266,500 267 (267) -- -- --
At $0.20 Per Share 26,150 26 (26) -- -- --
At $0.22 Per Share 15,000 15 (15) -- -- --
Compensation Portion: -- -- 36,595 -- -- 36,595
Exercise of Options:
Cash:
At $0.02 Per Share By
Related Party 225,000 225 4,725 -- -- 4,950
At $0.10 Per Share 200,000 200 19,800 -- -- 20,000
Expenses:
At $0.02 Per Share By
Related Party 53,270 53 1,120 -- -- 1,173
Compensation Portion: -- -- 25,463 -- -- 25,463
Commission:
At $0.02 Per Share 350,000 350 (350) -- -- --
Compensation Portion: -- -- 132,300 -- -- 132,300
Commission:
At $0.05 Per Share 1,000,000 1,000 (1,000) -- -- --
Compensation Portion: -- -- 400,000 -- -- 400,000
Stock Based Compensation -- -- 7,002,500 -- -- 7,002,500
The accompanying notes are an integral part of the financial statements.
F-14
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002
Deficit Accumulated
Accumulated Other
Common Stock Capital Paid In The Comprehensive
---------------------- In Excess of Development Income
Shares Amount Par Value Stage (Loss) Total
--------- ------- ------------ ----------- ------------- -----------
Comprehensive Loss:
Net Loss -- -- -- (9,418,266) -- (9,418,266)
Equity Adjustment from
Foreign Currency
Translation -- -- -- -- (493) (493)
----------
Total Comprehensive
Loss -- -- -- -- -- (9,418,759)
---------- ------ ---------- ----------- ---- ----------
Balance - July 31, 2001 33,539,597 33,540 20,633,674 (19,228,130) (493) 1,438,591
Common Stock Issued
For:
Cash:
At $.022 Per Share 1,400,976 1,401 29,420 -- -- 30,821
At $.08 Per Share 250,000 250 19,750 -- -- 20,000
At $.10 Per Share 980,000 980 97,020 -- -- 98,000
At $.11 Per Share 145,456 145 15,855 -- -- 16,000
At $.115 Per Share 478,260 478 54,522 -- -- 55,000
At $.12 Per Share 500,000 500 59,500 -- -- 60,000
At $.125 Per Share 40,000 40 4,960 -- -- 5,000
At $.14 Per Share 44,000 44 6,116 -- -- 6,160
At $.15 Per Share 383,667 384 57,166 -- -- 57,550
At $.18 Per Share 25,000 25 4,475 -- -- 4,500
Commissions:
At $.115 Per Share 69,565 70 (70) -- -- --
At $.22 Per Share 100,000 100 (100) -- -- --
At $.08 Per Share 20,625 21 (21) -- -- --
At $.14-$.22 Per Share 282,475 282 (282) -- -- --
Services:
At $.10 Per Share 35,950 36 3,559 -- -- 3,595
Exercise of Options:
Non Cash:
At $.022 Per Share by
Related Party: 227,273 227 4,773 -- -- 5,000
Exercise of Options:
Cash:
At $.022 Per Share by
Related Parties 909,092 909 19,091 -- -- 20,000
At $.022 Per Share by
Others 1,205,929 1,206 25,325 -- -- 26,531
The accompanying notes are an integral part of the financial statements.
F-15
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2002
Deficit Accumulated
Accumulated Other
Common Stock Capital Paid In The Comprehensive
---------------------- In Excess of Development Income
Shares Amount Par Value Stage (Loss) Total
--------- ------- ------------ ----------- ------------- ----------
Additional Paid-In Capital
Arising From Investment
In Joint Venture Subsidiary
by Minority Interest -- -- 51,934 -- -- 51,934
Stock Based Compensation -- -- 222,338 -- -- 222,338
Comprehensive Loss:
Net Loss -- -- -- (492,148) -- (492,148)
Equity Adjustment from
Foreign Currency
Translation -- -- -- -- (6,753) (6,753)
----------
Total Comprehensive
Loss -- -- -- -- -- (498,901)
---------- ------ ----------- ------------ ------- ----------
Balance - July 31, 2002 40,637,865 $40,638 $21,309,005 $(19,720,278) $(7,246) $1,622,119
========== ====== =========== ============ ======= ==========
The accompanying notes are an integral part of the financial statements.
