U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Sept. 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-27409
LIBERTY MINT, LTD.
(Exact name of small business issuer as specified in its charter)
| Nevada |
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
975 North 1430 West, Orem, Utah 84057
(Address of principal executive offices)
801-426-6699
(Issuer's telephone number)
Not Applicable
(Former name, address and fiscal year, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Exchange Act subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common equity, as of September 30, 2001: 42,813,880 shares of common stock.
Transitional Small Business Format: Yes [ ] No [ X ]
FORM 10-QSB
LIBERTY MINT, LTD.
INDEX
| Page |
| PART I. Financial Information |
| Item I. Financial Statements (unaudited) |
Condensed Consolidated Balance Sheets - September 30, 2001 (unaudited) and December 31, 2000
Condensed Consolidated Statements of Operations (unaudited) for the Three Months and Nine Months Ended September 30, 2001 and 2000
Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months and Nine Months Ended September 30, 2001and 2001
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operation
4
6
7
9
15
| PART II Other Information |
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
19
22
22
| Signatures | 22 |
(Inapplicable items have been omitted)
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
In the opinion of management, the accompanying unaudited financial statements included in this Form 10-QSB reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
LIBERTY MINT, LTD. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| ASSETS | September 30, 2001 | December 31, 2000 |
| ____________ | ____________ | |
| CURRENT ASSETS: | ||
| Cash and cash equivalents | $ 17,575 | $ 3,323 |
| Accounts receivable, net | 53,297 | 125,500 |
| Inventory | 621,285 | 168,020 |
| Prepaid expenses | 172,160 | 193,296 |
| ____________ | ___________ | |
| Total Current Assets | 864,317 | 490,139 |
| ____________ | ___________ | |
| PROPERTY AND EQUIPMENT,net | 120,632 | 136,773 |
| ____________ | ___________ | |
| OTHER ASSETS: | ||
| Other assets | 5,193 | 3,400 |
| ____________ | ___________ | |
| Total Other Assets | 5,193 | 3,400 |
| ____________ | ___________ | |
| $ 990,142 | $ 630,312 | |
| ____________ | ___________ |
[Continued]
LIBERTY MINT, LTD. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
[Continued]
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) | September 30, 2001 | December 31, 2000 |
| ____________ | ___________ | |
| CURRENT LIABILITIES: | ||
| Accounts payable | $ 217,559 | $ 165,599 |
| Accounts Payable- related party | - | 5,399 |
| Factoring advances | 9,688 | 67,339 |
| Accrued liabilities | 672,113 | 461,867 |
| Liabilities of discontinued operations | 501,155 | 537,985 |
| Customer deposits | 24,068 | 138,924 |
| Notes payable - related party | 284,908 | 276,586 |
| Notes payable | 518,418 | - |
| ____________ | ___________ | |
| Total Current Liabilities | 2,227,909 | 1,653,699 |
| ____________ | ___________ | |
| 2,227,909 | 1,653,699 | |
| ____________ | ___________ | |
| COMMITMENTS AND CONTINGENCIES | ||
| [See Note 10] | - | - |
| ____________ | ___________ | |
| STOCKHOLDERS' (DEFICIT): | ||
| Preferred Stock, $.001 par value, 10,000,000 shares authorized, no shares issued and outstanding | - | - |
| Common stock, $.001 par value, 50,000,000 shares authorized, 42,813,880 and 30,563,260 shares issued and outstanding | 42,814 | 30,563 |
| Capital in excess of par value | 6,157,012 | 5,822,395 |
| Retained (deficit) | (7,313,385) | (6,752,137) |
| ____________ | ___________ | |
| (1,113,559) | (899,179) | |
| ____________ | ___________ | |
| Less Stock Subscriptions Receivable | 124,208 | 124,208 |
| ____________ | ___________ | |
| Total Stockholders' (Deficit) | (1,237,767) | (1,023,387) |
| ____________ | ___________ | |
| $ 990,142 | $ 630,312 | |
| ____________ | ___________ |
Note: The balance sheet at December 31, 2000 was taken from the audited financial statements at that date and condensed.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LIBERTY MINT, LTD. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Three Months Ended September 30, | For the Three Months Ended September 30, | For the Nine Months Ended September 30, | For the Nine Months Ended September 30, | |
| 2001 | 2000 | 2001 | 2000 | |
| ___________ | ____________ | ___________ | ___________ | |
| SALES,net of returns and discounts | $ 199,841 | $ 221,385 | $ 656,141 | $ 1,976,672 |
| COST OF GOODS SOLD | 196,574 | 133,884 | 480,470 | 1,499,185 |
| ___________ | ____________ | ___________ | ___________ | |
