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 March 31, 2002
[ ] 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.)
4778 North 300 West, Suite 201, Provo, UT 84604
(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 March 31, 2002: 42,813,880 shares of common stock.
Transitional Small Business Format: Yes [ ] No [ X ]
FORM 10-QSB
LIBERTY MINT, LTD.
INDEX
| PART I. | Financial Information | Page |
| Item I. Financial Statements (unaudited) | 3 | |
| Unaudited Condensed Balance Sheets - March 31, 2002 and December 31, 2001 | 4 | |
| Unaudited Condensed Statements of Operations for the Three Months Ended March 31, 2002 and 2001 | 6 | |
| Unaudited Condensed Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001 | 7 | |
| Notes to Unaudited Condensed Financial Statements | 9 | |
| Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operation | 19 |
| PART II | Other Information | |
| Item 1. Legal Proceedings | 21 | |
| Item 2. Changes in Securities | ||
| Item 6. Exhibits and Reports on Form 8-K | 22 |
| Signatures | 23 |
(Inapplicable items have been omitted)
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
In the opinion of management, the accompanying unaudited condensed 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.
CONDENSED BALANCE SHEETS
[Unaudited]
| ASSETS | March 31, | December 31, |
| 2002 | 2001 | |
| CURRENT ASSETS: | ||
| Cash and cash equivalents | $ 2,008 | $ 579 |
| Receivable - related party | 18,500 | 23,500 |
| Inventory | 487,145 | 487,145 |
| ____________ | ___________ | |
| Total Current Assets | 507,653 | 511,224 |
| ____________ | ___________ | |
| PROPERTY AND EQUIPMENT,net | 2,957 | 569 |
| ____________ | ___________ | |
| OTHER ASSETS | 3,500 | 3,100 |
| ____________ | ___________ | |
| $ 514,110 | $ 514,893 | |
| ____________ | ___________ |
[Continued]
LIBERTY MINT, LTD.
CONDENSED BALANCE SHEETS
[Unaudited]
[Continued]
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | March 31, | December 31, |
| 2002 | 2001 | |
| CURRENT LIABILITIES: | ||
| Accounts payable | $ 64,335 | $ 75,054 |
| Accounts payable - related party | 18,500 | 18,500 |
| Line of credit | 583,577 | 513,620 |
| Accrued liabilities | 248,465 | 232,380 |
| Liabilities of discontinued operations | 349,000 | 349,000 |
| Convertible note payable - related party | 200,000 | 200,000 |
| ____________ | ___________ | |
| Total Current Liabilities | 1,463,877 | 1,388,554 |
| COMMITMENTS AND CONTINGENCIES | ||
| [See Note 13] | - | - |
| STOCKHOLDERS' EQUITY (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 shares issued and outstanding | 42,814 | 42,814 |
| Additional paid in capital | 6,214,975 | 6,214,975 |
| Retained (deficit) | (7,207,556) | (7,131,450) |
| ____________ | ___________ | |
| Total Stockholders' Equity (Deficit) | (949,767) | (873,661) |
| ____________ | ___________ | |
| $ 514,110 | $ 514,893 | |
| ____________ | ___________ |
Note: The balance sheet at December 31, 2001 was taken from the audited financial statements at that date and condensed.
The accompanying notes are an integral part of these unaudited condensed financial statements.
LIBERTY MINT, LTD.