F-16
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Period
For The Year Ended September 17, 1982
July 31, (Inception)
----------------------------- To
2002 2001 July 31, 2002
----------- ----------- ------------------
Cash Flow From Operating Activities:
Net Loss $ (492,148) $(9,418,266) $(19,720,278)
Adjustments to Reconcile Net Loss to
Net Cash Provided (Used) By Operating Activities:
Depreciation 3,105 3,823 367,726
Gain on Sale of Subsidiary (1,907,903) -- (1,907,903)
Minority Interest in Net Loss of Subsidiary (54,543) -- (54,543)
Write-Down of Impaired Mining, Milling and Other
Property and Equipment 999,445 -- 999,445
Gain on Sale of Property and Equipment (46,116) -- (46,116)
Loss on Write-Off of Investment -- -- 10,000
Loss From Joint Venture -- -- 101,700
Value of Common Stock Issued for Services 8,595 686,226 2,755,602
Stock Based Compensation 222,338 7,002,500 8,554,347
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Other Current Assets 2,992 (3,137) (3,324)
Increase in Security Deposits (4,768) -- (8,435)
Increase in Accounts Payable 112,396 9,315 175,225
Increase in Accrued Expenses 62,509 -- 62,509
----------- ----------- ------------
Net Cash (Used) By Operating Activities (1,094,098) (1,719,539) (8,714,045)
----------- ----------- ------------
Cash Flow From Investing Activities:
Purchase of Mining, Milling and Other Property and
Equipment -- -- (1,705,650)
Proceeds on Sale of Mining, Milling and Other Property
and Equipment 83,638 -- 83,638
Proceeds From Sale of Subsidiary 639,485 -- 639,485
Expenses of Sale of Subsidiary (101,159) -- (101,159)
Advance Payments - Joint Venture 98,922 -- 98,922
Investment in Joint Venture -- -- (101,700)
Investment in Privately Held Company -- -- (10,000)
Net Assets of Business Acquired (Net of Cash) -- (42,130) (42,130)
Increase (Decrease) in Option Payment Payable (50,000) 50,000 --
----------- ----------- ------------
Net Cash Provided (Used) By Investing Activities 670,886 7,870 (1,138,594)
----------- ----------- ------------
The accompanying notes are an integral part of the financial statements.
F-17
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For The Period
For The Year Ended September 17, 1982
July 31, (Inception)
----------------------------- To
2002 2001 July 31, 2002
----------- ----------- ------------------
Cash Flow From Financing Activities:
(Increase) Decrease in Loans Receivable -
Related Party $ 11,000 $ (11,000) $ --
Increase (Decrease) in Loans Receivable - Others 26,300 (26,750) (15,000)
Increase in Loans Payable - Officers -- -- 18,673
Repayment of Loans Payable - Officers -- -- (18,673)
Increase in Note Payable -- -- 11,218
Payments of Note Payable (5,201) (5,199) (11,218)
Proceeds From Issuance of Common Stock 399,562 1,775,716 10,401,771
Commissions on Sale of Common Stock -- -- (5,250)
Expenses of Initial Public Offering -- -- (408,763)
Capital Contributions - Joint Venture Subsidiary 74,192 -- 74,192
Purchase of Certificate of Deposit - Restricted -- (5,000)
(Purchase) Sale of Mining Reclamation Bond 5,600 (6,600) (37,150)
----------- ----------- ------------
Net Cash Provided By Financing Activities 511,453 1,726,167 10,004,800
----------- ----------- ------------
Effect of Exchange Rate Changes (2,728) -- (2,728)
----------- ----------- ------------
Increase In Cash and Cash Equivalents 85,513 14,498 149,433
Cash and Cash Equivalents - Beginning 63,920 49,422 --
----------- ----------- ------------
Cash and Cash Equivalents - Ending $ 149,433 $ 63,920 $ 149,433
=========== =========== ============
Supplemental Cash Flow Information:
Cash Paid For Interest $ -- $ -- --
=========== =========== ============
Cash Paid For Income Taxes $ 1,839 $ 1,217 $ 28,060
=========== =========== ============
Non-Cash Financing Activities:
Issuances of Common Stock as Commissions
on Sales of Common Stock $ 108,765 $ 95,545 $ 440,495
=========== =========== ============
Issuance of Common Stock as Payment for Mining,
Milling and Other Property and Equipment $ -- $ -- $ 4,500
=========== =========== ============
The accompanying notes are an integral part of the financial statements.
