SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER THE 1934 ACT
Liberty Mint, Ltd.
--------------------------------------------
(Name of Small Business Issuer in Its Charter)
Colorado 84-14092 19
---------- -------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
651 Columbia Lane Provo, Utah 84604
--------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
801-373-9300
-----------------------
(Issuer's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Exchange Act: None
Securities to be registered under Section 12(g) of the
Exchange Act:
Title of Each Class to be so registered:
Common Stock (No Par Value)
Preferred Stock (No Par Value)
Name of Each Exchange on Which Each Class is to be Registered: N/A
<PAGE>
TABLE OF CONTENTS
Page No.
PART I
Item 1. Description of Business............................................1
Item 2. Management's Discussion and Analysis or Plan of Operation..........7
Item 3. Description of Property...........................................12
Item 4. Security Ownership of Certain Beneficial Owners and Management....12
Item 5. Directors, Executive Officers, Promoters and Control Persons.. ...13
Item 6. Executive Compensation............................................14
Item 7. Certain Relationships and Related Transactions....................15
Item 8. Description of Securities.........................................15
PART II
Item 1. Market for Common Equity and Related Stockholder Matters..........16
Item 2. Legal Proceedings.................................................17
Item 3. Changes in and Disagreements with Accountants.................... 17
Item 4. Recent Sales of Unregistered Securities...........................18
Item 5. Indemnification of Directors and Officers.........................19
PART F/S
Financial Statements..........................................................21
PART III
Item 1. Index to Exhibits..................................................22
Signatures....................................................................23
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
A. Corporate Organization
As used herein the term "Company" refers to Liberty Mint, Ltd., its
subsidiaries and predecessors, unless indicated otherwise. Liberty Mint, Ltd.
was originally incorporated in the State of Colorado on March 15, 1990 as St.
Joseph Corp. VI. The Company changed its name to Petrosavers International, Inc.
on July 26, 1993, and again changed its name to Hana Acquisitions, Inc. on
September 12, 1996. On June 9, 1997, the Company changed its name to Liberty
Mint, Ltd. Subsequently, in June of 1997, the Company acquired a 90 percent
majority interest in Liberty Mint, Inc., a Utah Corporation. Before the
acquisition of Liberty Mint, Inc. the Company had not engaged in any material
operations. The Company is a holding company that owns a majority interest in
three subsidiaries, Liberty Mint Marketing, Inc., a wholly owned subsidiary, The
Great Western Mint, Inc., a wholly owned subsidiary and Liberty Mint, Inc., a
90% owned subsidiary. The Company's operations consists of developing,
manufacturing, and marketing custom-minted commemorative and collectibles in
both precious and non-precious metals. The Company's primary products are custom
coins and silver sculptures.
B. Description of Business
Since 1984, the Company has provided custom minting services for foreign
countries, domestic states, municipalities, Fortune 500 companies, educational
institutions, and nonprofit organizations. The Company's business is primarily
comprised of manufacturing and designing custom coins. Under prior management,
the Company generated revenues primarily as a manufacturer which did not
generate adequate sales growth or profit. Consequently, the Company under new
management has decided to expand its source of revenues by not only
manufacturing products, but also by designing and creating new products that the
Company can sell as a wholesale and retail distributor. The Company has
identified three areas that its wholesale and retail marketing efforts will be
based upon: freedom / patriotic themes under the name of Liberty Mint,
entertainment collectibles under the trade name of Superstar Commemorative
Collector Series ("SCCS"), and western art and collectibles with a tentative
trade name of Jackson Hole Collectibles.
In addition, the Company's efforts are being focused upon increasing sales
through improving and expanding its marketing and distribution methods. As a
result of the Company's new direction, it has successfully marketed products on
a limited basis to the public. The Company's product lines are currently derived
from the use of licenses and rights to produce various collectibles which
include public personalities and popular events. The Company intends to continue
the use of its existing licenses and plans to make a concerted effort to obtain
additional licenses and marketing rights to use images of public personalities,
sports heros and popular events. As it obtains additional licences, the Company
will seek to develop niche products designed to appeal to the public. Upon the
development of various products, the Company will then focus on developing
wholesale, retail, and direct marketing strategies to create ongoing demand for
its products.
C. Description of Products and Services
Custom Minting. These products and services include minting custom, premium
and promotional items for companies and other organizations. The purchasers of
these items generally include: businesses, sports organizations, collectors'
organizations or retail companies, and art enthusiasts. The customers have
1
<PAGE>
largely been corporations and organizations that want to commemorate various
events or milestones, or to promote a product or idea. The customers generally
use these products for the following reasons: to commemorate an event; as a
prestigious award; as fund-raisers for schools, sports teams and nonprofit
organizations; as sales incentives and recognition awards; and as an enduring
form of advertising.
An example of some of the coin projects that the Company has created and
manufactured have ranged from gold retirement coins for retiring Dow Chemical
employees, to silver coins given to prospective Chrysler customers who take a
test drive. These projects have usually originated from the efforts of the
Company's representatives who introduce the idea to prospective corporate
clients.
Superstar Commemorative Collector Series. The Superstar Commemorative
Collector Series ("SCCS") trade name has been in use by the Company for
approximately two years. Under this label the Company produces commemorative
collector coins of the world's superstars. The Company has obtained licencing
from a joint distribution contract with Signatures Network ("Signatures"),
formally Sony Signatures, and is currently in negotiations to extend the
contracts with Signature until the year 2001. Coins have already been created
for Elvis, Celine Dion, Alan Jackson, Kiss, Michael Jackson, and others. The
Company will continue to negotiate with other companies in the entertainment
industry to continue to gain the rights to more superstars. Through SCCS, the
Company will attempt to expand and further develop this market because of its
significant potential to generate revenues. In addition, the Company currently
supplies 1400 stores nation wide with the SCCS series. Marketing and
distribution of SCCS will be done through local collectibles retailers, music,
and musical equipment stores. The Company hopes to achieve mass market
distribution through retail chain stores.
Western Art and Collectibles. The Company believes that western art and
collectibles products have significant potential to generate sales. The Company
intends to pursue western art sales through its subsidiary, The Great Western
Mint, Inc. and under the trade name Jackson Hole Collectibles.
In the past the Company has cast three of Remington's sculptures: The
Broncho Buster, The Mountain Man, and The Rattlesnake. Each edition consists of
100 sculptures cast from 1,000 ounces of pure silver and are sold out. The
Company plans to develop additional sculptures authorized by various museums
including a series of smaller Remington sculptures.
Bullion Silver Rounds. The Company produces bullion silver rounds on a
limited basis (one troy once, .999 pure medallions) to investors (this was the
mainstay of business from 1984 to 1987). The Company does not consider this a
viable or profitable area of business and in the future will focus on the higher
margin areas mentioned above.
D. Marketing and Distribution.
Print Advertising. The marketing strategy for the next twelve months
will be for the Company to increase its exposure to potential business and
wholesale clientele by advertising in multiple monthly trade and industry
publications, as well as business magazines. This exposure will familiarize and
supply business groups with information about the Company and the premium
incentives and promotions available for their company or group. This has
historically been the most successful advertising method for the Company and has
consistently produced the best sales results.
2
<PAGE>
Direct Marketing. The Company will market Jackson Hole Collectibles
directly to the customer through direct mail and other traditional marketing
techniques, including the Internet. The Company currently owns and operates a
website, that will continue to be used in the future.
The marketing plan for the SCCS is composed of multiple direct marketing
strategies devised by the Company and Signature. The plan outlines aggressive
niche marketing programs designed to maximize product exposure and recognition
which, in turn, should spawn sales. The Company will also continually engage in
test marketing to assess the future possibility of expanded mass marketing and
retail sales options. Two primary areas have been developed by the SCCS
partners:
The Company will attempt to develop direct marketing porgrams, which
target fans and the general public to generate "non-concert" retail sales. The
SCCS agreement allows the Company and Signatures to jointly develop and offer
commemorative coins through CD and catalog inserts as well as other various
direct marketing opportunities. To this end, SCCS will seek out associations
with existing companies which have proven track records in mass marketing
collectibles.
In conjunction with the foregoing, the Company will attempt to take full
advantage of the ongoing publicity which surrounds high-profile SCCS clients. In
so doing, it may be possible to reduce advertising and promotional costs while
still creating new opportunities to increase awareness in target markets. The
Company also foresees the necessity of press releases, promotions with local
media and interviews with media personalities. In addition, cross-marketing
promotions with national sponsors will be attempted. The Company will continue
its efforts to procure additional rights for popular persons or events.
Internet Marketing. The Company has developed an Internet website that it
believes will become a significant part of its future marketing program. The
Company will attempt to establish channels over the Internet to market and
distribute its custom collectibles. The major emphasis will be placed on the
SCCS and Jackson Hole Collectibles product lines.
E. Business Relationships, Custom Projects, and Licenses
Disney Custom Minting Projects. The Company currently supplies collectible
coins to Disneyland and Disneyworld which are sold in their exclusive gallery
stores. In addition, Disneyland and Disney World have decided to produce a
yearly issue, similar to a U.S. Proof set and non-precious medallions. The
Company has received orders from the Disney Store organization, the Disney
Catalog, Disney Hotel, and Disney Cruise Lines.
The Signatures Network (formally Sony Signatures) Joint Venture. Liberty
Mint, Inc. has entered into a joint venture manufacturing and distribution
agreement with Signatures. The partnership will merchandise collectible coins of
legendary bands and entertainers. The joint venture resulted in launching the
"Superstar Commemorative Collection Series(TM)" which develops collectible
products with fan appeal. Signatures creates innovative merchandising, licensing
and marketing programs based on film, television, music, sports and lifestyles
artists. Signatures represents an elite group of over 80 musical artists and
groups, including superstars such as Michael Jackson, The Beatles, Celine Dion,
Kiss, Elvis, John Lennon and Leann Rimes. Signatures will also work with the
Company to provide access to other top entertainment talents not presently in
the Signatures portfolio.
3
<PAGE>
The terms of the agreement, effective September 1, 1996, provide the
Company with exclusive United States and non-exclusive International rights to
manufacture and sell articles embodying the name and/or image of Signatures
musical artists. The original term of the agreement was until August 31, 1999.
The Company is currently in negotiations with Signatures to extend the agreement
until the year 2001. Under the terms of the new agreement the Company will pay
Signatures a fee of 20% of all gross sales revenues from the Signatures
articles, whether sold by Signatures or its representatives or sold directly by
the Company. All articles and all artwork is subject to Signatures'
discretionary approval. The Company will be responsible to pay royalties to
Signatures applicable to each licensor (artist). These royalties will vary
depending upon the artist and the articles manufactured and sold. The parties
have come to an agreement in principal but have not yet finalized an extension.
F. Competitive Business Conditions
Collectible Industry. Collectibles consumers are using a much broader range
of sources to buy collectibles than they did in the past. "Collectible industry
sales grew 6.2% in 1998, reaching $10.65 billion at retail, up from $10.05
billion in 1997," according to the "Collectibles Business" Newsletter in April
1999. Of this total, the Internet generated $280 million in sales and captured
3% share of the total market in 1998.
The collectibles industry is highly segmented into niche markets, with
relatively large numbers of companies supplying very highly specialized
products. Among a total of 800 companies about 80% of the companies have annual
sales of five million or less. The largest competitors in the retail sector hold
less than approximately 20% of the total share of the retail market. The leading
competitors tend to manufacture a wide range of products, thus accounting for
their dominant position in the market, while smaller competitors tend to limit
production to one or two product forms only.
Several of the Company's competitors are significantly larger than the
Company and possess greater resources and market share. The Company will attempt
to gain an advantage over these companies through its specialization on quality
custom minting for businesses, entertainment collectibles and western art. The
company will strive to use traditional and modern marketing techniques to
increase market awareness of its products.
Current Industry Position. The market for selling commemorative coins and
collectibles products is intensely competitive with many providers who have
greater production expertise, financial resources and marketing capabilities
than the Company. There are a number of competitors who could compete directly
with the Company's products and marketing concept. There is no assurance that
the Company will be able to overcome the competitive obstacles it will face with
the limited capital available. If the Company cannot compete effectively, it
will not succeed.
Method of Competition. The Company is in direct competition with other
merchants of entertainment related memorabilia and commemorative products. For
instance, at a typical concert there are about 30 different types of
merchandise, most of which have a long track record of market appeal. Such items
may include the typical T-shirts, hats, mugs and other commonplace souvenir
style products. The Company will need to expose the existence of SCCS products
and cause its products to appeal to fans. The Company will continue to seek
methods for creating consumer awreness of the SCCS series.
4
<PAGE>
Although the Company must compete with well-established merchants for the
consumer's memorabilia dollar, it also enjoys the potential advantage of having
created a niche market which does not now have substantial direct competition.
The Company is not currently aware of other competitive efforts to license
legendary artists for precious metal medallions and related products. The
Company feels that the establishment of SCCS as a premier collection, as well as
the preliminary effort of licensing key artists and personalities will enhance
its efforts to stay ahead of any competition, should one or more decide to
compete directly.
The Company's market for SCCS products consists primarily of fans and
secondarily of collectors. Both markets are robust and show signs of increasing
growth and consumer demand. Much of the Company's market will be derived from
targeting specialty areas such as ticket sales, CD purchases and fan club
members. As SCCS continues to grow in scope the Company believes that a
secondary market will develop (this is common with virtually all manner of
collectibles such as trading cards, figurines, plates, etc.) among entertainment
enthusiasts which will create greater demand and liquidity for Company's
products.
The Company believes it has an additional competitive advantage which
enhances its products. Over the years the Company has developed technical
processes that distinguishes the Company from other mints, in that the Company
is able to create numerous coin designs incorporating multiple textures which
suppllies the standard frosted image and mirrored background giving its products
recognizable appeal.
G. Sources and Availability of Raw Materials.
Source of Materials. Materials and supplies (except one) including
printing, collateral materials, and packaging are being purchased from at least
two or more suppliers. The custom boxes are currently being purchased from a
single supplier, due to the high cost of tooling and setup. However, there are
other suppliers who have been used in the past, and could be used again if the
need arises.
In the manufacturing process, the steps to create the raw blanks for the
precious metal coins are being done by single pieces of equipment with no backup
machinery. Loss of this equipment could create a temporary stoppage in
production. If it could not be corrected quickly, high quality blanks are
available at a reasonable, but slightly higher price to fill all orders in a
timely manner. This option could be used while the equipment is being repaired
or replaced. Management will be looking at upgrading manufacturing equipment and
putting some redundancy in the manufacturing capabilities to reduce the risk of
production shut down. This will be done on a integrated plan which keeps abreast
of the capacity expansion needed to support the planned growth.
The Company obtains certain raw materials and components for its products
from single suppliers. In most cases, the Company's sources of supply could be
replaced if necessary without undue disruption, but it is possible that the
process of qualifying new materials and/or vendors for certain raw materials and
components could cause a material interruption in manufacture or sales. No
material interruptions have occurred over the last two years.
Although the Company has had no material interruptions in its supply of raw
materials, there can be no assurances that the Company's suppliers will be able
to supply the Company in quantities needed, or that regulatory or other delays
will not cause disruption in sales of affected products. The Company believes
that its supply of raw materials is adequate for the current fiscal year.
5
<PAGE>
H. Customers - Dependence on One or Few
The Company currently relies on one major customer for 14% of its total
revenues. The Company believes that this is a stable customer that will continue
to bring business to the Company. However, if the client should discontinue to
bring business to the Company management believes the effect of this would be
absorbed by the introduction of additional business and would not have a long
term adverse effect on the Company.
I. Requirement of Government Approval
The U.S. Department of the Treasury has developed policy regarding the use
of metal tokens. Although there are currently established parameters within
which the Company may mint commemorative coins, it has no control over future
regulatory changes. Any future regulatory changes may impact the Company and its
ability to produce its products.
J. Employees
The Company currently has 22 full time employees and 1 part time employees
for a total of 23 employees. No employees are currently covered by a collective
bargaining contract.
K. Reports to Security Holders
The Company is not reuired to deliver an annual reort to security holders
and will not voluntarily deliver a copy of the annual report to the security
holders. If the Company should choose to create an annual report, it will
contain audited financial statments. The Company intends to, from this date
forward, file all of its required information with the Securities and Exchange
Commission ("SEC"). Prior to this form being filed there were not any other
forms filed. The Company plans to file its 10KSB, 10QSB, and all other forms
that may be or become applicable to the Company with the SEC.
The public may read and copy any materials that are filed by the Company
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The statements
and forms filed by the Company with the SEC have also been filed electronically
and are available for viewing or copy on the SEC maintained Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The Internet address
for this site can be found at http://www.sec.gov. Additional information can be
found concerning the company on the Internet at http://www.libertymint.com.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
A. Forward Looking Statements
The information herein contains certain forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. The words "believe," "expect,"
"anticipate," "intend," "estimate," and other expressions that predict or
indicate future events and trends, and that do not relate to historical matters,
identifying forward-looking statements. However, sections 27A and 21E are not
6
<PAGE>
applicable to the Form 10SB. Nonetheless, investors are cautioned that all
forward looking statements involve risks and uncertainty, including, without
limitation, the ability of the Company to continue its expansion strategy,
changes in costs of raw materials, labor and employee benefits, as well as
general market conditions, competition, and pricing. Although the Company
believes that the assumptions underlying the forward looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward looking statements
included in the Form 10SB will prove to be accurate. In view of the significant
uncertainties inherent in the forward looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved.
B. General
The following discussion and analysis provides information that the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. The discussion
should be read in conjunction with the financial statements and footnotes that
appear elsewhere in this report.
Six Months ended June 30, 1999 and June 30, 1998 and Years ended December 31,
1998 and December 31, 1997.
Sales. Sales for the six months ended June 30, 1999 increased to $3,272,092
from $2,030,413 for the comparable period in 1998, an increase of 62%. The
increase in revenues were primarily attributable to an increase in wholesale
bullion sales.
Sales for the year ended December 31, 1998 increased to $4,430,950 from
$3,022,721 for the year ended December 31, 1997, an increase of 46.5%. The
increase in revenues were primarily attributable to an increase in wholesale
bullion sales. Also, contributing to the increase in sales were strong custom
and SCCS sales.
Losses. Net losses for the six months ended June 30, 1999, increased to
$828,716 from $521,838 for the comparable period in 1998, an increase of 63%.
The increase in losses was primarily attributable to low margins on the
revenues generated by the increased bullion sales.
Net losses for the year ended December 31, 1998 decreased to $1,720,525
from $2,053,512 for the year ended December 31, 1997, a decrease of 16.2%. The
substantial decrease in losses was primarily from a decrease in administrative
and sales commission costs.
The Company expects to continue to incur losses at least through fiscal
1999 and there can be no assurance that the Company will achieve or maintain
profitability or that its revenue growth can be sustained in the future.