CONDENSED STATEMENTS OF OPERATIONS
[Unaudited]
| For the Three Months Ended March 31, | For the Three Months Ended March 31, | |
| 2002 | 2001 | |
| SALES,net of returns and discounts | $ 35,784 | $ - |
| COST OF GOODS SOLD | 34,580 | - |
| _____________ | ____________ | |
| GROSS PROFIT | 1,204 | - |
| _____________ | ____________ | |
| OPERATING EXPENSES: | ||
| General and administrative | 65,812 | 25,930 |
| _____________ | ____________ | |
| LOSS FROM OPERATIONS | (64,608) | (25,930) |
| _____________ | ____________ | |
| OTHER INCOME (EXPENSE): | ||
| Interest expense | (11,498) | (8,917) |
| _____________ | ____________ | |
| LOSS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS | (76,106) | (34,847) |
| CURRENT TAX EXPENSE | - | - |
| DEFERRED TAX EXPENSE | - | - |
| _____________ | ____________ | |
| NET LOSS FROM CONTINUING OPERATIONS | (76,106) | (34,847) |
| DISCONTINUED OPERATIONS: | ||
| Loss from discontinued operations of the Great Western Mint and Liberty Mint, Marketing ( net $0 in income taxes) | - | (55,311) |
| _____________ | _____________ | |
| NET LOSS | $(76,106) | $ (90,158) |
| _____________ | _____________ | |
| BASIC (LOSS) PER COMMON SHARE: | ||
| (Loss) from continuing operations | $ (.00) | $ (.00) |
| (Loss) from discontinued operations | - | (.00) |
| _____________ | _____________ | |
| BASIC (LOSS) PER COMMON SHARE | $ (.00) | $ (.00) |
| _____________ | _____________ |
The accompanying notes are an integral part of these unaudited condensed financial statements.
LIBERTY MINT, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
[Unaudited]
Increase (Decrease) in Cash and Cash Equivalents
| For the Three Months Ended March 31, | For the Three Months Ended March 31, | |
| 2002 | 2001 | |
| Cash Flows Provided by Operating Activities: | ||
| Net loss | $ (76,106) | $ (90,158) |
| Adjustments to reconcile net loss to net cash used by operating activities: | ||
| Depreciation and amortization | 43 | 6,252 |
| Non-cash expenses, including stock issued for services & interest expense | - | 5,600 |
| Changes in assets and liabilities: | ||
| (Increase) in accounts receivable | - | (41,977) |
| Decrease in receivable - related party | 5,000 | - |
| (Decrease in inventory | - | 13,219 |
| (Increase) in prepaid expenses | - | (32,415) |
| (Increase) decrease in other assets | - | (3,793) |
| Increase in accounts payable | (10,718) | 11,745 |
| (Decrease) in factoring advances | - | (20,080) |
| Increase in accrued expenses | 16,084 | 54,491 |
| Increase in customer deposits | - | 11,596 |
| (Decrease) in liabilities of discontinued operations | - | (2,950) |
| ___________ | __________ | |
| Net Cash (Used) by Operating Activities | (65,697) | (88,470) |
| ___________ | __________ | |
| Cash Flows Provided by Investing Activities: | ||
| Purchases of property and equipment | (2,431) | (3,424) |
| ___________ | __________ | |
| Net Cash (Used) by Investing Activities | (2,431) | (3,424) |
| ___________ | __________ | |
| Cash Flows Provided by Financing Activities: | ||
| Proceeds from issuance of common stock | - | 135,000 |
| Proceeds from line of credit | 69,587 | - |
| ___________ | __________ | |
| Net Cash Provided by Financing Activities | 69,587 | 135,000 |
| ___________ | __________ | |
| Net Increase (Decrease) in Cash and Cash Equivalents | 1,429 | 43,106 |
| Cash and Cash Equivalents at Beginning of Period | 579 | 3,323 |
| ___________ | __________ | |
| Cash and Cash Equivalents at End of Period | $ 2,008 | $ 46,429 |
| ___________ | __________ |
[Continued]
LIBERTY MINT, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
[Unaudited]
Increase (Decrease) in Cash and Cash Equivalents
[Continued]
| For the Three Months Ended March 31, | For the Three Months Ended March 31, | |
| 2002 | 2001 | |
| Supplemental Disclosures of Cash Flow Information: | ||
| Cash paid during the period for: | ||
| Interest | $ 7,557 | $ 5,711 |
| Income taxes | $ - | $ - |
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
For the three months ended March 31, 2002:
None
For the three months ended March 31, 2001:
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).