| GROSS PROFIT | 3,267 | 87,501 | 175,671 | 477,487 |
| ___________ | ____________ | ___________ | ___________ | |
| OPERATING EXPENSES: | ||||
| General and administrative | 160,199 | 287,287 | 704,483 | 871,636 |
| Bad debt expense | - | - | - | - |
| ___________ | ____________ | ___________ | ___________ | |
| Total Operating Expenses | 160,199 | 287,287 | 704,483 | 871,636 |
| ___________ | ____________ | ___________ | ___________ | |
| LOSS FROM OPERATIONS | (156,932) | (199,786) | (528,812) | (394,149) |
| ___________ | ____________ | ___________ | ___________ | |
| OTHER EXPENSE: | ||||
| Interest expense | (9,092) | (11,539) | (32,436) | (49,147) |
| Other expense | - | - | - | - |
| ___________ | ____________ | ___________ | ___________ | |
| Total Other (Expense) | (9,092) | (11,539) | (32,436) | (49,147) |
| ___________ | ____________ | ___________ | ___________ | |
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (166,024) | (211,325) | (561,248) | (443,296) |
| CURRENT TAX EXPENSE | - | - | - | - |
| DEFERRED TAX EXPENSE | - | - | - | - |
| ___________ | ____________ | ___________ | ___________ | |
| NET (LOSS) | $ (166,024) | $ (211,325) | $ (561,248) | $ (443,296) |
| ___________ | ____________ | ___________ | ___________ | |
| (LOSS) PER COMMON SHARE | $ (.00) | $ (.01) | $ (.01) | $ (.03) |
| ___________ | ____________ | ___________ | ___________ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LIBERTY MINT, LTD. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Nine Months Ended September 30, | For the Nine Months Ended September 30 | |
| 2001 | 2000 | |
| ___________ | ___________ | |
| Cash Flows Provided by Operating Activities: | ||
| Net loss | $ (561,248) | $ (443,296) |
| ___________ | ___________ | |
| Adjustments to reconcile net loss to net cash used by operating activities: | ||
| Depreciation and amortization | 19,565 | 17,255 |
| Non-cash expenses, including stock issued for services & interest expense | 49,920 | 274,753 |
| Changes in assets and liabilities: | ||
| Decrease in accounts receivable | 72,203 | 154,777 |
| Increase (decrease) in inventory | (453,265) | 656,680 |
| (Increase) decrease in prepaid expenses | 51,136 | (3,779) |
| (Increase) decrease in other assets | (1,793) | 207 |
| Increase in accounts payable | 46,561 | 102,282 |
| (Decrease) in factoring advances | (57,651) | (80,240) |
| Increase (decrease) in accrued expenses | 205,246 | (56,360) |
| (Decrease) in customer deposits | (114,856) | (735,625) |
| (Decrease) in liabilities of discontinued operations | (12,382) | (24,665) |
| ___________ | ___________ | |
| Net Cash (Used) by Operating Activities | (756,564) | (138,011) |
| ___________ | ___________ | |
| Cash Flows Provided by Investing Activities: | ||
| Purchases of property and equipment | (3,424) | (177,716) |
| ___________ | ___________ | |
| Net Cash (Used) by Investing Activities | (3,424) | (177,716) |
| ___________ | ___________ | |
| Cash Flows Provided by Financing Activities: | ||
| Proceeds from Issuance of common stock | 247,500 | 305,000 |
| Decrease in stock subscription receivable | - | - |
| Increase in notes payable - related party | 8,322 | - |
| Increase in notes payable | 518,418 | - |
| ___________ | ___________ | |
| Net Cash Provided by Financing Activities | 774,240 | 305,000 |
| ___________ | ___________ | |
| Net Increase (Decrease) in Cash and Cash Equivalents | 14,252 | (10,727) |
| Cash and Cash Equivalents at Beginning of Period | 3,323 | 53,858 |
| ___________ | ___________ | |
| Cash and Cash Equivalents at End of Period | $ 17,575 | $ 43,131 |
| ____________ | ____________ |
[Continued]
LIBERTY MINT, LTD. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[Continued]
| For the Nine Months Ended September 30, | For the Nine Months Ended September 30 | |
| 2001 | 2000 | |
| ___________ | ___________ | |
| Cash Flows Provided by Operating Supplemental Disclosures of Cash Flow Information: | ||
| Cash paid during the period for: | ||
| Interest | $ - | $ 3,902 |
| Income taxes | $ - | $ - |
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
For the nine months ended September 30, 2001:
The Company issued 96,730 shares of common stock to settle liabilities of discontinued operation of $7,738 or $.08 per share.
The Company issued 2,000,000 shares of common stock for one year of consulting services valued at $40,000, or $.02 per share. At September 30, 2001, $10,000 had been expensed related to this agreement.
The Company issued 257,223 shares of common stock to settle liabilities of discontinued operations of $20,578, or $.08 per share.
The Company issued 30,000 shares of common stock for services rendered valued at $600, or $.02 per share.
