SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A-4
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER THE 1934 ACT
Liberty Mint, Ltd.
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(Name of Small Business Issuer in Its Charter)
Nevada 84-14092 19
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
975 North 1430 West, Orem, Utah 84059
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(Address of Principal Executive Offices) (Zip Code)
801-426-5155
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(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)
Name of Each Exchange on Which Each Class is to be Registered: N/A
This form is being filed with the Securities & Exchange Commission in order to
become a reporting company under the Exchange Act of 1934 and to maintain the
Company's quotation on the OTC Bulletin Board in compliance with the National
Association of Securities Dealers, Inc. Rules 6530 and 6540 to limit quotations
on the OTC Bulletin Board to securities of
companies that report their current financial information to the SEC,
banking, or insurance regulators.
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TABLE OF CONTENTS
Page No.
PART I
Item 1. Description of Business.....................................1
Item 2. Management's Discussion and
Analysis or Plan of Operation..........................8
Item 3. Description of Property.....................................16
Item 4. Security Ownership of Certain Beneficial
Owners and Management.................................16
Item 5. Directors, Executive Officers,
Promoters and Control Persons.........................18
Item 6. Executive Compensation......................................20
Item 7. Certain Relationships and Related Transactions..............21
Item 8. Description of Securities...................................22
PART II
Item 1. Market for Common Equity and
Related Stockholder Matters...........................23
Item 2. Legal Proceedings...........................................24
Item 3. Changes in and Disagreements with Accountants...............24
Item 4. Recent Sales of Unregistered Securities.....................24
Item 5. Indemnification of Directors and Officers...................26
PART F/S
Financial Statements..........................................................27
PART III
Item 1. Index to Exhibits...........................................28
Signatures....................................................................29
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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. On October 8, 1999, Articles of Merger were filed with the Secretary
of State's office in the states of Colorado and Nevada, documenting a merger
between Liberty Mint, LTD., a Colorado Corporation and Liberty Mint, LTD., a
Nevada Corporation. The purpose of the merger was to effect a change of domicile
of the Company from Colorado to Nevada.
In June of 1997, the Company issued 3,725,436 pre-split shares of the
company's common stock (a 6-1 reverse split occurred in May 1999 reducing these
shares to 620,906 shares) to Shareholders of Liberty Mint, Inc., a Utah
Corporation, in exchange for 7,450,864 shares (approximately 90%) of the
outstanding shares of Liberty Mint, Inc. The shares of the company were issued
to Liberty Mint, Inc., shareholders in an isolated transaction pursuant to
Section 4(2) of the Securities Act of 1933. Prior to the Company's acquisition
of control of Liberty Mint, Inc., Liberty Mint, Inc. had issued, in early 1997,
1,919,341 of its shares to 15 of its creditors in return for cancellation of
$676,111 in silver debts of Liberty Mint, Inc., by the creditors, in isolated
transactions pursuant to Section 4(2) of the Securities Act of 1933. Since these
transactions occurred prior to the purchase of Liberty Mint, Inc. by the
Company, they had no effect on the Company's balance sheet.
Before the acquisition of Liberty Mint, Inc., the Company had not
engaged in any material operations. The Company is a holding company that
presently owns interest in two subsidiaries, Liberty Mint Marketing, Inc., a
wholly owned subsidiary and The Great Western Mint, Inc., a wholly owned
subsidiary. On September 23, 1999 the Company sold its total interest in Liberty
Mint, Inc., a Utah corporation to Calbear Gas, LLC for twenty five dollars
($25.00). At the time of the sale of Liberty Mint, Inc., it was behind in its
payments of employee withholding taxes and owed substantial sums to customers
for undelivered silver bullion orders and for bullion on deposit (see Part II,
B., Liquidity and Capital Resources.). The Company is carrying on its books, a
contingent liability in the amount of $374,406 ,which represents undelivered
silver and gold and past due payroll taxes of Liberty Mint, Inc. which accrued
while the Company owned Liberty Mint, Inc. In the event Liberty Mint, Inc. is
unable to pay these amounts, the Company may be liable.(see footnote 1 at page
12, infra.) Prior to this transaction the Company had owned 90% of the issued
and outstanding stock of Liberty Mint., Inc. The Company's operations currently
consist of developing, manufacturing, and marketing custom-minted commemoratives
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, and silver
Collectibles and sculptures (The Great Western Mint) and distribution of sports
and entertainment related Collectibles and
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premium incentive products (Liberty Mint Marketing). Under prior management, the
Company generated revenues primarily as a manufacturer through its subsidiary,
Liberty Mint, Inc., 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. As a result of this decision, the Company divested itself of its
interest in Liberty Mint, Inc., on September 23, 1999. 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 present 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
Bullion Silver Rounds. Prior to the sale of Liberty Mint, Inc., on
September 23, 1999, the Company's primary product was bullion silver rounds. The
Company produced these bullion silver rounds on a limited basis (one troy once,
.999 pure medallions) for investors (this was the mainstay of business from 1984
to 1987). Since the sale of Liberty Mint, Inc., the Company has begun to
significantly refocus its efforts and products away from bullion silver rounds.
The company decided to shift its efforts away from bullion because the Company's
losses are directly attributed to the production of bullion silver rounds.
Although the bullion sales accounted for a significant part of the Company's
revenues, the Company has been unable to create a profit from these sales. Often
the silver was sold at or slightly above costs to the customer and therefore
these sales did not represent much of the net income of the Company. Therefore,
the Company did not consider this a viable or profitable area of business and
finally resolved to divest the Company of its interest in Liberty Mint, Inc. in
an effort to stop the continuing losses attributable to this aspect of the
Company's business. The sale of Liberty Mint, Inc. will allow the Company to
concentrate its efforts on the higher margin areas mentioned below.
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 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.
Examples of some of the coin projects that the Company has created and
manufactured range from gold retirement coins for retiring Dow Chemical
employees, to silver coin premiums given to prospective Chrysler customers who
take a test drive. These projects have usually originated from the efforts of
the
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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 is continuing to operate
this business pursuant to a licencing agreement and joint distribution contract
with Signatures Network ("Signatures"), formerly Sony Signatures, which was
signed in 1996. The Company and Signatures are continuing to carry on business
while currently in final negotiations to extend the contracts 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, 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 each edition is sold
out. The Company plans to develop additional sculptures authorized by various
museums including a series of smaller Remington sculptures.
D. Revenue of Products and services.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998 September 30, 1999
<S> <C> <C> <C> <C> <C> <C>
Bullion * $ 120,350 4% $ 924,493 21% $ 1,726,216 24%
Sculptures 643,000 21% 785,553 18% 439,339 16%
Disney 604,000 20% 603,153 14% 247,907 13%
Signatures 166,624 6% 416,991 9% 274,072 7%
Total Revenue 3,022,721 4,430,950 4,111,691
- ------------------- -------------- ------- ------------- ------ ----------------- ----------
</TABLE>
* Bullion accounted for a significant percentage of the Company's
revenues through the third quarter of 1999. However, the sale of Liberty Mint,
Inc. in September of 1999 will cause the sales of bullion in the future, if any,
to be insignificant.
E. 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
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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.
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 Signatures. 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.
The Company will attempt to develop direct marketing programs 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.