The accompanying notes are an integral part of these unaudited condensed financial statements.
LIBERTY MINT, LTD.
NOTES TO UNADITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation - The financial statements are that of Liberty Mint, Ltd. ("Parent") (a Nevada Corporation incorporated as of October 8, 1999 to change the state of domicile from Colorado). The Company was formerly known as Hana Acquisitions, Inc., a Colorado Corporation incorporated on March 13, 1990. The Company is engaged in marketing and sales of sculptures and custom minting.
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 March 31, 2002 and 2001 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 in the United States of America 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, 2001 audited financial statements. The results of operations for the periods ended March 31, 2002 and 2001 are not necessarily indicative of the operating results for the full year.
Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities, 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 those estimated by management.
Inventory - The Company carries inventory at lower of cost or market. Inventory at March 31, 2002, consists of a custom 1,501-Troy-oz, 24k-gold "Mickey Mouse" sculpture. [See Note 5]
Property and Equipment - Property and equipment are stated at cost. Expenditures for repairs and maintenance are charged to operating expense as incurred. Expenditures for additions and betterments that extend the useful lives of property and equipment are capitalized, upon being placed in service. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is included in operations.
Depreciation - Depreciation of equipment is computed using the straight-line method over the estimated useful lives of the assets over five years.
Revenue Recognition - Revenue is recognized when the product is shipped.
Advertising Expense - Advertising costs are expensed as incurred. Advertising expense amounted to $0 and $9,236, for the three months ended March 31, 2002 and 2001, respectively.
Income Taxes - The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This statement requires an asset and liability approach for accounting for income taxes [See Note 10]
LIBERTY MINT, LTD.
NOTES TO UNADITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Loss Per Share - The Company calculates loss per share in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share," which requires the Company to present basic earnings (loss) per share and dilutive earnings per share when the effect is dilutive. The computation of loss per share is based on the weighted average number of shares outstanding during the period presented. [See Note 9].
Cash and Cash Equivalents - For purposes of the statement of cash flows, the Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents.
Stock Based Compensation - The Company accounts for its stock based compensation in accordance with Statement of Financial Accounting Standard 123 "Accounting for Stock-Based Compensation". This statement establishes an accounting method based on the fair value of equity instruments awarded to employees as compensation. However, companies are permitted to continue applying previous accounting standards in the determination of net income with disclosure in the notes to the financial statements of the differences between previous accounting measurements and those formulated by the new accounting standard. The Company has adopted the disclosure only provisions of SFAS No. 123, accordingly, the Company has elected to determine net income using previous accounting standards.
Recently Enacted Accounting Standards -Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", SFAS No. 142, "Goodwill and Other Intangible Assets", SFAS No. 143, "Accounting for Asset Retirement Obligations", SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", and SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", were recently issued. SFAS No. 141, 142, 143, 144 and 145 have no current applicability to the Company or their effect on the financial statements would not have been significant.
NOTE 2- DISCONTINUED OPERATIONS
Liberty Mint, Inc. -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 $349,000 at March 31, 2002 for subsidiary liabilities the Company estimates it may be responsible to pay. Subsequent to March 31, 2002, the Company received debt forgiveness of $281,000. [See Note15]
SCCS, Inc. (formerly Liberty Mint Marketing, Inc.) -On July 2, 1998, the Company organized a wholly owned subsidiary Liberty Mint Marketing, Inc. in the state of Utah. The Company engaged in licensing and marketing of entertainment related collectibles. In 2001, LMM changed its name to SCCS, Inc. On December 31, 2001, the Company entered into an agreement to sell its subsidiary, SCCS, Inc., to an entity controlled by an officer of the Company for $25. At December 31, 2001, all revenues and expenses associated with this business have been netted and reclassified as discontinued operations on the statement of operations for all periods presented. Revenue for the three months ended March 31, 2001 related to these operations was $17,545.
