UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1999
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) for the transition period from to
Commission file number: 000-27409
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 Identification No.)
Incorporation or Organization)
975 North 1430 West, Orem, Utah 84059
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(Address of Principal Executive Offices) (Zip Code)
(801)426-6699
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of each Exchange on Which Registered
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Common Stock (No Par Value) None
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X ].
The issuer's total consolidated revenues for the year ended December 31, 1999,
were $ 777,213.
The aggregate market value of the registrant's Common Stock, $0.001 par value
(the only class of voting stock), held by non-affiliates was approximately
$3,549,758 based on the average closing bid and asked prices for the Common
Stock on March 27, 2000.
At March 27, 2000, the number of shares outstanding of the registrant's Common
Stock, $0.001 par value (the only class of voting stock), was 4,894,710.
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TABLE OF CONTENTS
PART I
Item 1. Description of Business......................................1
Item 2. Description of Property......................................8
Item 3. Legal Proceedings............................................8
Item 4. Submission of Matters to a Vote
of Security-Holders...................................... 8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.....8
Item 6. Management's Discussion and Analysis or Plan of Operation....9
Item 7. Financial Statements........................................15
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.......................16
PART III
Item 9. Directors and Executive Officer.............................16
Item 10. Executive Compensation......................................18
Item 11. Security Ownership of Certain Beneficial
Owners and Management.....................................19
Item 12. Certain Relationships and Related Transactions..............20
Item 13. Exhibits, List and Reports on Form 8-K......................21
Signatures ...................................................................22
Index to Exhibits.............................................................23
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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. 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. 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 90% 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 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 655,596 on its books a contingent liability
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 for payment. 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 other collectibles in both precious and non-precious metals.
The Company's primary products are custom coins and silver sculptures.
A. Description of Business
The Company operates through two subsidiaries. The Great Western Mint, Inc.
("GWM") provides custom minting services for government agencies, companies
large and small, and any other organization that desires to produce a custom
coin or commemorative. The GWM also conceives and markets proprietary coin
related products and sculpture. The Company's second subsidiary, Liberty Mint
Marketing, Inc., creates and markets licensed sports and entertainment related
collectibles.
The Company began 1999 under prior management and generated revenues primarily
as a manufacturer of silver bullion through its now divested subsidiary, Liberty
Mint, Inc. This subsidiary has been historically
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unprofitable due to the very low profit margins available through the
manufacture of silver bullion. Consequently, the Company, under new management
appointed in April of 1999, decided to expand its revenue sources and increase
profit margins by placing emphasis on the design and creation of proprietary
collectible products to be sold through wholesale and direct marketing methods.
(These proprietary collectibles are being developed in addition to the ongoing
custom minting projects which are manufactured for the Company's clients.) As a
result of this change of direction, the Company divested itself of its interest
in Liberty Mint, Inc. on September 23, 1999.
The Company has identified three areas which it will attempt to cultivate
through its marketing efforts: 1) themes of general interest and gift items
manufactured by GWM, 2) sports and entertainment collectibles under the trade
name of Superstar Commemorative Collector Series ("SCCS"), and 3) western art
and collectibles under the trade name of Jackson Hole Collectibles.
In addition, the Company remains focused on increasing sales through improving
and expanding upon its present marketing and distribution methods. At present
and in the near term, the Company will seek relationships with established
marketing partners to assist in distribution and sales of the Company's newly
developed collectible products. As a result of the Company's new direction, it
has successfully begun to market its products on a limited basis to businesses
and the public. Many of the Company's new product lines are derived from
licenses and rights to produce various collectibles featuring public
personalities, special events or popular art. The Company intends to continue
licensed-based marketing by obtaining additional licenses with public appeal. As
new products are developed the Company will proceed with its efforts to expand
marketing strategies and develop increased demand for its products.
B. Description of Products and Services
Gift Items and Collectibles. GWM conceives and designs collector's sets such as
"The Founding Fathers", "The Year of the Eagle" or "Rockwell Legends" to be
marketed as gifts or accumulated by collectors. Distribution of new, proprietary
products, and similar items yet to be created, represent the Company's core
business objective going forward, and a major shift in marketing strategy. As
such efforts become successful, it is hoped that this area of the Company's
business will eclipse the more traditional custom minting sales. GWM also
intends to bring other collectibles to market, such as sculpture.
Custom Minting. Comprehensive private minting services of precious and
non-precious products; are comprised primarily of minting of premium and
promotional items for corporations and other organizations. Custom minting
clients include: businesses, governments, associations and other marketing
companies. Typical customers have been corporations and organizations that want
to commemorate various events or milestones, promote a product or idea or create
an enduring form of advertising.
Examples of custom 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 Company's
representatives who introduce a concept to prospective corporate clients.
Superstar Commemorative Collector Series "SCCS". This trade name and product
line has been in development by the Company for approximately two years. Under
this label the Company produces commemorative collector medallions and coin sets
of various superstars. The Company continues to operate this business segment
pursuant to a licensing agreement and joint distribution contract with
Signatures Network
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("Signatures"), formerly Sony Signatures, which was signed in 1996. The Company
and Signatures continue to conduct business while finishing negotiations to
extend the contract through the year 2001. Coins have already been created for
The Beatles, Elvis, Celine Dion, Alan Jackson, Kiss, Michael Jackson, and
others. The Company plans to negotiate with other companies in the entertainment
industry in an effort to obtain additional rights to superstars. The Company
believes that further development of SCCS will lead to a profitable niche market
with relatively little competition. The Company currently supplies 1400 stores
nationwide with SCCS products. Management hopes to expand distribution of SCCS
products by wholesaling to local collectibles retailers and partnering with
other marketing companies.