In April 2001, the Company issued 2,100,000 shares of common stock to consultants for services valued at $32,760 or $.0156 per share.
In April 2001, the Company issued 100,000 shares of common stock to an employee for services valued at $1,560 or $.0156 per share.
For the nine months ended September 30, 2000:
The Company issued 380,494 shares of common stock for services rendered valued at $152,198, or $.40 per share.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation - The consolidated financial statements include the following accounts: Liberty Mint, Ltd. ("Parent") (a Nevada Corporation incorporated as of October 8, 1999 to change the state of domicile from Colorado). Parent was formerly known as Hana Acquisitions, Inc., a Colorado Corporation incorporated on March 13, 1990 (Then a shell entity with no operations). The Parent is engaged in custom minting, marketing and sales of sculptures, and the creation of propriety minted collectibles through its wholly owned subsidiary The Great Western Mint, Inc. ("GWM"), a Utah Corporation organized on September 20, 1999. The Parent is also engaged in licensing and marketing of entertainment related collectibles through its wholly owned subsidiary Liberty Mint Marketing, Inc. ("LMM"), a Utah corporation organized on July 2, 1998.
Consolidation - The consolidated financial statements include the accounts of the Parent and its subsidiaries (through the dates of disposition of subsidiaries). All significant intercompany transactions between Parent and GWM and LMM have been eliminated in consolidation.
Condensed Financial Statements - The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 2001 and 2000 and for the periods then ended have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the company's December 31, 2000 audited financial statements. The results of operations for the periods ended September 30, 2001 are not necessarily indicative of the operating results for the full year.
Proposed Subsidiary Spin-Off -In March 2001, the Board of Directors approved to distribute approximately 4,000,000 of the 4,500,000 shares of common stock held in its Subsidiary, Liberty Mint Marketing, Inc. (LMM). The shares will be distributed to shareholders of Liberty Mint, LTD. on a pro rata basis without payment of consideration. In March 2001, LMM changed its name to SCCS, Inc. Final consummation of the spin-off is not guaranteed and is subject to the completion of various conditions.
NOTE 2- GOING CONCERN
The Company has incurred significant losses during 2001 and 2000 and has current liabilities in excess of current assets at September 30, 2001. As of September 30, 2001, the company does not have the ability to pay off current liabilities without additional funds provided through loans and/or through additional sales of its common stock. These items raise substantial doubt about the ability of the Company to continue as a going concern.
Management's plans in regards to these matters are as follows:
Management is proposing to raise necessary additional funds not provided by operations through loans and/or through additional sales of its common stock. Management believes that it can improve operations, refinance debt, convert debt to equity, and reduce expenses. Management believes that a combination of these efforts will be necessary to continue as a going concern.
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2- GOING CONCERN [Continued]
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to obtain additional financing, establish profitable operations or realize its plans.
NOTE 3- PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less accumulated depreciation and amortization as of:
| September 30, 2001 | December 31, 2000 | |
| ___________ | ___________ | |
| Production equipment, pledged as collateral for note payable [See note 6] | $ 121,447 | $ 121,447 |
| Leasehold improvements | 13,769 | 13,769 |
| Computer equipment | 9,970 | 9,970 |
| Office furniture | 13,524 | 10,100 |
| ___________ | ___________ | |
| 158,710 | 155,286 | |
| Less: accumulated depreciation and amortization | (38,078) | (18,513) |
| ___________ | ___________ | |
| $ 120,632 | $ 136,773 | |
| ____________ | ____________ |
Depreciation and amortization expense for the nine months ended September 30, 2001 and 2000, amounted to $19,357 and $17,654, respectively.
NOTE 4- ACCRUED LIABILITIES
The following is a summary of accrued liabilities:
| September 30, 2001 | December 31, 2000 | |
| ___________ | ___________ | |
| Payroll costs | $ 433,056 | $ 270,167 |
| Contingency on stock guarantee | 94,000 | 94,000 |
| Accrued Interest | 145,057 | 97,700 |
| ___________ | ___________ | |
| $ 673,113 | $ 461,867 | |
| ____________ | ____________ |
NOTE 5- CAPITAL STOCK
Preferred Stock - The Company is authorized to issue 10,000,000 shares of preferred stock, $.001 par value with such rights, preferences and designations and to be issued in such series as determined by the Board of Directors.
Stock Subscription Receivable - During April 1999, the Company issued 12,000,000 shares of its common stock for total proceeds of $800,000 (or $.067 per share). The issuance of these shares resulted in 34% ownership of the Company. As of September 30, 2001, $675,792 of the total amount was collected. The balance of $124,208 is reflected as a stock subscription receivable on the financials and is classified as a reduction to stockholders equity.
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5- CAPITAL STOCK [Continued]
Warrants - At September 30, 2001, the Company had warrants outstanding to purchase a total of 2,956,667 shares of the Company's common stock at prices ranging from $1.20 to $15.00 per share. The warrants expire June 26, 2002. During the nine months ended September 30, 2001 no warrants were exercised.