F. Business Relationships, Custom Projects, and Licenses
Disney Custom Minting Projects. The Company currently supplies
collectible coins to Disneyland and Disney World 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,
Disney Catalog, Disney Hotel, and Disney Cruise Lines. In 1998 orders from
Disney and its affiliates accounted for approximately 14% of the total revenues
of the Company.
The Signatures Network (formerly Sony Signatures) Joint Venture.
Liberty Mint, Inc. entered into a joint venture manufacturing and distribution
agreement with Signatures in 1996. The rights of Liberty Mint, Inc. to this
contract were sold to the Company prior to the sale by the Company of its
interest in Liberty Mint, Inc. The Company is currently doing business with
Signatures under the terms of the 1996 agreement pending the execution of a new
agreement which is intended to give manufacturing and distribution rights to the
Company through the year 2001. Under the new contract, the Company will continue
to merchandise
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collectible coins of legendary bands and entertainers. The original joint
venture resulted in launching the "Superstar Commemorative Collector 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.
The terms of the original 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 term of the original agreement was extended
until August 31, 1999. The Company is currently in final negotiations with
Signatures to extend the agreement until the year 2001. The Company continues to
do business with Signatures pending the finalization of a new agreement. 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.
G. 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 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. These competitors
include, but are not limited to, The Franklin Mint and The Washington Mint.
These companies produce commemorative coins, scale model automobiles and
collectible dolls, statues and plates. When compared to the size of these
companies, the market share of the Company is not significant. The Company's
niche market involves the Signatures SuperStar Commemorative Collector Series,
Western Art and Collectibles and sales to the Disney Organization. The Company
does not presently have significant competition in this small niche market.
There is no assurance that these larger companies will not attempt to target the
niche market being developed by the Company by obtaining exclusive rights to
produce similar collectibles. 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 attempt
to utilize existing business contracts and alliances with Signatures, an ongoing
relationship with Disney and increased use of print advertisement in order to
provide increased name recognition and market awareness for its products.
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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. The Company produces and markets unique silver collectable
items in the areas of music and entertainment Collectibles and western art
Collectibles. These products have appeal to a group of silver afficionados who
have interest in silver Collectibles. The Company's marketing concept is to
target silver collectors with these unique products. The Company faces
competitive obstacles consisting of (1) a limited market consisting of
collectors of silver art and Collectibles, (2) the ability to continue to create
products which will be appealing to this limited market, and (3) the existence
of at least one other manufacturer of which the Company is aware who directly
competes with the Company. This competitor is of approximately the same size as
the Company. The Company differs from its competitors in that it is attempting
to fill a niche which consists of providing products to collectors of silver art
and entertainment Collectibles. There are a number of additional competitors who
could, should they choose to do so, compete directly with the Company's products
and marketing efforts. These companies enjoy more extensive advertising budgets
and widespread brand recognition. There is no assurance that the Company will be
able to overcome these competitive obstacles 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, western art, 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 awareness of the SCCS series.
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 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 unique coin designs incorporating multiple textures which
supplies the standard frosted image and mirrored background giving its products
recognizable appeal
H. 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
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who have been used in the past, and could be used again if the need arises.
The Company currently uses four major local suppliers of silver. These
are : (1) The Sunshine Mint, (2) Regency Mint, (3) Monarch Coin, and (4) Pioneer
Refining, The Company also uses one other major United States supplier, Dillon
Gage, which ships through a local supplier. Additionally there are other minor
sources the Company uses occasionally. The Company has no reason to believe that
the availability of silver will change in the near future. If one supplier
should have difficultly delivering the needed silver supply the Company would be
able to switch to one of its other suppliers. The Company maintains a
fluctuating inventory of silver, which is replaceable from time to time as
needed from the suppliers mentioned above.
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. Future government regulation of
the industry or delays in the process of qualifying new materials and/or vendors
to supply the raw materials may also cause a decrease in sales of affected
products by disrupting the manufacturing process. The Company believes that its
supply of raw materials is adequate for the current fiscal year.
I. Customers - Dependence on One or Few
The Company currently relies on Disney for 14% of its total revenues.
Although the Company has no written contract with Disney, 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.
J. Requirement of Government Approval
The U.S. Department of the Treasury has developed a policy regarding
the use of metal tokens. The currently established parameters restrict the
minting of commemorative coins or medallions which approximate the size, weight
and appearance of coins produced by the United States government. The Company
has no control over future regulatory changes. Any future regulatory changes may
impact the Company and its ability to produce its products.
K. Employees
The Company currently has 16 full time employees. No employees are
currently covered by a collective bargaining contract.
L. Reports to Security Holders
The Company is not required to deliver an annual report to security
holders and will not voluntarily
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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
statements. 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. General
In April of 1999, the Company reorganized its management by replacing
its President and releasing its Chief Financial Officer. As of September 30,
1999, the Company had not found a replacement for its Chief Financial Officer.
The reorganization was carried out to bring about a change in the company's
focus and business plan. Prior management had been committed to an attempt to
build the Company through an increase in the Bullion business and its emphasis
on the minting and sales of silver rounds. This business was being carried out
by Liberty Mint, Inc. The expansion of the Bullion business in 1998 and early
1999 had resulted in increased losses for the Company.
In an effort to stem the Company's rising losses, the Board of
Directors, in April, 1999, reorganized the Company's management team. The new
management team began focusing its efforts on producing products that would
bring a higher profit return to the Company. Management determined that the
Bullion business, with its emphasis on production and sales of silver rounds,
was not a profitable venture. A decision was made to cease involvement in the
Bullion business and to sell Liberty Mint, Inc. On September 23, 1999, the
Company sold its interest in Liberty Mint, Inc., which subsidiary had been
primarily engaged in the silver bullion business and the production of bullion
silver rounds.
The effect of this transition has been a shift from sales of the
Company's heretofore primary product, bullion silver rounds, to products which
the Company believes will allow higher profit margins, such as custom minting,
commemorative coin series, and other products noted in Item 1. Description of
Business. Each of these businesses has a higher profit margin than the Bullion
business. The Company believes that the downsizing of the Company which was
accomplished with the elimination of the Bullion business and the sale of
Liberty Mint, Inc. coupled with a renewed emphasis on growing the remaining
businesses of the Company will allow management to reverse the Company's history
of loss and allow the Company to become profitable. However, no assurance can be
given that in fact the Company will be able to earn a profit in the future.
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
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in this report.
Nine Months ended September 30, 1999 and September 30, 1998 and Years ended
December 31, 1998 and December 31, 1997.
The financial statements containing the information for the periods ending
September 30, 1999 and 1998 contain information which differs from previous
filings. The information differs due to the removal from the consolidated
financial statements for the period ending September 30, 1999 of information
relating to Liberty Mint, Inc., a former subsidiary which was sold in September
of 1999. The nine month information has been revised for 1998 in order to
provide a consistent and realistic comparison between the two periods reported.
The year end numbers for 1997 and 1998 differ considerably from the nine month
numbers because they contain consolidated subsidiary information which includes
the subsidiary Liberty Mint, Inc.
Sales. Sales for the nine months ended September 30, 1999 increased to
$153,262 from $90,997 for the comparable period in 1998, an increase of 68%. The
increase in revenues was primarily attributable to an increase in custom minting
and SCCS 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 custom and SCCS
sales.
Losses. Net losses for the nine months ended September 30, 1999,
increased to $2,618,138 from $184,285 for the comparable period in 1998. The
increase in losses was primarily attributable to an increase in bad debt expense
of $2,331,112.