Expenses. Selling and G&A expenses for the six months ended June 30, 1999,
decreased to $974,472 from $1,212,743 in the comparable period in 1998, a
decrease of 19.6 %. The decrease in selling, general and administrative expenses
was the result of a decrease in executive salaries and a reclassification of
certain general and administrative expenses as cost of sales.
7
<PAGE>
Selling, general and administrative expenses for the year ended December
31, 1998, decreased to $2,278,061 from $2,475,925 for the year ended December
31, 1997, a decrease of 7.9%. The decrease in selling general and administrative
expenses was the result of an effective cost reduction program begun by the
Company in 1998. Many expense areas were decreased including: postage, general
supplies and materials, interest expense, communications expense, legal expense,
travel and auto.
Depreciation and amortization expenses for the six months ended June 30,
1999 and June 30, 1998 were $24,003 and $34,601 respectively. The decrease was
due to the full depreciation of certain minting equipment in 1998.
Depreciation and amortization expenses for the years ended December 31,
1998 and December 31, 1997 were $250,461 and $242,853., respectively. The
increase was due primarily to two new capital leases for computer and office
equipment. These leases are detailed in Note 10 of the audited financial
statements.
Cost of Sales. The largest factors in the variation from year to year in
the cost of sales as a percentage of net sales are the cost of raw materials and
the yield of finished goods from the Company's manufacturing facilities.
The cost of goods sold for the six months ended June 30, 1999 was
$3,032,162 compared to $1,217,204 for the comparable period in 1998. Cost of
goods sold as a percentage of gross sales for six months ended June 30, 1999 and
1998 respectively, were 92.6% and 59.9%. The higher cost of goods sold by
percentage of total revenues increase because of the increased sales of
wholesale bullion, which has a low margin of return.
The cost of goods sold for the year ended December 31, 1998 was $3,750,357
compared to $2,279,066 for the year ended December 31, 1997. The increase in the
cost of goods sold was primarily attributable to an increase in wholesale
bullion sales as a percent of total revenues, which has a substantially lower
margin (3-5%) than custom minting. Cost of goods sold as a percentage for
December 31, 1998 and 1997 respectively, were 84.6% and 75.3%.
Impact of Inflation. The Company believes that inflation has had a
negligible effect on operations over the past three years. The Company believes
that it can offset inflationary increases in the cost of materials and labor by
increasing sales and improving operating efficiencies.
C. Liquidity and Capital Resources
As of December 31, 1998 and 1997, the Company held customer deposits in the
amount of $407,206 and $442,566, respectively, and has taken silver and gold for
various commitments to produce product. As of December 31, 1998 and 1997, the
Company had silver commitments in excess of the amount of silver on hand in the
amount of $247,893 and $16,463.
The company frequently has been unable to make timely payments to its trade
and other creditors. As of year-end , the Company had past due payables in the
amount of $337,331.00. However, only $154,873 was more than 90 days past due.
See the following table for year-to-year comparisons.
8
<PAGE>
30-Jun-99 31-Dec-98 31-Dec-97
Trade A/P $ 434,377 $ 406,763 $ 306,552
Total Past Due $ 413,512 $ 337,331 N/A
90 Days + $ 278,762 $ 154,873 N/A
% over 90 Days 64% 38% N/A
The Company will substantially rely on the existence of revenue from sales
of it products and services. If the projected revenues of the Company fall short
of needed capital the Company will not be able to sustain its capital needs for
more than six months. The Company will then need to obtain additional capital
through equity or debt financing to sustain operations for an additional year. A
lack of significant revenues beginning in the fourth quarter of 1999 will
significantly affect the cash position of the Company and move the Company
toward a position where the raising of additional funds through equity or debt
financing will be necessary.
On a long term basis, liquidity is dependent on continuation and expansion
of operations, receipt of revenues, additional infusions of capital and debt
financing. The Company is considering launching a wide scale marketing and
advertising campaign. The Company's current capital and revenues are not
sufficient to fund such a campaign. If the Company chooses to launch such a
campaign it well require substantially more capital. If necessary, the Company
plans to raise this capital through an additional stock offering. The funds
raised from this offering will be used to develop and execute the marketing and
advertising strategy which may include the use of television, radio, print and
Internet advertising. However , there can be no assurance that the Company will
be able to obtain additional equity or debt financing in the future, if at all.
If the Company is unable to raise additional funds the growth potential will be
adversely effected. Additionally, the Company will have to significantly modify
its plans.
Capital Commitments. The company has no current commitments for capital
expenditures. But, management will be looking at upgrading manufacturing
equipment and putting some redundancy in the manufacturing capabilities to
reduce the risk of production shut down. This will be done on a integrated plan
which keeps abreast of the capacity expansion needed to support the planned
growth.
D. Trends, Events, Uncertainties that may have a Material Effect on Liquidity
Lack of Profitability / Limited Operating History. The Company has limited
assets and has experienced financial difficulties in the past. The Company's
subsidiary, Liberty Mint, Inc., has a ten year operating history and has
operated at a significant loss since 1990. In 1996, Liberty Mint, Inc., began
restructuring its debt in an attempt to overcome its financial problems. There
is no assurance the Company will be able to successfully implement its business
objectives or that it will begin to operate profitably.
Working Capital Deficit / Need for Additional Capital. As of June 30, 1999
the Company presently is operating with a working capital deficit of $1,289,086
and is heavily dependent upon receiving an increase in capital. The Company is
currently weighing its options and will need to raise funds from debt financing
or sale of its securities. Even upon the completion of the raising of additional
capital the amount of capital available to the Company may be extremely limited,
and may not be sufficient to enable the Company to fully recover from its
working capital deficit and/or fully implement its proposed business expansion
operations. The is no assurance that such financing will be available to the
Company on attractive terms or at all. The Company currently has no commitments
for additional cash funding.
9
<PAGE>
E. Trends, Events, Uncertainties that may have a Material Effect on Net Revenue
or Income
Uncertain Market Acceptance. The Company's current and intended business is
to produce custom commemorative coins for various corporations and
organizations. Additionally, the Company developed a series of silver
sculptures. Along with custom minting, the Company is attempting to enter the
retail collectibles market through direct marketing and wholesale distributing.
The retail collectibles market is based on the marketing concept of selling
commemorative and collectible products related to superstars of entertainment,
sports fans, as well as products for popular events. The Company has experienced
some degree of success in direct marketing projects in the past. However, there
is no assurance of market acceptance for the retail collectibles, and the
Company will be subject to all the risks associated with introducing a new
marketing concept. The Company has not undertaken any independent market studies
to determine the feasibility of the concept. If the market does not accept the
products as the company believes it will, then projected revenues could be
adversely effected.
Licensing. The Company's ability to develop the product will be contingent
on its ability to generate new license and rights for trademark and symbol use
at a cost and in a manner which are financially feasible for the Company. There
is no assurance that the Company's efforts to obtain suitable rights and
licenses will be successful. Without new licenses the Company's product line
will be significantly limited in the future which may influence the revenues and
profit of the Company.
F. Year 2000
Description and Impact. Many current installed computer systems and
software may be coded to accept only two-digit entries in the date code field
and cannot distinguish 21st century dates from 20th century dates. As a result,
many software and computer systems may need to be upgraded or replaced, there is
uncertainty about the overall effect of the Year 2000 on the Internet and
therefore the Company's Internet operations. If other third parties that the
Company uses or the overall Internet should experience significant problems from
Year 2000 related issues, it could significantly affect the operation and
ability of the Company to perform business over the Internet.
Inventory, Assessment and Status of Progress. The Company has taken steps
to insure that all of the internal computer systems are compliant. The Company
has replaced its computers and software with new Year 2000 compliant machines.
The Company has not incurred material costs in the process and does not believe
that the cost of additional actions will have a material effect on its operating
results or financial condition. The current systems and products may contain
undetected errors or defects with Year 2000 date functions that may result in
material costs. In addition, the Company utilizes third-party equipment,
software, and content - including non-information technology systems, such as
security systems, building equipment, and systems with embedded
micro-controllers that may not be Year 2000 compliant.
Third Parties. The Company has taken steps to analyze its technical
relationships and ensure that its third party suppliers, distributors, advisors,
and other entities that the Company depends on for operations are also
compliant. Not all of the Company's third party distributors have given adequate
assurances that they are or are not compliant and therefore may or may not
experience problems relating to the Year 2000 issues and potentially create
delays in distributing necessary inventory or create other unforseen problems.
10
<PAGE>
Risks. Management of the company believes it has an effective program in
place to resolve the Year 2000 issue. The Company has completed all necessary
phases of the Year 2000 program. Disruptions in the economy generally resulting
from Year 2000 issues could materially adversely affect the Company.
Failure of third-party equipment, software or content to operate properly
with regard to the Year 2000 issue could require the Company to incur
unanticipated expenses to remedy problems, which could have a material adverse
effect on its business, operating results and financial condition. If any
problems arise from third parties or from the Internet in general related to the
Year 2000 issues, the ability of the Company to respond is limited.
Additionally, the computer systems necessary to maintain the viability of
the Internet or any of the Web sites that direct consumers to the Company's
website may not be Year 2000 compliant. Computers used by customers to access
the Company's website may not be Year 2000 compliant, delaying customers'
product purchases. The Company cannot guarantee that its systems will be Year
2000 compliant or that the Year 2000 problem will not adversely affect its
business, which includes limiting or precluding customer purchases.
Contingency Plans. If a Year 2000 situation should occur in the Company or
with the Company's third party equipment, suppliers or distributors, the Company
will process the existing orders using non- Internet and computer based methods,
such as telephone confirmation, standard ground shipping done through local
offices, and manual processing of credit cards. Manufacturing would not be
effected do to the lack of microprocessors in the Company's manufacturing
equipment. The use of non-computer based systems would continue until all third
parties or the Internet solve the problems and normal business operations can
continue.
ITEM 3. PROPERTY
The Company is currently leasing a 10,000 square foot facility located
at 651 Columbia Lane, Provo, Utah, pursuant to a lease expiring in 2005. This
lease is cancelable with one year's notice. The Company believes that its
manufacturing facilities are adequate for its proposed needs through the year
2005. If additional space is needed before then, some office functions could be
moved to nearby office buildings, which are readily available. The Company
believes that its current facilities are generally suitable and adequate to
accommodate its current operations.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
ownership of the Company's Common Stock as of June 30, 1999, with respect to:
(i) each person known to the company to be the beneficial owner of more than
five percent of the Company's Common Stock, (ii) all directors; and (iii)
directors and executive officers of the Company as a group. The notes
accompanying the information in the table below are necessary for a complete
understanding of the figures provided below. As of June 30, 1999 there were
3,721,981 post 6 to 1 reverse split shares of common stock outstanding.
11
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Ownership Beneficial Ownership of Class
- ------------------- -------------------------------------- ------------------------------------------ ---------------
<S> <C> <C> <C>
Common Daniel R. Southwick, Director(1) 820,556(2) 18.1%(3)
Stock 364 West 4620 North
No Par Value Provo, Utah 84604
Common Robert Joyce, Director 825,000(2) 18.2%(3)
Stock 4483 1/2 Hazeline
No Par Value Sherman Oaks, California 91423
Common John Pennington, Director 600,000(2) 13.8%(3)
Stock
No Par Value
Common William Schmidt, Director 0 0.0%
Stock
No Par Value
Common Larry H. Ruff 500,054(2) 13.4%(3)
Stock 406 West 4620 North
No Par Value Provo, Utah 84604
Common All Executive Officers and 2,245,556(2) 37.8%
Stock Directors as a Group
No Par Value (Five persons)
</TABLE>
Changes in Control. There are currently no arrangements in place that will
result in a change in control of the Company.
ITEM 5. DIRECTORS, OFFICERS, PROMOTERS, AND CONTROL PERSONS
The directors, executive officers, and significant employees of the
Company, their respective ages, and positions with the Company are as follows:
- --------
(1) Dan Southwick is a managing member of S.F. Investments, LLC which owns
20,552 shares of common stock of Liberty Mint, Ltd.
(2) In 1997 Mr. Southwick was granted options to purchase 200,000 shares at
$6.00, Mr. Joyce was granted options to purchase 200,000 shares $6.00, and Mr.
Ruff was granted options to purchase 266,667 shares at $6.00. Subsequently in
1999, Mr. Southwick, Mr. Pennington, and Mr. Joyce were granted opotions to
purchase 600,000 shares at $.040.
(3) The Percent of Class owned by each individual reflects the percent if all
options owned by the individaul listed in footnote 2 are exercised.
12
<PAGE>
NAME AGE POSITION
Daniel R. Southwick 46 Director & President
Robert Joyce 46 Director & Secretary
Eugene Pankratz 56 Treasurer
John Pennington 49 Director
William C. Schmidt 54 Director
Daniel R. Southwick, 46, has been a small business entrepreneur since 1977.
Past experience includes President of International Trade & Investments, Ltd., a
placer mining company, and President of Parkside Industries, Inc., a telecom
reseller company. Involved primarily in telecommunications from 1984 to 1996.
Employed by Liberty Mint from September 1996 to March 1999 as Senior Vice
President of Business Development. Southwick has 8 years experience with public
company development.
Robert Joyce, 46, joined Liberty Mint in 1996. A 25-year veteran of the
entertainment industry, Joyce worked in the production business with such
artists as Sly & The Family Stone, David Bowie, and James Taylor among others.
From 1992 to 1994, Joyce was president and CEO of Green Suites International, a
company specializing in environmental services for the hotel industry. Joyce
designed, and plays a major role in implementing, the Company's Super Star
Series business plan, including development of wholesale distribution.
Eugene Pankratz, 56, has three and one half years public accounting
experience with Wm. Soria & Company in San Jose, California, including
management services for small businesses, tax return preparation, consulting and
tax planning for individuals, partnerships and corporations. He has ten years
experience in the private sector including Controller for North American
Manufacturing, a division of the Tally Corporation, Controller for Impulse
Designs, and Controller for the Priddis Group (formerly Priddis Music Corp.)
This experience also included a period of time as President and Chief Operations
Officer of the Priddis Group. Mr. Pankratz is presently Controller Of Liberty
Mint. He attended Brigham Young University and is currently enrolled at Thomas
Edison State College where he is working on a Bachelor of Arts degree in
Business Management with an Accounting Emphasis. He passed the Internal Revenue
Service Enrolled Agent's examination and is eligible to practice before the IRS.
He has served as a Director of the Lindon/Pleasant Grove Chamber of Commerce.
John Pennington, 49, is a graduate of the University of Miami and has over
20 years of sales and marketing experience. Pennington has held positions as
Vice President of Telesales and Services with Vacation Break U.S.A, Vice
President of Sales and Marketing with Cooperative Retirement Services and Vice
President of National Accounts with Ryder P.I.E. Nationwide. In these roles he
had Senior Executive responsibilities for sales and operations, domestically and
internationally. Pennington presently sits on the board of Imperial Majesty
Cruise Line and International Water Makers. Pennington presently oversees
Liberty Mint's direct marketing efforts.
13
<PAGE>
William C. Schmidt, 54, is a graduate of Susquehanna University with a
Bachelor of Science degree in accounting. Schmidt is a Certified Public
Accountant and a member of the American Institute of Certified Public
Accountants since 1971. Schmidt then partnered with a regional CPA firm and
specialized in corporate taxes and acquisition financing. He has been vice
president of special projects and chief financial officer of Vacation Break USA,
Inc. Currently Schmidt is the executive vice president of American Investment
Properties, an investment advisory company.
ITEM 6. EXECUTIVE COMPENSATION
Compensation of Executives
The following table provides summary information for the years 1998,
1997 and 1996 concerning cash and noncash compensation paid or accrued by the
Company to or on behalf of president and the only other employees to receive
compensation in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payout
Restricte Securities
Name and Other Annual d Stock Underlying LTIP All Other
Principal Year Salary Bonus Compensation Award(s) Options payout Compensation
Position ($) ($) ($) ($) SARs(#) ($) ($)
- --------------- -------- ------------ --------- ---------------- ------------ --------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel R.(4) 1998 71,325 - - - - - -
Southwick, 1997 69,130 - - - 200,000 - -
CEO,
Director
Larry Ruff 1998 83,640 - - - - - -
CEO, 1997 77,330 - - - 266,667 - -
Director
Ron Lewis 1998 142.189 - - - - - -
Saleperson 1997 162,369 - - - - - -
</TABLE>
In 1997 Mr. Southwick was granted options to purchase 200,000 shares at
$6.00, Mr. Ruff was granted options to purchase 266,667 shares at $6.00. All are
vesting at the rate of one-third per year. Subsequently in 1999, Mr. Southwick
was granted options to purchase 600,000 shares at $0.40.
Compensation of Directors
Currently there is no plan to compensate Directors of the Company.
- --------
(4) Dan Southwick became CEO on April 23rd 1999, prior to this appointment Mr.
Southwick served as Senior Vice President.
14
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1997, Larry Ruff , former CEO of the
Company from 1992 until April of 1999, paid expenses and purchased silver on the
Company's behalf totaling $5,846. The note bears interest at a rate of 12% per
annum. During the year ended December 31, 1998, an additional $47,000 was loaned
to the Company for expenses. Also, during the year ended December 31, 1998, the
Company paid the shareholder and former officer and president $31,182 towards
the note. Accrued interest of $2,497 has been included in the outstanding total
of $24,802 as of December 31, 1998
During the year ended December 31, 1998, three related shareholders and
former Directors of the Company, Reid, Clarene and Christopher Call, paid
expenses on behalf of the Company and loaned the Company silver and cash for a
total loan of $212,261. Subsequent to the year ended December 31, 1998, the
Company is negotiating to repay this amount with interest at 12% over a
three-year period.
On January 1, 1990, the Company entered into ten-year personal service
agreements with the former partners of Liberty Mint. The terms of the agreements
were that the Company would receive up to 80 hours of service from each
individual per month. The agreements would expire December 31, 1999 and were
noncancellable for the first five years. During the year ended December 31,
1997, the personal service agreements and the notes receivable relating to those
agreements where paid in full.
On April 1, 1997, Liberty Mint, Inc., secured an SBA loan through First
National Bank of Layton in the amount of $210,000. Personal guarantees were
required from Larry Ruff, a beneficial owner and former officer and Director of
the Company, Howard Ruff, a former beneficial owner, and Creed and Clarene Law.
Larry and Howard Ruff received no additional consideration for this guarantee.
Creed and Clarene Law, who were already shareholders of Liberty Mint, Inc.,
received 50,000 shares of Liberty Mint, Inc., class A common stock for their
guarantee. Additionaly in 1999, Creed and Clarne Law were granted options for
200,000 shares of Liberty Mint, Ltd. at $0.40 per share for their continued
guarantee of the SBA loan.