LIBERTY MINT, LTD.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 2- DISCONTINUED OPERATIONS [Continued]
The Great Western Mint, Inc. -On September 20, 1999, the Company organized a wholly owned subsidiarym The Great Western Mint, Inc. ("GWM") in the state of Utah. The Company engaged in the Company had been creating custom propriety minted collectibles through its wholly owned subsidiary. On December 31, 2001, the Company sold GWM to an officer of GWM for $5,000 cash. In connection with the sale the Company agreed to pay 50% of the net profits received from the sale of the Mickey sculpture upto $175,000. All revenues and expenses associated with this business have been netted and reclassified as discontinued operations on the statement of operations for all periods presented. Revenue for the three months ended March 31, 2001 related to these operations was $275,532.
Proforma statement of operations - The following is a condensed proforma statement of operations that reflects what the presentation would have been for the three months ended March 31, 2001, if the Company had not discontinued the operations of SCCS, Inc. & GWM for the three months ended March 31, 2001:
| 2001 | |
| Net revenues | $ 293,077 |
| Cost of Good Sold | (145,102) |
| Other operating expenses | (214,803) |
| Other income (expenses) | (23,330) |
| ___________ | |
| Net loss | $ (90,158) |
| ___________ | |
| Basic loss per share | $ (.00) |
| ___________ |
NOTE 3- GOING CONCERN
The Company has incurred significant losses in recent years, has current liabilities in excess of current assets, has recently sold of two of its operating subsidiaries, has not yet been successful in establishing profitable operations, and has a stockholders' deficit. These factors 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. Should the Company not be successful in these business plans it would pursue possible merger opportunities.
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.
LIBERTY MINT, LTD.
NOTES TO UNADITED CONDENSED FINANCIAL STATEMENTS
NOTE 4- PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less accumulated depreciation as of March 31, 2002:
| Computer equipment | $ 3,181 |
| Less: accumulated depreciation | (224) |
| ___________ | |
| $ 2,957 | |
| ____________ |
Depreciation and amortization expense for the three months ended March 31, 2002 and 2001, amounted to $43 and $6,252 respectively.
NOTE 5- INVENTORY
At March 31, 2002, inventory consisted of a 1,501-Troy-oz, 24k-gold Mickey Mouse sculpture. The Company is planning on auctioning the sculpture in the summer of 2002. The carrying cost of the sculpture was $487,145.
The Company has the following agreement related to sale of the celebration Mickey Mouse Sculpture:
Subsequent to March 31, 2002 the Company has put the sculpture up for auction with an auction house and agreed to pay a commission to the seller of 15% of the gross proceeds of the sale, with a minimum sales price of $823,000. If the sales proceed do not meet the minimum bid of $823,000 the Company has agreed to reimburse the auction house $35,000 for advertising and promotional expenses.
The Company entered into an agreement with Disney Resorts, Inc. to commission the sculpture and has agreed to accept 15% of the gross proceeds over $650,000 from the sale of sculpture.
The Company has agreed to pay a 10% fee of the net profits from the sale of the sculpture to a an entity controlled by a director and shareholder who put up a $700,000 letter of credit to obtain the line of credit to finance production cost.
The Company has agreed to pay a 3% commission of the net profits received by the Company, to an employee of the former subsidiary GWM.
The Company has agreed in the sale of the former subsidiary GWM, to pay 50% of the net profits received from the sale of the sculpture up to $175,000.
NOTE 6- ACCRUED LIABILITIES
The following is a summary of accrued liabilities as of March 31, 2002:
| Accrued consulting - related party | $ 1,710 |
| Accrued interest - related party | 131,582 |
| Accrued interest | 4,229 |
| Contingency on stock guarantee | 96,000 |
| Other accrued exspenses | 14,944 |
| ______________ | |
| $ 248,465 | |
| _______________ |
LIBERTY MINT, LTD.