F-18
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002
NOTE 1 - Organization and Basis of Presentation
Leadville Mining and Milling Corp. ("Leadville", "the Company", "we" or
"us") was incorporated in February 1982 in the State of Nevada. Leadville owns
rights to property located in the California Mining District, Lake County,
Colorado and in the State of Sonora, Mexico and is engaged in the exploration
for gold and other minerals from its properties. Substantially all of
Leadville's mining activities are now being performed in Mexico. Leadville is a
development stage enterprise and has elected July 31 as its fiscal year.
On June 29, 2001 Leadville exercised an option and purchased from
AngloGold North America Inc. and AngloGold (Jerritt Canyon) Corp. 100% of the
issued and outstanding stock of Minera Chanate, S.A. de C.V., a subsidiary of
those two companies. Minera Chanate's assets consisted of 44 exploitation and
exploration concessions in the States of Sonora, Chihuahua and Guerrero, Mexico.
We sometimes refer to these concessions as the El Chanate Concessions.
Pursuant to the terms of the agreement, on December 15, 2001, Leadville
made a $50,000 payment to AngloGold. AngloGold will be entitled to receive the
remainder of the purchase price by way of an ongoing percentage of net smelter
returns of between 2% and 4% plus 10% net profits interest (until the total net
profits interest payment received by AngloGold equals $1,000,000). AngloGold's
right to a payment of a percentage of net smelter returns and the net profits
interest will terminate at such point as they aggregate $18,018,355. In
accordance with the agreement, the foregoing payments are not to be construed as
royalty payments. Should the Mexican government or other jurisdiction determine
that such payments are royalties, we could be subjected to and would be
responsible for any withholding taxes assessed on such payments.
Under the terms of the agreement, Leadville has granted AngloGold the
right to designate one of its wholly-owned Mexican subsidiaries to receive a
one-time option to purchase 51% of Minera Chanate (or such entity that owns the
Minera Chanate concessions at the time of option exercise). That Option is
exercisable over a 180 day period commencing at such time as Leadville notifies
AngloGold that it has made a good faith determination that it has gold-bearing
ore deposits on any one of the identified group of El Chanate Concessions, when
aggregated with any ore that Leadville has mined, produced and sold from such
concessions, of in excess of 2,000,000 troy ounces of contained gold. The
exercise price would equal twice Leadville's project costs on the properties
during the period commencing on December 15, 2000 and ending on the date of such
notice.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, the Company is a development
stage enterprise and since its inception has had no mining revenues and has
incurred recurring losses aggregating $19,720,278. These factors raise
substantial doubt about the Company's ability to continue as a going concern. As
indicated in Note 12, the Company is in the process of raising additional
capital and financing. Continuation of the Company is dependent on (1)
consummation of the contemplated financings, (2) achieving sufficiently
profitable operations (3) subsequently maintaining adequate financing
arrangements and (4) its exiting the development stage. The achievement and/or
success of the Company's planned measures, however, cannot be determined at this
time. These financial statements do not reflect any adjustments relating to the
recoverability and classification of assets carrying amounts and classification
of liabilities should the Company be unable to continue as a going concern.