Western Art and Collectibles. The Company believes that western art and
collectibles products have significant potential to generate sales. The Company
intends to pursue western art sales through its subsidiary, The Great Western
Mint, Inc. and under the trade name Jackson Hole Collectibles.
In the past the Company has cast three of Remington's sculptures: The Broncho
Buster, The Mountain Man, and The Rattlesnake. Each edition consists of 100
sculptures cast from 1,000 ounces of pure silver and each edition is sold out.
The Company plans to develop additional sculptures authorized by various museums
including a series of smaller Remington sculptures.
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. Since the sale of Liberty Mint, Inc., the
Company has begun to significantly refocus its efforts away from production of
bullion silver rounds. The Company decided to shift its efforts away from
bullion because the Company's losses were directly linked 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. has
allowed the Company to concentrate its efforts on the higher margin areas
mentioned above.
C. Marketing and Distribution.
Print Advertising. The marketing strategy for the next twelve months will be for
the Company to increase its exposure to potential business and wholesale
clientele by advertising in multiple monthly trade and industry publications, as
well as business magazines. This exposure should 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's primary objective is to continue its development
as a marketing company while still retaining limited manufacturing capability.
Management believes that one of the most effective methods for marketing
collectibles is through the mail. The Company has successfully implemented
direct mail on a limited basis in the past and intends to expand its efforts in
this area. Jackson Hole Collectibles (sculptures) and other specialty minted
products lend themselves to presentation to the prospective customer through
direct mail. The Company intends to develop suitable mailing lists and place
more emphasis on continuity marketing through managed data-base marketing.
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The Company has two product-related websites currently under development:
GreatWesternMint.com and SuperStarSeries.com. The Company intends to evolve
these sites into viable marketing tools.
The Company's subsidiary, GWM, intends to create proprietary products that are
appropriate for direct marketing methods. Gift sets and collectibles in precious
and non-precious metals will fall into this category as well as most sculpture
items.
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 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 that 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 that 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. It is also foreseen that the
Internet will provide a superior method for informing potential business
customers of the diverse applications for custom minting projects.
D. Business Relationships, Custom Projects, and Licenses
Disney Custom Minting Projects.
The Company currently supplies collectible coins to Disneyland and Disney World
sold by Disney in their exclusive gallery stores. In addition, Disneyland and
Disney World have decided to produce a yearly issue, similar to U.S. Proof sets
and non-precious medallions. The Company has received orders from the Disney
Store organization, Disney Catalog, Disney Hotel, and Disney Cruise Lines. In
1999 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. The Company is
currently in final negotiations with Signatures Network to extend a 1996 joint
venture agreement through the year 2001. Under the new contract, the Company
will continue to merchandise collectible coins of legendary bands and
entertainers. The original joint venture resulted in launching the "Superstar
Commemorative Collector Series" 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
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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 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 are 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.
Subsequent to the year ended December 31, 1999, the Company, through its
subsidiary Great Western Mint ("Western"), entered into an agreement dated
December 10, 1999, with Creative Minting, Inc.("Creative"), and The Curtis
Publishing Company ("Curtis") wherein Curtis granted a license to Western and
Creative to use certain Saturday Evening Post/Norman Rockwell illustrations on
Precious and Non-Precious Round Metal Medallions and, on an approval basis, on
Legal Tender Coins. The license was granted only for the United States and its
territories, Canada, Japan, Korea, Taiwan, China, Singapore and Indonesia. The
license is for the period December 10, 1999 through December 10, 2002.
E. Competitive Business Conditions
Collectible Industry. Collectibles consumers are using a broad range of sources
to buy collectibles. 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
F. 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
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purchased from a single supplier, due to the high cost of tooling and setup.
However, there are other suppliers who have been used in the past, and could be
used again if the need arises.
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.
G. 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.
H. 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.
I. Employees
The Company currently has 16 full time employees. No employees are currently
covered by a collective bargaining contract.
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ITEM 2. 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 3. LEGAL PROCEEDINGS
The Company is currently not a party to any pending material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fiscal year covered by this Report to a vote
of security holders, and therefore, this item is inapplicable.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
The Company's common stock is quoted in the Pink Sheets under the symbol LBMN.
The Company was formerly quoted on the Electronic Bulletin Board under the
symbol, "LBMN" (formerly LIBY). The Company has filed a Form 10-SB with the
Securities and Exchange Commission, and once this filing has clerical review by
the Commission, the Company intends to reapply to be listed on the Electronic
Bulletin Board. Trading in the common stock has been limited and sporadic and
the quotations set forth below are not necessarily indicative of actual market
conditions. Further, these prices reflect inter-dealer prices without retail
mark-up, mark-down, or commission, and may not necessarily reflect actual
transactions. The high and low bid prices for the common stock for each quarter
of the fiscal years ended December 31, 1999, 1998 and 1997 are as follows:
Quarter High Low
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1997 First $0.00 $0.00
Second $0.00 $0.00
Third $17.22 $12.00
Fourth $16.68 $11.82
1998 First $15.00 $11.22
Second $14.04 $3.36
Third $6.18 $1.50
Fourth $4.86 $0.36
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1999 First $2.46 $0.54
Second $12.00 $1.50
Third $5.38 $1.38
Fourth $3.62 $1.12
Record Holders. As of March 27, 2000 there were approximately 264 shareholders
of record holding a total of 4,894,710 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 6. 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 March 27, 2000, 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 increasing 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 prior
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, coupled with a
renewed emphasis on growing the remaining businesses of the Company will allow
management to reverse the Company's history
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of losses and allow the Company to become profitable. However, no assurance can
be given that 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 in this report.