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 break even or to operate at a slight profit
during the last quarter of 1999 as a result of the divestiture of Liberty Mint,
Inc. and its production of bullion rounds on September 23, 1999. Nonetheless,
the Company expects to show a loss for fiscal 1999 because of losses generated
by the Liberty Mint, Inc. bullion business. 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. General and Administrative expenses for the nine months ended
September 30, 1999, increased to $371,128 from $211,543 in the comparable period
in 1998, an increase of 75 %. The increase in general and administrative
expenses was the result of an increase in selling expenses during the period
coupled with an increase in administrative costs of the parent company, Liberty
Mint, Ltd.
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 a 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 nine months ended
September 30, 1999 and September 30, 1998 were $0 and $35,902 respectively. The
9
<PAGE>
decrease to zero resulted from the fact that all such expenses were associated
with Liberty Mint, Inc., which was sold during the third quarter.
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 nine months ended September 30, 1999 was
$69,160 compared to $63,719 for the comparable period in 1998. Cost of goods
sold as a percentage of gross sales for nine months ended September 30, 1999 and
1998 respectively, were 45% and 70%. The percentage decrease resulted from an
increase in sales of certain higher margin profits which resulted in a decrease
in cost or goods sold as a percentage of sales.
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.
B. 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 and gold commitments in excess of the amount of silver
and gold on hand in the amount of $247,893 and $16,463. The commitment in excess
of the amount of gold and silver on hand as of September 30, 1999 was $141,306,
down $70,094 from the 1998 year end figure
The following table shows the history of the company's silver and gold
commitments:
30 Sep 99 30 Jun 99 31 Dec 98 31 Dec 97
------------ ----------- ----------- -----------
Customer $163,027 $ 589,524 $ 407,206 $ 442,566
Deposits
Silver Inventory $ 17,967 $ 27,439 $ 62,475 $ 308,886
10
<PAGE>
Silver on Lease 0 0 0 $ (22,269)
Silver held on 0 $(310,528) $(304,027) $ (287,341)
Account
Net Silver $ 17,967 $(283,089 $(241,552) $ (724)
Liability
30 Sep 99 30 Jun 99 31 Dec 98 31 Dec 97
---------- ---------- -------------- ---------
Gold Inventory $ 2,802 $ 9,284 $20,749 $ 3,519
Gold Held on 0 $ (3,414) $ (27,090) $ (19,258)
Account
Net Gold Liability $ 2,802 $ (5,870) $ (6,341) $ (15,739)
Combined $ 20,769 (277,219) $(247,893) (16,463)
Liability
The Company funds its inventories through the following methods:
1. Silver lease- Owners of silver can send their silver to the company
for "storage" in the Company's vault. The Company is allowed to melt and finish
it into product, and replace the silver upon shipment of product. (This was a
method used by Liberty Mint, Inc. Since the sale of Liberty Mint, Inc. on
September 23, 1999, This practice has ceased.)
2. Metal held on account-Some customers send the company their own
silver to be used in completing their order for coins.
3. Deposits-The customer is required to pay for the precious metal in
advance; thus creating a contra- asset account called "prepayments."
The preceding table shows the relationship of these accounts, revealing
the Company's inventory is not adequate to meet the current committed
liabilities created by these three transaction types. In early 1999, management
recognized that its ability to produce prepaid product and deliver committed
product and return gold and silver held on account was becoming worse. In
addressing the problem, management determined that this was a historical problem
with the bullion business of Liberty Mint, Inc. which had not been able to be
corrected. Management determined that it was in the best interest of the Company
to get out of the bullion business in order to prevent this problem from
continuing to grow. This was the key reason the Company had for divesting itself
of its subsidiary "Liberty Mint, Inc." during the third quarter of this year and
concentrating its efforts on its two remaining subsidiaries The monies owed for
return of silver and gold, and for prepaid
11
<PAGE>
and committed product are liabilities of the company which are shown as a part
of "contingency on sale of subsidiary" on the balance sheet. In the event the
Company is unable to pay these amounts when due, or to make arrangements for
their payment which is satisfactory to the creditors, the ability of the Company
to continue to do business could be adversely affected. If the Company is unable
to arrange for repayment of these amounts, and other amounts owed by the
Company, the Company could face bankruptcy.
At present, most orders of materials and supplies are sent to the
Company COD. The impact of this policy has been one of inconvenience, but
overall it has not adversely affected product production because the two largest
production costs are the metal itself and the dies used to stamp the metal. In
most cases, the company is now requiring prepayment of these costs. Statements
regarding the adequacy of raw materials refer to "availability." The Company has
no reason to believe that any of the materials used by the Company will be in
short supply in the current fiscal year.
The Company frequently has been unable in the past 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. However, only $154,873 was more than 90
days past due. As of September 30, 1999, because of the sale of Liberty Mint,
Inc., the Company's past due payables for gold and silver owed to customers of
Liberty Mint, Inc. were eliminated.1 The Company's total debt as of September
30, 1999 is $1,117,263. See the following table for year-to-year and year to
date comparisons.
September 30, 1999 December 31, 1998 December 31, 1997
Trade A/P $ 2,498 $ 406,763 $ 306,552
Total Past Due $ 0 $ 337,331 N/A
90 Days + $ 0 $ 154,873 N/A
% over 90 Days 0% 38% N/A
At present, the Company substantially relies on revenue from sales of
its products and services to maintain operations. The Company estimates that
subsequent to the sale of Liberty Mint, Inc. it will need to generate minimum
monthly sales levels of $225,000 in order to operate at a profit. The Company
may not be able to maintain this level of sales. If the Company's sales revenues
fall short of this minimum level on average, the Company may fall short of the
minimum capital required to maintain operations. If revenues of the Company fall
short of the minimum levels required to continue operations, the Company would
not be able to sustain its capital needs without cash from borrowing or from
sale of equity in the Company. The current sources of cash available to the
Company consist of (1) revenues from sales, (2) debt financing through
Performance Funding Co. of Phoenix, Arizona (a factoring line of credit in the
amount of $250,000 and a purchase order line of credit of $100,000), and (3)
Equity financing (notes receivable in the sum of $298,604).
On a long term basis, liquidity is dependent on continuation and
expansion of operations, receipt of revenues, additional infusions of capital
and debt financing. Since 1996 the Company has been engaged in
- --------
1The Company is carrying a liability on its balance sheet titled
"Contingency on Sale of Subsidiary" in the sum of $374,406 which represents
undelivered silver and gold and past due payroll taxes of Liberty Mint, Inc.
which accrued while the Company owned Liberty Mint, Inc. In the event Liberty
Mint, Inc. is unable to pay these amounts, the Company may be liable. However,
due to the contingency of the liability, the Company is not treating the
contingent amount as past due because no demand for payment has been made upon
the Company for payment of these amounts.
12
<PAGE>
efforts to restructure the Company's debt. These efforts have been primarily
focused on equity financing. These efforts are chronicled in Part II, Item 4,
"recent sales of unregistered securities."
The Company's liquidity problems and the attendant cash shortfall
problems were addressed by the Board of Directors and resulted in the sale of
Liberty Mint, Inc. The sale of Liberty Mint, Inc. left the Company with
contingent liabilities of $374,406. The Company does not think it is realistic
to believe these contingent liabilities can be paid solely from revenues
generated by sales. The Company believes it will need to raise capital in an
amount between $600,000 and $1,000,000 in order to allow the Company to retire
this debt and have sufficient operating capital to grow the business through the
expansion of the Company's sales and marketing efforts.