NOTES TO UNADITED CONDENSED FINANCIAL STATEMENTS
NOTE 7- LINE OF CREDIT
In December 2001, the Company secured a line of credit for $700,000 secured by a $700,000 letter of credit put up by an entity controlled by a director and shareholder of the Company [See Note 5]. The terms of the line of credit are 1% over prime, for an initial interest rate of 5.75%, due February 28, 2002. At March 31, 2002, the Company owed $513,620 on the line of credit. During the three months ended March 31, 2002, the Company extended the terms of the line of credit to July 30, 2002 and had the line of credit maximum decreased to $593,961.
NOTE 8- CONVERTIBLE NOTE PAYABLE - RELATED 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. The note is in default and no interest or principle payments have made against the note. At March 31, 2002, the note and accrued interest were convertible into approximately, 27,631,833 shares of the Company's common stock. Subsequent to March 31, 2002, the Company received debt forgiveness of the loan and accrued interest. [See Note 15]
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 the three months ended March 31, 2002 and 2001:
| For the Three Months Ended March 31, | For the Three Months Ended March 31, | |
| 2002 | 2001 | |
| Net (loss) available to common shareholders (Numerator) | $ (76,106) | $ (90,158) |
| __________ | __________ | |
| Weighted average number of common shares outstanding used in basic earnings per share (Denominator) | 42,813,880 | 39,454,621 |
| __________ | __________ | |
| Weighted number of common shares and potential dilutive common shares outstanding used in dilutive earnings per share (Denominator) | N/A | N/A |
| ___________ | ___________ |
At March 31, 2002, the Company had options outstanding to purchase 4,000,333 shares of common stock at prices ranging from $.055 to $12.00 per share and warrants to purchase 2,956,667 shares of common stock at prices ranging from $1.20 to $15.00 per share, and a note payable that could be converted into 27,631,833 shares that were not included in the computation of diluted loss per share because their effect was anti-dilutive.
At March 31, 2001, the Company had options 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 loss per share because their effect was anti-dilutive.
LIBERTY MINT, LTD.
NOTES TO UNADITED CONDENSED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109 Accounting for Income taxes. SFAS NO. 109 requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards. At March 31, 2002, the total of all deferred tax assets was approximately $2,070,000 and the total of the deferred tax liabilities was approximately $100. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company's future earnings, and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the deferred tax assets, the Company has established a valuation allowance of $2,070,000 as of March 31, 2002, which has been offset against the net deferred tax assets. The net change in the valuation allowance during the three months ended March 31, 2002 amounted to approximately $30,000.
NOTE 10- CAPITAL STOCK
Preferred Stock - The Company is authorized to issue 10,000,000 shares of preferred stock, no par value with such rights, preferences and designations and to be issued in such series as determined by the Board of Directors. At March 31, 2002, no shares of preferred stock were issued and outstanding.
Common Stock -The Company is authorized to issue 50,000,000 shares of common stock, $.001 par value. At March 31, 2002, 42,813,880 share were issued and outstanding.
Warrants - At March 31, 2002, 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 three months ended March 31, 2002 and 2001, no warrants were exercised.
Stock Options - During September 2001, the Company issued options to purchase 2,000,000 shares of common stock at $.055 to consultants. The options vest immediately and have a three year life. The fair value of $99,992 was expensed as consulting expensed and offset against additional paid in capital.
Stock Value Guarantee -During December 1998, the Company issued 60,000 shares of common stock for advertising services which services were 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 Note13).
Stock Issuances -In March 2001, the Company issued 7,666,667 shares of common stock for $135,000 cash and a $165,000 subscription receivable or $.039 per share.
In February 2001, the Company issued 30,000 shares of common stock to employees as $600 in bonuses, or $.02 per share.
In February 2001, the Company issued 257,223 shares of common stock for $20,578 in debt relief, or $.08 per share.
LIBERTY MINT, LTD.