Sales. Sales for the year ended December 31, 1999 increased to $777,213 from
$172,549 for the year ended December 31, 1998, an increase of 348%. The increase
in revenues were primarily attributable to a reclassification of sales due to
the sale of Liberty Mint, Inc.(See note 2 to Audited Financial Statements).
Losses. Net losses for the year ended December 31, 1999 increased to $3,901,873
from $1,720,525 for the year ended December 31, 1998, an increase of 127%. The
substantial increase in losses was caused by a bad debt expense of $2,069,964
which resulted from the sale of Liberty Mint, Inc.
The Company expects to break even or to operate at a slight profit during the
next year as a result of the divestiture of Liberty Mint, Inc. and its cessation
of producing and selling of bullion rounds on September 23, 1999. However, 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 year ended December 31,
1999, increased to $1,388,320 from $258,159 for the year ended December 31,
1998, an increase of 438 %. The increase in general and administrative expenses
was the result of reclassification of expenses due to the sale of Liberty Mint,
Inc.
Depreciation and amortization expenses for the years ended December 31, 1999 and
December 31, 1998 were $206 and $250,461, respectively. The decrease was due to
the full depreciation of certain minting equipment in 1998. During the annual
audit, a group of inventory items were identified as potentially obsolete, and
the write-off was accrued for as a 1998 expense. During the second quarter of
1999, these items were 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.
The cost of goods sold for the year ended December 31, 1999 was $543,554
compared to $156,273 for the year ended December 31, 1998. Cost of goods sold as
a percentage of sales for December 31, 1999 and 1998 respectively, were 69.9%
and 90.5%. The decrease in the cost of goods sold as a percentage of sales was
primarily attributable to the Company selling Liberty Mint, Inc. and not being
further involved in the bullion business.
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, 1999 and 1998, the Company held customer deposits in the
amount of $0 and $407,206, respectively. The Company's subsidiary, Liberty Mint,
Inc. had taken silver and gold for various commitments
10
<PAGE>
to produce product. As of December 31, 1998, the Company had silver and gold
commitments owed by Liberty Mint, Inc. in excess of the amount of silver and
gold on hand in the amount of $247,893. With the sale of Liberty Mint, Inc., in
September 1999, the Company divested itself of any direct liability for these
amounts. However, the Company does show a loss of $643,088 for the year ending
December 31, 1999 resulting from discontinued operations, which arises out of
the sale of Liberty Mint, Inc.
The following table shows the history of the Company's silver and gold
commitments:
September 23, 1999
December 31, (Prior to sale of December 31,
1999 subsidiary) 1998
Customer Deposits 0 $ 589,524 $ 407,206
Silver Inventory 0 $ 27,439 $ 62,475
Silver on Lease 0 0 0
Silver held on Account 0 $ (310,528) $ (304,027)
Net Silver Liability 0 $ (283,089) $ (241,552)
Gold Inventory 0 $ 9,284 $ 20,749
Gold Held on Account 0 $ (3,414) $ (27,090)
Net Gold Liability 0 $ (5,870) $ (6,341)
Combined Liability 0 $ (277,219) $ (247,893)
The Company (Liberty Mint, Inc.) funded 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 that
Liberty Mint, Inc.'s inventory was not adequate to meet its current committed
liabilities created by these three transaction types. In early 1999,
11
<PAGE>
management of Liberty Mint, Ltd. 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 and
committed product are liabilities of the company which along with accrued and
unpaid taxes of Liberty Mint, Inc. at time of sale are shown as "liabilities of
discontinued operations" in the sum of $655,596 on the consolidated 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 December 31, 1998, 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 December 31, 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 December 31, 1999
is $2,282,636.
At present, the Company substantially relies on revenue from sales of its
products and services to maintain operations. The Company estimates that it will
need to generate minimum monthly sales levels of $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 $249,208).
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
- --------
(1)The Company is carrying a liability on its consolidated balance sheet
titled "Liabilities of discontinued operations" in the sum of $655,596 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>
the Company has been engaged in efforts to restructure the Company's debt. These
efforts have been primarily focused on equity financing.
The Company's liquidity problems and the attendant cash shortfall problems were
addressed by the Board of Directors in early 1999 and resulted in the sale of
Liberty Mint, Inc. The sale of Liberty Mint, Inc. left the Company with
liabilities of discontinued operations of $655,596. The Company does not think
it is realistic to believe these liabilities can be quickly paid solely from
revenues generated by sales. The Company believes it will need to raise capital
in an amount between $700,000 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 1998, and
1999. As of December 31, 1999, the Company has current liabilities in excess of
current assets of $903,355 and has a stockholder's deficit of $3,901,943. 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
which had surrounded 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 in the pages 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 that through a combination of these efforts, continue as a going concern.