Stock Options - At September 30, 2001, the Company had options outstanding to purchase a total of 2,015,333 shares of the Company's common stock at prices ranging from $1.40 to $12.96 per share. The options expire through December 31, 2007. During the nine months ended September 30, 2001 no options were exercised.
Stock Value Guarantee -During December 1998, the Company issued 60,000 shares of common stock for advertising services valued at $60,000 (or $1.00 per share). During 1999, the Company issued an additional 40,000 shares of common stock for advertising services which were valued at $40,000. The Company guaranteed that one year from the date of issue, the value of the 100,000 shares would be at least $100,000. During 2000, the Company issued an additional 100,000 shares of common stock valued at $.25 per share in partial settlement of the price guarantee [See Note 10].
Stock Issued for Liabilities - On February 23, 2001, the Company issued 257,223 shares of common stock to settle $20,578 (or $.08 per share) in claims that were included in the liabilities of discontinued operations.
In August 2001, the Company issued 71,075 shares of common stock for debt relief related to liabilities of discontinued operations valued at $2,875 (or $.04 per share).
In August 2001, the Company issued 24,855 shares of common stock for debt relief related to liabilities of discontinued operations valued at $944 (or $.04 per share).
Stock Issued for Services - On February 23, 2001, the Company issued 30,000 shares of common stock to its employees as a bonus. The shares were valued at the trading price of $600 (or $.02 per share).
In April 2001, the Company issued 2,100,000 shares of common stock to consultants for services valued at $32,760 or $.0156 per share.
In April 2001, the Company issued 100,000 shares of common stock to an employee for services valued at $1,560 or $.0156 per share.
In July 2001, the Company issued 2,000,000 shares of common stock for consulting services valued at $40,000 (or $.02 per share). [See Note 10]
Stock Issued for Cash - On March 20, 2001, the Company issued 7,666,667 shares of common stock for total proceeds of $300,000 (or $.039 per share). As of March 31, 2001, $135,000 of the total amount was collected.
Issuance of Subsidiary Stock - On January 2, 2001, the Company board of directors approved the issuance of 2,200,000 shares of common stock of LMM for services rendered valued at $5,000 and related party dept of $50,000. These shares were shown as issued and outstanding reducing the Company's Holdings from 100% to 67%. During September 30, 2001, the Company board of directors decided not to issued the 2,200,000 shares of LMM common stock and included the $55,000 in accrued expenses.
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6-RELATED PARTY
Notes Payable - During 1997 the Company issued a $200,000 12% convertible note payable to a shareholder of the Company. The interest on the note is payable quarterly. The note matured on November 18, 2000. The note with any related accrued interest is convertible into common stock of the Company at the option of the holder at 60% of the fair market value of the Company common stock on the date of conversion. The intrinsic value of the beneficial conversion feature on the date of issuance was $133,333, which was charged to interest expense and credited to additional paid in capital. At September 30, 2001, the Company owed accrued interest of $107,072 on the note. The note is in default and no interest or principle payments have made against the note. At September 30, 2001, the note is convertible into approximately, 10,235,735 shares of the Company's common stock.
During 2000, the Company purchased $156,586 of equipment from a shareholder of the Company through the payment of $80,000 in cash and the issuance of a $76,586, 12% secured note payable. The equipment was previously owned by Liberty Mint, Inc. ("LMI") (a former subsidiary), but was foreclosed on and acquired by the shareholders from the Company due to their personal guarantee of debt of LMI. The equipment purchase is collateral for the note payable.
NOTE 7 - NOTE PAYABLE
On July 25, 2001, the Company received a line of credit of up to $700,000 at an interest rate of 7.75%. As of September 30, 2001, the Company borrowed $518,418. The note is secured by inventory and was originally due November 16, 2001, but since has been extended until December 16, 2001. As of September 30, 2001, accrued interest amounted to $3,291.
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". FASB 109 requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards.
The Company has available at September 30, 2001, unused operating loss carryforwards of approximately $7,066,000 which may be applied against future taxable income and which expire in various years through 2021.
The amount of and ultimate realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part, upon the tax laws in effect, the future earnings of the Company, and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the loss carryforwards the Company has established a valuation allowance equal to the amount of the loss carryforwards and, therefore, no deferred tax asset has been recognized for the loss carryforwards. The net deferred tax assets are approximately $2,402,000 as of September 30, 2001, with an offsetting valuation allowance at year end of the same amount resulting in a change in the valuation allowance of approximately $132,000 during the nine months ended September 30, 2001.