Management believes the Company's ability to raise additional capital
to meet its needs depends on its ability to demonstrate that the Company can
generate profits from sales of its products and services. The Company has no
present plan to raise additional capital in an equity offering because it is
still too early to assess the long term effect of the sale of Liberty Mint, Inc.
on the Company's ability to generate profits.
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 is estimated the Company will require capital in excess of current
operating costs of between $250,000 and $500,000. The Company may choose 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, direct marketing
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.
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 with an integrated
plan which keeps abreast of the capacity expansion needed to support the planned
growth.
Going concern. The Company has incurred significant losses during 1997,
1998, and 1999 (3 quarters). As of September 30, 1999, the Company has current
liabilities in excess of current assets of $715643 and has a stockholder's
deficit of $851,433. As of September 30, 1999, the Company held customer
deposits in the amount of $163,027. As of September 30, 1999, the Company did
not have the ability to produce the prepaid product without additional funds
provided through loans and/or through additional sales of stock or through the
collection of notes receivable from shareholders. These items raise a
substantial concern and doubt about the ability of the Company to continue as a
going concern. In an effort to overcome the financial difficulties surrounding
the continued operation of Liberty Mint, Inc., Management, on September 23,
1999, divested the Company of its interest in Liberty Mint, Inc., the source of
the Company's ongoing problem with delivery of silver products. The divestiture
has allowed the Company to reduce its overhead by moving to a smaller facility
and reducing the number of employees from 25 to 16. The Company's emphasis is
now moving from manufacturing to marketing with products as described at pages
2-3 above. These products have a higher profit margin than bullion sales.
Management proposes to raise additional funds through collection of notes
receivable from shareholders, loans, and/or additional sales of its common
stock. Management believes that with the divestiture of the Company's interest
in Liberty Mint, Inc., with the resultant improvement of operations, it can
reduce expenses, refinance debt, and convert debt to equity, and
13
<PAGE>
that through a combination of these efforts, continue as a going concern.
C. 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 and early 1997, prior to
its acquisition by the Company, Liberty Mint, Inc., began restructuring its debt
in an attempt to overcome its financial problems. The main focus of this effort
was the obtaining of equity financing. Because of ongoing losses attributable to
the operations of Liberty Mint, Inc., the Company divested itself of its
interest in Liberty Mint, Inc. on September 23, 1999. The sale of Liberty Mint,
Inc. will eliminate a source of continuing loss to the Company, which management
believes will have a positive effect on the Company's operations.
In June of 1997, Liberty Mint, Inc. was acquired as a subsidiary of
the Company. Since that time the Company has attempted to operate Liberty Mint,
Inc. The Company attempted to resolve the financial problems of Liberty Mint,
Inc.'s bullion business for about two years through infusions of capital into
the subsidiary. Despite the efforts of the Company's management, the Bullion
sales business continued to lose money. In April, 1999, new management was
installed in the Company. New management met to assess the problems caused by
the continuing losses attributable to the bullion business. The Board determined
it was not in the best interest of the Company to preserve the Bullion business
since the business was historically unprofitable and the Company was continuing
to lose money as a result of bullion operations. The Board decided the Company
would be best served if the Bullion business was abandoned. The Board decided to
abandon the bullion business by divesting the Company of its interest in Liberty
Mint, Inc. This would allow the Company to concentrate its efforts on its
remaining businesses, Custom Minting, the SuperStar Commemorative Collector
Series and Western Art and Collectibles. In September of 1999, the Company sold
its interest in Liberty Mint, Inc. to Calbear Gas, L.L.C., a Texas Limited
Liability Company.
Since April, 1999, the Company has attempted to refocus its business
efforts towards development of its businesses other than the bullion business.
Since divestiture of Liberty Mint, Inc., in September of 1999, the Company has
turned its whole effort to developing and expanding the Custom Minting,
SuperStar Commemorative Collector Series, and Western Art and Collectibles
businesses. By eliminating the bullion business, the Company believes it has
eliminated a problem which has historically had a negative effect on the
Company's capital resources and liquidity. The Company's remaining businesses
appear to be able to generate a profit. The Company believes that in its next
fiscal year (2000) the revenues from its remaining businesses will allow it to
reduce its debt significantly. The Company believes its remaining businesses can
be operated profitably. The negative effects to the Company's operations,
liquidity and the continuing drain on capital resources attributable to
continuing operation of the bullion business have been eliminated. Revenues
since September, 1999 have been greater than expenses for the same period. The
Company believes that if this trend continues, the Company can be profitable.
There is no assurance the Company will be able to successfully implement its
business objectives or that it will be able to operate profitably.
Working Capital Deficit / Need for Additional Capital. As of September
30, 1999, when compared to September 30, 1998, the Company was operating with a
working capital deficit of $851,432 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
14
<PAGE>
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. Except for the notes
receivable from shareholders in the amount of $298,604, the Company currently
has no commitments for additional cash funding.
D. 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 distribution.
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 Company's 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 continued ability to develop product will be
contingent on its ability to generate new licenses 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.
E. 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
15
<PAGE>
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.
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 6,000 square foot facility located
at 975 North 1430 West, Orem, Utah, pursuant to a lease expiring in 2002. The
Company believes that its manufacturing facilities are adequate for its proposed
needs through the year 2002. 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 September 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 September 30, 1999 there were
3,778,481 post 6 to 1 reverse split shares of common stock outstanding.
16
<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(2) 820,556(3) 17%(4)
Stock 364 West 4620 North
No Par Value Provo, Utah 84604
Common Robert Joyce, Director 825,000(3) 18%(4)
Stock 4483 Hazetine Ave.
No Par Value Sherman Oaks, California 91423
Common John Pennington, Director 600,000(3) 13%(4)
Stock 1539 SE 11th St.
No Par Value Deerfield Beach Florida 33441
Common William Schmidt, Director(5) 1,316,667 31%(4)
Stock 88 N.E. 5th Avenue
No Par Value Del Ray, Florida 33483
</TABLE>
- --------
(2) Dan Southwick is a managing member of SF Investments, LLC which owns
20,556 shares of common stock of Liberty Mint, Ltd. These shares have been
attributed to Dan Southwick as part of his total shares.
(3) In 1997 Mr. Southwick (through SF Investments) was granted options to
purchase 200,000 shares at $6.00, Mr. Joyce was granted options to purchase
200,000 shares at $6.00, and Mr. Ruff was granted options to purchase 266,667
shares at $6.00. American Investment Properties was granted an option in July,
1998, to purchase 400,000 shares at $6.00. Subsequently in 1999, Mr. Southwick,
(SF Investments), Mr. Pennington, and Mr. Joyce were each granted options to
purchase 600,000 shares at $0.40.
(4) The Percent of Class owned by each individual reflects the percent if
all options owned by the individual listed in footnote 3 are exercised.
(5)William Schmidt is a managing member of American Investment Properties
which owns and has options to purchase 1,316,667 shares of common stock of
Liberty Mint, Ltd. These shares have been attributed to William Schmidt and also
to Ralph Muller.