C. Trends, Events, Uncertainties that may have a Material Effect on Liquidity
13
<PAGE>
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., had a ten year operating history and had
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. has
eliminated a source of continuing loss to the Company, which management believes
will have a positive effect on the Company's operations.
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 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 December 31, 1999,
The Company has a working capital deficit of $903,355 and is heavily dependent
upon receiving an increase in capital. The Company is currently weighing its
options and will need to raise funds from debt financing or sale of its
securities. Even upon the completion of the raising of additional capital the
amount of capital available to the Company may be extremely limited, and may not
be sufficient to enable the Company to fully recover from its working capital
deficit and/or fully implement its proposed business expansion operations. The
is no assurance that such financing will be available to the Company on
attractive terms or at all. Except for the notes receivable from shareholders in
the amount of $, 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.
14
<PAGE>
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.
Year 2000 Implications
As of March 27, 2000, the Company has not experienced any Y2K problems.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements for the fiscal year ended December 31, 1999
are attached hereto as pages F-1 through F-17
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
15
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
PRITCHETT, SILER & HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
PAGE
-- Independent Auditor's Report F-2
-- Consolidated Balance Sheets, December 31,
1999 F-3
-- Consolidated Statements of Operations,
for the years ended December 31, 1999
and 1998 F-5
-- Consolidated Statement of Stockholders'
(Deficit) for the years ended
December 31, 1999 and 1998 F-6
-- Consolidated Statements of Cash Flows,
for the years ended December 31, 1999
and 1998 F-9
-- Notes to Consolidated Financial Statements F-11
F-2
<PAGE>
[LETTERHEAD OF PRITCHETT, SILER & HARDY, P.C.]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
LIBERTY MINT, LTD. AND SUBSIDIARY
Orem, Utah
We have audited the accompanying consolidated balance sheets of Liberty Mint,
Ltd. and Subsidiary as of December 31, 1999, and the related consolidated
statements of operations, stockholders' (deficit) and cash flows for the years
ended December 31, 1999 and 1998. 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.
and Subsidiary as of December 31, 1999 and the consolidated results of their
operations and their cash flows for the years ended December 31, 1999 and 1998,
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 3 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 3. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
/S/ PRITCHETT, SILER & HARDY, P.C.
March 16, 2000
Salt Lake City, Utah
F-2
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
1999
-----------
CURRENT ASSETS:
Cash and cash equivalents $ 53,858
Accounts receivable 303,624
Inventory 816,943
Prepaid expenses 204,856
-----------
Total Current Assets 1,379,281
-----------
PROPERTY AND EQUIPMENT, net 14,697
-----------
OTHER ASSETS:
Other assets 6,400
-----------
Total Other Assets 6,400
-----------
$ 1,400,378
===========
[Continued]
F-2
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
[Continued]
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
December 31,
1999
-----------
CURRENT LIABILITIES:
Accounts payable 76,521
Factoring advances 98,185
Accrued expenses 452,712
Customer deposits 799,622
Notes payable - related party 200,000
Liabilities of discontinued operations 655,596
-----------
Total Current Liabilities 2,282,636
-----------
$ 2,282,636
------------
COMMITMENTS AND CONTINGENCIES
[See Note 17] -
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, 4,349,256 and 943,103
shares issued and outstanding 3,268,893
Retained (deficit) (3,901,943)
-----------
$ (633,050)
-----------
Less Stock Subscriptions Receivable (249,208)
-----------
Total Stockholders' (Deficit) (882,258)
-----------
$ 1,400,378
------------
The accompanying notes are an integral part of
these financial statements.
F-3
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
--------------------------
1999 1998
------------- ------------
SALES, net of returns and discounts $ 777,213 $ 172,549
COST OF GOODS SOLD 543,554 156,273
------------- -----------
GROSS PROFIT 223,659 16,276
------------- -----------
OPERATING EXPENSES:
General and administrative 1,388,320 258,159
Bad debt expense 2,069,964 -
------------- -----------
Total Operating Expenses 3,458,284 258,159
------------- -----------
LOSS FROM OPERATIONS (3,234,625) (241,883)
------------- -----------
OTHER INCOME (EXPENSE):
Interest expense (24,160) -
------------- -----------
Total Other Income (Expense) (24,160) -
------------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (3,258,785) (241,883)
DISCONTINUED OPERATIONS:
Loss from operations of discontinued
minting and foundry of subsidiary (643,088) (1,478,642)
------------- -----------
NET LOSS BEFORE INCOME TAXES (3,901,873) (1,720,525)
CURRENT TAX EXPENSE - -
DEFERRED TAX EXPENSE - -
------------- -----------
NET LOSS $ (3,901,873) $ (1,720,525)
------------- -----------
LOSS PER COMMOM SHARE $ (2.25) $ (2.15)
--------------- -------------
The accompanying notes are an integral part of
these financial statements.