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LOSS PER SHARE
The following data show the amounts used in computing loss per share and the effect on income and the weighted average number of shares of potential dilutive common stock for:
| For the Three Months Ended September 30, | For the Three Months Ended September 30, | For the Nine Months Ended September 30, | For the Nine Months Ended September 30, | |
| 2001 | 2000 | 2001 | 2000 | |
| ___________ | ____________ | ___________ | ___________ | |
| Loss from continuing operations available to common stockholders (Numerator) | $ (166,024) | $ (211,325) | $ (561,248) | $ (443,296) |
| ___________ | ____________ | ___________ | ___________ | |
| Weighted average number of common shares outstanding used in basic earnings per share (Denominator) | 42,608,454 | 30,514,697 | 38,322,563 | 28,914,878 |
| ___________ | ____________ | ___________ | ___________ | |
| Weighted average number of common shares and potential dilutive common shares outstanding used in dilutive earnings per share (Denominator) | N/A | N/A | N/A | N/A |
| ___________ | ____________ | ___________ | ___________ |
The Company had at September 30, 2001 options and warrants outstanding to purchase 4,972,000 shares of common stock at prices ranging from $.40 to $12.96 per share, that were not included in the computation of diluted earnings per share because their effect was anti-dilutive (the exercise price of the options was greater than the average market price of the common shares).
NOTE 10- COMMITMENTS AND CONTINGENCIES
Stock guarantee - During December 1998, the Company issued 60,000 shares of its common stock for advertising services performed valued at $60,000. The Company guaranteed the advertising company that one year from the date of issue they would be able to sell their 60,000 shares of common stock for a minimum price of $1.00 per share (or for a total of $60,000). During September 1999 the Company issued an additional 140,000 shares of common stock at $.067 per share under the same agreement. The Company further agreed to issue a sufficient amount of shares to the advertising Company in order to sell and receive total proceeds of $100,000 if the trading price was less than $1.00 per share. As of September 30, 2001 the Company has recorded a $94,000 accrued expense as the market price of the Company's common stock was less than the guaranteed amount.
Consulting Agreement - During July 2001, the Company entered into a consulting agreement with Windsor Partners. The Company issued 2,000,000 shares of common stock for consulting services valued at $40,000 (0r $.02 per share). [See Note 5]
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS AND CONTINGENCIES [Continued]
Sale of Subsidiary -During September 1999 the Company sold all of its shares in Liberty Mint, Inc. a 90% owned subsidiary for $25. The Company has recorded net liabilities of discontinued operations of $513,425 at September 30, 2001 for subsidiary liabilities the Company estimates it will be responsible to pay. Management believes that the Company is not liable for any existing liabilities of its former subsidiary, but the possibility exists that creditors and others seeking relief from the former subsidiary may also include the Company in claims and suits pursuant to the parent-subsidiary relationship which previously existed between the Company and its former subsidiary. The Company was named in one suit prior to the disposition of the Liberty Mint, Inc. (see below) but is not currently named in nor is it aware of any other such claims or suits against its former subsidiary. Management believes that the Company would be successful in defending against any such claims and believes that no material negative impact on the financial position of the Company would occur. Management further believes that with the passage of time, the likelihood of any such claims being raised will become more remote. No amount has been reflected or accrued in these financial statements for any contingent liability other than $513,475 which the Company has accrued for estimated potential liabilities at September 30, 2001 for which it believes a possible payment may be required.
Litigation -On May 3, 1999, the Company was named in a lawsuit alleging various causes of action related to liabilities of the Liberty Mint, Inc. During January 2001, the Company settled the suit for a total of $33,000 to be paid in nine monthly payments of $1,000, six payments of $2,000 and five payments of $3,000. In addition, the settlement calls for the return of certain coin dies and ingot dies and the issuance of 5,000 shares of the Company class A common stock. These amounts have been accrued as part of the estimated liabilities of discontinued operations.
The Utah Department of Consumer Affairs ("UDCA") contacted the Company on behalf of approximately 15 parties who are owed money by Liberty Mint, Inc. The UDCA requested a plan from the Company to resolve the outstanding debt. The Company carried on negotiations and extended a settlement offer consisting of its common stock to the parties involved. Seven of the parties have accepted shares of restricted stock of the Company as settlement. None of the remaining parties nor the UDCA have formally filed any charges against the Company.
The Company has been named in another complaint filed in Clark County, Nevada, alleging that the Company has not made required payments on certain silver leases. The Company maintains that it was not a party to the leases and denies any responsibility related to the leases. The complaint asks for damages and awards in excess of $160,000.
Management intends to vigorously defend itself in the above actions and any others that may arise and believes that it has adequately estimated and accrued liabilities of discontinued operations to cover these items.
Operating lease -The Company has entered into an operating lease for its office and production facility. The lease period on the facility commenced on November 1, 1999 and will expire on October 31, 2002. Lease expense for the nine months ended September 30, 2001 amounted to $49,076. The minimum annual rental payments are $61,165 through 2002.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
Forward-Looking Statement Notice
When used in this report, the words "may," "will," "expect," "anticipate," "continue," "estimate," "project," "intend," and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934 regarding events, conditions, and financial trends that may affect the Company's future plans of operations, business strategy, operating results, and financial position. Persons reviewing this report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such factors are discussed under the "Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operations," and also include general economic factors and conditions that may directly or indirectly impact the Company's financial condition or results of operations.