17
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Ownership Beneficial Ownership
<S> <C> <C> <C>
Common Larry H. Ruff 500,054 12%(4)
Stock 320 Kolob Circle
No Par Value Springville, Utah 84663
Common American Investment Properties 1,316,667 31%
Stock 88 N. E. 5th Avenue
No Par Value Del Ray Florida 33483
Common All Executive Officers and 3,167,223 52%(6)
Stock Directors as a Group
No Par Value (Five persons)
Common Ralph P. Muller 1,351,389 31%(7)
Stock 6400 North Andrews Street
No Par Value Suite 200
Fort Lauderdale, Florida 33309
</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, control persons, and significant
employees of the Company, their respective ages, and positions with the Company
are as follows:
- --------
(6) The percent of class owned by all Executive Officers and Directors as a
Group reflects the percent if all options owned by the group as listed in
footnote 3 are exercised.
(7)Ralph P. Muller is the owner of American Investment Properties. He is
not involved in the management or day-to-day operations of American Investment
Properties. American Investment Properties is managed by William Schmidt to whom
the shares owned by the Company have been attributed. Because of his sole
ownership of the Company, the AIP shares have also been attributed to Mr.
Muller.
18
<PAGE>
NAME AGE POSITION
- ---- --- --------
Daniel R. Southwick 47 Director & President
Robert Joyce 47 Director & Secretary
Eugene Pankratz 56 Treasurer
John Pennington 49 Director
William C. Schmidt 54 Director
Ralph P. Muller 59 Control Person
Ron Lewis 46 Significant Employee
Daniel R. Southwick, 47, has served as president and a director of the
Company since April 1999. Mr. Southwick was elected a Director in April 1999 to
serve for one year, or until his successor is elected and qualified. From
September 1996 until April 1999 he served as vice-president of corporate
development and a Director for the Company. From September 1996 until June 1997,
he served as Vice-President of Corporate Development for Liberty Mint, Inc. He
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 located
in Sarasota, Florida. From 1992 to 1996, Mr. Southwick served as president of
Parkside Industries, Inc. Mr. Southwick has 8 years experience with public
company development.
Robert Joyce, 47, serves as Secretary and a Director of the Company.
Mr. Joyce was elected a Director and Secretary of the Company in April of 1999.
His current term as a Director is to serve for one year, or until his successor
is elected and qualified. Mr. Joyce was first elected a director in June of 1997
and has served as a Director continuously since that time. From June 1997 until
April 1999 he served as the senior vice-president for the Company. 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. Mr. Joyce wrote and implemented the SuperStar Commemorative Collector
Series marketing plan, a major product of the Company. From 1994 until 1997, Mr.
Joyce served as General Manager of Studio Instrument Rentals of Hollywood
California ("SIR"). SIR is the number one provider of rented musical equipment
in the world. From 1992 to 1994, Joyce was president and CEO of Green Suites
International, a company specializing in environmental services for the hotel
industry.
Eugene Pankratz, 56, has three and one half years public accounting
experience with We. 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 of Lindon, Utah (formerly Priddis
Music Corp.) This experience also included a period of time from May 1994 to May
1995 when he served as President and Chief Operations Officer of the Priddis
Group. From December 1995 until May of 1998, Mr. Pankratz was self employed as
an independent accountant and consultant. Mr. Pankratz has served as Controller
of Liberty Mint, Inc., a subsidiary of the Company, from June 1998 until
September of 1999 when
19
<PAGE>
Liberty Mint, Inc., was sold by the Company. Since April 1999 he has served as
Treasurer of the Company, and since September 1999 he has served as President of
The Great Western Mint, Inc., a Subsidiary of the Company. 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, has served as a Director of the Company since July
of 1998. In April, 1999 Mr. Pennington was re-elected to the Board of Directors
of the Company for a one year term, or until his successor is elected and
qualified. He also serves as President of Liberty Mint Marketing, Inc., a
subsidiary of the Company. Mr. Pennington is a graduate of the University of
Miami and has over 20 years of sales and marketing experience. Mr. Pennington
held the position of Vice President of Telesales and Services with Vacation
Break U.S.A. of Ft. Lauderdale, Florida from May 1994 until July 1998. Prior to
May of 1994 he had served as 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. Since January 1,
1999, Pennington has served on the board of Imperial Majesty Cruise Line and
International Water Makers. Pennington presently oversees Liberty Mint's direct
marketing efforts.
William C. Schmidt, 54, has been serving as a Director of the Company
since July of 1998. In April, 1999, he was reelected to the Board of Directors
of the Company for a one year term, or until his successor is elected and
qualified. He 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 was vice president of special projects and chief
financial officer of Vacation Break USA, Inc. from October of 1991 until
December of 1997. From January of 1998 until the present, Schmidt has been
serving as the executive vice president of American Investment Properties
("AIP"), an investment advisory company. Mr. Schmidt is an employee of AIP, but
has no ownership interest in AIP.
Ralph P. Muller, 59, is a graduate of Widner University. Mr. Muller
retired as CEO of Vacation Break USA, Inc. in 1997. He served as CEO of Vacation
Break USA, Inc. from 1988 through 1997.
Ron Lewis, 46, is 13 credits from receiving a B.S. degree in Public
Relations. Lewis worked as an account executive (salesman) for Liberty Mint,
Inc. from June of 1988 until it was acquired by the Company in June of 1997.
Since June 1997, Lewis has worked as an account executive for the Company. He
currently works for The Great Western Mint, a subsidiary of the Company. Mr.
Lewis does not own stock of the Company.
ITEM 6. EXECUTIVE COMPENSATION
Compensation of Executives
The following table provides summary information for the years 1998,
1997 and 1996 concerning cash and non-cash compensation paid or accrued by the
Company to or on behalf of the president and the only other employees to receive
compensation in excess of $100,000.
20
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payout
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Year Salary Bonus Compensation Award(s) Options payout Compensation
Position ($) ($) ($) ($) SARs(#) ($) ($)
- --------------- -------- ------------ --------- ---------------- ------------ --------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel R.(8) 1998 71,325 - - - - - -
Southwick, 1997 69,130 - - - 200,000 - -
CEO, 1996 19,000
Director
Larry Ruff 1998 83,640 - - - - - -
CEO, 1997 77,330 - - - 266,667 - -
Director 1996 72,000
Ron Lewis 1998 142.189 - - - - - -
Salesperson 1997 162,369 - - - - - -
1996 104,139
- --------------- -------- ------------ --------- ---------------- ------------ --------------- ----------- -----------------
</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.
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 Larry Ruff $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, Reed, Carolyn 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 April 1, 1997, prior to its acquisition by the Company,
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
- --------
(8) Dan Southwick became CEO on April 23rd 1999, prior to this
appointment Mr. Southwick served as Senior Vice President for corporate
development.
21
<PAGE>
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 guaranty which was only to continue until 1998 when the loan was
due to be paid. When the loan was not paid in 1998, Creed and Clarene Law
negotiated with the Company for, and were granted, options for 200,000 shares of
Liberty Mint, Ltd. at $0.40 per share (market value at the time) for their
continued guarantee of the SBA loan. Because the options were issued at cost,
they had no value and were not treated as an expense by the Company.
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. At the time of this
transaction AIP was the owner of in excess of 5% of the shares of the Company
and was an accredited investor. AIP was infusing cash into the Company in early
1999 to keep the Company from having to shut down operations. AIP agreed to take
shares of the Company's stock in exchange for the monies given to the Company to
keep it in operation.