F-4
<PAGE>
<TABLE>
LIBERTY MINT, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 and 1998
<CAPTION>
Preferred Stock Common Stock
_____________________ _____________________ Accumulated
Shares Amount Shares Amount (Deficit)
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 469,978 $ 159,792 786,623 $ 2,987,908 $ (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 -
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)
Issuance of 30,833 shares of common
stock for cash upon exercise of
options at $3.60 per share, March, 1999 - - 30,833 111,000 -
Issuance of 2,000,004 shares of common
stock for cash at $.40 per share, April, 1999 - - 2,000,004 800,000 -
Issuance of 82,750 shares of common
stock for cash upon exercise of options
at $.40 per share, April 1999 - - 82,750 32,500 -
</TABLE>
[Continued]
F-5
<PAGE>
<TABLE>
LIBERTY MINT, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, and 1998
<CAPTION>
[Continued]
Preferred Stock Common Stock
_______________________ _____________________ Accumulated
Shares Amount Shares Amount (Deficit)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Issuance of 500,000 shares of common
stock for cash upon exercise of options at
$.40 per share, May, 1999 - - 500,000 200,000 -
Fractioned shares issued in connection with
6 for 1 reverse split - - 61 - -
Sale of minting and foundry subsidiary,
September, 1999 (469,978) (159,792) - (2,041,551) 5,339,212
Issuance of 750,000 shares of common
stock to retire debt at $.40 per share,
September, 1999 - - 750,000 300,000 -
Issuance of 6,667 shares of common stock
for services at $.40 per share, September, 1999 - - 6,667 2,667 -
Issuance of 15,000 shares of common
stock for services at .40 per share,
October, 1999 - - 15,000 6,000 -
Issuance of 20,854 shares of common
stock to retire debt at $2.88 per share,
December, 1999 - - 20,834 60,000 -
Net loss for the year ended December 31,
1999 - - - - (3,901,873)
---------- ---------- ---------- ---------- ----------
BALANCE, December 31, 1999 - $ - 4,349,256 $ 3,268,893 $ (3,901,943)
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
this financial statement.
F-6
<PAGE>
<TABLE>
LIBERTY MINT, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>
For the Years Ended
December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Net loss $ (3,901,873) $ (1,720,525)
----------- -----------
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 206 250,461
Non-cash expenses 410,567 121,386
Additional compensation expense recorded
in accordance with APB Opinion No. 25 - 118,750
Bad debt expense 2,069,964 118,075
Changes in assets and liabilities:
(Increase) in accounts receivable (303,624) (19,672)
(Increase) decrease in inventory (816,943) 136,959
(Increase) decrease in prepaid expenses (4,856) 76,614
(Increase) in other assets (6,400) -
Increase in accounts payable 76,521 100,241
(Decrease) in inventory liabilities - (51,917)
Increase (decrease) in factoring advances 98,185 (80,365)
Increase in accrued expenses 616,212 284,432
Increase (decrease) in customer deposits 799,622 (35,360)
----------- -----------
Total Adjustments 2,939,454 1,019,604
----------- -----------
Net Cash (Used) by Operating Activities (962,419) (700,921)
----------- -----------
Cash Flows Provided by Investing Activities:
Purchases of property and equipment (14,903) (63,063)
(Purchase) sale of US treasury bonds, net 4,857 6,210
Issuance (receipt) from notes receivable - 13,939
----------- -----------
Net Cash (Used) by Investing Activities (10,046) (42,914)
----------- -----------
Cash Flows Provided by Financing Activities:
Proceeds from notes payable - related party - 437,063
Payments on note payable - (219,542)
Payments on capital lease obligations - (11,000)
Proceeds from common stock Issuances 944,100 544,800
Purchase of subsidiary stock - (8,078)
----------- -----------
Net Cash Provided by Financing Activities 944,100 743,243
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents $ (28,365) $ (592)
Cash and Cash Equivalents at Beginning of Period 82,223 82,815
----------- -----------
Cash and Cash Equivalents at End of Period $ 53,858 $ 82,223
------------ ------------
</TABLE>
[Continued]
F-7
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
[Continued]
For the Years Ended
December 31,
------------------------
1999 1998
----------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ 16,160
Income taxes $ - $ -
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
For the year ended December 31, 1999:
The Company issued 15,000 shares of common stock to a consultant for
services rendered valued at $6,000. The Company issued a total of
500,000 shares of common stock in exchange for service valued at
$200,000. The Company issued a total of 750,000 shares of common stock
to retire debt of $300,000. The Company issued a total of 20,834 shares
of common stock to retire debt of $60,000. The Company issued a total
of 6,667 shares of common stock for services valued at $2,667.
For the year ended December 31, 1998:
The Company issued a total of 12,500 shares of common stock in exchange
for services rendered, valued at $91,050.
The accompanying notes are an integral part of
these financial statements.
F-8
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
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 Nevada Corporation, formally
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 subsidiary The Great Western
Mint, Inc. (a Utah Corporation Incorporated September 21, 1999)
[Subsidiary]. During 1998, the Company incorporated the wholly owned Former
Subsidiary Liberty Mint Marketing, Inc. (a Utah corporation).
The Company's principal markets are geographically disbursed throughout the
United States.
Consolidation - On June 24, 1997, the Parent acquired a majority interest
(approximately 90%) of the Former Subsidiary's (Liberty Mint, Inc.) common
stock by issuing 620,906 shares of the Parent's common stock for 7,450,864
shares of the Former Subsidiary's common stock. The acquisition was
accounted for as a recapitalization of the Former Subsidiary as the
shareholders of the Former 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 Former Subsidiary as a result of the
recapitalization. The merger has been accounted for as a reverse merger;
accordingly, the Former Subsidiary is treated as the purchaser in the
transaction. During 1997, the Parent purchased an additional 82,353 shares
of the Former Subsidiary's common stock for $28,000. Also, during 1998, the
Parent purchased an additional 28,510 shares of the Former Subsidiary's
common stock for $8,078 in cash and by issuing 396 shares of its common
stock at $.34 per share. During September 1999, the Company sold all of its
shares in its Former Subsidiary (See Note 2). 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.