The Company
Liberty Mint, Ltd., was originally incorporated in the State of Colorado on March 15,1990 as St. Joseph Corp. VI. On July 26, 1993, the Company changed its name to Petrosavers International, Inc., and on September 12, 1996 again changed its name to Hana Acquisitions Inc. On June 9, 1997, the Company changed its name to Liberty Mint, Ltd. On October 8, 1999, the Company filed Articles of Merger with the State of Colorado and Nevada, effecting a change of domicile of the Company to the State of Nevada.
On September 23, 1999, the Company sold its 90% interest in Liberty Mint, Inc., a Utah corporation.
Currently, the "Company" operates through two subsidiaries. The Great Western Mint, Inc. ("GWM") provides custom minting services for corporations, associations, government agencies, and any other organization that desires to produce a custom coin or commemorative. The GWM also conceives and markets proprietary coin related products and sculpture. The Company's second subsidiary, SCCS, Inc. creates and markets licensed entertainment and sports related collectibles.
Because SCCS required an infusion of capital and management that could not be supported by the Company, management made the decision to spin-off SCCS in a dividend distribution to its shareholders. SCCS will continue its business of marketing sports and entertainment collectibles. The Company originally anticipated the spin-off to be completed by June 15, 2001, however, due to delays in completing the audit on SCCS, the Company has postponed the dividend distribution until such time as the SCCS audit is complete.
In connection with the spin-off, the Company will assign its rights in the licensing agreement and joint distribution contract with Signatures Network to SCCS.
The Company has identified two areas which it will attempt to cultivate through its marketing efforts: 1) growth of its custom minting business and 2) western art and collectibles. Through GWM, the company intends to actively pursue business to business sales and increase custom minting sales.
The Company remains focused on increasing sales through improving and expanding upon its present marketing and distribution methods. At present and in the near term, the Company will seek relationships with established marketing partners to assist in distribution and sales of the Company's newly developed collectible products. As a result of the Company's new direction, it has successfully begun to market its products on a limited basis to businesses and the public. Many of the Company's new product lines are derived from licenses and rights to produce various collectibles. The Company intends to continue licensed-based marketing by obtaining additional licenses with public appeal. As new products are developed the Company will proceed with its efforts to expand marketing strategies and develop increased demand for its products.
During the third quarter, the Company received permission from Disney Resort, Inc. to cast an original Mickey Mouse sculpture in 24k gold. The sculpture was completed in September and the Company is currently attempting to locate a purchaser. The sculpture commemorates Walt Disney's 100th birthday on December 5, 2001.
The Company has an agreement with Silver Smith's Group, USA where the Company is authorized to produce 1/2 size Remington sculptures in silver and bronze. We have completed prototypes that are in the process of approval from the Frederick Remington Art Museum.
Results of Operations
Three Month and Nine Month periods Ended September 30, 2001 and 2000
Gross revenue for the quarter ended September 30, 2001 was $199,841 compared to $221,385 for the same period in 2000, a decrease of $21,544. Gross revenue for the nine months ended September 30, 2001 was $656,141 compared to $1,976,672 for the same period in 2000, a decrease of $1,320,531. The high level of revenue for the period ending September 30, 2000 was due to the Company producing a large order of gold commemorative coins which inflated revenue for that quarter.
Costs of revenue was $196,574 or 98% of revenue for the quarter ended on September 30, 2001, compared to $133,884 or 60% of revenues for the first quarter of 2000. For the nine months ended September 30, 2001 and 2000, costs of revenue was $480,470 or 73% in 2001 and $1,499,185 or 75% in 2000.
Gross profit was $3,267 for the quarter ended on September 30, 2001 and $87,501 for the comparable quarter in 2000. For the nine months ended September 30, 2001 and 2000, gross profit was $175,671 and $477,487 respectively. Gross profit as a percentage of revenues for the three months ended September 30, 2001 and 2000 was 1.6% and 39% respectively. Gross profit as a percentage of revenues for the nine months ended September 30, 2001 and 2000 was 27% and 24% respectively.
General and administrative expenses were $160,199 for the quarter ended September 30, 2001 and $287,287 for the comparable period in 2000, a decrease of $127,088. Expenses for the nine months ended September 30, 2001 were $704,483 compared to $871,636 for the same period in 2000, a decrease of $167,153. The primary reason for the decrease was the Company's continued effort to reduce overhead.
The Company had a net loss of $166,024 during the quarter ended September 30, 2001 compared to an operating loss of $211,325 for the comparable quarter in 2000. For the nine months ended September 30, 2001 and 2000, the Company had a net loss of $561,248 and $443,296 respectively.