NOTES TO UNADITED CONDENSED FINANCIAL STATEMENTS
NOTE 11- STOCK OPTIONS
Stock Options -During the periods presented in the accompanying financial statements the Company has granted to employees, directors and other entities options under various agreements. The Company accounts for stock options in accordance with APB No. 25 and has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock option issued under these agreements.
A summary of the status of the options outstanding under the Company's various agreements at March 31, 2002 is presented below:
| Options Outstanding | Options Exercisable | ||||
| Range of Exercise Prices | Number Outstanding | Weighted-Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable | Weighted-Average Exercise Price |
| $ .055 | 2,000,000 | 2.50 years | $ 0.055 | 2,000,000 | $ .055 |
| .40 | 1,134,296 | .01 years | .40 | 1,134,296 | .40 |
| 6.00 | 859,167 | .61 years | 6.00 | 859,167 | 6.00 |
| 12.00 | 6,870 | 5.75 years | 12.00 | 6,870 | 12.00 |
| __________ | __________ | __________ | __________ | __________ | |
| 4,000,333 | 4,000,333 |
NOTE 12- RELATED PARTY TRANSACTIONS
Notes Payable to stockholders - During December 1997, a shareholder of the Company loaned the Company $200,000 at 12% interest compounding yearly. The note is in default. At March 31, 2002 and 2001, accrued interest amounted to $131,582 and $95,276, respectively. [See Note 7] Subsequent to March 31, 2002, the Company received debt forgiveness of the note payable and accrued interest. [See Note 15]
Letter of Credit - During 2001, an entity controlled by a director and shareholder of the Company put up a $700,000 letter of credit to finance the production cost of the Mickey Sculpture. [See Note 7]
NOTE 13- 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 and 2000 the Company issued an additional 40,000 and 100,000 shares of common stock at $.067 and $.25 per share, respectively 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 is less than $1.00 per share. As of March 31, 2002 the Company has recorded a $96,000 accrued expense as the market price of the Company's common stock was less than the guaranteed amount.
LIBERTY MINT, LTD.
NOTES TO UNADITED CONDENSED FINANCIAL STATEMENTS
NOTE 13- COMMITMENTS AND CONTINGENCIES [Continued]
Sale of The Great Western Mint, Inc. Subsidiary -During December 2001, the Company sold all of its shares in The Great Western Mint, Inc. an 100% owned subsidiary for $5,000 [See Note 2]. 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 is not currently named in nor is it aware of any 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.
Sale of SCCS, Inc. (formerly Liberty Mint Marketing, Inc.) Subsidiary -During December 2001 the Company sold 100% of its shares in SCCS, Inc. (formerly Liberty Mint Marketing, Inc.), a 100% owned subsidiary, for $25 [See Note 2]. 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 is not currently named in nor is it aware of any 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.
Sale of Liberty Mint, Inc. Subsidiary -During September 1999, the Company sold all of its shares in Liberty Mint, Inc., a 90% owned subsidiary, for $25. At March 31, 2002, the Company has recorded net liabilities of discontinued operations of $349,000 for potential liabilities from the former subsidiary, which the Company estimates it may 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 $349,000 which the Company still has accrued for estimated potential liabilities at March 31, 2002 for which it believes a possible payment may be required.
LIBERTY MINT, LTD.
NOTES TO UNADITED CONDENSED FINANCIAL STATEMENTS
NOTE 13- COMMITMENTS AND CONTINGENCIES [Continued]
Litigation -On May 3, 1999, the Company was named in a lawsuit alleging various causes of action related to liabilities of Liberty Mint, Inc. During January 2001, the Company settled the suit for a total of $33,000 to be paid in six 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's Class A common stock. These amounts have been accrued as part of the estimated liabilities of discontinued operations. The Company is currently in default of making the required payments.
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. Four 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.
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.
NOTE 14- CREDIT RISK AND CONCENTRATIONS
For the three months ended March 31, 2002, one customer accounted for approximately 100% of revenue. Management believes there were no indications that this relationship would be negatively affected in the near future.