F-19
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002
NOTE 2 - Summary of Significant Accounting Policies
Principals of Consolidation
The consolidated financial statements include the accounts of Leadville
Mining and Milling Corp. and its wholly owned and majority owned subsidiaries.
Leadville accounts for its Mexican joint venture operation (see Note 4) as a
subsidiary since it controls the decision making process and at July 31, 2002 it
owned 70% of the venture and at no time can the ownership go below 55%. All
significant intercompany accounts and transactions are eliminated in
consolidation.
Cash and Cash Equivalents
The Company considers those short-term, highly liquid investments with
original maturities of three months or less as cash and cash equivalents.
Mining, Milling and Other Property and Equipment
Mining, milling and other property and equipment is reported at cost. It
is the Company's policy to capitalize costs incurred to improve and develop the
mining and milling properties. General exploration costs and costs to maintain
rights and leases are expensed as incurred. Management of the Company
periodically reviews the recoverability of the capitalized mineral properties
and mining equipment. Management takes into consideration various information
including, but not limited to, historical production records taken from previous
mine operations, results of exploration activities conducted to date, estimated
future prices and reports and opinions of outside geologists, mine engineers,
and consultants. When it is determined that a project or property will be
abandoned or its carrying value has been impaired, a provision is made for any
expected loss on the project or property.
Depletion of mining and milling improvements will be computed at cost
using the units of production method. The Company has made no provision for
depletion for the years ended July 31, 2002 and 2001 as the mine and mill in
Colorado were not in operation during these years. Provision is made for the
depreciation of office furniture fixtures and equipment, machinery and
equipment, and building. Depreciation is computed using both straight-line and
accelerated methods over the estimated useful lives of the related assets which
are 5 to 7 years for personal property and 32 years for real property.
Impairment of Long-Lived Assets
In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," the Company reviews its
long-lived assets for impairments. Impairment losses on long-lived assets are
recognized when events or changes in circumstances indicate that the
undiscounted cash flows estimated to be generated by such assets are less than
their carrying value and, accordingly, all or a portion of such carrying value
may not be recoverable. Impairment losses then are measured by comparing the
fair value of assets to their carrying amounts. During the year ended July 31,
2002 the Company performed a review of its Colorado mine and mill improvements
and determined that an impairment loss should be recognized. Accordingly, at
July 31, 2002 the Company reduced by $999,445 the net carrying value of certain
assets relating to its Leadville, Colorado facility to $300,000, which
approximates management's estimate of fair value.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, including cash
and cash equivalents, receivable from sale of subsidiary, loans receivable and
accounts payable, approximated fair value because of the short maturity of these
instruments.
F-20
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002
NOTE 2 - Summary of Significant Accounting Policies (Continued)
Revenue Recognition
Revenues, if any, from sales of minerals will be recognized only upon
receipt of final settlement funds.
Foreign Currency Translation
Assets and liabilities of the Company's Mexican subsidiaries are
translated to US dollars using the current exchange rate at the balance sheet
date. Amounts on the statement of operations are translated at the average
exchange rates during the year. Gains or losses resulting from foreign currency
translation are included as a component of other comprehensive income (loss).
Comprehensive Income (Loss)
Comprehensive income (loss) which is reported on the accompanying
consolidated statement of stockholders' equity as a component of accumulated
other comprehensive income (loss) consists of accumulated foreign translation
gains and losses.
Income Taxes
The Company records deferred income taxes using the liability method as
prescribed under the provisions of SFAS No. 109. Under the liability method,
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial statement and income
tax bases of the Company's assets and liabilities. An allowance is recorded,
based upon currently available information, when it is more likely than not that
any or all of the deferred tax assets will not be realized. The provision for
income taxes includes taxes currently payable, if any, plus the net change
during the year in deferred tax assets and liabilities recorded by the Company.