During the quarter ended September 30, 2001, the Company incurred interest expenses in the amount of $9,092 and $11,539 during the comparable period in 2000. For the nine months ended September 30, 2001, the Company had interest expense of $32,436 compared to $49,147 for the same period of 2000.
Liquidity and Capital Resources
The Company relies on revenue from sales of its products and services to maintain operations. The Company estimates that it will need to generate minimum monthly sales levels of $150,000 in order to operate at a profit. The Company may not be able to maintain this level of sales. If the Company's sales revenues fall short of this minimum level on average, the Company may fall short of the minimum capital required to maintain operations. In that event, the Company may have to find additional financing in the form of loans or sale of equity in the Company. The current sources of cash available to the Company consist of (1) revenues from sales and (2) debt financing through Performance Funding Co. of Phoenix, Arizona (a factoring line of credit in the amount of $250,000). The Company also has outstanding notes receivable for equity stock purchases in the amount of $124,208 which is currently delinquent. The Company is attempting to work out a payment plan with the debtors to settle the outstanding amount due.
The Company currently has $17,575 cash in hand or cash equivalents and total assets of $990,142. Current liabilities are $2,227,909 and stockholder deficit is $1,237,767. The Company has $124,208 in stock subscriptions receivable. These items raise a substantial concern and doubt about the ability of the Company to continue as a going concern. In an effort to overcome the financial difficulties that had surrounded the continued operation of Liberty Mint, Inc., the Company divested itself of its interesting Liberty Mint, Inc. On going efforts to reduce overhead and focus on the business of GWM have been the subsequent decision to spin-off of SCCS, Inc. These divestitures have allowed the Company to focus on its core business of custom minting and western art and collectibles, reduce overhead and expenses and improve operations. In view of the efforts the Company is making to control costs and increase sales in a focused area, the Company believes it can continue as a going concern.
The Company is carrying $501,155 on its books as a contingent liability that represents undelivered silver and gold and past due payroll taxes of Liberty Mint, Inc. which accrued during the two years while the Company owned Liberty Mint, Inc.
The Company continues to stabilize its financial position and expects to improve revenues and become profitable in 2001 as a result of spinning off the SCCS, Inc., operations and focusing solely on the operations of The Great Western Mint.
Management believes the Company's ability to raise additional capital to meet its needs depends on the ability to demonstrate that the Company can generate profits from sales of its products and services. If necessary, the Company may raise additional capital in an equity offering.
The Company will continue to focus on its foundation business of custom minting programs through The Great Western Mint, Inc. to increase revenue to bring the Company into profitability.
The Company has no material commitments for capital expenditures for the next twelve months.
Item 1. Legal Proceedings
Both the Internal Revenue Service ("IRS") and the state of Utah have contacted the Company regarding past withholding tax due regarding Liberty Mint, Inc. The Company owes approximately $150,000 to the IRS and $35,000 to the state of Utah and has acknowledged the debt on the Company's balance sheet. The Company met with the IRS during the past quarter and is working closely with the IRS agent to resolve the issue by the first quarter of 2002. Until final settlement is agreed upon, the Company is paying $3,000 a month to the IRS. The Company reached a settlement agreement with the state of Utah whereby the Company has agreed to pay $1,000 per month until the debt is paid. The Company is currently two months in arrears on these payments as of November 2001. At the present time, there is no current legal action against the Company on either of these issues.
The Utah Department of Consumer Affairs ("UDCA") contacted the Company on behalf of approximately 15 parties who are owed money by Liberty Mint, Inc. The UDCA requested a plan from the Company to resolve the outstanding debt. The Company has extended a settlement offer of its common stock to the parties who are owed money by Liberty Mint, Inc., and to date, seven parties have accepted shares of restricted stock of the Company as settlement. None of the remaining parties or the UDCA have formally filed any charges against the Company.
The Company received a Complaint filed in District Court, Clark County, Nevada, Case No. A423386, Dept. No. XVII, dated August 24, 2000, naming Liberty Mint, Ltd., as defendant among other parties. The Complaint was brought by Jerry Schuetz as Plaintiff. The Compliant alleges that Liberty Mint, Ltd. as alter ego of other named defendants, executed silver leases with the Plaintiff and has not made the required payments. The Complaint asks for an award of in excess of $150,000 along with interest, punitive damages in an amount in excess of $10,000 and attorney's fees and costs. The Company believes it should not be a party to the Complaint and that the alleged events occurred in 1985 and 1986, at a time when the Company did not exist and therefore could not be an alter ego of the named defendants. The Company has denied any responsibility and has filed an answer stating the Company is not the alter ego of any of the other named defendants. Subsequent to the date of this filing, the Company was dismissed as a party to the litigation.