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 SECURITIES
Common Stock. The Company is presently authorized to issue 25,000,000
shares of no par value Common Stock. The Company presently has 3,778,481 shares
issued and outstanding.
The holders of common stock, and of shares 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 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
22
<PAGE>
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 three
quarters of 1999. All quotes given reflect a 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 $0.00 $0.00
Second $0.00 $0.00
Third $17.22 $12.00
Fourth $16.68 $11.82
Quarter High Low
------- ---- ---
1998 First $15.00 $11.22
Second $14.04 $3.36
Third $6.18 $1.50
Fourth $4.86 $0.36
Quarter High Low
------- ---- ---
1999 First $2.46 $0.54
Second $12.00 $1.50
Third $5.38 $1.38
23
<PAGE>
Record Holders. As of November 1, 1999 there were approximately 250
shareholders of record holding a total of 3,778,481 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 material 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 shares 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. The Company made this offering based on the
following factors: (1) The issuance was an isolated private transaction by the
Company which did not involve a public offering; (2) there was only one offeree
who was issued stock for cash; (3) the offeree did not resell the stock but
continued to hold it for at least two years; (4) there were no subsequent or
contemporaneous public offerings of the stock; (5) the stock was not broken down
into smaller denominations; and (6) the negotiations for the sale of the stock
took place directly between the offeree and the Company.
On June 26, 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 investors pursuant to section 4(2) of the
Securities Act of 1933. The Company made this offering based on the following
factors: (1) The issuance was an isolated private transaction by the Company
which did not involve a public offering; (2) there were only twenty-one offerees
who was issued stock for stock; (3) the offerees did not resell the stock but
continued to hold it for at least two years; (4) there were no subsequent or
contemporaneous public offerings of the stock; (5) the stock was not broken down
into smaller denominations; and (6) the negotiations for the sale of the stock
took place directly between the offerees and the Company.
24
<PAGE>
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 the opportunity 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 the opportunity 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 merge 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, at $12.42 per share, 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. Mr. Beaty and Mr. Butsicaris
provided consulting services to the Company which assisted the Company in
securing the Signatures Contract with Sony. These services were valued by the
Company at $31,050, which value was agreed to by Mr. Beatty and Mr. Butsicaris.
The Company made this offering based on the following factors: (1) The issuance
was an isolated private transaction by the Company which did not involve a
public offering; (2) there were only two offerrees who were issued stock for
services rendered to the Company; (3) the offerees did not resell the stock but
have continued to hold it for twenty two months; (4) there were no subsequent or
contemporaneous public offerings of the stock; (5) the stock was not broken down
into smaller denominations; and (6) the negotiations for the sale of the stock
took place directly between the offerees and the Company.
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 ("AIP") 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. At the time
of this transaction AIP was an accredited investor, as defined in Rule 215,
whose employee, William Schmidt, served on the Board of Directors of the
Company. The shares were sold to AIP to provide working capital for the Company
for the purpose of allowing operations of the Company to continue.
In December 1998, the Company issued the 10,000 shares of common stock
to Donna O'Dell in exchange 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
25
<PAGE>
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.
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.
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. At the time of this
transaction, AIP was the owner of in excess of 5% or the shares of the Company
and was an accredited investor. AIP was infusing cash into the Company in early
1999 to keep the Company from having to shut down operations. AIP agreed to take
shares of the Company's stock in exchange for the monies given to the Company to
keep it in operation.
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 merge 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 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
An officer or director of the Corporation shall not be personally
liable to the Corporation or its shareholders for monetary damages for breach of
fiduciary duty as an officer or director, except for liability to the
Corporation or to its shareholders for monetary damages for (i) acts of
omissions which involve intentional misconduct, fraud or knowing violation of
law, or (ii) the payment of dividends in violation of Section 78.300 of the
Nevada Revised Statutes.
Any repeal or modification of the indemnification rights granted to
officers and directors of the corporation shall be prospective only, and shall
not adversely affect any limitation of the personal liability of an officer or
director of the Company for acts or omissions prior to the repeal or
modification of the right of indemnification.
26
<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.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
27
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Unaudited Interim Financial Reports for the period ending September 30, 1999
Balance Sheet................................................................F-2
Statements of Operations.....................................................F-3
Statements of Cash Flows................................................F-4, F-5
Notes to Interim Financial Statements...................................F-6, F-7
Audited Financial Reports for Year ending December 31, 1998
Cover Page..........................................................
............
Table of Contents............................................................F-8
Letter From Auditor..........................................................F-9
Balance Sheet.........................................................F-10, F-11
Statements of Operations....................................................F-12
Statement of Stockholder's Equity....................................F-13 - F-15
Statements of Cash Flows..............................................F-16, F-17
Notes to Financial Statements........................................F-18 - F-35
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
F-1
<PAGE>
Liberty Mint Ltd. and Subsidiaries
Consolidated Unaudited Condensed Detailed Balance Sheets
For Nine Months Ending September 30, 1999
ASSETS
Cash 10,459
A/R 304,334
Allow for Doubtful (156,372)
Net Accounts Receivable $ 147,962
Inventories 68,663
Other Current Assets -
-----------
Total Current Assets 227,084
Net Fixed Assets 23,147
Other Assets 15,600
-----------
TOTAL ASSETS $ 265,831
===========
LIABILITIES
Accounts Payable 2,498
Factoring Advance 106,493
Contingency on Sale of Subsidiary 374,406
Wittman Note for Inventory 246,478
Short Term Notes Payable 11,160
Contingency on Stock Guarantee 42,500
Customer Deposits/Prepayments 163,027
Other Current Liabilities 34,903
-----------
Total Current Liabilities 981,465
-----------
SBA Loan - Layton Bank 135,798
-----------
Total Long-Term Liabilities 135,798
-----------
-----------
TOTAL LIABILITIES 1,117,263
-----------
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; 2,710,126
3,721,981 shares issued
Paid in Capital - Beneficial Conversion of NP 133,333
Accumulated deficit (3,396,287)
Notes Receivable-Stockholders (298,604)
-----------
TOTAL STOCKHOLDER'S EQUITY (851,433)
-----------
TOTAL LIABILITIES AND EQUITY $ 265,831
===========
Note #1 During the Annual Audit, a group of inventory items were identified as
potentially obsolete, and $150,000 was accrued for in 1998. During the Second
quarter of 1999, these items were then reviewed item by item, and the obsolete
items were physically removed from inventory, written off and disposed of. The
reserve was used to cover most of this write off.