Other than as described herein the Company is not expected to have
significant further dealing with affiliates. However, if there are such dealings
the parties will attempt to deal on terms competitive in the market and on the
same terms that either party would deal with a third person. Presently, none of
the officers and directors have any transactions which they contemplate entering
into with the Company, aside from matters described herein.
ITEM 8. DESCRIPTION OF SECURITES
Common Stock. The Company is presently authorized to issue 25,000,000
shares of no par value Common Stock. The Company presently has 3,721,981 shares
issued and outstanding.
The holders of common stock, including the shares offered hereby, and
those issuable upon exercise of any Warrants or Options, are entitled to equal
dividends and distributions, per share, with respect to the common stock when,
as and if declared by the Board of Directors from funds legally available
therefor. No holder of any shares of common stock has a pre-emptive right to
subscribe for any securities of the Company nor are any common shares subject to
redemption or convertible into other securities of the Company. Upon
liquidation, dissolution or winding up of the Company, and after payment of
creditors and preferred stockholders, if any, the assets will be divided
pro-rata on a share-for-share basis among the holders of the shares of common
stock. All shares of common stock now outstanding are fully paid, validly issued
15
<PAGE>
and non-assessable. Each share of common stock is entitled to one vote with
respect to the election of any director or any other matter upon which
shareholders are required or permitted to vote. Holders of the Company's common
stock do not have cumulative voting rights, so that the holders of more than 50%
of the combined shares voting for the election of directors may elect all of the
directors, if they choose to do so and, in that event, the holders of the
remaining shares will not be able to elect any members to the Board of
Directors.
Preferred Stock. The Company is presently authorized to issue
10,000,000 shares of no par value Preferred Stock. No shares of Preferred Stock
are currently issued and outstanding. Under the Company's Articles of
Incorporation, the Board of Directors has the power, without further action by
the holders of the Common Stock, to designate the relative rights and
preferences of the preferred stock, and issue the preferred stock in such one or
more series as designated by the Board of Directors. The designation of rights
and preferences could include preferences as to liquidation, redemption and
conversion rights, voting rights, dividends or other preferences, any of which
may be dilutive of the interest of the holders of the Common Stock or the
Preferred Stock of any other series. The issuance of Preferred Stock may have
the effect of delaying or preventing a change in control of the Company without
further shareholder action and may adversely affect the rights and powers,
including voting rights, of the holders of Common Stock. In certain
circumstances, the issuance of preferred stock could depress the market price of
the Common Stock.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS
In April 1997, the Company's Common Stock was approved for listing on
the OTCBB. On June 9, 1997, the Company changed it's name to Liberty Mint, Ltd.
During the third quarter of 1999 the trading symbol was changed from LIBY to
LBMN. On May 12, 1999, the Company effected a 6 to 1 reverse stock split.
Fractional shares were rounded to the nearest whole share.
The table below sets forth the high and low sales prices for the
Company's Common Stock for each quarter of 1997, 1998 and the first two quarters
of 1999. The quote given for the second quarter in 1999 forward reflects an 1
for 6 reverse split which the Company effected on May 12, 1999. The quotations
below reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions:
Quarter High Low
------- ---- ---
1997 First $0. $0.
Second $0. $0
Third $2.87 $2.00
Fourth $2.78 $1.97
16
<PAGE>
Quarter High Low
------- ---- ---
1998 First $2.50 $1.87
Second $2.34 $0.56
Third $1.03 $0.25
Fourth $0.81 $0.06
Quarter High Low
------- ---- ---
1999 First $0.41 $0.09
Second $12.00 $1.50
Record Holders. As of September 2, 1999 there were approximately 250
shareholders of record holding a total of 3,721,981 shares of Common Stock. The
holders of the Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Holders of the Common
Stock have no preemptive rights and no right to convert their Common Stock into
any other securities. There are no redemption or sinking fund provisions
applicable to the Common Stock.
Dividends. The Company has not declared any cash dividends since
inception and does not anticipate paying any dividends in the foreseeable
future. The payment of dividends is within the discretion of the Board of
Directors and will depend on the Company's earnings, capital requirements,
financial condition, and other relevant factors. There are no restrictions that
currently limit the Company's ability to pay dividends on its Common Stock other
than those generally imposed by applicable state law.
ITEM 2. LEGAL PROCEEDINGS
The Company is currently not a party to any pending legal proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company has had no changes in or disagreements with its accountants
in its two most recent fiscal or any later interim period.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following is a list of all securities sold by the Company within
the last three years including, where applicable, the identity of the person who
purchased the securities, title of the securities, and the date sold are
outlined below. All share are adjusted to reflect a 6 to 1 reverse split
effected on May 12, 1999
In March 1997, the Company issued 25,000 shares of common stock at
$0.84 per share to Gary McAdam for cash pursuant to section 4(2) of the
Securities Act of 1933 in an isolated private transaction by the Company which
did not involve a public offering.
17
<PAGE>
On June 24, 1997, the Company acquired approximately 90% of Liberty
Mint, Inc.'s common stock by issuing 620,906 shares of the Company's common
stock for 7,450,864 shares of Liberty Mint, Inc.'s common stock in an isolated
transaction to a total of 21 accredited investors pursuant to section 4(6) of
the Securities Act of 1933.
From July through December of 1997, the Company issued a total of
99,050 shares of its common stock at $7.20 per share pursuant to a Private
Placement memorandum dated June 30, 1997. The Company issued the 99,050 shares
of its common stock pursuant to Rule 504 under Regulation D of the Securities
Act of 1933. The Company issued the 99,050 shares to approximately 40 investors
who were given a Private Placement Memorandum and offered to allow them to
inspect the books and records of the Company. Subsequently, from February to
April of 1998, the Company issued an addition 7,750 shares of its common stock
at $7.20 per share pursuant to the Private Placement memorandum dated June 30,
1997 for the exercise of 7,750 warrants. The Company issued the 7,750 shares of
its common stock pursuant to Rule 504 under Regulation D of the Securities Act
of 1933. The Company issued the 7,750 shares to 3 investors who were given a
Private Placement Memorandum and offered to allow them to inspect the books and
records of the Company. The Company relied on the following facts in determining
that Rule 504 Regulation D was available: (a) the Company was not subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act; (b) the
Company was engaged in the manufacture and sale of minting products and
therefore was neither a development stage company with no specific business plan
or purpose nor a company whose plan was to merger with an unidentified company;
(c) the aggregate offering price did not exceed $1,000,000 and (d) the Company
filed a Form D within 15 days of the first sale of the shares subject to the
offering
In November of 1997, the Company issued 25,000 shares of common stock at
$9.00 per share to Bill Wittman, an accredited investor, for cash pursuant to
section 4(6) of the Securities Act of 1933 in a private transaction by the
Company which did not involve a public offering.
In February 1998, the Company issued 1,667 shares of common stock to
William H. Beatty and 833 shares of common stock to Nicholas Butsicaris as
compensations for services rendered pursuant to section 4(2) of the Securities
Act of 1933 in an isolated private transaction by the Company which did not
involve a public offering.
On September 11, 1998, the Company issued 396 of Common Shares to purchase
4,752 common shares of its subsidiary Liberty Mint, Inc., pursuant to section
4(6) of the Securities Act of 1933 in a private transaction by the Company
which did not involve a public offering.
In December of 1998, the Company issued 135,834 shares of common stock at
$3.60 per share for cash to American Investment Properties for cash, pursuant to
section 4(6) of the Securities Act of 1933 in an isolated private transaction by
the Company which did not involve a public offering.
In December 1998, the Company issued the 10,000 shares of common stock to
Donna O'Dell as in exchage for 60,000 ITEX barter credits pursuant to section
4(2) of the Securities Act of 1933 in a private transaction by the Company which
did not involve a public offering. The Company guaranteed the value of those
shares to be $6.00 per share after one year. If the shares are not valued at
$6.00 per share after one year the Company committed to issuing additional
shares to Donna O'Dell to bring the total value of all shares issued to Donna
O'Dell in this transaction to $60,000.
18
<PAGE>
On January 18, 1999, the Company issued 6,667 shares of common stock to
Donna O'Dell in exchange for 40,000 ITEX barter credits pursuant to section 4(2)
of the Securities Act of 1933 in a private transaction by the Company which did
not involve a public offering. The Company guaranteed the value of those shares
to be $6.00 per share after one year. If the shares are not valued at $6.00 per
share after one year the Company committed to issuing additional shares to Donna
O'Dell to bring the total value of all shares issued to Donna O'Dell in this
transaction to $40,000.
On April 6, 1999, the Company issued a total of 2,000,000 shares of its
common stock at $0.40 per share pursuant to a Private Placement memorandum and
offered to allow the investors to inspect the books and records of the Company.
The Company issued the 2,000,000 shares of its common stock pursuant to Rule 504
under Regulation D of the Securities Act of 1933. The Company issued the
2,000,000 shares to 12 accredited investors who were given a Private Placement
Memorandum. The Company relied on the following facts in determining that Rule
504 Regulation D was available: (a) the Company was not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act; (b) the Company was
engaged in the manufacture and sale of minting products and therefore was
neither a development stage company with no specific business plan or purpose
nor a company whose plan was to merger with an unidentified company; (c) the
aggregate offering price did not exceed $1,000,000 and (d) the Company filed a
Form D within 15 days of the first sale of the shares subject to the offering.
During January 1999, the Company authorized the issuance of 750,000 common
shares to American Investment Properties at $0.16 per share pursuant to section
4(2) of the Securities Act of 1933 in an isolated private transaction by the
Company which did not involve a public offering in exchange for $125,000 in debt
owed to American Investment Properties by the Company.
During May 1999, John Pennington, a Director of the Company exercised
options to purchase 5,000 shares of the Company's common stock at $.40 per share
for total proceeds of $2,000 pursuant to section 4(2) of the Securities Act of
1933 in an isolated private transaction by the Company which did not involve a
public offering.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability to the Corporation or to its
shareholders for monetary damages for (i) any breach of the directors' duty of
loyalty to the Corporation or to its shareholders; (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) acts specified in Section 7-5-114 of the Colorado Corporation Code;
or (iv) any transaction from which the director derived an improper personal
benefit.
If the Colorado Corporation code is hereafter amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Colorado Corporation Code, as so amended.
Any repeal or modification of the foregoing provisions of this Article by
the shareholders of the Corporation shall not affect adversely any right or
protection of a director of the corporation in respect of any acts or omissions
of such director occurring prior to the time of such repeal or modification.
19
<PAGE>
PART F/S
The Company's financial statements for the fiscal year ended December 31, 1998
and the interim reports for June 30, 1999 are attached hereto as F-1 through
F-35.
INDEX TO FINANCIAL STATEMENTS
Unaudited Interim Financial Reports for the period ending June 30, 1999
Balance Sheet................................................................F-1
Statements of Operations.....................................................F-2
Statements of Cash Flows................................................F-3, F-4
Notes to Interim Financial Statements........................................F-5
Audited Financial Reports for Year ending December 31, 1998
Cover Page...................................................................F-6
Table of Contents............................................................F-7
Letter From Auditor..........................................................F-8
Balance Sheet..........................................................F-9, F-10
Statements of Operations....................................................F-11
Statement of Stockholder's Equity....................................F-12 - F-14
Statements of Cash Flows..............................................F-15, F-16
Notes to Financial Statements........................................F-17 - F-33
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
20
<PAGE>
Liberty Mint Ltd. and Subsidiaries
Consolidated Unaudited Condensed Balance Sheets
For Six Months Ending June 30, 1999
ASSETS
Current Assets ............................................ $ 713,013
Net Fixed Assets .......................................... 105,346
Other Assets .............................................. 7,499
-----------
TOTAL ASSETS .................................................... $ 825,857
===========
LIABILITIES AND EQUITY
Current Liabilities ....................................... 1,912,945
Long-Term Liabilities ..................................... 201,998
-----------
TOTAL LIABILITIES ............................................... 2,114,943
SHAREHOLDERS EQUITY
Preferred stock no par value: 10,000,000 shares authorized;
No shares issued
Common stock no par value; 50,000,000 shares authorized;
3,721,981................................................ 4,878,911
shares issued
Accumulated deficit ...................................... (6,167,998)
-----------
TOTAL STOCKHOLDER'S EQUITY ..................................... (1,289,086)
-----------
-----------
TOTAL LIABILITIES AND EQUITY ................................... $ 825,857
===========
F-1
<PAGE>
Liberty Mint Ltd. and Subsidiaries
Consolidated Unaudited Condensed Statements of Operations
For Six Months Ending June 30, 1999 and 1998
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
REVENUE
Total Sales $ 3,272,092 $ 2,030,413
Less: Cost of Goods Sold 3,032,162 1,217,204
---------------- ----------------
GROSS PROFIT 239,930 813,209
OPERATING EXPENSES
Selling Expense 568,821 476,083
General and Administrative 405,650 736,660
---------------- ----------------
TOTAL OPERATING EXPENSE 974,472 1,212,743
---------------- -----------------
NET OPERATING INCOME (LOSS) (734,542) (399,535)
TOTAL OTHER INCOME AND EXPENSE (94,174) (122,303)
---------------- ----------------
NET INCOME (LOSS) BEFORE TAXES $ (828,716) $ (521,838)
---------------- ----------------
NET INCOME (LOSS) PER COMMON SHARE (0.45) (0.66)
---------------- ----------------
F-2
<PAGE>
<TABLE>
<CAPTION>
Liberty Mint Ltd. and Subsidiaries
Consolidated Unaudited Condensed Statements of Cash Flows
For Six Months Ending June 30, 1999 and 1998
Six Months Ended
June 30
<S> <C> <C>
1999 1998
CASH FLOWS FROM OPERATION ACTIVITIES
Net Income (Loss) $ (828,716) $ (521,838)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Used by Operating Activities
Depreciation and amortization 24,003 34,601
Non-cash expenses 142,555 71,817
Additional compensation expenses recorded in accordance - -
with APB Option No. 25
Bad debt expense - 22,192
Reserve for obsolete inventory (150,000) -
Changes in assets and liabilities:
Increase (decrease) in accounts receivable 43,552 (2,541)
Increase (decrease) in inventory 172,945 160,288
Increase (decrease) in prepaid expenses (51,620) 75,305
Increase (decrease) in accounts payable 88,400 30,365
Increase (decrease) in inventory liabilities (46,799) (26,848)
Increase (decrease) in factoring advances 103,878 4,709
Increase (decrease) in allowance for sculpture - -
repurchases
Increase (decrease) in accrued expenses 250,646 113,235
Increase (decrease) in customer deposits (93,643) (41,985)
------------------ ---------------
NET CASH PROVIDED (USED) BY OPERATING $ (344,799) $ (80,701)
ACTIVITIES
CASH FLOWS PROVIDED BY INVESTING
ACTIVITIES
purchases of property and equipment (35,081) -
Payment of refundable deposits (51,499) -
(Purchase) sale of US treasury bonds, net (14,536) -
Issuance (receipt) from notes receivable (388,604) 13,939
------------------ ------------------
NET CASH FLOWS (USED) IN INVESTING $ (489,720) $ 13,939
ACTIVITIES
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Liberty Mint Ltd. and Subsidiaries
Consolidated Unaudited Condensed Statements of Cash Flows (continued)
For Six Months Ending June 30, 1999 and 1998
Six Months Ended
June 30
<S> <C> <C>
1999 1998
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on line of credit - -
Proceeds from notes payable - related party (23,093) 45,960
Payments on note payable (5,497) (10,702)
Payments on capital lease obligations (12,961) -
Proceeds from common stock issuances 927,000 -
Purchase of subsidiary stock - -
Stock offering cost (6,158) -
------------------ ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 879,291 $ 35,258
NET INCREASE (DECREASE) IN CASH (44,772) (31,503)
CASH AT BEGINNING OF PERIOD 82,223 82,815
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF $ 126,995 $ 51,312
PERIOD
================== ==================
</TABLE>
F-4
<PAGE>
Notes to consolidated financial statements (Continued)
Liberty Mint, Ltd. and subsidiaries
unaudited
June 30, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments consisting only of normal recurring accruals
considered necessary to present fairly the Company's financial position at June
30, 1999, the results of operations for the six month periods ended June 30,1999
and 1998, and cash flows for the six months ended June 30, 1999 and 1998. The
results for the period ended June 30, 1999, are not necessarily indicative of
the results to be expected for the entire fiscal year ending December 31, 1999.
NOTE B - EARNINGS (LOSS) PER SHARE
The following represents the calculation of earnings (loss) per share:
For the six months ended
BASIC June 30, 1999 June 30, 1998
Net income $ (828,716) $ (521,838)
Less- preferred stock dividends
Net income $ (828,716) $ (521,838)
Weighted average number
Of common shares
1,823,840 790,795
------------------- ---------------
Basic earnings per share $(.45) (.66)
=================== ===============
F-5
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
PRITCHETT, SILER & HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
F-6
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
PAGE
-- Independent Auditor's Report F-8
-- Consolidated Balance Sheets, December 31,
1998 and 1997 F-9, F-10
-- Consolidated Statements of Operations,
for the years ended December 31, 1998
and 1997 F-11
-- Consolidated Statement of Stockholders'
(Deficit) for the years ended
December 31, 1998 and 1997 F-12 - F-14
-- Consolidated Statements of Cash Flows,
for the years ended December 31, 1998
and 1997 F-15, F-16
-- Notes to Consolidated Financial Statements F-17 - F-33
F-7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
Provo, Utah
We have audited the accompanying consolidated balance sheets of Liberty Mint,
Ltd. (formerly Hana Acquisitions, Inc.) and Subsidiary as of December 31, 1998
and 1997, and the related consolidated statements of operations, stockholders'
(deficit) and cash flows for the years ended December 31, 1998 and 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Liberty Mint Ltd.