Stock-Based Compensation
The Company accounts for stock-based compensation to its employees using
the intrinsic value method in accordance with provisions of the Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations which requires the recognition of
compensation expense over the vesting period of the option when the exercise
price of the stock option granted is less than the fair value of the underlying
common stock. Additionally, the Company complies with the disclosure provisions
of Statement of Financial Accounting Standards No. 123 "Accounting for Stock
Based Compensation" ("SFAS 123") and provides pro forma disclosure of net loss
and loss per share as if the fair value method has been applied in measuring
compensation expense for stock options granted. Stock-based compensation related
to options granted to non-employees is recognized using the fair value method in
accordance with SFAS 123.
F-21
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002
NOTE 2 - Summary of Significant Accounting Policies (Continued)
Net Loss Per Common Share
The computation of net loss per share of common stock is computed by
diving net loss for the period by the weighted average number of common shares
outstanding during that period.
Because the Company is incurring losses, the effect of stock options and
warrants is antidilutive. Accordingly, the Company's presentation of diluted net
loss per share is the same as that of basic net loss per share.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of receivables from the sale
of Minera Chanate stock (see Note 5).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Environmental Remediation Costs
Environmental remediation costs are accrued based on estimates of known
environmental remediation exposure. Such accruals are recorded even if
significant uncertainties exist over the ultimate cost of the remediation. It is
reasonably possible that the Company's estimates of reclamation liabilities, if
any, could change as a result of changes in regulations, extent of environmental
remediation required, means of reclamation or cost estimates. Ongoing
environmental compliance costs, including maintenance and monitoring costs, are
expensed as incurred. There were no environmental remediation costs accrued at
July 31, 2002.
Recent Accounting Pronouncements
In July 2001 the Financial Accounting Standards Board, ("FASB") issued
Statement No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 replaces APB
Opinion No. 16 and eliminates pooling-of-interest accounting prospectively. It
also requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method and provides guidance on purchase
accounting related to the recognition of intangible assets and accounting for
negative goodwill. There have been no acquisitions completed since June 30, 2001
and all previous acquisitions have been accounted for using the purchase method.
In October 2001, FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 clarifies
the accounting for the impairment of long-lived assets and for long-lived assets
to be disposed of, including the disposal of business segments and major lines
of business. The Company will adopt SFAS 144 in fiscal 2003 and does not expect
that the application of the provisions of SFAS 144 will have a material impact
on the Company's consolidated financial statements.
F-22
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002
NOTE 2 - Summary of Significant Accounting Policies (Continued)
Reclassifications
Certain items in these financial statements have been reclassified to
conform to the current period presentation.
NOTE 3 - Acquisition
On June 29, 2001, Leadville completed the acquisition of all of the issued
and outstanding common stock of Minera Chanate, S.A. de C.V. ("Minera") a
Mexican corporation, at an aggregate purchase price of approximately $50,000.
This transaction was accounted for under the purchase method. Accordingly, the
consolidated balance sheet included the assets and liabilities of Minera at July
31, 2001 and the consolidated statement of operations includes the results of
Minera operations from June 29, 2001.
On the basis of a pro forma consolidation of the results of operations as
if the acquisition had taken place at the beginning of fiscal 2001, unaudited
consolidated net loss and basic net loss per share for the year ended July 31,
2001 would have been approximately $(9,946,046) and $(.33). The pro forma
financial information is not necessarily indicative of the results of operations
as they would have been had the transaction been effected at the beginning of
fiscal 2001.
NOTE 4 - Joint Venture
On February 23, 2002, Minera Santa Rita S. de R.L. de C.V., one of our
wholly-owned Mexican subsidiaries, entered into a joint venture agreement with
Grupo Minero FG S.A. de C.V. to explore, evaluate and develop the El Chanate
concessions. Grupo Minero FG S.A. de C.V., referred to as FG, is a private
Mexican company.