F-2
<PAGE>
<TABLE>
Liberty Mint Ltd. and Subsidiaries
Consolidated Unaudited Condensed Statements of Operations
For Nine Months Ending September 30, 1999 and 1998
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
REVENUE
<S> <C> <C>
Total Sales $ 153,262 $ 3,031,607
Less: Cost of Goods Sold 69,160 1,821,195
------------ ------------
GROSS PROFIT 84,102 1,210,411
OPERATING EXPENSES
Bad debt expense 2,331,112 -
General and Administrative 371,128 993,035
------------ ------------
TOTAL OPERATING EXPENSE 2,702,240 1,593,520
------------ ------------
NET OPERATING INCOME (LOSS) (2,618,138) (383,108)
TOTAL OTHER INCOME AND EXPENSE 134,991 173,520
------------ -------------
NET INCOME (LOSS) BEFORE TAXES $ (2,753,129) $ (556,629)
DISCONTINUED OPERATIONS
(Loss) From operation of discontinued minting $ (643,088) $ (372,344)
& foundry subsidiary
TOTAL LOSS (3,396,217) (556,629)
============ =============
LOSS PER COMMON SHARE
Continuing operations (1.21) (0.23)
Discontinued operations (0.28) (0.47)
------------ -------------
Loss per Common Share (1.49) (0.70)
============ =============
</TABLE>
F-3
<PAGE>
<TABLE>
Liberty Mint Ltd. and Subsidiaries
Consolidated Unaudited Condensed Statements of Cash Flows (continued)
For Nine Months Ending September 30, 1999 and 1998
<CAPTION>
--------------------- ------------------
1999 Q3 Y-T-D 1998 Q3 Y-T-D
--------------------- ------------------
Cash Flows Provided by Operating Activities
<S> <C> <C>
Net Loss $ (3,396,217) $ (556,629)
--------------- ---------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and Amortization - 35,902
Non-cash expenses 450,622 41,403
Bad debt expense 2,331,112 22,554
Changes in assets and liabilities
(Increase) in accounts receivable (147,962) (90,214)
(Increase) decrease in inventory (68,663) 107,401
(Increase) decrease in prepaid in
prepaid expenses - (50,204)
Decrease in receivable from subsidiary -
Increase (decrease) in accounts payable 2,498 (25,974)
Increase (decrease) in inventory liabilities - (46,295)
Increase (decrease) in factoring advances 106,493 99,934
Increase (decrease) in accrued expenses - 364,959
Increase (decrease) in customer deposits - (243,205)
------------------- ----------------
Total Adjustments 2,674,100 216,261
------------------- ----------------
Net Cash Provided (Used) by Operating
Activities (722,117) (340,368)
------------------- ----------------
Cash Flows Provided by Investing Activities:
(Purchases)/ Sale of property and equipment - 8,170
(Purchase) sale of US treasury bonds, net 4,857 41,654
Issuance (receipt) from notes receivable - (74,398)
------------------- ----------------
Net Cash (Used) by Investing Activities 4,857 (24,574)
------------------- ----------------
</TABLE>
F-4
<PAGE>
<TABLE>
Liberty Mint Ltd. and Subsidiaries
Consolidated Unaudited Condensed Statements of Cash Flows (continued)
For Nine Months Ending September 30, 1999 and 1998
<CAPTION>
1999 Q3 Y-T-D 1998 Q3 Y-T-D
---------------- -----------------
<S> <C> <C>
Cash Flows Provided by Financing Activities
Proceeds from notes payable - related party - 305,859
Payments on note payable - (16,568)
(Decrease) in capital lease obligations - (8,250)
Proceeds from common stock Issuance 645,496 31,764
Purchase of subsidiary stock - (8,078)
Net Cash Provided by Financing Activities 645,496 304,727
---------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents (71,764) (60,214)
Cash and Cash Equivalents at Beginning
of Period 82,223 82,815
----------- -----------
Cash and Cash Equivalents at End of Period 10,459 22,601
---------- -----------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
Notes to consolidated financial statements
Liberty Mint, Ltd. and subsidiaries
unaudited
September 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
September 30, 1999, the results of operations for the nine month periods ended
September 30,1999 and 1998, and cash flows for the nine months ended September
30, 1999 and 1998. The results for the period ended September 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:
<TABLE>
<CAPTION>
For the nine months ended
September 30, 1999 September 30, 1998
<S> <C> <C>
Net income from Continuing Operations $ (2,753,130.00) $ (184,285.00)
(Loss) From operation of discontinued $ (643,088.00) $ (372,344.00)
minting & foundry subsidiary
Total Net Income (Loss) $ (3,396,217.00) $ (556,629.00)
================ =================
Weighted average number of
Common Shares 2,278,974 792,225
Loss per common share
Continuing Operations $ (1.21) $ (0.23)
Discontinued Operations $ (0.28) $ (0.47)
Loss per Common Share $ (1.49) $ (0.70)
</TABLE>
NOTE C
During September 1999, the Company discontinued Liberty Mint, Inc., its Minting
& Foundry operation, by selling the subsidiary to an unrelated party for the
amount of $25. All revenues and expenses associated with this business have been
netted and reclassified as discontinued operations on the income statement for
all periods presented. Revenue for the years ended Sept 30, 1999 and Sept 30,
1998 relating to these operations were $4,021,175 and $2,940,630, respectively.
F-6
<PAGE>
Notes to consolidated financial statements (Continued)
Liberty Mint, Ltd. and subsidiaries
unaudited
September 30, 1999
NOTE D
The Terms of the Sale of Liberty Mint, Inc. to Calbear Gas are as follows:
The Price was $25.00 paid in cash. Liberty Mint, LTD has accepted certain
fiduciary responsibilities, including 1) Unpaid federal and state payroll taxes,
and 2) The refund of monies paid to Liberty Mint, Inc. for silver bullion which
had not been delivered, as of the date of sale. These responsibilities are
estimated at $374,406 which were set up as a Contingency on the Sale of
Subsidiary. The Interim financial statements have been prepared in accordance
with APB 30, paragraphs 8 and 9.
NOTE E
The terms of the Wittmann Note for Inventory of $246,478 are as follows:
The Note is for the principle amount of $200,000, bearing interest at the rate
of 12% per annum. It was entered into on November 21, 1997 and is payable in
full on November 18, 2000. At the option of the note holder, principle and
accrued interest are convertible to restricted common stock of Liberty Mint,
LTD., at the rate of 60% of the closing bid on the day prior to conversion.
F-7
<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-8
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
PAGE
-- Independent Auditor's Report F-9
-- Consolidated Balance Sheets, December 31,
1998 and 1997 F-10, F-11
-- Consolidated Statements of Operations,
for the years ended December 31, 1998
and 1997 F-12
-- Consolidated Statement of Stockholders'
(Deficit) for the years ended
December 31, 1998 and 1997 F-13 - F-15
-- Consolidated Statements of Cash Flows,
for the years ended December 31, 1998
and 1997 F-16, F-17
-- Notes to Consolidated Financial Statements F-18 - F-35
F-8
<PAGE>
[Letterhead of PRITCHETT, SILER & HARDY, P.C.]
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.
PRITCHETT, SILER & HARDY, P.C.