(formerly Hana Acquisitions, Inc.) and Subsidiary as of December 31, 1998 and
1997 and the consolidated results of their operations and their cash flows for
the years ended December 31, 1998 and 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has current liabilities in excess of current assets and
has a stockholders' (deficit), raising substantial doubt about its ability to
continue as a going concern. Management's plans in regards to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
April 26, 1999
Salt Lake City, Utah
F-8
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
-------------------------
1998 1997
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 82,223 $ 82,815
U.S. Treasury bonds, trading 4,857 11,067
Accounts receivable, less allowance for
doubtful accounts of $168,609 and $49,022 171,743 270,146
Inventory 250,124 417,083
Prepaid expenses 34,198 110,812
Current portion of notes receivable - 13,939
----------- -----------
Total Current Assets 543,145 905,862
----------- -----------
PROPERTY AND EQUIPMENT, net 94,804 135,569
----------- -----------
OTHER ASSETS:
Goodwill, net - 176,763
Other assets 22,581 22,714
----------- -----------
Total Other Assets 22,581 199,477
----------- -----------
$ 660,530 $ 1,240,908
----------- -----------
[Continued]
F-9
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED BALANCE SHEETS
[Continued]
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
December 31,
-------------------------
1998 1997
---------- -----------
CURRENT LIABILITIES:
Inventory liabilities $ - $ 51,917
Accounts payable 406,763 306,522
Factoring advances 4,730 85,095
Accrued expenses 440,290 177,858
Allowance for sculpture repurchases 100,000 100,000
Customer deposits 407,206 442,566
Notes payable - related party 437,063 226,032
Current portion of notes payable 27,932 28,543
Current portion of capital lease obligation 21,641 9,206
----------- -----------
Total Current Liabilities 1,845,625 1,427,739
LONG-TERM OBLIGATIONS:
Notes payable, less current portion 155,824 183,756
Capital lease obligation, less current portion 40,294 36,826
---------- -----------
Total Long-Term Obligations 196,118 220,582
----------- -----------
Total Liabilities 2,041,743 1,648,321
----------- -----------
COMMITMENTS AND CONTINGENCIES
[See Note 17] - -
CLASS A PREFERRED STOCK OF SUBSIDIARY:
No par value, 2,000,000 shares authorized,
469,978 and 469,978 shares issued
and outstanding 159,792 159,792
----------- -----------
STOCKHOLDERS' (DEFICIT):
Preferred Stock, no par value, 10,000 shares
authorized, no shares issued and outstanding - -
Common stock, no par value, 25,000,000
shares authorized, 943,103 and 786,623
shares issued and outstanding 3,798,277 3,051,552
Retained (deficit) (5,339,282) (3,618,757)
---------- -----------
Total Stockholders' (Deficit) (1,541,005) (567,205)
----------- -----------
$ 660,530 $ 1,240,908
----------- -----------
The accompanying notes are an integral part of these
financial statements.
F-10
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
-----------------------
1998 1997
------------- ------------
SALES, net of returns and discounts $ 4,430,950 $ 3,022,721
COST OF GOODS SOLD 3,750,357 2,279,066
------------- ------------
GROSS PROFIT 680,593 743,655
------------- ------------
OPERATING EXPENSES:
Selling expense 990,296 1,092,066
General and administrative 1,287,765 1,383,919
Other operating expense 66,698 361,822
------------- ------------
Total Operating Expenses 2,344,759 2,837,807
------------- ------------
LOSS FROM OPERATIONS (1,664,166) (2,094,152)
------------- ------------
OTHER INCOME (EXPENSE):
Interest expense (89,312) (55,424)
Interest and other income 33,080 95,979
Unrealized gain (loss) on
trading securities (127) 85
------------- ------------
Total Other Income (Expense) (56,359) 40,640
------------- ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (1,720,525) (2,053,512)
CURRENT TAX EXPENSE -
DEFERRED TAX EXPENSE -
------------- ------------
NET LOSS $ (1,720,525) $ (2,053,512)
------------- ------------
LOSS PER COMMOM SHARE $ (2.15) $ (4.75)
------------- ------------
The accompanying notes are an integral part of these
financial statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, and 1997
[RESTATED]
Class A
Preferred Stock of Preferred Stock Common Stock
Subsidiary
________________________ _____________________ _____________________ Accumulated
Shares Amount Shares Amount Shares Amount (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C>
------- --------- ---------- ---------- -------- ---------- ----------
BALANCE, December 31, 1996 469,978 $ 159,792 - $ - 16,667 $ 200 $ (200)
[RESTATED]
Issuance of 25,000 shares common stock
for cash at $0.84 per share, March 1997 - - - - 25,000 21,000 -
Issuance of 620,906 shares common stock
to purchase a 90% interest in Liberty
Mint, Inc., June 1997 - - - - 620,906 2,056,596 (1,565,045)
Issuance of 99,050 shares common stock
in a 504D offering for cash at $7.20
per share, June 1997 - - - - 99,050 713,162 -
Issuance of 25,000 shares common stock
for cash at $9.00 per share,
November 1997 - - - - 25,000 225,000 -
</TABLE>
[Continued]
F-12
<PAGE>
<TABLE>
<CAPTION>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, and 1997
[Continued]
[RESTATED]
Class A
Preferred Stock of Preferred Stock Common Stock
Subsidiary
______________________ __________________ _____________________ Accumulated
Shares Amount Shares Amount Shares Amount (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C>
---------- ---------- -------- -------- ------- --------- ----------
Repurchase of 13,725 shares of Liberty
Mint, Inc. at $2.04 per share, December
1997 - - - - - (28,000) -
Compensation for stock options granted - - - - - 63,594 -
Net loss for the year ended December 31,
1997 - - - - - - (2,053,512)
---------- ---------- --------- -------- -------- ----------- ----------
BALANCE, December 31, 19 - $ - 469,978 $ 159,792 786,623 $3,051,552 $(3,618,757)
---------- ---------- --------- -------- -------- ----------- ----------
Issuance of 2,500 shares common stock
for services at $12.42 per share,
February 1998 - - - - 2,500 31,050 -
Issuance of 7,750 shares common stock
in a 504D offering for cash at $7.20
per share, April 1998 - - - - 7,750 55,800 -
Issuance of 396 shares common stock
to purchase 4,752 shares of Liberty
Mint, Inc. at $1.34 per share,
November 1998 - - - - 396 203 -
</TABLE>
[Continued]
F-13
<PAGE>
<TABLE>
<CAPTION>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, and 1997
[Continued]
[RESTATED]
Class A
Preferred Stock of Preferred Stock Common Stock
Subsidiary
______________________ ____________________ ___________________ Accumulated
Shares Amount Shares Amount Shares Amount (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C>
--------- ---------- -------- -------- ---------- --------- ------------
Issuance of 135,834 shares common stock
for cash at $3.60 per share, December
1998 - - - - 135,834 489,000 -
Issuance of 10,000 shares common stock
for services at $6.00 per share, December
1998 - - - - 10,000 60,000 -
Repurchase of 3,960 shares of Liberty
Mint, Inc. at $2.04 per share, December
1998 - - - - - (8,078) -
Compensation for stock options granted - - - - - 182,344 -
Net loss for the year ended December 31,
1998 - - - - - - (1,720,525)
--------- ---------- ---------- -------- --------- ---------- ------------
BALANCE, December 31, 1998 - - 469,978 $159,792 943,103 $ 3,798,277 $ (5,339,282)
--------- ---------- ---------- -------- --------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of this
financial statement.
F-14
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended
December 31,
-----------------------------
1998 1997
------------- -----------
Cash Flows Provided by Operating Activities:
Net loss $ (1,720,525) $(2,053,512)
-------------- -----------
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 250,461 242,853
Non-cash expenses 121,386 361,279
Additional compensation expense recorded
in accordance with APB Opinion No. 25 118,750 63,594
Bad debt expense 118,075 109,880
Reserve for obsolete inventory - 150,000
Changes in assets and liabilities:
(Increase) in accounts receivable (19,672) (213,048)
(Increase) decrease in inventory 136,959 (395,349)
(Increase) decrease in prepaid expenses 76,614 (22,067)
Increase in accounts payable 100,241 60,078
(Decrease) in inventory liabilities (51,917) (20,852)
Increase (decrease) in factoring advances (80,365) 85,095
Increase in allowance for sculpture repurchases - 100,000
Increase in accrued expenses 262,432 59,374
Increase (decrease) in customer deposits (35,360) 212,098
-------------- ------------
Total Adjustments 997,604 792,935
-------------- ------------
Net Cash (Used) by Operating Activities (722,921) (1,260,577)
-------------- ------------
Cash Flows Provided by Investing Activities:
Purchases of property and equipment (63,063) (66,493)
Payment of refundable deposits - (1,285)
(Purchase) sale of US treasury bonds, net 6,210 (11,067)
Issuance (receipt) from notes receivable 13,939 (13,939)
-------------- ------------
Net Cash (Used) by Investing Activities (42,914) (92,784)
-------------- ------------
Cash Flows Provided by Financing Activities:
Payments on line of credit - (260,000)
Proceeds from notes payable - related party 437,063 440,513
Payments on note payable (219,542) -
Payments on capital lease obligations (11,000) (16,344)
Proceeds from common stock Issuances 544,800 1,234,162
Purchase of subsidiary stock (8,078) (28,000)
Stock Offering Cost - (58,182)
-------------- -----------
Net Cash Provided by Financing Activities 743,243 1,312,149
-------------- -----------
[Continued]
F-15
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
[Continued]
For the Years Ended
December 31,
-----------------------------
1998 1997
------------- ------------
Net Increase (Decrease) in Cash and Cash Equivalents $ (592) $ (41,212)
Cash and Cash Equivalents at Beginning of Period 82,815 124,027
------------- ------------
Cash and Cash Equivalents at End of Period $ 82,223 $ 82,815
------------- ------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 16,160 $ 16,920
Income taxes $ - $ -
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
For the year ended December 31, 1998:
The Company entered into a capital lease for equipment valued at
$26,903.
The Company issued a total of 12,500 shares of common stock in exchange
for services rendered, valued at $91,050.
For the year ended December 31, 1997:
The Company entered into a capital lease for equipment valued at
$46,032.
The Company wrote-off notes receivable and corresponding accrued
interest, for service agreements valued at $221,301, as bad debt; due
to the value of services being valued at $0 as of December 31, 1997.
The Company set up a $100,000 reserve for sculpture repurchases.
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation - The consolidated financial statements
include the accounts of Liberty Mint, LTD. (a Colorado corporation
incorporated March 13, 1990, formerly Hana Acquisitions, Inc.) [Parent],
which is engaged in the manufacturing and marketing of precious metal
coins, medallions, and other collectibles through its 90% owned subsidiary
Liberty Mint, Inc. (a Utah Corporation Incorporated March 1, 1989)
[Subsidiary]. The Company's principal markets are geographically disbursed
throughout the United States. The Subsidiary also had foreign sales of
approximately $58,436 and $6,476 for the years ended December 31, 1998 and
1997, respectively.
Consolidation - On June 23, 1997, the Subsidiary acquired all of the
outstanding stock of Liberty Mint Marketing, Inc. (a Nevada corporation
incorporated February 13, 1997) by issuing two shares of the Subsidiary's
common stock for one share of Liberty Mint Marketing, Inc.'s common stock
and was effectively dissolved. On June 24, 1997, the Parent acquired a
majority interest (approximately 90%) of the Subsidiary's common stock by
issuing 620,906 shares of the Parent's common stock for 7,450,864 shares of
the Subsidiary's common stock. The merger has been accounted for as a
reverse merger; accordingly, the Subsidiary is treated as the purchaser in
the transaction. During 1997, the Parent purchased an additional 82,353
shares of the Subsidiary's common stock for $28,000. Also, during 1998, the
Parent purchased an additional 28,510 shares of the Subsidiary's common
stock for $8,078 in cash and by issuing 396 shares of its common stock at
$.34 per share. During 1998, the Company incorporated the wholly owned
subsidiary Liberty Mint Marketing, Inc. (a Utah corporation). The
consolidated financial statements include the accounts of the Parent and
the Subsidiary. All significant intercompany transactions between Parent
and Subsidiary have been eliminated in consolidation.
Minority Interest - The Parent owns a 90% interest in the Subsidiary
Liberty Mint, Inc. No minority interest has been recorded as the
Subsidiary's liabilities exceed assets and the Company has experienced
losses from the date of the merger.
U.S. Treasury Bonds - The Company accounts for investments in debt and
equity securities in accordance with Statement of Financial Accounting
Standard (SFAS) 115, "Accounting for Certain Investments in Debt and Equity
Securities". Under SFAS 115 the Company's treasury bonds (debt securities)
have been classified as trading securities and are recorded at fair market
value (See Note 4).
Accounts Receivable - The Company factors their accounts receivable with a
financial institution at 85% with full recourse. During the years ended
December 31, 1998 and 1997, the Company received $704,623 and $123,803,
respectively, from factoring accounts receivable. At December 31, 1998 and
1997, $4,730 and $85,095, respectively, have been received from factoring
accounts receivable and are presented as a liability as the underlying
accounts receivable have not been collected.
Inventories - Inventories at December 31, 1998 and 1997, consist of silver,
gold, other metals, and supplies. Silver and gold inventories are stated at
market value. Other metals, and supplies are stated at the lower of cost or
market using the first-in, first-out method (See Note 6).
F-17
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
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 12).
Advertising Expense - Advertising costs are expensed as incurred.
Advertising expense amounted to $159,096 and $142,334 for the years ended
December 31, 1998 and 1997, respectively.
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 ranging
from three to ten years. Leasehold improvements are amortized over the
lease period or the estimated useful life of the improvements, whichever is
less.
Customer Silver Held on Account - Inventories held for customers on account
are recorded as liabilities at market value (See Note 2, 6 and 17).
Allowance for Sculpture Repurchases - The Company provides an allowance for
sculptures purchased by customers, which may be repurchased from the
customer under certain circumstances where the Company has an unconditional
repurchase agreement with the Customer. The amount of the allowance is
based upon probable future returns that can be reasonably estimated (See
Note 17).
Loss Per Share - Effective for the year ended December 31, 1997, the
Company adopted 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. There was
no effect on the financial statements for the change in accounting
principle (See Note 11).
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.
F-18
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Reclassifications - The financial statements for all years prior to
December 31, 1998 have been reclassified to conform to the headings and
classifications used in the December 31, 1998 financial statements.
Restatement - The financial statements for all periods presented have been
restated to reflect the 6 to 1 reverse stock split subsequent to the year
ended December 31, 1998 (See Note 20).
Revenue Recognition - Revenue is recognized when the product is shipped.
Preferred Stock of Subsidiary - Class A preferred stock has preference over
all shares of common stock of the Subsidiary in the event of liquidation,
such that the holders of preferred stock receive by way of liquidating
distributions the value of their initial investment, plus accumulated
dividends with the balance of any Subsidiary assets to be divided pro rata
among the holders of common stock.
Preferred stock also has voting rights on par with common stock.
Cumulative preferred dividends began to accrue on October 10, 1996 at the
rate of 10 percent annual interest, based on the total purchase price of
the preferred stock; such dividends were to be paid in monthly payments
beginning April 10, 1997, as follows: (a) dividend obligations accumulated
on the purchase price from the period October 10, 1996 to April 10,1997
shall be payable in equal monthly installments over an 18 month period
beginning April 10, 1997 and ending October 10, 1998 (said accumulated
dividends shall not be subject to further interest charges after April 10,
1997) and (b) dividends accruing and owed on the purchase price after April
10, 1997 will be paid monthly beginning April 10, 1997. At December 31,
1998 and 1997 the Company had $19,974 and $3,994 in accrued dividends
payable. During 1998 and 1997, the Company paid $0 and $15,979 in dividends
and $0 and $0 in accrued interest, respectively.
Recently Enacted Accounting Standards - Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income", SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits", SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", and SFAS No. 134, "Accounting for Mortgage-Backed
Securities..." were recently issued. These accounting standards have no
current applicability to the Company or their effect on the financial
statements would not have been significant.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles 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.
F-19
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN
The Company has incurred significant losses during 1998 and 1997, has
current liabilities in excess of current assets of $1,302,480 at December
31, 1998, and has a stockholders' (deficit) of $1,541,005. As of December
31, 1998 and 1997, the Company held customer deposits in the amount of
$407,206 and $442,566, respectively, and has taken silver and gold for
various commitments to produce product. As of December 31, 1998 and 1997,
the Company had silver commitments in excess of the amount of silver on
hand in the amount of $247,893 and $16,463. As of December 31, 1998, the
company does not have the ability to produce the prepaid product, committed
product, or return the silver or gold without additional funds provided
through loans and/or through additional sales of its common stock (See Note
17). 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.
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 - OTHER ASSETS
Other assets consist of loan guarantee fees and refundable deposits on
capital leases. The loan guarantee fees at December 31, 1997 have a cost
basis of $24,000 and are being amortized over the term of the loan expiring
in 1998. During the year ended December 31, 1998, the loan guarantee fees
were fully expensed and both the asset and accumulated amortization were
removed from the books. Amortization expense for the years ended December
31, 1998 and 1997 amounted to $22,714 and $2,571, respectively. The
refundable deposits are being carried at cost of $7,499 and $1,285 for the
years ended December 31, 1998 and 1997, respectively.
The Company has entered into agreements to produce silver products for the
contracted spot price of silver at the date of the agreement. The Company
is exposed to the risk of fluctuation in the market price of silver at the
date production begins versus the contracted spot price. At December 31,
1998, the market price of silver was less than the contract price, leaving
the Company a $15,082 positive fluctuation that has been included in other
assets.
F-20
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - U.S. TREASURY BONDS
The following is a summary of the Company's investment in 22 US treasury
bonds as trading securities at December 31, 1998:
Date Maturity Market
Acquired Date Cost Value
---------- ---------- ---------- ----------
12/31/98 8/15/2027 $ 4,984 $ 4,857
---------- ----------
$ 4,984 $ 4,857
---------- ----------
The Company has purchased these U.S. Treasury bonds with the intention
to be sold with the sculptures at cost. During December 31, 1998 and 1997, the
Company recognized an unrealized gain (loss) of $(127) and $85, respectively,
and included these amounts in continuing operations.
NOTE 5 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation and amortization as of December 31, 1998 and 1997:
1998 1997
----------- -----------
Production and refining equipment $ 348,619 $ 346,126
Office equipment 176,747 146,307
Leasehold improvements 30,885 30,885
Coin dies 47,768 47,768
----------- -----------
604,019 571,086
Less: accumulated depreciation
and amortization (509,215) (435,517)
----------- -----------
94,804 $ 135,569
----------- ----------
Of the office equipment, $72,935 in 1998 and $46,032 in 1997 is financed
with capital leases (See Note 10) with related accumulated depreciation of
$4,097 and $0, respectively. Depreciation and amortization expense for the
years ended December 31, 1998 and 1997, amounted to $73,698 and $107,709,
respectively.
F-21
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following at December 31:
1998 1997
------------------- -------------------
<S> <C> <C> <C> <C>
Troy Troy
Ounces Value Ounces Value
---------- ---------- ----------- -----------
Total silver inventory 12,396 62,475 49,186 308,886
Silver on lease - - (3,546) (22,269)
Silver held on account (60,323) (304,027) (45,755) (287,341)
---------- ---------- ----------- -----------
Net silver liability (47,927) (241,552) (115) (724)
---------- ---------- ----------- -----------
Total gold inventory 72 20,749 12 3,519
Gold held on account (94) (27,090) (66) (19,258)
---------- ---------- ----------- -----------
Net gold liability (22) (6,341) (54) (15,739)
---------- ---------- ----------- -----------
Combined net silver and
gold liability (47,949) (247,893) (169) (16,463)
---------- ---------- ----------- ----------
Other inventories:
Consignment inventory - 7,307
Other metals inventory 178,641 60,546
Accessories inventory 100,828 163,425
Sculptures finished goods 37,431 23,400
Reserve for obsolescence (150,000) (150,000)
----------- -----------
Total other inventories 166,900 104,678
----------- -----------
Total inventories 250,124 417,083
----------- -----------
</TABLE>
At December 31, 1998 and 1997, the Company is exposed to the risk of
fluctuation in the market price of silver and gold on its uncovered
liability of 47,927 and 115 troy ounces of silver and 22 and 54 troy ounces
of gold, respectively. Gains and losses from the fluctuation in the market
price of precious metals are recognized in the cost of goods sold account
as they occur.