Pursuant to the agreement with FG, the venture is being conducted in five
phases. The first two phases entail continued exploration and evaluation of the
mining potential of lots within the concessions. If successful, Phase two will
culminate with a feasibility study. Phase one was completed during the Fall of
2002 and cost approximately $300,000. We estimate that Phase two will cost
approximately $573,250 and be completed by March 1, 2003. Phase three consists
of FG's contribution to the venture of mining equipment sufficient to develop
the lots pursuant to the feasibility study. Phase three will occur only if the
parties determine to continue and they are able to obtain outside funding for
Phase four. We are unable to estimate Phase four costs at this time. Phase four
involves the building of an access road, the acquisition of water extraction
rights and the drilling and equipping of water wells. Phase five would entail
exploitation, processing and sale of minerals on a commercial scale.
Pursuant to the agreement, FG has paid us $75,000 to participate in the
venture and contributed an additional $75,000 towards the first phase of the
venture for which it received a 30% interest in the venture. The balance of the
costs for Phase one and the costs for Phase two will be split equally between
the parties. As mentioned above, Phase four would be funded from outside
sources. Phase five funding would be provided by the parties in proportion to
their respective interests in the venture.
F-23
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002
NOTE 4 - Joint Venture (Continued)
FG's percentage of the venture can increase to 45%. It increased to 31%
upon completion of Phase one; and will increase to 33% upon completion of Phase
two; 37% upon its contribution of equipment in Phase three; 40% upon completion
of Phase four; and 45% upon attaining optimal levels of production in Phase
five. Optimal levels of production will be determined by agreement of the
parties.
The venture is terminable, among other reasons, if:
o its purpose is concluded or can no longer be obtained;
o it experiences continued non-profitability;
o the parties elect to terminate it at a meeting of the parties;
o it loses 2/3 of its assets; or
o the parties fail to obtain the requisite financing to fund
phase four by September 1, 2003.
If FG determines that it does not want to continue to participate in the
venture after the parties agree to commence Phase two, or it cannot provide its
share of the funding for Phase two, Santa Rita has a 45 day option to purchase
FG's interest in the venture for $127,500. If Santa Rita does not exercise this
option within the 45 day period and pay the purchase price within 15 days
thereafter, FG may sell its interest to another party.
If additional contributions to the venture are needed as determined by a
meeting of the parties, the parties have 30 days to elect whether they will make
these contributions and an additional 15 days to make their contribution. To the
extent that a party, referred to as the waiving party, does not want to pay its
share or does not pay its share, the other party can make the payment and the
waiving party's percentage interest in the venture will be diluted
proportionately plus 10%. The waiving party can reacquire its lost interest by
repaying the amount previously not paid plus a 25% penalty. These dilution
provisions do not apply to Santa Rita unless and until FG has contributed
$600,000 to the venture. FG can be diluted any time on or after the date it
acquired its initial 30% interest.
NOTE 5 - Sale of Subsidiary Stock
On March 20, 2002, the Company sold all of the issued and outstanding
shares of stock of its wholly-owned subsidiary, Minera Chanate S.A. de C.V.
("Minera Chanate"), to an unaffiliated party for a purchase price of $2,131,616,
payable in three installments. We received the first installment of $639,485 and
paid commissions of $51,159 in March 2002. A second payment of $497,377 plus
interest at the rate of 4.5% per annum was paid on August 9, 2002. A third
payment of $994,754 plus interest at the rate of 4.5% per annum, is due and
payable on or before December 9, 2002. Commissions of approximately $40,000 and
and $82,000 are payable in connection with the second and third installments,
respectively. Any portions of the third installment not timely paid will accrue
interest at the rate of 7% per annum. Payment of the balance of the purchase
price is secured by the stock of Minera Chanate. In connection with the above
transaction the Company recognized a gain of $1,907,903.
During March 2002, prior to the sale of Minera Chanate and pursuant to the
FG joint venture agreement, Minera Chanate, in a series of transactions, sold
all of its surface land and mining claims to Oro de Altar S. de R.L. de C.V.