Accounts Receivable - The Company factors their accounts receivable with a
financial institution at 100% with full recourse. During the year ended
December 31, 1999, the Company received $91,482 from factoring accounts
receivable. At December 31, 1999, $98,185, have been received from
factoring accounts receivable and are presented as a liability as the
underlying accounts receivable have not been collected.
Inventories - Inventories at December 31, 1999, 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 5).
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 9).
Advertising Expense - Advertising costs are expensed as incurred.
Advertising expense amounted to $9,394, for the year ended December 31,
1999.
F-9
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
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.
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 8).
Cash and Cash Equivalents - For purposes of the statement of cash flows,
the Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
Stock Based Compensation - The Company accounts for its stock based
compensation in accordance with Statement of Financial Accounting Standard
123 "Accounting for Stock-Based Compensation". This statement establishes
an accounting method based on the fair value of equity instruments awarded
to employees as compensation. However, companies are permitted to continue
applying previous accounting standards in the determination of net income
with disclosure in the notes to the financial statements of the differences
between previous accounting measurements and those formulated by the new
accounting standard. The Company has adopted the disclosure only provisions
of SFAS No. 123, accordingly, the Company has elected to determine net
income using previous accounting standards.
Revenue Recognition - Revenue is recognized when the product is shipped.
Recently Enacted Accounting Standards - Statement of Financial Accounting
Standards (SFAS) No. 132, "Employer's Disclosure about Pensions and Other
Postretirement Benefits", SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", SFAS No. 134, "Accounting for
Mortgage-Backed Securities..." and SFAS No. 135, "Rescission of FASB
Statement No. 75 and Technical Corrections" were recently issued. SFAS No.
132, 133, 134 and 135 have no current applicability to the Company or their
effect on the financial statements would not have been significant.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities, the disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimated by management.
F-10
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - DISCONTINUED OPERATIONS
During September 1999, the Company sold its stock in the subsidiary Liberty
Mint, Inc. for $25 in cash and effectively discontinued its bullion and
foundry business. All revenues and expenses associated with this business
have been netted and reclassified as discontinued operation on the income
statement for all periods presented. Revenue for the years ended December
31, 1999, and 1998 relating to these operations was $4,081,880 and
$4,430,950, respectively.
NOTE 3 - GOING CONCERN
The Company has incurred significant losses during 1999 and 1998 and has
current liabilities in excess of current assets of $903,355 at December 31,
1999. As of December 31, 1999, the Company held customer deposits in the
amount of $799,622, and has taken silver and gold for various commitments
to produce product. As of December 31, 1999, the company does not have the
ability to pay off liabilities of discontinued operations without
additional funds provided through loans and/or through additional sales of
its common stock. These items raise substantial doubt about the ability of
the Company to continue as a going concern.
Management's plans in regards to these matters are as follows:
Management is proposing to raise necessary additional funds not
provided by operations through loans and/or through additional sales of
its common stock. Management believes that it can improve operations,
refinance debt, convert debt to equity, and reduce expenses. Management
believes that a combination of these efforts will be necessary to
continue as a going concern.
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 4 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation and amortization as of December 31, 1999:
1999
-----------
Production and refining equipment $ 14,903
Less: accumulated depreciation
and amortization (206)
-----------
$ 14,697
-----------
Depreciation and amortization expense for the years ended December 31,
1999, amounted to $206.
F-11
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVENTORIES
Inventories consist of the following at December 31:
1999
-------------------
Troy
Ounces Value
---------- ----------
Total silver inventory 10,182 $ 58,752
Total gold inventory 2,335 657,886
---------- ----------
Combined silver and
gold inventory 716,638
----------
Other inventories:
Other metals inventory 19,412
Accessories inventory 80,893
----------
Total other inventories 100,305
----------
Total inventories $ 816,943
----------
NOTE 6 - ACCRUED LIABILITIES
The following is a summary of accrued liabilities
as of December 31, 1999:
1999
------------
Payroll costs $ 205,400
Conversion feature of notes payable (Note 7) 133,334
Contingency on stock guarantee 42,500
Cost prepayment 25,000
Accrued interest 46,478
------------
$ 452,712
------------
NOTE 7 - NOTES PAYABLE - RELATED PAYABLE
The following is a summary of long-term debt,
which includes notes payable to related parties,
as of December 31, 1999:
1999
-------------
12% unsecured note payable to a shareholder,
due November 18, 2000 convertible at 60% of
market (See note 6) $ 200,000
-------------
$ 200,000
Less: current portion (200,000)
-------------
$ -
=============
F-12
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE - RELATED PAYABLE [Continued]
The Company has accrued $133,334 of intrest expense due to the conversion
feature of the note, (See Note 6).
NOTE 8 - 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, 1999 and 1998:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Loss from continuing operations available
to common stockholders (Numerator) $ (3,901,813) $ (1,720,525)
Weighted average number of common shares
outstanding used in basic earnings per share
(Denominator) 2,153,184 800,771
----------- -----------
Weighted number of common shares and potential
dilutive common shares outstanding used in
dilutive earnings per share (Denominator) N/A N/A
----------- -----------
</TABLE>
The Company had at December 31, 1999 and 1998, options and warrants
outstanding to purchase 3,303,565 and 1,918,900 shares of common stock,
respectively, at prices ranging from $.40 to $12.96 per share, that were
not included in the computation of diluted earnings per share because their
effect was anti-dilutive (the exercise price of the options was greater
than the average market price of the common shares).