The Company has no policy of requiring collateral on any of its receivables; hence, if economic conditions or other unforeseen events were to negatively impact the economy, the risk of loss associated with the Company's receivables could exceed the current allowance for doubtful accounts.
NOTE 15- SUBSEQUENT EVENTS
Subsequent to March 31, 2002, the Company received debt forgiveness of contingent debt, which resulted in an extraordinary gain of $281,000. The management of the Company negotiated the forgiveness without consideration by the Company.
Subsequent to March 31, 2002, the Company received debt forgiveness of a note payable and accrued interest, which resulted in an extraordinary gain of $328,170. The management of the Company negotiated the forgiveness without consideration by the Company.
Subsequent to March 31, 2002, the Company borrowed $100,000 from a shareholder of the Company, the loan is payable on demand with an additional $100,000 in interest.
Subsequent to March 31, 2002, the Company borrowed $20,000 from an individual related to an officer and director of the Company. The loan is payable on demand with an additional $20,000 in interest. During May 2002, the Company paid $10,000 against the loan.
Subsequent to March 31, 2002, a shareholder of the Company advanced $25,000 to the Company.
LIBERTY MINT, LTD.
NOTES TO UNADITED CONDENSED FINANCIAL STATEMENTS
NOTE 15- SUBSEQUENT EVENTS [Continued]
The Company has put the sculpture up for auction with an auction house and agreed to pay a commission to the seller of 15% of the gross proceeds of the sale, with a Minimum sales price of $823,000. If the sales proceeds do not meet the minimum bid of $823,000 the Company has agreed to reimburse the auction house $35,000 for advertising and promotional expenses.
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.
During the year the Company determined that by pursuing its current operations, it would not likely generate any profits. Therefore, the Company determined it was in the best interest of Company to divest itself of its manufacturing operations and of the entertainment and sports collectibles market and instead to pursue a plan to develop a marketing distribution network to market gifts, art, museum authorized reproductions and other home and office decor. If the Company is not successful in its planned operations, it may consider merger opportunities.
The marketing strategy for the next twelve months will be for the Company to increase its exposure to potential business and wholesale clientele by training and developing a marketing distribution network of independent representatives. The Company anticipates it will be able to generate revenue by receiving a profit margin on all sales made by the marketing distribution network members. In addition, the Company will continue advertising in monthly trade publications, on the internet and via telemarketing.
The Company will also employ direct mail marketing methods and display advertising. The Company has successfully implemented direct mail on a limited basis in the past and intends to continue direct mail marketing for specific products.
The Company currently has a product-related website under development, www.libertymint.comand intends to pursue aggressive marketing efforts through its website. The Company intends the website to provide a method for informing potential business customers of the diverse applications for custom projects and to market and distribute its products.
Results of Operations
Three Month periods Ended March 31, 2002 and 2001
Gross revenues for the quarter ended March 31, 2002 were $35,784 compared to $-0- for the same period in 2001, an increase of $35,784. Costs of revenues were $34,580 or 96.6% of revenues for the quarter ended on March 31, 2002, compared to $-0- for the first quarter of 2001.
Gross profit was $1,204 for the quarter ended on March 31, 2002 and $-0- for the comparable quarter in 2001. Gross profit as a percentage of revenues was 3% March 31, 2002.
General and administrative expenses were $65,812 for the quarter ended March 31, 2002 and $25,930 for the comparable period in 2002, an increase of $39,882.
The Company had an operating loss of $76,106 during the quarter ended March 31, 2002 compared to an operating loss of $34,847 for the comparable quarter in 2001. Net loss for the period ended March 31, 2002 was $76,106 compared to $90,158 for the same period in 2001. The decrease in net loss for the period ended March 31, 2002 is attributed to discontinuing operations of the Great Western Mint and Liberty Mint Marketing.