("Ora"), another of our wholly-owned subsidiaries. Ora, in turn, leased the
foregoing land and mining claims to Minera Santa Rita.
F-24
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002
NOTE 6 - Mining Reclamation Bonds
These represent certificates of deposit that have been deposited as
security for Mining Reclamation Bonds in Colorado. They bear interest at rates
varying from 2.72% to 5.87% annually and mature at various dates in 2003 through
2005
NOTE 7 - Loans Receivable - Others
Loans receivable - others consists of a short-term loan to an individual.
It is non-interest bearing and due on demand.
NOTE 8 - Mining, Milling and Other Property and Equipment
Mining, milling and other property and equipment consists of the
following:
Land and Mine Improvements - Mexico $ 46,378
Machinery and Equipment 358,230
Mining Claims and Leasehold Improvements 106,786
Mill and Mining Improvements 193,214
--------
704,608
Less: Accumulated Depreciation 358,230
--------
$346,378
========
NOTE 9 - Minority Interest
Minority interest in the Company's 70% owned joint venture subsidiary at
July 31, 2002 represents the excess of the minority interest loss over its
proportionate capital.
F-25
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002
NOTE 10 - Stockholders' Equity
At various stages in the Company's development, shares of common stock
have been issued in exchange for the fair market value, as determined by the
Board of Directors, for services received with a corresponding charge to
operations, property and equipment or capital paid in excess of par value
depending on the nature of the services provided.
Stock Options
------------- Options Outstanding
-------------------------------- Weighted
Number of Price Range Average
Shares Per Share Exercise Price
---------- ----------- --------------
Outstanding - July 31, 2000 5,278,270 .022-.50 $ .071
Options Granted:
Related Parties 4,500,000 .022-.22 .207
Others 4,615,000 .022- 1.75 .295
Exercised:
Related Parties (278,270) .022 .220
Others (550,000) .022-.22
Expired (10,000) .22 .22
---------- ----------- --------
Outstanding - July 31, 2001 13,555,000 .022-.1.75 .181
Options Granted:
Related Parties 227,273 .022 .022
Others 1,217,391 .022-.22 .094
Exercised:
Related Parties (1,136,365) .022 .022
Others (1,205,929) .022 .022
Expired (930,000) .022-.10 .071
---------- ----------- --------
Outstanding - July 31, 2002 11,727,370 $ .022-.22 $ .199
========== =========== ========
Options to purchase 11,727,370 shares of common stock were exerciseable at
July 31, 2002 at a weighted average exercise price of $.199 with a weighted
average contractual life of 1.13 years as follows:
F-26
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002
NOTE 10 - Stockholders' Equity (Continued)
Options Outstanding and Exercisable by Price Range as of July 31, 2002
Options Outstanding Options Exercisable
----------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Range of Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
----------------- ----------- ---------------- -------------- ----------- --------------
$ .022 2,795,454 .52 $ .022 2,795,454 $ .022
.50 25,000 3.40 .50 25,000 .50
.115 97,826 2.25 .115 97,826 .115
.22 8,809,090 .67 .22 8,809,090 .22
--------- ---------- ----- ------- ---------- ------
$.022-.22 11,727,370 1.13 $ .199 11,727,370 $ .199
========= ========== ==========
The Company recognized approximately $222,000 and $7,002,500 of
stock-based compensation expense during the years ended July 31, 2002 and 2001
respectively, relating to options granted with exercise prices below the
estimated fair market value of the Company's common stock at the date of grant.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company has
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes options pricing model with the following weighted-average
assumptions: risk-free interest rate of 5.5%; volatility factor of the expected
market price of the Company's common stock of .50; and a weighted-average
expected life of the option of 3 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
F-27
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002
NOTE 10 - Stockholders' Equity (Continued)
Stock Options (Continued)
Had compensation cost for stock options granted been determined based on
the fair value at the grant date consistent with the provisions of SFAS 123, the
Company's net loss and net loss per share would have been increased to the pro
forma amounts indicated below:
Year Ended July 31,
-----------------------------
2002 2001
---------- -------------
Net loss- as reported $ (492,148) $ (9,418,266)
Net loss - pro forma (494,373) (11,114,098)
Loss per shares - as reported
Basic $ (.01) $ (.31)
Loss per share - pro forma
Basic $ (.01) $ (.37)
The effects of applying the pro forma disclosures of SFAS 123 are not
likely to be representative of the effects on reported net earnings for future
years.