NOTE 9 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". FASB
109 requires the Company to provide a net deferred tax asset/liability
equal to the expected future tax benefit/expense of temporary reporting
differences between book and tax accounting methods and any available
operating loss or tax credit carryforwards.
The Company has available at December 31, 1999, unused operating loss
carryforwards of approximately $3,800,000 which may be applied against
future taxable income and which expire in various years through 2019.
The amount of and ultimate realization of the benefits from the operating
loss carryforwards for income tax purposes is dependent, in part, upon the
tax laws in effect, the future earnings of the Company, and other future
events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards the
Company has established a valuation allowance equal to the amount of the
loss carryforwards and, therefore, no deferred tax asset has been
recognized for the loss carryforwards. The net deferred tax assets are
approximately $1,292,000 as of December 31, 1999, with an offsetting
valuation allowance at year end of the same amount resulting in a change in
the valuation allowance of approximately $1,292,000 during 1999.
F-13
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - 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 13).
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 beginning April 20,
1999 through June 26, 2002. During the years ended December 31, 1999 and
1998 and 1997, 0, 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, 1997, 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 at $9.00 per share. During December 1998, the Company
issued 135,834 shares of its common stock upon exercise of stock options
$3.60 per share. During December 1999, the Company issued 30,833 shares of
its common stock for options exercised $3.60 per share.
Preferred Stock - The Company is authorized to issue 10,000,000 shares of
preferred stock, no par value with such rights, preferences and
designations and to be issued in such series as determined by the Board of
Directors.
Stock - During April 1999, the Company issued 2,000,004 shares of its
common stock for total proceeds of $800,000 (or $0.40 per share). The
issuance of these shares resulted in 34% ownership of the Company. As of
the date of this audit $550,792 of the total amount was collected.
During May 1999, shareholders of the Company exercised options to purchase
500,000 shares of common stock at $.40 per share for services valued at
$200,000.
During March 1999, shareholders of the Company exercised options to
purchase 30,833 shares of common stock at $3.60 per share for total
proceeds of $111,000.
During September 1999, the Company issued 750,000 shares of its common
stock to retire debt in the amount of $300,000 (or $0.40 per share).
F-14
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - CAPITAL STOCK [Continued]
During September 1999 the Company issued 6,667 shares of common stock for
services valued at 2,667 (or $.40 per share).
During December 1999, the Company issued 20,834 shares of common stock to
retire debt, in the amount of $60,000 (or $2.88 per shares).
During 1999, shareholders of the Company exercised options to purchase
82,750 shares of the Company's common stock at $.40 per share for total
proceeds of $32,500.
Stock split - During May 1999, the Company effected a 6 to 1 reverse stock
split, which has been retroactively reflected in these financial
statements.
NOTE 11 - STOCK OPTIONS
The Company applies APB Opinion No. 25 in accounting for stock options
granted under the employment agreements, which as of December 31, 1998 were
cancelled. Compensation of $0 and $118,750 was recorded in 1999 and 1998,
respectively. The Corporation has adopted the disclosure-only provisions of
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation".
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, 1999: 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, 1999, and changes during the periods then ended is presented in the
table below:
1999
-----------------------
Weighted Average
Shares Exercise Price
-------- ------------
Outstanding at
beginning of period 1,918,900 $ 7.08
Granted 2,300,000 .40
Exercised (613,583) .56
Forfeited (278,835) -
Canceled (22,917) -
-------- ------------
Outstanding at end of Period 3,303,565 $ 4.21
-------- ------------
Exercisable at end of period 2,091,917 $ 1.40
-------- ------------
Weighted average fair value of
options granted 2,300,000 $ -
--------- ------------
F-15
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCK OPTIONS [Continued]
A summary of the status of the options outstanding under agreements at
December 31, 1999 is presented below:
<TABLE>
<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>
$ .40 1,717,250 4.3 years $ .40 1,717,250 $ .40
$ 6.00 807,382 4.2 years $ 6.00 233,001 $ 6.00
$ 6.00 566,667 4.5 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 - $ -
</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,
-------------------------
1999 1998
------------ ------------
Net Loss As reported $ (3,901,813) $ (1,720,525)
Proforma $ (3,901,813) $ (1,720,525)
Loss per Share As reported $ (2.25) $ (2.15)
Proforma $ (2.25) $ (2.15)
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company entered into certain transactions with related individuals and
entities resulting in the following balances at December 31, 1999.
Notes Payable to stockholders - During December 1997, a shareholder of the
Company loaned the Company $200,000 at 12% interest compounding yearly. The
note due on demand. At December 31, 1999 and 1998, accrued interest
amounted to $46,978 and $27,167.
NOTE 13 - LITIGATION, CONTINGENCIES AND COMMITMENTS
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). During
September 1999 the Company issued an additional 2,677 shares of common
stock at $.40 per share under the same agent. The Company further agreed to
issue a sufficient amount of shares to the advertising Company in order to
sell and receive total proceeds of $100,000 if the trading price is less
than $6.00 per share. As of December 31, 1999 the Company has recorded a
$42,500 accrued expense as the market price of the common stock was less
than the guaranteed amount.