The Company has applied silver and gold inventories toward silver and gold
liabilities in the following order of preference:
Silver Inventory Gold Inventory
------------- -------------
Silver on lease Gold held on account
Silver held on account Customer deposits
Customer deposits
At December 31, 1998 and 1997, the Company's gold and silver inventories
are not adequate to meet silver on lease, inventories held on account, and
customer deposits.
F-22
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES RECEIVABLE - RELATED PARTY
On March 1, 1989, the Subsidiary assumed all the assets and liabilities of
Liberty Mint (a general partnership); liabilities exceeded the fair market
value of assets by $848,810 at that date. In consideration, the Subsidiary
accepted notes receivable from the former partners (now stockholders) for
the amount of the excess. The notes were receivable in total annual
installments of $114,680, which were paid through service agreements with
the former partners. The notes were unsecured, accrued interest at 9.14%
through December 31, 1996. During the year ended December 31, 1997, the
Company determined that the future benefits from the service agreements
were of no value and the notes receivable with the corresponding interest
on the notes were fully expensed.
NOTE 8 - ACCRUED LIABILITIES
The following is a summary of accrued liabilities as of December 31, 1998
and 1997:
1998 1997
---------------- -------------
Payroll costs $ 106,756 $ 101,252
Accrued interest 27,251 6,210
Preferred dividend payable 19,974 3,994
Bonds payable 81,551 66,402
Sculpture payable 94,320 -
Royalties payable 35,241 -
Advances payable 75,197 -
---------------- -------------
$ 440,290 $ 177,858
---------------- -------------
Royalties Payable -The Company was also committed to pay $30,000 in
royalties by January 1998 for a specific project. As of December 31, 1998,
the Company has paid the obligation in full.
F-23
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
The following is a summary of long-term debt, which includes notes payable
to related parties, as of December 31, 1998 and 1997:
1998 1997
<S> <C> <C>
-------------- -------------
Loan payable to a bank with monthly payments of
$3,596, interest at prime plus 2.75%, due April 1,
2004, secured by all equipment inventory and
accounts receivables $ 178,386 $ 201,275
12% unsecured note payable to a shareholder,
due November 18, 2000 (See Note 16) 200,000 200,000
10% unsecured note payable to an individual due
in monthly payments of principle and interest 5,370 11,024
12% unsecured demand note payable to a
shareholder (See Note 16) 24,802 5,846
12% unsecured notes payable to three shareholders
(See Note 16) 212,261 20,186
------------- -------------
$ 620,819 $ 438,331
Less: current portion (464,995) (254,575)
------------- -------------
$ 155,824 $ 183,756
------------- -------------
</TABLE>
Future maturities of long-term debt and notes payable are summarized as
follows:
Year
----------
1999 $ 464,996
2000 27,737
2001 30,947
2002 34,528
2003 38,523
Thereafter 24,088
-------------
$ 620,819
-------------
NOTE 10 - LEASE OBLIGATIONS
Capital Lease - During the year ended December 31, 1997, the Company
entered into a capital lease wherein the Company is the lessee of office
equipment under a capital lease expiring in July 2002. The asset and
liability under the capital lease was recorded at $46,032. During the year
ended December 31, 1998, the Company entered into an additional capital
lease wherein the Company is the lessee of office equipment under the
capital lease expiring in May of 2001. The asset and liability under the
capital lease was recorded at $26,903. Amortization expense for the years
ended December 31, 1998 and 1997 amounted to $11,837 and $6,022,
respectively.
F-24
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LEASE OBLIGATIONS [Continued]
Total future minimum lease payments, executory costs and current portion of
capital lease obligations are as follows:
Future minimum lease payments for the years ended December 31,
Year ending December 31, Lease Payments
--------------------- --------------
1999 $ 27,356
2000 27,356
2001 18,219
2002 9,100
----------
Total future minimum lease payments $ 82,031
Less: amounts representing interest and executory costs 20,096
----------
Present value of the future minimum lease payments 61,935
Less: current portion 21,641
----------
Capital lease obligations - long-term $ 40,294
----------
Operating Lease - The Company has entered into a building lease for the
office and production facility. The lease period on the facility extends to
March 30, 2005, and may be extended by mutual agreement on a year-to-year
basis. The lease can be canceled if either side provides written notice one
year in advance. Lease expense for the years ended December 31, 1998 and
1997 amounted to $49,312 and $48,918, respectively. Following is a schedule
of minimum annual rental payments for the next five years.
Year Ending Minimum Annual
December 31, Rental Payments
---------- ---------------
1999 $ 48,783
2000 48,783
2001 48,783
2002 48,783
2003 48,783
------------
$ 243,915
------------
Effective July 1, 1998 and effective each July 1 thereafter, the rental
amount will be increased by the annual inflation rate for the previous
year.
F-25
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - 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 years ended December 31, 1998 and 1997:
For the Years Ended
December 31,
----------------------
1998 1997
---------- ----------
Loss from continuing operations available
to common stockholders $ (1,720,525) $ (2,053,512)
Weighted average number of common shares
outstanding used in basic earnings per share 800,771 432,273
---------- ----------
Weighted number of common shares and potential
dilutive common shares outstanding used in
dilutive earnings per share N/A N/A
----------- ----------
The Company had at December 31, 1998 and 1997, options and warrants to
purchase 541,344 and 381,302 shares of common stock, respectively, at
prices ranging from $4.26 to $12.96 per share, that were not included in
the computation of diluted earnings per share because their effect was
anti-dilutive (the options exercise price was greater than the average
market price of the common shares).
NOTE 12 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 Accounting for Income Taxes [FASB
109]. FASB 109 requires the Company to provide a net deferred tax asset or
liability equal to the expected future tax benefit or expenses of temporary
reporting differences between book and tax accounting and any available
operating loss or tax credit carryforwards. At December 31, 1998 and 1997,
the total of all deferred tax assets was $2,186,056 and $1,602,601 and the
total of the deferred tax liabilities was $0 and $8,796. 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.
F-26
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INCOME TAXES [Continued]
The components of income tax expense from continuing operations for the
years ended December 31, 1998 and 1997 consist of the following:
1998 1997
--------- ---------
Current income tax expense:
Federal $ - $ -
State - -
--------- ---------
Net tax expense - -
--------- ---------
Deferred tax expense (benefit) arising from:
Excess of tax over financial
accounting depreciation $ (12,826) $ (10,725)
Reserve for doubtful accounts (49,763) (16,832)
Reserve for sculpture repurchase - (37,000)
Allowance for inventory valuation - (55,500)
Accrued expenses 3,228 (3,434)
Reserve for NFL License (3,700) -
Net operating less carryover (529,190) (876,539)
Valuation allowance 592,251 1,000,030
--------- ---------
Net deferred tax expense $ - $ -
--------- ---------
Because of the uncertainty surrounding the realization of the deferred tax
assets, the Company has established a valuation allowance of $2,186,056 and
$1,593,805 as of December 31, 1998 and 1997, which has been offset against
the deferred tax assets. The net change in the valuation allowance during
the year ended December 31, 1998, was $592,251.
Deferred income tax expense results primarily from the reversal of
temporary timing differences between tax and financial statement income.
A reconciliation of income tax expenses at the federal statutory rate to
income tax expense at the company's effective rate is as follows:
1998 1997
--------- ---------
Computed tax at the expected statutory rate (584,955) $(698,194)
--------- ---------
State and local income taxes, net of federal
benefit (51,614) (61,605)
Non-deductible expenses 1,581 338
Compensation expense 43,938 (259,947)
Valuation Allowance 592,251 1,000,030
Other items (1,201) 19,378
--------- ---------
Income tax expense $ - $ -
--------- ---------
F-27
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INCOME TAXES [Continued]
As of December 31, 1998 the Company has net tax operating loss (NOL)
carryforwards available to offset its future income tax liability. The NOL
carryforwards have been used to offset deferred taxes for financial
reporting purposes. The Company has federal NOL carryforwards of $5,390,858
that expire in various years beginning in 2006 through 2018.
The temporary differences and carryforwards gave rise to the following
deferred tax assets (liability) at December 31, 1998 and 1997:
1998 1997
--------- ---------
Excess of tax over book accounting depreciation $ 4,030 $ (8,796)
Reserve for doubtful accounts 67,901 18,138
Charitable contribution carryover 185 185
Reserve for sculpture repurchase 37,000 37,000
Allowance for inventory valuation 55,500 55,500
Accrued expenses 23,122 26,351
Reserve for NFL License 3,700 -
NOL Carryover 1,994,618 1,465,427
As of December 31, 1998 and 1997 the deferred tax asset (liability)
consisted of the following:
1998 1997
---------- ---------
Current deferred tax assets $ - $ -
Deferred tax assets (liabilities) - -
---------- ----------
$ - $ -
---------- ----------
NOTE 13 - LINE OF CREDIT
Effective through the year ended December 31, 1996, the Company had
established a revolving line of credit at a bank through a stockholder of
the Company. During the year ended December 31, 1997, the Company paid the
line of credit in full and the line of credit was cancelled.
NOTE 14 - CAPITAL STOCK
Common Stock - During March 1997, the Company issued 25,000 shares of its
previously authorized, but unissued common stock for cash. Total proceeds
from the sale of stock amounted to $21,000 (or $0.84 per share).
Services Rendered - During February 1998, the Company issued 2,500 shares
of common stock for services rendered which were valued at $31,050 (or
$12.42 per share). During December 1998, the Company issued 10,000 shares
of common stock for services rendered which were valued at $60,000 (or
$6.00 per share). The Company guaranteed that one year from the date of
issue the price of its common stock would be valued at least $6.00 per
share (See Note 17).
F-28
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - CAPITAL STOCK [Continued]
Warrants - During June 1997, the Company granted warrants to purchase a
total of 1,463,620 shares of the Company's common stock at prices ranging
from $7.20 to $90.00 per share. The warrants expire between April 20, 1999
through June 26, 2002. During the years ended December 31, 1998 and 1997,
7,750 and 54,674 warrants have been exercised for total proceeds of $55,800
and $393,653.
Public Offering - During the year ended December 31, 1996, the Parent sold
16,667 shares of common stock pursuant to a public offering. This offering
was registered by qualification in the State of Utah and was made in
reliance on Rule 504 of Regulation D under the Securities Act of 1933. The
Parent and the sales agent arbitrarily determined an offering price of
$7.20 per share. Total proceeds from the stock sold through December 31,
1998 amounted to approximately $120,000. As part of the offering the
Company granted 100,000 warrants to purchase the Company's common stock at
$7.20 per share to three entities and two individuals for services. As of
December 31, 1998 and 1997, 6,083 and 77,083 warrants have been exercised
for total proceeds of $43,800 and $555,000. As part of the offering the
Company also granted 13,120 warrants to purchase the Company's common stock
at $7.20 per share to former shareholders of the Subsidiary Liberty Mint,
Inc. in exchange for 157,437 previously issued Subsidiary warrants. As part
of the offering, the Company also granted 5,208 options to purchase the
Company's common stock at $7.20 per share to former shareholders of the
Subsidiary Liberty Mint, Inc. in exchange for 10,417 previously issued
Subsidiary options.
Stock Options - During November 1997, the Company issued 25,000 shares of
its common stock for options exercised at $9.00 per share. During December
1998, the Company issued 135,834 shares of its common stock for options
exercised at $3.60 per share. Subsequent to the year ended December 31,
1998, the Company issued 35,834 shares of its common stock for exercise of
options for options exercised at prices ranging from $0.40 to $3.60 per
share.
Purchase of Subsidiary Stock - During June 1997, the Parent issued 620,906
shares of its common stock in conjunction with the purchase of the
Subsidiary Liberty Mint, Inc. During November 1998, the Parent issued 396
shares of its common stock for 4,752 shares of the Subsidiary's common
stock in order to increase its interest in the Subsidiary Liberty Mint,
Inc. (See Note 1).
Preferred Stock - The Company is authorized to issue 10,000 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.
Class A Preferred Stock of Subsidiary - The Class A Preferred Stock of the
Subsidiary pays dividends at the rate of 10% and is fully cumulative. The
Class A preferred stock are entitled to receive dividends, commencing
October 10, 1996, at an annual rate of 10% per share out of the funds
legally available and to the extent declared by the Board of Directors. The
dividends are payable in equal monthly installments on April 10, 1997 and
ending October 10, 1998. The dividends may be paid either in cash, in
common stock of the corporation or a combination thereof. The holders of
Class A Preferred Stock shall be entitled to one (1) vote of each share of
Class A Preferred Stock held.
Stock split - During May 1999, the Company effected a 6 to 1 reverse stock
split, which has been retroactively reflected in these financial statements
(See Note 20).
F-29
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - STOCK OPTIONS
The Company applies APB Opinion No. 25 in accounting for its options
granted under the employment agreements. Compensation of $118,750 and
$63,594 was recorded in 1998 and 1997, respectively. The Corporation has
adopted the disclosure-only provisions of Statements of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation".
The effect on net income from the adoption of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
would be the same.
The fair value of each option granted is estimated on the date granted
using the Black-Scholes option pricing model, with the following
weighted-average assumptions used for grants during the period ended
December 31, 1998: risk-free interest rate of 5.5%, expected dividend yield
of zero, an expected life of 5 years and expected volatility of 459%.
A summary of the status of the options granted under agreements at December
31, 1998 and 1997, and changes during the periods then ended is presented
in the table below:
<TABLE>
<CAPTION>
1998 1997
--------------------- ----------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of period 1,192,500 $ 7.21 - $ -
Granted 573,334 5.30 1,197,708 7.21
Exercised 135,833 3.60 5,208 7.20
Forfeited 4,400 12.96 - -
Canceled 50,000 6.00 - -
-------- ------------ -------- ------------
Outstanding at end of Period 1,575,601 $ 7.08 1,192,500 $ 7.21
-------- ------------ -------- ------------
Exercisable at end of period 272,168 $ 5.17 12,500 $ 5.82
-------- ------------ -------- ------------
Weighted average fair value of
options granted 191,111 $ 0.44 79,847 $ 2.11
-------- ------------ -------- ------------
</TABLE>
<TABLE>
<CAPTION>
A summary of the status of the options outstanding under agreements at
December 31, 1998 is presented below:
Options Outstanding Options Exercisable
------------------------------------------ -------------------------
<S> <C> <C> <C> <C> <C>
Weighted-Average Weighted Average Weighted-Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
------------- ---------- -------------- --------------- ---------- -------------
$6.00 682,501 4.2 years $ 6.00 233,001 $ 6.00
$6.00 566,667 4.5 years $ 6.00 - $ -
$6.00 83,333 3.5 years $ 6.00 - $ -
$5.76 8,333 2.3 years $ 5.76 8,333 $ 5.76
$12.96 203,933 1.2 years $ 12.96 - $ -
$3.60 30,834 0.5 years $ 3.60 30,834 $ 3.60
</TABLE>
F-30
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - STOCK OPTIONS [Continued]
The Company accounts for options agreements under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. Had compensation cost for these options been determined, based
on the fair value at the grant dates for awards under these agreements,
consistent with the method prescribed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the Company's net
loss would have been the proforma amounts as indicated below:
For the Year Ended
December 31,
-------------------------
1998 1997
------------ ------------
Net Loss As reported $ (1,720,525) $ (2,053,512)
Proforma $ (1,720,525) $ (2,053,512)
Loss per Share As reported $ (2.15) $ (4.75)
Proforma $ (2.15) $ (4.75)
NOTE 16 - RELATED PARTY TRANSACTIONS
The Company entered into certain transactions with related individuals and
entities resulting in the following balances at December 31, 1998.
Notes Payable to stockholders - During December 1997, a shareholder of the
Company loaned the Company $200,000 at 12% interest compounding yearly. At
December 31, 1998 and 1997, accrued interest amounted to $27,167 and
$2,827.
During the year ended December 31, 1997, a shareholder and then officer and
president of the Company paid expenses and purchased silver on the
Company's behalf totaling $5,846. The note bears interest at a rate of 12%
per annum. During the year ended December 31, 1998, an additional $47,000
was loaned to the Company for expenses. Also, during the year ended
December 31, 1998, the Company paid the shareholder and former officer and
president $31,182. Accrued interest of $2,497 has been included in the
outstanding total of $24,802 as of December 31, 1998 (See Note 9).
During the year ended December 31, 1998, three related shareholders paid
expenses on behalf of the Company and loaned the Company silver and cash
for a total loan of $212,261. Subsequent to the year ended December 31,
1998, the Company is negotiating to repay this amount with interest at 12%
over a three-year period.
Personal Service Agreement - On January 1, 1990, the Company entered into
ten-year personal service agreements with the former partners of Liberty
Mint. The terms of the agreements were that the Company would receive up to
80 hours of service from each individual per month. The agreements would
expire December 31, 1999 and were noncancelable for the first five years.
During the year ended December 31, 1997, the Company, however, cancelled
the personal service agreements and fully expensed the notes receivable
relating to those agreements (See Note 7).
Sales - During the years ended December 31, 1998 and 1997, the Company had
2.3% and 2.5% of total sales to related parties.
F-31
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - RELATED PARTY TRANSACTIONS [Continued]
Accounts receivable - At December 31, 1998 and 1997, the Company had 11.2%
and 7.3%, respectively, of total receivables to related parties.
NOTE 17 - LITIGATION, CONTINGENCIES AND COMMITMENTS
Manufacturer Repurchase Agreements - Some sculptures that are shipped have
an unconditional return policy attached with them. The length of term that
an individual has to return the sculpture depends upon the brochure that
was issued as an incitement to purchase the sculpture. The unconditional
guarantee ranges from 1 year to an unlimited amount of time. The Company
believes that the amount of returns are reasonably estimable and an
allowance of $100,000 has been established. The total potential liability
for returns is estimated at $1,500,000.
The Company is at risk to repurchase sculptures for the same price
originally purchased. From time to time the Company may be contacted by
customers requesting the Company to repurchase the sculpture or to assist
in re-selling the sculpture.
Stock guarantee - During December 1998, the Company issued 10,000 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 10,000 shares of common stock for a
minimum price of $6.00 per share (or for a total of $60,000). The Company
further agreed to issue a sufficient amount of shares to the advertising
Company in order to sell and receive total proceeds of $60,000 if the
trading price is less than $6.00 per share.