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 achieve or 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 revenues from sales.
As of March 31, 2002, the Company had $2,008 cash on hand, had a related party receivable of $18,500 and inventory of $487,145 for total current assets of $507,653. In addition the Company had $2,957 in property and equipment and other assets valued at $3,500 making the total assets $514,110. Current liabilities were $1,463,877.
Subsequent to the date of this report, the Company received debt forgiveness of contingent debt that resulted in an extraordinary gain of $281,000. Management negotiated the forgiveness without consideration by the Company. Management also negotiated the forgiveness of a note payable and accrued interest that resulted in an extraordinary gain of $328,170. This forgiveness was also made without consideration by the Company.
Subsequent to the date of this report, the Company borrowed $100,000 from a shareholder of the Company. The loan is payable on demand with an additional $100,000 in interest. The Company also borrowed $20,000 from an individual related to an officer and director of the Company. The loan is payable on demand with an additional $20,000 in interest. During May 2002, the Company paid $10,000 against the loan.
Subsequent to the date of this report, a shareholder of the Company advanced $25,000 to the Company.
The Company has in inventory an 1,501-Troy oz. 24k-gold Mickey Mouse Sculpture. The Company entered into an agreement with Disney Resorts, Inc. to commission the sculpture and has agreed to accept 15% of the gross proceeds over $650,000 from the sale of the sculpture. The Company has put it's gold Mickey Mouse sculpture up for auction with an auction house and agreed to pay a commission to the seller of 15% of the gross proceeds of the sale with a minimum sales price of $823,000. If the sales proceeds do not meet the minimum bid of $823,000, the Company has agreed to reimburse the auction house $35,000 for advertising and promotional expenses. The Company has agreed to pay a 10% fee of the net profits from the sale of the sculpture to an entity controlled by a director and shareholder who put up a $700,000 letter of credit to obtain the line of credit to finance production cost. The Company has agreed to pay a 3% commission of the net profits received by the Company to an employee of the former subsidiary, Great Western Mint. The Company has agreed in the sale of the former subsidiary, Great Western Mint, to pay 50% of the net profits received from the sale of the sculpture up to $175,000.
The Company continues to stabilize its financial position and expects to improve revenues and become profitable in 2003 as a result of selling The Great Western Mint and SCCS, Inc., and focusing solely on developing a marketing distribution network.
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 has no material commitments for capital expenditures for the next twelve months.
The Company has incurred significant losses in recent years and as of March 31, 2002, the Company had current liabilities in excess of current assets. Further, the Company has sold two of its operating subsidiaries and has a stockholders' deficit of $949,767. These items raise a substantial concern and doubt about the ability of the Company to continue as a going concern.
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 $27,000 to the IRS and $8,000 to the state of Utah and has acknowledged the debt on the Company's balance sheet. The Company anticipates entering a settlement agreement with both agencies whereby the Company will be obligated to make monthly payments. At the present time, there is no current legal action against the Company on either of these issues.
The Company received a Complaint filed in the Superior Court of California, County of Orange naming Liberty Mint, Ltd. aka Liberty Mint Marketing, Inc., successor to Liberty Mint, Inc. as defendant among other parties. The Complaint was dated April 13, 2000 and was brought by Thomas P. Crawford as Plaintiff. The Company has negotiated a settlement for $36,000 with payments starting on April 27, 2001 at $1,000 and escalating until payoff which is scheduled for October 2002. The Company is delinquent in its payments.
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
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.
At March 31, 2002, the Company had warrants and options outstanding to purchase a total of 6,957,000 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 three months ended March 31, 2001 and 2002, 0 warrants have been exercised.
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 March 31, 2002.
Exhibits: None
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: July 10, 2002 | /s/ Dan Southwick |
| Dan Southwick | |
| President, Chief Executive Officer and Director | |
| Date: July 10, 2002 | /s/ Eugene Pankrantz |
| Eugene Pankrantz | |
| Controller |