/s/ Pritchett, Siler & Hardy
April 26, 1999
Salt Lake City, Utah
F-9
<PAGE>
<TABLE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
December 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
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
---------- -----------
</TABLE>
[Continued]
F-10
<PAGE>
<TABLE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED BALANCE SHEETS
[Continued]
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
<CAPTION>
December 31,
1998 1997
----------- -----------
<S> <C> <C>
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
---------- -----------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-11
<PAGE>
<TABLE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the Years Ended
December 31,
--------------------------
1998 1997
------------- ------------
<S> <C> <C>
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 66,698 132,594
Write-off of notes receivable - related party - 229,228
--------------- -------------
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)
---------------- --------------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-12
<PAGE>
<TABLE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, and 1997
<CAPTION>
Class A
Preferred Stock of Subsidiary Preferred Stock Common Stock
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)
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-13
<PAGE>
<TABLE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, and 1997
[Continued]
<CAPTION>
Class A
Preferred Stock of Subsidiary Preferred Stock Common Stock
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, 1997 - $ - 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 $.51 per share,
November 1998 - - - - 396 203 -
[Continued]
</TABLE>
F-14
<PAGE>
<TABLE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, and 1997
[Continued]
<CAPTION>
Class A
Preferred Stock of Subsidiary Preferred Stock Common Stock
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-15
<PAGE>
<TABLE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>
For the Years Ended
December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
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
----------- -----------
</TABLE>
[Continued]
F-16
<PAGE>
<TABLE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
[Continued]
<CAPTION>
For the Years Ended
December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
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 $ - $ -
</TABLE>
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 $229,228, 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-17
<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., a shell
entity with no operations) [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 Liberty Mint Marketing. Inc. (A Nevada Corporation) 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 aquisition was accounted for as a
recapitalization of the Subsidiary as the sharholders of the Subsidiary
controlled the combined Company after the acquisition. There was no
adjustment to the carrying values of the assets or liabilities of the
Parent or Subsidiary as a result of the recapitalization. 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 losses
applicable to minority interest on the Subsidiary exceed the minority
interest in the equity capital of the Subsidiary, in accordance with
Accounting Research Bulletin 51 paragraph 15, and 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.
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]
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).
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, instead of simple and fully diluted earnings per share. 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.
F-19
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
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.
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.
F-20
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
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.
Goodwill - Goodwill represents the excess cost of the purchasing Liberty
Mint Marketng, Inc. (A Nevada Corporation) over the fair market value of
the assets at the date of acquisition, and is being amortized on the
straight-line method of 1 year. Amortization expenses charged to operations
for 1998 and 1997 was $176,763 and $132,573 [See Note 14].
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.
F-21
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - OTHER ASSETS [Continued]
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.
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-22
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INVENTORIES
<TABLE>
Inventories consist of the following at December 31:
<CAPTION>
1998 1997
------------------- -------------------
Troy Troy
Ounces Value Ounces Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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-23
<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-24
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LONG-TERM OBLIGATIONS
<TABLE>
The following is a summary of long-term debt, which includes notes payable
to related parties, as of December 31, 1998 and 1997:
<CAPTION>
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-25
<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-26
<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-27
<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-28
<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 to non-employee's for services rendered which services were
valued at $31,050 (or $12.42 per share). During December 1998, the Company
issued 10,000 shares of common stock to non-employee's for services
rendered which services 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-29
<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 the its common stock in conjunction with the reverse merger of
Parent with 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).
Acquisition - On June 23, 1997, Liberty Mint, Inc. acquired all of the
outstanding common stock of Liberty Mint Marketing, Inc. (A Nevada
Corporation) in a business combination accounted for as a purchase. Liberty
Mint Marketing, Inc. was incorporated on February 13, 1997 and had no
operations, and its only asset was a one year licensing agreement with a
major record label to distribute custom minted coins with the likeness of
certain recording celebrates. The total cost of the acquistion was $309,336
resulting from the issuance of 644,450 shares of Liberty Mint, Inc. valued
at $.48 per common share. The cost exceeds the value of the assets acquired
by $309,336 resulting in the recording of goodwill which is being amortized
over one year.
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.
F-30
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - CAPITAL STOCK [Continued]
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).
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>
F-31
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - STOCK OPTIONS [Continued]
<TABLE>
A summary of the status of the options outstanding under agreements at
December 31, 1998 is presented below:
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ -------------------------
Weighted-Average Weighted Average Weighted-Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
------------- ------------ ---------------- ----------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 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>
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).
F-32
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - RELATED PARTY TRANSACTIONS [Continued]
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.
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.
F-33
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 April 1999, the Company issued 2,000,000 shares of its
common stock for total proceeds of $800,000 (or $0.40 per share). The
issuance of these shares resulted in 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.
F-34
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
(formerly Hana Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - SUBSEQUENT EVENTS [Continued]
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.
F-35
<PAGE>
PART III
ITEM 1. EXHIBITS
(a) Exhibits. Exhibits required to be attached are listed in the
Index to Exhibits beginning on page 30 of this Form 10-SB/A under
"Item 2. Description of Exhibits."
[THIS SPACE LEFT INTENTIONALLY BLANK]
28
<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 10th day of April,
2000.
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.
Signatures Title Date
/s/ Daniel Southwick Chief Executive Officer, Director 10 May, 2000
- ------------------------
Daniel Southwick
/s/ Robert Joyce Secretary, Director 10 May, 2000
- ------------------------
Robert Joyce
/s/ Eugene Pankratz Controller, Treasurer 10 May, 2000
- ------------------------
Eugene Pankratz
/s/ John Pennington Director 10 May, 2000
- ------------------------
John Pennington
/s/ William C. Schmidt Director 10 May, 2000
- ------------------------
William C. Schmidt
29
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS
INDEX TO EXHIBITS
Exhibit
No. Page No. Description
2 * Plan of Reorganization of Liberty Mint, Inc.
3(i) * Articles of Incorporation of the Company formerly known as
St. Joseph Corp. VI, a Colorado corporation, dated March 15,
1990.
3(ii) * Articles of Amendment for St. Joseph Corp., dated July 26,
1993, changing the name of the Company to Petrosavers
International, Inc.
3(iii) * Articles of Amendment for Petrosavers International, Inc.,
dated August 19, 1996, changing the name of the Company to
Hana Acquisitions, Inc.
3(iv) * Articles of Amendment for Hana Acquisitions, Inc., dated
June 9, 1997, changing the name of the Company to Liberty
Mint, Ltd.
3(v) * Articles of Incorporation of Liberty Mint, Ltd., a Nevada
corporation, dated May 26, 1999
3(vi) * Articles of Merger of Liberty Mint, Ltd. changing domicile
to Nevada
3(ii) * By-laws of Liberty Mint, Ltd., a Nevada corp.
10(i) * Lease Agreement with Addendums A and B.
10(ii) * Manufacturing and Joint Distribution Merchandising Agreement
dated September 1, 1996.
10(iii) * Stock Purchase Agreement between Liberty Mint, Ltd. and
Calbear Gas, LLC dated September 23, 1999
10(iv) * Option Agreement between Dan Southwick and Calbear Gas, LLC
dated September 23, 1999.
21 * Subsidiaries of Registrant
27 __ Financial Data Schedule "CE"
* Incorporated by reference from Form 10-SB/3 filed April 10, 2000
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED AUDITED AND UNAUDITED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 RESPECTIVELY, THAT WERE
FILED WITH THE COMPANY'S REPORT ON FORM 10-SB/A AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001042420
<NAME> Liberty Mint, Ltd.
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<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-1-1998 JAN-1-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
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<CURRENT-ASSETS> 543,145 227,084
<PP&E> 94,804 0
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<TOTAL-ASSETS> 660,530 265,831
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0 0
159,792 0
<COMMON> 3,798,277 2,710,126
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<TOTAL-LIABILITY-AND-EQUITY> 660,530 265,931
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<CGS> 3,750,357 69,160
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<OTHER-EXPENSES> 2,344,759 2,702,240
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 89,312 134,991
<INCOME-PRETAX> (1,720,525) (2,753,129)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,720,525) (2,753,129)
<DISCONTINUED> 0 (643,088)
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<NET-INCOME> (1,720,525) (3,396,217)
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