Customer Deposits - The Company has accepted silver and gold to be stamped
into coins and customer deposits for the purchase of gold or silver coins.
As of December 31, 1998 and 1997 the amount of customer deposits was
$407,206 and $442,556, respectively [See Note 2]. As noted in Note 6, the
Company's silver and gold inventory at December 31, 1998 and 1997 was not
adequate to meet the silver and gold held on account and customer deposits.
NOTE 18 - CREDIT RISK AND CONCENTRATIONS
Currently, one customer accounts for approximately 14 percent of revenue.
As of December 31, 1998 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.
F-32
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - PRIVATE PLACEMENT OFFERING
On December 9, 1996, the Company tendered a Private Placement Offering to
issue common stock to finance marketing, operations, and the purchase of
additional silver for working inventory, to repay short-term debt, and to
acquire equipment. The Company offered to issue 700,000 shares of common
stock at $2.88 per share to accredited investors. This offering expired
February 28, 1997. In connection with the offering, warrants were granted
with blocks of shares that exceed 16,667 shares; these warrants have an
exercise price of $5.76 per share and expire on December 31, 1999. A total
of 15,556 warrants were issued.
NOTE 20 - SUBSEQUENT EVENTS
Stock - During January 1999, the Company issued 2,000,000 shares of its
common stock for total proceeds of $800,000 (or $0.42 per share). The
issuance of these shares resulted in 52 percent ownership of the new
investors and in a new shareholder control. As of the date of this audit
$133,400 of the total amount was collected.
During Janaury 1999, the Company issued 750,000 shares of its common stock
for total proceeds of $125,000 (or $0.17 per share).
During May 1999, a shareholder of the Company exercised options to purchase
5,000 post split shares of the Company's common stock at $.40 per share for
total proceeds of $2,000.
Reverse split - During May 1999, the Company had a 6 to 1 reverse stock
split. Fractional shares were rounded to the nearest whole share. The
financial statements for all periods presented have been retroactively
restated to reflect the reverse stock split.
Reorganization - During April 1999, the Company reorganized its management
by replacing its president. The chief financial officer was also released
and has not been replaced.
Lease obligation - During February 1999, the Company entered into an
additional capital lease. This lease requires monthly payments of $688 and
is for a 5 year term.
Contingency - During January 1999, the Company has become noncompliant with
its payroll tax responsibilities.
Stock guarantee - During March 1999, the Company issued an additional 6,667
shares of its common stock for advertising services performed valued at
$40,000. The Company guaranteed the advertising company that one year from
the date of issue they would be able to sell their 6,667 shares of common
stock for a minimum price of $6.00 per share (or for a total of $40,000).
The Company further agreed to issue a sufficient amount of shares to the
advertising Company in order to sell and receive total proceeds of $40,000
if the trading price is less than $6.00 per share.
End of Audit Report
F-33
<PAGE>
PART III
ITEM 1. EXHIBITS
(a) Exhibits. Exhibits required to be attached are listed in the Index to
Exhibits beginning on page 23 of this Form 10-SB under "Item 2.
Description of Exhibits."
[THIS SPACE LEFT INTENTIONALLY BLANK]
21
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, this 21st day of September 1999.
Liberty Mint, Ltd.
/s/ Daniel Southwick
Daniel Southwick, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ Daniel Southwick Chief Executive Officer, Director 21 September 1999
- --------------------------
Daniel Southwick
/s/ Robert Joyce Secretary, Director 21 September 1999
- --------------------------
Robert Joyce
/s/ Eugene Pankratz Controller, Treasurer 21 September 1999
- --------------------------
Eugene Pankratz
/s/ John Pennington Director 21 September 1999
- --------------------------
John Pennington
/s/ William C. Schmidt Director 21 September 1999
- --------------------------
William C. Schmidt
22
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS
INDEX TO EXHIBITS
Exhibit
No. Page No. Description
2(i) 24 Articles of Incorporation of the Company formerly known as St.
Joseph Corp. VI, a Colorado corporation, dated March 15, 1990.
2(ii) 28 Articles of Amendment for St.Joseph Corp., dated July 26,1993,
changing the name of the Company to Petrosavers
International, Inc.
2(iii) 29 Articles of Amendment for Petrosavers International, Inc.,
dated August 19, 1996, changing the name of the Company to
Hana Acquisitions, Inc.
2(iv) 30 Articles of Amendment for Hana Acquisitions, Inc.,dated June 9,
1997, changing the name of the Company to Liberty Mint, Ltd.
2(v) 31 Articles of Amendment and Restatement of the Articles of
Incorporation for Liberty Mint, Inc., a Utah corporation.
Liberty Mint, Inc. is a 90% owned subsidiary of Liberty Mint,
Ltd.
2(vi) 36 By-laws of the Company adopted on March 15, 1990.
23
ARTICLES OF INCORPORATION
OF
ST. JOSEPH CORP. VI
The undersigned incorporator, being a natural person over the age of
eighteen years, and desiring to form a body corporate under the laws of the
state of Colorado, does hereby sign, verify and deliver in duplicate to the
Secretary of State of the state of Colorado, these Articles of Incorporation:
ARTICLE I
NAME
The name of the Corporation shall be ST. JOSEPH CORP. VI.
ARTICLE II
PERIOD OF DURATION
The Corporation shall exist in perpetuity, from, and after the date of
filing these Articles of Incorporation with the Secretary of State of the
state of Colorado unless dissolved according to law.
ARTICLE III
PURPOSES AND POWERS
1. Purposes. Except as restricted by these Articles of Incorporation,
the Corporation is organized for the purpose of transacting all lawful
business for which corporations may be incorporated pursuant to the Colorado
Corporation Code.
2 General Powers. Except as restricted by these Articles of
Incorporation, the Corporation shall have and may exercise all powers and
rights which a corporation may exercise legally pursuant to the Colorado
Corporation Code.
3 . Issuance of Shares. The Board of Directors of the Corporation may
divide and issue any class of stock of the Corporation in series pursuant to a
resolution properly filed with the Secretary of State of the state of
Colorado.
ARTICLE IV
CAPITAL STOCK
The aggregate number of shares which this Corporation shall have
authority to issue is Twenty-Five Million (25,000,000) shares of no par value
each, which shares shall be designated "Common Stock"- and Ten million
(10,000,000) shares of no par value each, which shares shall be designated
"Preferred Stock" and which may be issued in one or more series at the
discretion of the Board of Directors. In establishing a series, the Board of
Directors shall give to it a distinctive designation so as to distinguish it
from the shares of all other series and classes, shall fix the number of shares
in such series, and the preferences, rights and restrictions thereof. All shares
of any one series shall be alike in every particular except as otherwise
provided by these Articles of Incorporation or the Colorado Corporation Code.
1. Dividends. Dividends in cash, property or shares shall be paid up on
the Preferred Stock for any year on a cumulative or noncumulative basis as
determined by a resolution of the Board of Directors prior to the issuance of
such Preferred Stock, to the extent earned surplus for each such year is
available, in an amount as determined by a resolution of the Board of Directors.
Such Preferred Stock dividends shall be paid pro rata to holders of Preferred
Stock as determined by a resolution of the Board of Directors prior to the
issuance of such Preferred Stock. No other dividend shall be paid on the
Preferred Stock.
Dividends in cash, property or shares of the Corporation may be paid
upon the Common Stock, as and when declared by the Board of Directors, out of
funds of the Corporation to the extent and in the manner permitted by law,
except that no Common Stock dividend shall be paid for any year unless the
holders of Preferred Stock, if any, shall receive the maximum allowable
Preferred Stock dividend for such year.
24
<PAGE>
2. Distribution in Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, and after paying or adequately providing for the
payment of all its obligations, the remainder of the assets of the Corporation
shall be distributed, either in cash or in kind, first pro rata the holders of
the Preferred Stock until an amount to be determined by a resolution of the
Board of Directors prior to issuance of such Preferred Stock, has been
distributed per share, and, then, the remainder pro rata to the holders of the
Common Stock.
3. Redemption. The Preferred Stock may be redeemed in whole or in part
as determined by a resolution of the Board of Directors prior to the issuance of
such Preferred Stock, upon prior notice to the holders of record of the
Preferred Stock, published, mailed and given in such manner and form and on such
other terms and conditions as may be prescribed by the Bylaws or by resolution
of the Board of Directors, by payment in cash or Common Stock for each share of
the Preferred Stock to be redeemed, as determined by a resolution of the Board
of Directors prior to the issuance of such Preferred Stock. Common stock used to
redeem Preferred Stock shall be valued as determined by a resolution of the
Board of Directors prior to the issuance of such Preferred Stock. Any rights to
or arising from fractional shares shall be treated as rights to or arising from
one share. No such purchase or retirement shall be made if the capital of the
Corporation would be impaired thereby.
If less than all the outstanding shares are to be redeemed, such
redemption may be made by lot or pro rata as may be prescribed by resolution of
the Board of Directors; provided, however, that the Board of Directors may
alternatively invite from shareholders offers to the Corporation of Preferred
Stock at less than an amount to be determined by a resolution of the Board of
Directors prior to issuance of such Preferred Stock, and when such offers are
invited, the Board of Directors shall then be required to buy at the lowest
price or prices offered, up to the amount to be purchased.
From and after the date fixed in any such notice as the date of
redemption (unless default shall be made by the Corporation in the payment of
the redemption price), all dividends on the Preferred Stock thereby called for
redemption shall cease to accrue and all rights of the holders thereof as
stockholders of the Corporation, except the fight to receive the redemption
price, shall cease and terminate.
Any purchase by the Corporation of the shares of its Preferred Stock
shall not be made at prices in excess of said redemption price.
4. Voting Rights; Cumulative Voting. Each outstanding share of Common
Stock shall be entitled to one vote and each fractional share of Common Stock
shall be entitled to a corresponding fractional vote on each matter submitted to
a vote of shareholders. A majority of the shares of Common Stock entitled to
vote, represented in person or by proxy, shall constitute a quorum, at a meeting
of shareholders. Except as otherwise provided by these Articles of Incorporation
or the Colorado Corporation Code, if a quorum is present, the affirmative vote
of a majority of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders. When, with respect to
any action to be taken by shareholders of the Corporation, the laws of Colorado
require the vote or concurrence of the holders of two-thirds of the outstanding
shares, of the shares entitled to vote thereon, or of any class or series, such
action shall be taken by, the vote or concurrence of a majority of such shares
or class or series thereof. Cumulative voting shall not be allowed in the
election of directors of the Corporation.
Shares of Preferred Stock shall only be entitled to such vote as is
determined by the Board of Directors prior to the issuance of such stock, except
as required by law, in which case each share of Preferred Stock shall be
entitled to one vote.
5. Denial of Preemptive Rights. No holder of any shares of the
Corporation, whether now or hereafter authorized, shall have any preemptive or
preferential right to acquire any shares or securities of the Corporation,
including shares or securities held in the treasury of the Corporation.
6. Conversion Rights. Holders of shares of Preferred Stock may be
granted the right to convert such Preferred Stock to Common Stock of the
Corporation on such terms as may be determined by the Board of Directors prior
to issuance of such Preferred Stock.
25
<PAGE>
ARTICLE V
TRANSACTION WITH INTERESTED DIRECTORS
No contract or other transaction between the Corporation and one or
more or its directors or any other corporation, firm, association or entity in
which one or more of its directors are directors or officers or are
financially interested shall be either void or voidable solely because of such
relationship or interest or solely because such directors are present at the
meeting of the Board of Directors or a committee thereof which authorizes,
approves or ratifies such contract or transaction or solely because their
votes are counted for such purpose if;
(a) The fact of such relationship or interest is disclosed or known
to the Board of Directors or committee which authorizes, approves, or ratifies
the contract or transaction by a vote or consent sufficient for the purpose
without counting the votes or consents of such interested directors; or
(b) The fact of such relationship or interest is disclosed or
known to the shareholders entitled to vote or they authorize, approve, or
ratify such contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and reasonable to the
Corporation.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves, or ratifies such contract or transaction.
ARTICLE VI
CORPORATE OPPORTUNITY
The officers, directors and other members of management of the
Corporation shall be subject to the doctrine of "corporate opportunities" only
insofar as it applies to business opportunities in which the Corporation has
expressed an interest as determined from time to time by the Corporation's
Board of Directors as evidenced by resolutions appearing in the Corporation's
minutes. Once such areas of interest are delineated, all such business
opportunities within such areas of interest which come to the attention of the
officers, directors and other members of management of the Corporation shall
be disclosed promptly to the Corporation and made available to it. The Board
of Directors may reject any business opportunity presented to it and
thereafter any officer, director or other member of management may avail
himself of such opportunity. Until such time as the Corporation, through its
Board of Directors, has designated an area of interest, the officers,
directors and other members of management of the Corporation shall be free to
engage in such areas of interest on their own and this doctrine shall not
limit the rights of any officer, director or other member of management of the
Corporation to continue a business existing prior to the time that such area
of interest is designated by the Corporation. This provision shall not be
construed to release any employee of the Corporation (other than an officer,
director or member of management) from any duties which he may have to the
Corporation.
ARTICLE VII
INDEMNIFICATION
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability to the Corporation or to its
shareholders for monetary damages for (i) any breach of the directors' duty of
loyalty to the Corporation or to its shareholders; (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) acts specified in Section 7-5-114 of the Colorado Corporation
Code; or (iv) any transaction from which the director derived an improper
personal benefit.
If the Colorado Corporation code is hereafter amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Colorado Corporation Code, as so amended.
26
<PAGE>
Any repeal or modification of the foregoing provisions of this Article
by the shareholders of the Corporation shall not affect adversely any right or
protection of a director of the corporation in respect of any acts or
omissions of such director occurring prior to the time of such repeal or
modification,
ARTICLE VIII
AMENDMENT
The Corporation reserves the right to amend its Articles of
Incorporation from time to time in accordance with the Colorado Corporation
Code.
ARTICLE IX
ADOPTION AND AMENDMENT OF BYLAWS
The initial Bylaws of the Corporation shall be adopted by its Board of
Directors. Subject to repeal or change by action of the shareholders, the
power to alter, amend or repeal the Bylaws or adopt new Bylaws shall be vested
in the Board of Directors. The Bylaws may contain any provisions for the
regulation and management of the affairs of the Corporation not inconsistent
with law or these Articles of Incorporation.
ARTICLE X
REGISTERED OFFICE AND REGISTERED AGENT.
The address of the initial registered office of the Corporation is
6950 E. Belleview Avenue, Suite 201, Englewood, Colorado 80111, and the name
of the initial registered agent at such address is Gary A. Agron. Either the
registered office or the registered agent may be changed in the manner
permitted by law.
ARTICLE XI
INITIAL BOARD OF DIRECTORS
The number of directors of the Corporation shall be fixed by the
Bylaws of the Corporation, with the provision that there need be only as many
directors as there are shareholders in the event that the outstanding shares
are held of record by fewer than three shareholders. The initial Board of
Directors of the Corporation shall consist of one (1) director. The name and
address of the person who shall serve as director until the first annual
meeting of shareholders and until his successor is elected and shall qualify
is as follows:
Name Address
Gary A. Agron 6950 E. Belleview Avenue
Englewood, Colorado 80111
ARTICLE XII
INCORPORATOR
The name and address of the incorporator is as follows:
Name Address
Gary A. Agron 6950 E. Belleview Avenue
Englewood, Colorado 80111
IN WITNESS WHEREOF, the above-named incorporator has signed these Articles of
Incorporation on this 13th day of March, 1990.
By: /s/ Gary A, Argon
---------------------------------
Gary A. Argon
27
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
Pursuant to the provision. of the Colorado Corporation Act, the undersigned
corporation adopts the following Articles of Amendment to its Articles of
Incorporation.
FIRST: The name of the corporation is ST. JOSEPH CORP. VI.
SECOND: The following amendment to the Articles of Incorporation was
adopted on July 26, 1993, by a vote of the shareholders The number of shares
voted for the amendment was sufficient for approval:
RESOLVED, that Article I is amended to change the Company's name to
"PETROSAVFRS INTERNATIONAL, INC."
THIRD: The manner, if not set forth in such amendment, in which any
exchange, reclassification or cancellation of issued shares provided for in the
amendment shall be effected, is as follows: Not applicable.
FOURTH: The manner in which such amendment effects a change in the amount
of stated capital and the amount of stated capital as changed by such amendment,
are as follows: Not applicable.
Dated: July 26, 1993
PETROSAVERS INTERNATIONAL, INC.
(formerly St. Joseph Corp. VI)
By: /s/ Ralph W. LeBlanc
-----------------------------
Ralph W. LeBlanc
President
and by: /s/ Robert M. Bingham
-----------------------------
Robert M Bingham
Secretary
28
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Corporation Act, the undersigned
corporation adopts the following Articles of Amendment to its Articles of
Incorporation:
FIRST: The name of the corporation is Petrosavers International, Inc.
SECOND: The following amendment to the Articles of Incorporation was
adopted on August 19, 1996, by a vote of the shareholders. The number of shares
voted for the amendment was sufficient for approval:
RESOLVED, that Article I is amended to change the Company's name to "HANA
Acquisitions, Inc."
THIRD-. The manner, if not set forth in such amendment, in which any
exchange, reclassification or cancellation of issued shares provided for in the
amendment shall be effected, is as follows: Not applicable.
FOURTH: The manner in which such amendment effects a change in the amount
of stated capital and the amount of stated capital as changed by such amendment,
are as follows: Not applicable.
Dated: August 19, 1996
HANA ACQUISITIONS, INC.
(formerly Petrosavers International, Inc.)
By: /s/ James A. Eller
------------------------------
James A. Eller
President
29
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
HANA ACQUISITIONS, INC.
Pursuant to the provisions of Sections 7-2-107 and 7-2-109 of the
Colorado Revised Statutes, the undersigned corporation hereby adopts the
following Articles of Amendment to its Articles of Incorporation.
FIRST: The name of the corporation is Hana Acquisitions, Inc.
SECOND: The following amendment to the Articles of Incorporation of the
corporation was duly adopted by unanimous consent of the Board of Directors of
the Corporation in the manner prescribed by the Colorado Revised Statutes, and
by affirmative Vote of stockholders of the Corporation holding two-thirds of the
shares entitled to vote at a meeting held June 9, 1997, to-wit:
ARTICLE I - NAME
The name of this corporation is: "LIBERTY MINT, LTD."
THIRD: This amendment does not provide for any exchange, reclassification
or cancellation of issued shares.
FOURTH: This amendment does not effect a change in the stated capital of
the Corporation.
IN WITNESS WHEREOF, the undersigned President and Secretary, having been
thereunto duly authorized, has executed the foregoing Articles of Amendment for
the corporation under the penalties of perjury this 16th day of June, 1997.