Authorized Common Stock
In September 1993 the Company's shareholders approved an increase in the
authorized common stock from 100,000,000 shares to 150,000,000 shares.
Effective April 11, 1998 the Company underwent a 1 for 10 reverse split
with all fractions being rounded up into new common stock.
All references to common stock are restated to reflect the 1 for 10
reverse split.
NOTE 11 - Income Taxes
For income tax purposes, the Company had available net operating loss
carryforwards ("NOL") at July 31, 2002 of approximately $9,303,000 to reduce
future federal taxable income, if any. The NOL's expire at various date through
2022. There may be certain limitations as to the future annual use of the NOLs
due to certain changes in the Company's ownership.
Income tax benefit attributable to net loss differed from the amounts
computed by applying the statutory Federal Income tax rate applicable for each
period as a result of the following:
Year Ended July 31,
-------------------------
2002 2001
---------- ----------
Computed "expected" tax benefit $3,163,020 $3,091,620
Decrease in tax benefit resulting from net
operating loss for which no benefit is
currently available 3,163,020 3,091,620
---------- ----------
$ -- $ --
========== ==========
F-28
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002
NOTE 11 - Income Taxes (Continued)
The Company had deferred tax assets of approximately $3,163,020 at July
31, 2002 resulting primarily from net operating loss carryforwards. The deferred
tax assets have been fully offset by a valuation allowance resulting from the
uncertainty surrounding their future realization. The difference between the
federal statutory rate of 34% and the Company's effective tax rate of 0% is due
to an increase in the valuation allowance of $71,400 and $821,347 in 2002 and
2001, respectively.
NOTE 12 - Liquidity and Going Concern Uncertainty
The Company is a development stage enterprise with no mining revenues and
has incurred recurring losses amounting to $19,720,278 through July 31, 2002.
These factors raise substantial doubt about the Company's ability to continue as
a going concern.
Specific plans to obtain funding for a full scale mining operation in
Mexico includes: (i) the obtaining of bank financing in order to proceed with
the joint venture operations, (ii) additional capital contributions by the
minority interest joint venture partner, and (iii) the raising of capital
through the sale of the Company's common stock.
There is no assurance, however, that any of the Company's proposed plans
to obtain financing, raise capital and otherwise fund operations will prove
successful. The Company's ability to continue as a going concern is dependent
upon its ability to obtain sufficient funding as discussed above and its
inability to do so will delay or cease the Company's planned operations as
discussed above.
NOTE 13 - Commitments and Contingencies
Minera Chanate Option
Under the terms of the Minera Chanate purchase agreement, Leadville has
granted AngloGold's designee to receive a one-time option to purchase 51% of
Minera Chanate (or such entity that owns the Minera Chanate concessions at time
of exercise) based upon the achievement of certain events (see Note 1).
Lease Commitments
The Company occupies office space in New York City under a non cancelable
operating lease that commenced on September 1, 2002 and terminates on August 31,
2007. In addition to base rent, the lease calls for payment of utilities and
other occupancy costs.
F-29
LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002
NOTE 13 - Commitments and Contingencies (Continued)
Lease Commitments (Continued)
Approximate future minimum payments under this lease are as follows:
Year Ending July 31,
2003 $ 46,000
2004 52,000
2005 54,000
2006 55,000
2007 57,000
2008 5,000
--------
$269,000
========
Rent expense under the office lease in New York City that expired August
31, 2002 was approximately $25,000 and $21,500 for the years ended July 31, 2002
and 2001, respectively.
F-30