The above legal proceedings are a result of Liberty Mint, Inc. actions and not a result of current Company operations. The Company has since divested itself of Liberty Mint, Inc. and is attempting to settle certain outstanding claims.
Item 2. Change in Securities
During April 1999, the Company issued 12,000,000 shares of its common stock for total proceeds of $800,000 (or $.067 per share). The issuance of these shares resulted in 34% ownership of the Company. As of March 31, 2001, $675,792 of the total amount was collected. The balance of $124,208 is reflected as a stock subscription receivable on the financials and is classified as a reduction to stockholders equity.
On July 2, 2000, the Company issued 600,000 shares of common stock for $100,000 cash to an accredited investor. The Company relied on the exemption from registration under section 4(6) of the 1933 Act. The shares were not issued in connection with any public offering and no commissions were paid on the transaction.
On September 19, 2000, the Company issued 180,000 shares of common stock valued at $45,000 to an individual for services rendered to the Company pursuant to a written compensation plan. The Company registered the shares under an S-8 registration statement filed with the Securities and Exchange Commission.
On September 30, 2000, the Company issued 100,000 shares of common stock valued at $50,000 to Donna O'Dell. The stock was issued pursuant to an agreement entered in 1998 whereby the Company received ITEX barter credits and further guaranteed the value of its shares to be $1.00 after one year. If the shares were not valued at $1.00 after one year the Company committed to issuing additional shares to bring the total value of all shares issued to Donna O'Dell to $100,000. The Company relied on Section 4(2) of the Securities Act of 1933 to effect the transaction. The shares were not issued in connection with any public offering and no commissions were paid on the transaction.
In January 2001, the Company issued 2,200,000 shares for services rendered to four individuals, valued at $55,000 or $.025 per share. The shares were issued to accredited investors pursuant to an exemption under Section 4(2). No public offering was made and no commissions were paid on the transactions.
In February 2001, the Company issued 257,223 shares to settle liabilities of discontinued operations. The shares were issued to two individuals pursuant to an exemption under Section 4(2). No public offering was made and no commissions were paid on the transactions.
In February 2001, the Company granted 30,000 shares from its Employee Stock Option Plan to employees and consultants as incentive bonuses. The shares were granted pursuant to an exemption under Section 4(2). No public offering was made and no commissions were paid on the transactions.
During March 2001, the Company issued 7,666,667 shares of its common stock for total proceeds of $300,000 (or $.039 per share). The shares were issued to a single accredited investor pursuant to an exemption under Section 4(2). No public offering was made and no commissions were paid on the transactions.
In April 2001, the Company issued 2,200,000 shares of its common stock to consultants for services valued at $34,320 (or $0.0156 per share). The shares were granted pursuant to an exemption under Section 4(2). No public offering was made and no commissions were paid on the transactions.
At September 30, 2001, the Company had warrants outstanding to purchase a total of 2,956,667 shares of the Company's common stock at prices ranging from $1.20 to $15.00 per share. The warrants expire September 26, 2002. During the six months ended September 30, 2001 no warrants were exercised.
At September 30, 2001, the Company had options outstanding to purchase a total of 2,015,333 shares of the Company's common stock at prices ranging from $1.40 to $12.96 per share. The options expire through December 31, 2007. During the six months ended September 30, 2001, no options were exercised.
In July 2001, the Company issued 2,000,000 shares of common stock for services valued at $40,000. The stock was issued pursuant to an S-8 registration statement filed with the Securities and Exchange Commission on September 29, 2001.
In August 2001, the Company issued 71,875 shares of common stock to settle liabilities of discontinued operations. The shares were issued to one individual pursuant to an exemption under Section 4(2). No public offering was made and no commissions was paid on the transaction.
In July 2001, the Company registered 2,000,000 shares on Form S-8.
In August 2001, the Company issued 96,730 shares of common stock to settle liabilities of discontinued operations. The shares were issued to one individual pursuant to an exemption under Section 4(2). No public offering was made and no commissions was paid on the transaction.
In September 2001, the Company issued warrants for the purchase of 2,000,000 shares of common stock. The warrants allow for the purchase of common stock at a price of $0.055 per share and expire on September 13, 2004.
The spin-off of SCCS, Inc. has been delayed until such time as the audit can be completed. Therefore, the Company has determined it will re-set the record date following the completed audit.
Item 6. Exhibits and Reports on Form 8-K.
Reports on Form 8-K: No reports on Form 8-K were filed by the Company during the quarter ended September 30, 2001.
Exhibits:
No. Sec. Ref. # Title Location
1 4.1 Livingston Warrant Attached
2 4.2 Wilson Warrant Attached
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LIBERTY MINT, LTD.
Date: December 3, 2001 /s/ Dan Southwick
Dan Southwick
President, Chief Executive Officer and Director
Date: December 30, 2001 /s/ Eugene Pankrantz
Eugene Pankrantz
Controller