HANA ACQUISITIONS, INC,
By: /s/ Gary McAdam
-------------------------------
Gary McAdam, President and Secretary
STATE OF COLORADO )
) ss
COUNTY OF DOUGLAS )
30
ARTICLES OF AMENDMENT AND RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
LIBERTY MINT, INC.
Pursuant to the provisions of Section 16-10a-1007 of the Revised
Utah Business Corporation Act, as amended (the "Act"), the undersigned
corporation hereby adopts the following Amended and Restated Articles of
Incorporation for such corporation:
FIRST:The name of the Corporation is Liberty Mint, Inc. (the "Corporation").
SECOND: The text of the Amended and Restated Articles of Incorporation of
the company is as follows:
ARTICLE I
NAME. The name of the Corporation is Liberty Mint, Inc.
ARTICLE II
DURATION. The Corporation shall exist perpetually or until dissolved
according to law.
ARTICLE III
PURPOSES. The purposes for which the Corporation is organized are:
(a) To engage in the business of minting, manufacturing and
marketing medallions, coins and collectibles, and bullion and all
business incidental to or in any way connected therewith.
(b) Directly, or through ownership of shares in any corporation or
through ownership in a partnership, to purchase, acquire, own, hold,
lease, mortgage, encumber, sell and dispose of anv and all kinds and
character of real, personal and mixed property (the foregoing
particular enumeration in no sense being used by way of exclusion or
limitation) and while the owner thereof, to exercise a the rights,
powers and privileges of ownership, including, in the case of stocks,
shares and partnership interests, the right to vote thereon.
(c) To enter into, make and perform contracts of every kind and
description to borrow and lend money, with or without security, and to
endorse or otherwise guarantee the obligations of
31
<PAGE>
others.
(d) To act as principal or agent for others and receive
compensation for a services which it may render in the performance of
the duties of an agency character.
(e) To purchase, hold, sell and transfer the shares of its own
capital stock and the shares of capital stock of other corporations.
(f) To engage in the general business of investing, on behalf of
itself and others, any part of its capital and such additional funds as
it may obtain, or any interest thereon, either as tenant in common or
otherwise, and to sell or otherwise dispose of the same, or any part
thereof, or any interest therein.
(g) To do everything necessary, proper, advisable, or convenient
for the accomplishment of any of the purposes, or the attainment of any
of the objects, or the furtherance of any of the powers herein set
forth, either alone or in association with others, and incidental or
pertaining to, or growing out of or connected with, its business or
powers, provided the same be not inconsistent with the laws of the
State of Utah.
(h) To engage in any and all other lawful purposes, businesses,
activities and pursuits presently of hereafter allowed by law, whether
similar or dissimilar to the foregoing.
The purposes stated herein shall be construed as powers as
well as purposes and the matters expressed in any clause shall not be
limited by reference to or inference from the term's of any other, but
shall be regarded as independent purposes and powers; and the
enumeration of specific purposes and powers shall not be construed to
Emit or restrict the meaning of general terms of the general powers;
nor shall the expression of one thing be deemed to exclude another not
expressed, although it be of like nature.
ARTICLE IV
CAPITALIZATION. The aggregate number of shares which the Corp-
oration shall have authority to issue is as follows:
(a) Thirteen million (13,000,000) shares of Class A Common
Stock, no par value per share. The holders of the Class A Common Stock
shall have one vote for each share on each matter submitted to a vote
of the shareholders of the Corporation.
(b) One million (1,000,000) shares of Class B Common
Stock, no par value per
32
<PAGE>
share. Holders of shares of Class B Common Stock shall not have voting
rights.
(c) Two million (2,000,000) shares of Class A Preferred
Stock, no par value per share. The terms and provisions applicable to
the Preferred Stock as a class are as follows:
1. Dividends. The Preferred Stock shall have
cumulative preferred dividends accruing beginning October 10, 1996 at
the rate of 10 percent annual interest based on the total purchase
price of the Preferred
Stock, such dividends to be paid in monthly payments beginning April
10, 1997, as follows: (a) Dividend obligations accumulated on the
purchase price from the period October 10, 1996 to April 10, 1997 shall
be payable in equal monthly instalments over an 18 month period
beginning April 10, 1997 and ending October 10, 1998. Said accumulated
dividends shall not be subject to further interest charges after April
10, 1997; and (b) Dividends accruing and owed on the purchase price
after April 10, 1997 will be paid monthly beginning April 10, 1997.
2. Voting Rights. The holders of Preferred Stock
shall have one vote for each share on each matter submitted to a vote of
the shareholders of the Corporation.
3. Liquidation Rights. Upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation,
the holders of Preferred Stock shall be entitled to receive in payment
before any payments shall be made in respect of the Common Stock, the
value of their initial investment, plus accumulated dividends. The
remaining assets of the Corporation available for distribution to
stockholders, if any, shall be distributed pro rata among the holders
of Class A or Class B Common Stock of the Corporation.
ARTICLE V
PRE-EMPTIVE RIGHTS. No holder of shares of the capital stock of any
class of the Corporation shall have any pre-emptive or preferential rights of
subscription to any shares of any class of stock of the Corporation, whether now
or hereafter authorized, or to any obligations convertible into stock of the
Corporation issued or sold. The term "convertible obligations' as used herein
shall include any notes, bonds or other evidences of indebtedness to which are
attached or with which are issued warrants or other rights to purchase stock of
the Corporation.
33
<PAGE>
ARTICLE VI
LIMITATION ON LIABILITY. Within the meaning of and in accordance
with Section 16-10- 49.1 of the Utah Code Annotated (1953), as amended (the
"Code") in effect upon the adoption of the Corporation's original Articles
of Incorporation:
(1) No director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except as provided in this Article.
(2) The limitation of liability contemplated in this
Article shall not extend to (a) any breach of the director's duty of loyalty
to the Corporation or its stockholders, (b) any act or omission not in good
faith or which involves intentional misconduct or a knowing violation of
law, (c) any transaction from which the director derived an improper
personal benefit, or (d) any action under Section 16-10-44 of the Code
(unlawful payment of dividends or unlawful stock purchases or other
distributions).
(3) Any repeal or modification of this Article by the
stockholders of the Corporation shall not adversely affect any right or protect-
ion of a director of the Corporation existing at the time of such repeal or
modification.
ARTICLE VII
BYLAWS. Provisions for the regulation of the internal affairs of the
Corporation shall be set forth in the Bylaws of the Corporation.
ARTICLE VIII
DIRECTORS. The number of directors which shall constitute the Board of
Directors of the Corporation may vary from three (3) to eleven (11) directors as
prescribed by the Bylaws of the Corporation.
THIRD: The amendment contained in the foregoing Amended and Restated
Articles of Incorporation approving an increase in the number of authorized
shares of Class A Common Stock from 5 million to 10 million was adopted by the
holders of Class A Common Stock of the Company on October 8, 1996. On that date,
there were issued, outstanding and entitled to vote on the amendment 5,163,928
shares of Class A Common Stock. Of that amount, 4,946,928 shares of Class A
Common Stock were represented in person or
34
<PAGE>
by proxy at the meeting. The total number of votes cast in favor of the
amendment at the meeting was 4,946,928. The total number of votes cast against
the amendment at the meeting was 0.
FOURTH: The amendment contained in the foregoing Amended and Restated
Articles of Incorporation approving an increase in the number of authorized
shares of Class A Common Stock from 10 million to 13 million was adopted by the
holders of Class A Common Stock of the Company and by holders of Class B Common
Stock of the Company on October 24, 1996. On that date there were issued,
outstanding and entitled to vote on the amendment 5,163,928 shares of Class A
Common Stock. Of that amount, 4,946,928 shares of Class A Common Stock were
represented in person or by proxy at the meeting. The total number of shares of
Class A Common Stock cast in favor of the amendment at the meeting was
4,946,928. The total number of shares of Class A Common Stock cast against the
amendment at the meeting was 0. On that date there were issued, outstanding and
entitled to vote on the amendment 121,000 shares of Class B Common Stock. Of
that amount 6 1,000 shares of Class B Common Stock were represented in person or
by proxy at the meeting. The total number of shares of Class B Common Stock cast
in favor of the amendment at the meeting was 61,000. The total number of Class B
Common Stock cast against the amendment at the meeting was 0.
IN WITNESS WHEREOF, these Articles of Amendment and Restatement of the
Articles of Incorporation of the Corporation have been executed this 4th day of
December, 1996.
By: _______________________________
Larry H. Ruff, President
35
BYLAWS OF
OF
ST. JOSEPH CORP. IV
36
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I OFFICES1
1.3 Business Office 1
1.4 Registered Office 1
ARTICLE II SHARES AND TRANSFER THEREOF 1
2.1 Regulation 1
2.2 Certificates of Shares 1
2.3 Cancellation of Certificates 2
2.4 Lost, Stolen or Destroyed Certificates 2
2.5 Transfer of Shares 2
2.6 Transfer Agent 2
2.7 Close of Transfer Book and Record Date 3
ARTICLE III SHAREHOLDERS AND MEETINGS THEREOF 3
3.1 Shareholders of Record 3
3.2 Meetings 4
3.3 Annual Meeting 4
3.4 Special Meetings 4
3.5 Notice 4
37
<PAGE>
3.6 Meeting of all Shareholders 5
3.7 Voting Record 5
3.8 Quorum 5
3.9 Manner of Acting 5
3.10 Proxies 6
3.11 Voting of Shares 6
3.12 Voting of Shares by Certain Holders 6
3.13 Voting by Ballot 7
3.14 Cumulative Voting 7
ARTICLE IV DIRECTORS, POWERS AND MEETINGS
4.1 Board of Directors 7
4.2 Regular Meetings 7
4.3 Special Meetings 7
4.4 Notice 7
4.5 Participation by Electronic Means 8
4.6 Quorum and Manner of Acting 8
4.7 Organization 8
4.8 Presumption of Assent 8
4.9 Informal Action by Directors 9
4.10 Vacancies 9
4.11 Compensation 9
4.12 Removal of Directors 9
38
<PAGE>
4.13 Resignations 9
4.14 General Powers 9
ARTICLE V OFFICERS 10
5.1 Term and Compensation 10
5.2 Powers 10
5.3 Compensation 11
5.4 Delegation of Duties 11
5.5 Bonds 12
5.6 Removal 12
ARTICLE VI FINANCE 12
6.1 Reserve Fund 12
6.2 Banking 12
ARTICLE VII-DIVIDENDS
12
ARTICLE VIII-CONTRACTS, LOANS AND CHECKS
13
8.1 Execution of Contracts 13
39
<PAGE>
8.2 Loans 13
8.3 Checks 13
8.4 Deposits 13
ARTICLE IX FISCAL YEAR 13
ARTICLE X CORPORATE SEAL 14
ARTICLE XI AMENDMENTS 14
ARTICLE XII EXECUTIVE COMMITTEE
14
12.1 Appointment 14
12.2 Authority 14
12.3 Tenure and Qualifications 14
12.4 Meetings 15
12.5 Quorum 15
12.6 Inform Action by Executive Committee 15
12.7 Vacancies 15
12.8 Resignations and Removal 15
12.9 Procedure 15
CERTIFICATE
40
<PAGE>
ARTICLE I
OFFICES
1.1 Business Office. The principal office and place of business of
the corporation shall be established from time to time by the Board of
Directors. Other offices and places of business may be established from time
to time by resolution of the Board of Directors or as the business of the
corporation may require.
1.2 Registered Office. The registered office of the corporation is
currently its principal office, but need not be identical with the principal
office of the corporation, and the address of the registered office may be
changed from time to time by the Board of Directors.
ARTICLE II
SHARES AND TRANSFER THEREOF
2.1 Regulation. The Board of Directors may make such rules and
regulations as it may deem appropriate concerning the issuance, transfer and
registration of certificates for shares of the corporation, including the
appointment of transfer agents and registrars.
2.2 Certificates of Shares. Certificates representing shares of the
corporation shall be respectively numbered serially for each class of shares,
or series thereof, as they are issued, shall be impressed with the corporate
seal or a facsimile thereof and shall be signed
41
<PAGE>
by the Chairman or Vice Chairman of the Board of Directors or by the President
or a Vice- President and by the Treasurer or an Assistant Treasurer or by the
Secretary or an Assistant Secretary; provided that any or all of the
signatures may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the corporation itself or its
employee. Each certificate shall state the name of the corporation, the
corporation's state of incorporation, the name of the person to whom issued,
the date of issue, the class (or series of any class), the number of shares
represented thereby and the par value of the shares represented thereby or a
statement that such shares are without par value. A statement of the
designations, preferences, qualifications, limitations, restrictions and
special or relative rights of the shares of each class shall be set forth in
full or summarized on the face or back of the certificates which the
corporation shall issue, or in lieu thereof, the certificate may set forth
that such a statement or summary will be furnished to any shareholder upon
request without charge. Each certificate shall be otherwise in such form as
may be prescribed by the Board of Directors and as shall conform to the rules
of any stock exchange on which the may be listed. The corporation shall not
issue certificates representing fractional shares and shall not be obligated
to make any transfers creating a fractional interest in a share of stock. The
corporation may issue scrip in lieu of any fractional shares, such scrip to
have terms and conditions specified by the Board of Directors.
2.3 Cancellation of Certificates. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificates shall be
issued in lieu thereof until the former certificate for a like number of
shares shall have been surrendered
42
<PAGE>
and canceled, except as herein provided with respect to lost, stolen or
destroyed certificates.
2.4 Lost, Stolen or Destroyed Certificates. Any shareholder claiming that
his certificate for shares is lost, stolen or destroyed may make an affidavit or
affirmation of the fact and lodge the same with the Secretary of the
corporation, accompanied by a signed application for a new certificate.
Thereupon, and upon the giving of a satisfactory bond of indemnity to the
corporation not exceeding an amount double the value of the shares as
represented by such certificate (the necessity for such bond and the amount
required to be determined by the President and Treasurer of the corporation), a
new certificate may be issued of the same tenor and representing the same
number, class and series as were represented by the certificate alleged to be
lost, stolen or destroyed.
2.5 Transfer of Shares. Subject to the terms of any shareholder agreement
relating to the transfer of shares or other transfer restrictions contained in
the Certificate of Incorporation or authorized therein, shares of the
corporation shall be transferable on the books of the corporation by the holder
thereof in person or by his duly authorized attorney, upon the surrender and
cancellation of a certificate or certificates for a like number of shares. Upon
presentation and surrender of a certificate for shares properly endorsed and
payment of all taxes therefor, the transferee shall be entitled to a new
certificate or certificates in lieu thereof As against the corporation, a
transfer of shares can be made only on the books of the corporation and in the
43
<PAGE>
manner hereinabove provided, and the corporation shall be entitled to treat the
holder of record of any share as the owner thereof and shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other persons, whether or not it shall have express or other notice
thereof, save as expressly provided by the statutes of the state of the
corporation's incorporation.
2.6 Transfer Agent. Unless otherwise specified by the Board of Directors by
resolution, the Secretary of the corporation shall act as transfer agent of the
certificates representing the shares of stock of the corporation. He shall
maintain a stock transfer book, the stubs in which shall set forth among other
things, the names and addresses of the holders of all issued shares of the
corporation, the number of shares held by each, the certificate numbers
representing such shares, the date of issue of the certificates representing
such shares, and whether or not such shares originate from original issue or
from transfer. Subject to Section 3.7, the names and addresses of the
shareholders as they appear on the stubs of the stock transfer book shall be
conclusive evidence as to who are the as such entitled to receive notice of the
meetings of shareholders- to vote shareholders of record and at such meetings-
to examine the list of the shareholders entitled to vote at meetings, to receive
dividends- and to own, enjoy and exercise any other property or rights deriving
from such shares against the corporation. Each shareholder shall be responsible
for notifying the Secretary in writing of any change in his name or address and
failure so to do will relieve the corporation, its directors, officers and
agents, from liability for failure to direct notices or other documents, or pay
44
<PAGE>
over or transfer dividends or other property or rights, to a name or address
other than the name and address appearing on the stub of the stock transfer
book.
2.7 Close of Transfer Book and Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders, or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
Board of Directors may provide that the stock transfer books shall be closed for
a stated period, but not to exceed, in any case, fifty days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of, or to vote at a meeting of shareholders, such books shall
be closed for at least ten days immediately preceding such meeting. In lieu of
closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than fifty days and, in care of a meeting of
shareholders, not less than ten days prior to the date on which the particular
action requiring such determination of shareholders is to be taken. If the stock
transfer books are not closed and no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
or shareholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the Board
of Directors declaring such dividend is adopted, as the case may be, shall be
the record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
45
<PAGE>
ARTICLE III
SHAREHOLDERS AND MEETINGS THEREOF
3.1 Shareholders of Record. Only share holders of record on the books
of the corporation shall be entitled to be treated by the corporation as
holders in fact of the shares standing in their respective names, and the
corporation shall not be bound to recognize any equitable or other claim to,
or interest in, any shares on the part of any other person, firm or
corporation, whether or not it shall have express or other notice thereof,
except as expressly provided by the laws of the state of the corporation's
incorporation.
3.2 Meetings. Meetings of shareholders shall be held at the principal
office of the corporation, or at such other place as specified from time to
time by the Board of Directors. If the Board of Directors shall specify
another location such change in location shall be recorded on the notice
calling such meeting.
3.3 Annual Meeting. In the absence of a resolution of the Board of
Directors providing otherwise, the annual meeting of shareholders of the
corporation for the election of directors, and for the transaction of such
other business as may properly come before the meeting, shall be held at such
time as may be determined by Board of Directors by resolution in conformance
with the laws of the state of the corporation's incorporation. If the election
of Directors shall not be held on the day so designated for any annual meeting
46
<PAGE>
of the shareholders, the Board of Directors shall cause the election to be
held at a special meeting of the shareholders as soon thereafter as may be
convenient.
3.4 Special Meetings. Special meetings of shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President, the Board of Directors, the holders of not less than one-tenth
of all the shares entitled to vote at the meeting, or legal counsel of the
corporation as last designated by resolution of the Board of Directors.
3.5 Notice. Written notice stating the place, day and hour of the
meeting and, in case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered unless otherwise prescribed by
statute not less than ten days nor more than sixty days before the date of the
meeting, either personally or by mail, by or at the direction of the
President, the Secretary, or the officer or person calling the meeting to each
shareholder of record entitled to vote at such meeting. Any shareholder may
waive notice of any meeting. Notice to shareholders of record, if mailed,
shall be deemed given as to any shareholder of record, when deposited in the
United States mail, addressed to the shareholder at his address as it appears
on the stock transfer books of the corporation, with postage thereon prepaid,
but if three successive letters mailed to the last-known address of any
shareholder of record are returned as undeliverable, no further notices to
such shareholder shall be necessary, until another address for such
shareholder is made known to the corporation.
47
<PAGE>
3.6 Meeting of All Shareholders. If all of the shareholders shall meet
at any time and place, and consent to the holding of a meeting at such time
and place, such meeting shall be valid without call or notice, and at such
meeting any corporate action may be taken.
3.7 Voting Record. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make, at least ten days
before such meeting of shareholders, a complete record of the shareholders
entitled to vote at each meeting of shareholders or any adjournment thereof,
arranged in alphabetical order, with the address and the number of shares held
by each. The record, for a period of ten days prior to such meeting, shall be
kept on file either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held, whether within or
without the state of the corporation's incorporation, and shall be subject to
inspection by any shareholder for any purposes germane to the meeting at any
time during usual business hours. Such record shall be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder for any purpose germane to the meeting during the whole time
of the meeting for the purposes thereof The original stock transfer books
shall be prima facie evidence as to who are the shareholders entitled to
examine the record or transfer books or to vote at any meeting of
shareholders.
3.8 Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any meeting of shareholders, except as otherwise provided by the corporate
48
<PAGE>
the corporate laws of the corporation's state of incorporation and its Cert-
ificate of Incorporation. In the absence of a quorum at any such meeting, a
majority of the shares so represented may adjourn the meeting from time to time.
When a meeting is adjourned to another time or place, notice need not be given
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
3.9 Manner of Acting. If a quorum is present, the affirmative vote of the
majority of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the shareholders, unless the vote of a
greater proportion or number or voting by classes is otherwise required by
statute or by the Certificate of Incorporation or these Bylaws.
3.10 Proxies. At all meetings of shareholders, a shareholder may vote in
person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
three years from the date of its execution, unless otherwise provided in the
proxy.
49
<PAGE>
3.11 Voting of Shares. Unless otherwise provided by these Bylaws or the
Certificate of Incorporation, each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders, and each fractional share shall be entitled to a corresponding
fractional vote on each such matter.
3.12 Voting of Shares by Certain Holders. Shares standing in the name of
another corporation may be voted by such officer, agent or proxy as the bylaws
of such corporation may prescribe, or, in the absence of such provision, as the
Board of Directors of such other corporation may determine. Shares standing in
the name of a deceased person, a minor ward or an incompetent person, may be
voted by his administrator, executor, court appointed guardian or conservator,
either in person or by proxy without a transfer of such shares into the name of
such administrator, executor, court appointed guardian, or conservator. Shares
held by a trustee may be voted by him, either in person or by proxy. Shares
standing in the name of a receiver may be voted by such receiver, and shares
held by or under the control of a receiver may be voted by such receiver without
the transfer thereof into his name if authority so to do be contained in an
appropriate order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither shares of its own stock belonging to this corporation, nor shares of its
own stock held by it in a fiduciary capacity, nor shares of its own stock held
by another corporation if the majority of shares entitled to vote for the
50
<PAGE>
election of directors of such corporation is held by this corporation may be
voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares at any given time. Redeemable
shares which have been called for redemption shall not be entitled to vote on
any matter and shall not be deemed outstanding shares on and after the date on
which written notice of redemption has been mailed to shareholders and a sum
sufficient to redeem such shares has been irrevocably deposited or set aside to
pay the redemption price to the holders of the shares upon surrender of
certificates therefor.
3.13 Voting by Ballot. Voting on any question or in any election may be by
voice vote unless the presiding officer shall order or any shareholder shall
demand that voting be by ballot.
3.14 Cumulative Voting. No shareholder shall be permitted to cumulate his
votes by giving one candidate as many votes as the number of such directors
multiplied by the number of his shares shall equal, or by distributing such
votes on the same principal among any number of candidates.
ARTICLE IV
DIRECTORS, POWERS AND MEETINGS
4.1 Board of Directors. The business and affairs of the corporation shall
be managed by a board of not less than 3 nor more than 7 directors. Directors
need not be shareholders
51
<PAGE>
of the corporation or residents of the state of the corporation's incorporation
and shall be elected at the annual meeting of shareholders or some adjournment
thereof Directors shall hold office until the next succeeding annual meeting of
shareholders and until their successors shall have been elected and shall
qualify. The Board of Directors may increase or decrease, to not less than one
except as provided above, the number of directors by resolution.
4.2 Regular Meetings. A regular, annual meeting of the Board of Directors
shall be held at the same place as, and immediately after, the annual meeting of
shareholders, and no notice shall be required in connection therewith. The
annual meeting of the Board of Directors shall be for the purpose of electing
officers and the transaction of such other business as may come before the
meeting. The Board of Directors may provide, by resolution, the time and place,
either within or without the state of the corporation's incorporation, for the
holding of additional regular meetings without other notice than such
resolution.
4.3 Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the President or any two directors. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place whatsoever as the place for holding any special meeting of the Board
of Directors called by them.
4.4 Notice. Written notice of any special meeting of directors shall be
given as follows:
52
<PAGE>
(a) By mail to each director at his business address at least
three days prior to the meeting; or
(b) By personal delivery or telegram at least twenty-four
hours prior to the meeting to the business address of each director, or in the
event such notice is given on a Saturday, Sunday or holiday, to the residence
address of each director. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, so addressed, with postage thereon
prepaid. If notice be given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to the telegraph company. Any director
may waive notice of any meeting. The attendance of a director at any meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting.
4.5 Participation by Electronic Means. Except as may be otherwise provided
by the Certificate of Incorporation or Bylaws, members of the Board of Directors
or any committee designated by such Board may participate in a meeting of the
Board or committee by means of conference telephone or similar communications
equipment by which all persons participating in the meeting can hear each other
at the same time. Such participation shall constitute presence in person at the
meeting.
4.6 Quorum and Manner of Acting. A quorum at all meetings of the Board of
53
<PAGE>
Directors shall consist of a majority of the number of directors then holding
office, but a smaller number may adjourn from time to time without further
notice, until a quorum is secured. The act of the majority of the directors
present at the meeting at which a quorum is present shall be the act of the
Board of Directors, unless the act of a greater number is required by the laws
of the state of the corporation's incorporation or by the Certificate of
Incorporation or these Bylaws.
4.7 Organization. The Board of Directors shall elect a chairman to
preside at each meeting of the Board of Directors. The Board of Directors
shall elect a Secretary to record the discussions and resolutions of each
meeting.
4.8 Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the Secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Secretary of the corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
4.9 Informal Action By Directors. Any action required or permitted to
be taken by the Board of Directors, or committee thereof, at a meeting may be
taken without a meeting if a consent in writing, setting forth the action so
taken, still be signed by all the
54
<PAGE>
directors or all the committee members entitled to vote with respect to the
subject matter thereof
4.10 Vacancies. Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the Board of Directors. A director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office,
and shall hold such office until his successor is duly elected and shall
qualify, Any directorship to be filled by reason of an increase in the number of
directors shall be filled by the affirmative vote of a majority of the directors
then in office or by an election at an annual meeting, or at a special meeting
of shareholders called for that purpose. A director chosen to fill a position
resulting from an increase in the number of directors shall hold office only
until the next election of directors by the shareholders.
4.11 Compensation. By resolution of the Board of Directors and irrespective
of any personal interest of any of the members, each director may be paid his
expenses, if any, of attendance at each meeting of the Board of Directors, and
may be paid a stated salary as director or a fixed sum for attendance at each
meeting of the Board of Directors or both. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefore.
55
<PAGE>
4.12 Removal of Directors. Any director or directors of the corporation may
be removed at any time, with or without cause, in the manner provided by the
laws of the state of the corporation's incorporation.
4.13 Resignations. A director of the corporation my resign at any time by
giving written noticetotheBoardofDlrectors,PresidentorSecretaryofthecorporation.
The resignation shall take effect upon the date of receipt of such notice, or at
any later period of time specified therein. The acceptance of such resignation
shall not-be necessary to make it effective, unless the resignation requires it
to be effective as such.
4.14 General Powers. The business and affairs of the corporation shall be
managed by the Board of Directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders. The directors shall pass upon any and all
bills or claims of officers for salaries or other compensation and, if deemed
advisable, shall contract with officers, employees, directors, attorneys,
accountants, and other persons to render services to the corporation.
ARTICLE V
OFFICERS
5.1 Term and Compensation. The elected officers of the corporation shall
56
<PAGE>
consist of at least a President, a Secretary and a Treasurer, each of whom shall
be eighteen years old or older and who shall be elected by the Board of
Directors at its annual meeting. Unless removed in accordance with procedures
established by law and these Bylaws, said officers shall serve until the next
succeeding annual meeting of the Board of Directors and until their respective
successors are elected and shall qualify. Any number of offices, but not more
than two, may be held by the same person at the same time, except that one per
son may not simultaneously hold the offices of President and Secretary. The
Board of Directors may elect or appoint such other officers and agents as it may
deem advisable who shall hold office at the pleasure of the Board of Directors.
5.2 Powers. The officers of the corporation shall exercise and perform
the respective powers, duties and functions as are stated below, and as may be
assigned to them by the Board of Directors.
(a) The President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside, when present, at all meeting of the shareholders
and of the Board of Directors unless a different chairman of such meetings is
elected by the Board of Directors.
(b) In the absence or disability of the President, the
Vice-President or vice- Presidents, if any, in order of their rank as fixed by
the Board of Directors, and if not ranked, the Vice-Presidents, in the order
designated by the Board of Directors, shall perform all the
57
<PAGE>
duties of the President, and when so acting shall have all the powers of, and be
subject to all the restrictions on the President, Each Vice-President shall have
such other powers and perform such other duties as may from time to time be
assigned to him by the President or the Board of Directors.
(c) The Secretary shall keep accurate minutes of all meetings
of the shareholders and the Board of Directors unless a different Secretary of
such meetings is elected by the Board of Directors. He shall keep, or cause to
be kept a record of the shareholders of the corporation and shall be responsible
for the giving of notice of meetings of the shareholders or the Board of
Directors. The Secretary shall be custodian of the records and of the seal of
the corporation and shall attest to the affixing of the seal of the corporation
when so authorized. The Secretary or Assistant Secretary shall sign all stock
certificates. The Secretary shall perform all duties commonly incident to his
office and such other duties as may from time to time be assigned to him by the
President or the Board of Directors.
(d) An Assistant Secretary may, it there quest of the
Secretary, or in the absence or disability of the Secretary, perform all of the
duties of the Secretary. Hie shall perform such other duties as may be assigned
to him by the President or by the Secretary.
(e) The Treasurer, subject to the order of the Board of
Directors, shall have the care and custody of the money, funds, valuable papers
and documents of the corporation. He shall keep accurate books of account of the
corporation's transactions, which shall be the
58
<PAGE>
property of the corporation, and shall render financial reports and statements
of condition of the corporation when so requested by the Board of Directors or
President. The Treasurer shall perform all duties commonly incident to his
office and such other duties as may from time to time be assigned to him by the
President or the Board of Directors. In the absence or disability of the
President and Vice-President, or Vice-Presidents, the Treasurer shall perform
the duties of the President.
(f) An Assistant Treasurer may, at the request of the
Treasurer, or in the absence or disability of the Treasurer, perform all of the
duties of the Treasurer. He shall perform such other duties as may be assigned
to him by the President or by the Treasurer.
5. Compensation. All officers of the corporation may receive salaries or
other compensation if so ordered and fixed by the Board of Directors. The Board
of Directors shall have authority to fix salaries in advance for stated periods
or render the same retroactive as the Board may deem advisable.
5.4 Delegation of Duties. In the event of absence or inability of any
officer to act, the Board of Directors may delegate the powers or duties of such
officer to any other officers, director or person whom it may select.
5.5 Bonds. If the Board of Directors by resolution shall so require, any
officer or agent of the corporation shall give bond to the corporation in such
amount and with such surety as the Board of Directors may deem sufficient,
conditioned upon the faithful performance of their respective duties and
offices.
59
<PAGE>
5.6 Removal. Any officer or agent may be removed by the Board of Directors
or by the executive committee, if any, whenever in its judgment the best
interest of the corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not, of itself, create
contract rights.
ARTICLE VI
FINANCE
6.1 Reserve Fund. The Board of Directors, in its uncontrolled discretion,
may set aside from time to time, out of the net profits or earned surplus of the
corporation, such sum or sums as it deems expedient as a reserve fund to meet
contingencies, for equalizing dividends, for maintaining any property of the
corporation, and for any other purpose.
6.2 Banking. The moneys of the corporation shall be deposited in the name
of the corporation in such bank or banks or trust company or trust companies, as
the Board of Directors shall designate, and may be drawn out only on checks
signed in the name of the corporation by such person or persons is the Board of
Directors, by appropriate resolution, may direct. Notes and commercial paper,
when authorized by the Board, shall be signed in the name of the corporation by
such officer or officers or agent or agents as shall thereunto be authorized
from time to time.
60
<PAGE>
ARTICLE VII
DIVIDENDS
Subject to the provisions of the Certificate of Incorporation and the
laws of the state of the corporation's incorporation, the Board of Directors may
declare dividends whenever, and in such amounts, as in the Board's opinion the
condition of the affairs of the corporation shall render such advisable.
ARTICLE VIII
CONTRACTS, LOANS AND CHECKS
8.1 Execution of Contracts. Except as otherwise provided by the statute or
by these Bylaws, the Board of Directors may authorize any officer or agent of
the corporation to enter into any contract, or execute and deliver any
instrument in the name of, and on behalf of the corporation. Such authority may
be general or confined to specific instances and, unless so authorized, no
officer, agent or employee shall have any power to bind the corporation for any
purpose, except as may be necessary to enable the corporation to carry on its
normal and ordinary course of business.
8.2 Loans. No loans shall be contracted on behalf of the corporation and no
negotiable paper shall be issued in its unless authorized by the Board of
Directors. When so authorized, any officer or agent of the corporation may
61
<PAGE>
effect loans and advances at any time for the corporation from any bank, trust
company or institution, firm, corporation or individual. An agent so authorized
may made and deliver promissory notes or other evidence of indebtedness of the
corporation and may mortgage and pledge, hypothecate or transfer any real or
personal property held by the corporation as security for the payment of such
loans. Such authority, in the Board of Directors' discretion, may be general or
confined to specific instances.
8.3 Checks. Checks, notes, drafts and demands for money or other evidence
of indebtedness issued in the name of the corporation shall be signed by such
person or persons as designated by the Board of Directors and in the manner the
Board of Directors prescribes.
8.4 Deposits. All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the Board of Directors may select.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall be the year adopted by resolution
of the Board of Directors.
62
<PAGE>
ARTICLE X
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words "CORPORATE SEAL".
ARTICLE XI
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by a majority of the Directors present at any meeting of the Board of
Directors of the corporation at which a quorum is present.
ARTICLE XII
EXECUTIVE COMMITTEE
12.1 Appointment. The Board of Directors by resolution adopted by a
majority of the full Board, may designate two or more of its members to
constitute an executive committee. The designation of such committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law.
63
<PAGE>
12.2 Authority. The executive committee, when the Board of Directors is not
in session shall have and may exercise all of the authority of the Board of
Directors except to the extent, if any, that such authority shall be limited by
the resolution appointing the executive committee and except also that the
executive committee shall not have the authority of the Board of Directors in
reference to amending the Certificate of Incorporation, adopting a plan of
merger or consolidation, recommending to the shareholders the sale, lease or
other disposition of all or substantially all of the property and assets of the
corporation otherwise than in the usual and regular course of its business,
recommending to the shareholders a voluntary dissolution of the corporation or a
revocation thereof, or amending the Bylaws of the corporation.
12.3 Tenure and Qualifications. Each member of executive committee, shall
hold office until the next regular annual meeting of the Board of Directors
following his designation,
12.4 Meetings. Regular meetings of the executive committee may be held
without notice at such time and places as the executive committee may fix from
time to time by resolution. Special meetings of the executive committee may be
called by any member thereof upon not less than one day's notice stating the
place, date and hour of the meeting, which notice may be written or oral, and if
mailed, shall be deemed to be delivered when deposited in the United States mail
addressed to the member of the executive committee at his business address. Any
member of the executive committee may waive notice of any meeting and no notice
64
<PAGE>
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
12.5 Quorum. A majority of the members of the executive committee shall
constitute a quorum for the transaction of business at any meeting thereof, and
action of the executive committee must be authorized by the affirmative vote of
a majority of the members present at a meeting at which a quorum is present.
12.6 Informal Action by Executive Committee. Any action required or
permitted to be taken by the executive committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the committee entitled to vote with
respect to the subject matter thereof
12.7 Vacancies. Any vacancy in the executive committee may be filled by a
resolution adopted by a majority of the full Board of Directors.
12.8 Resignations and Removal. Any member of the executive committee may be
removed at any time with or without cause by resolution adopted by a majority of
the full Board of Directors. Any member of the Executive committee may resign
from the executive committee at any time by giving a written notice to the
President or Secretary of the corporation, and unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
65
<PAGE>
12.9 Procedure. The executive committee shall elect a presiding officer
from its members and may fix its own rules of procedure which shall not be
inconsistent with these Bylaws. It shall keep regular minutes of its proceedings
and report the same to the Board of Directors for its information at the meeting
thereof held next after the proceedings shall have been taken.
CERTIFICATE
I hereby certify that the foregoing Bylaws, constitute the Bylaws of the
corporation adopted by the Board of Directors of the corporation as of the 17th
day of March, 1990.
By: /s/ Gary A. Argon
----------------------
Gary A. Argon
66
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED AUDITED AND UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR THE
PERIODS ENDED DECEMBER 31, 1998 AND JUNE 30, 1999 RESPECTIVELY, THAT WERE
FILED WITH THE COMPANY'S ANNUAL REPORT ON FORM 10-SB AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U. S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 82,223 126,995
<SECURITIES> 4,857 0
<RECEIVABLES> 340,352 277,573
<ALLOWANCES> (168,609) (172,546)
<INVENTORY> 250,124 282,983
<CURRENT-ASSETS> 543,145 713,013
<PP&E> 345,265 638,563
<DEPRECIATION> 250,461 533,218
<TOTAL-ASSETS> 660,530 825,857
<CURRENT-LIABILITIES> 1,845,625 1,912,945
<BONDS> 0 0
0 0
159,792 159,792
<COMMON> 3,798,277 4,719,119
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 660,530 825,857
<SALES> 4,430,950 3,272,092
<TOTAL-REVENUES> 4,430,950 3,272,092
<CGS> 3,700,357 3,032,162
<TOTAL-COSTS> 2,344,759 974,472
<OTHER-EXPENSES> 0 13,339
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 89,312 80,330
<INCOME-PRETAX> (1,720,525) (828,716)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,720,525) (828,716)
<EPS-BASIC> 0 (.45)
<EPS-DILUTED> 0 (.45)
</TABLE>