F-16
<PAGE>
LIBERTY MINT, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - LITIGATION, CONTINGENCIES AND COMMITMENTS [Continued]
Sale of Subsidiary - During September 1999 the Company sold all of it's
shares in Liberty Mint, Inc. a 90% owned subsidiary. Management has
estimated potential liability of $655,596, which has been recorded as
liabilities of discontinued operations.
NOTE 14 - CREDIT RISK AND CONCENTRATIONS
Currently, one customer accounts for approximately 14 percent of revenue.
As of December 31, 1999, management believed there were no indications that
this relationship would be negatively affected in the near future.
The Company has no policy of requiring collateral on any of its
receivables; hence, if economic conditions or other unforeseen events were
to negatively impact the economy, the risk of loss associated with the
Company's receivables could exceed the current allowance for doubtful
accounts.
NOTE 15 - SUBSEQUENT EVENTS
The Subsidiary entered into a new office lease that calls for a monthly
payment of $4,705. The lease term of 3 years, with options for renewal at
the end of the lease.
The Subsidiary entered into a licensing agreement in February 2000. The
Subsidiary has licensed for twenty-four Norman Rockwell painting images for
minted medallions. The licensing agreement is for a three year duration.
The Company issued 15,000 shares of common stock to a consultant for
services performed.
The Company issued 200,000 shares of common stock in exercise of options
and received $80,000.
The Company purchased equipment of $160,000 from a minority shareholder who
owns less than 5% of the issued and outstanding common stock, and is not an
officer or director. They paid $80,000 down payment in cash, and the
remainder will be paid in monthly payments.
F-17
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements between the Company and
its accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors, executive officers, control persons, and significant employees of
the Company, their respective ages, and positions with the Company are as
follows:
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.
16
<PAGE>
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 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 GWM, a subsidiary of the Company. Mr. Lewis does not own stock of the
Company.
17
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company, the
Company is not aware of any person who at any time during the fiscal year ended
December 31, 1999 was a director, officer, or beneficial owner of more than ten
percent of the Common Stock of the Company, and who failed to file, on a timely
basis, reports required by Section 16(a) of the Securities Exchange Act of 1934
during such fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
Compensation of Executives
The following table provides summary information for the years 1999, 1998 and
1997 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 $100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payout
Restricted Securities
Name and Salary Bonus Other Annual Stock Underlying LTIP All Other
Principal Year ($) ($) Compensation Award(s) Options/ payout Compensation
Position ($) ($) SARs(#) ($) ($)
- -------------------- -------- ----------- ----------- ------------------ -------------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel R.(2) 1999 69,733 - - - 800,000 - -
Southwick, 1998 71,325 - - - - - -
CEO, Director 1997 69,130 - - - 200,000(3) - -
Larry Ruff CEO, 1999 - - - - - - -
Director 1998 83,640 - - - - - -
1997 77,330 - - - 266,667 - -
Ron Lewis 1999 - - - - - - -
Salesperson 1998 142.189 - - - - - -
1997 162,369 - - - - - -
- -------------------- -------- ----------- ----------- ------------------ -------------- --------------- --------- ------------
</TABLE>
In 1997 Mr. Southwick was granted options to purchase 200,000 shares at $6.00,
Mr. Ruff was granted options to purchase 266,667 shares at $6.00. All are
vesting at the rate of one-third per year. In 1999 Mr. Southwich 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.
- --------
(2) Dan Southwick became CEO on April 23rd 1999, prior to this
appointment Mr. Southwick served as Senior Vice President for corporate
development.
(3) These options have expired.
18
<PAGE>
ITEM 11. 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 March 27, 2000, 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 March 27, 2000 there were 4,894,710 post 6 to 1
reverse split shares of common stock outstanding.
<TABLE>
<CAPTION>
Title of Class Name and Address of Beneficial Amount and Nature of Percent
Ownership Beneficial Ownership of Class
<S> <C> <C> <C>
Common Stock Daniel R. Southwick, Director(4) 407,750(5) 7.99%(6)
No Par Value 364 West 4620 North
Provo, Utah 84604
Common Stock Robert Joyce, Director 766,000(7) 13.59%(6)
No Par Value 4483 Hazetine Ave.
Sherman Oaks, California 91423
Common Stock John Pennington, Director 293,0468 5.65%(6)
No Par Value 1539 SE 11th St.
Deerfield Beach Florida 33441
Common Stock William Schmidt, Director(9) 1,623,621 30.66%(6)
No Par Value 88 N.E. 5th Avenue
Del Ray, Florida 33483
Common Stock American Investment Properties 1,623,621(10) 30.66%(6)
No Par Value 88 N. E. 5th Avenue
Del Ray Florida 33483
- ------------------- ---------------------------------- ------------------------ ---------------
</TABLE>
(4)Dan Southwick is a managing member of SF Investments, LLC which owns
59,063 shares of common stock of Liberty Mint, Ltd. These shares have been
attributed to Dan Southwick as part of his total shares.
(5) This number includes 200,000 options to purchase shares of the Company
at $6.00 and 7,750 at $0.40.
(6) These percentages assume all options owned by the person or group have
been exercised.
(7)This number includes 200,000 options to purchase shares of the Company
at $6.00 and 541,000 at $0.40.
(8)This number includes 288,046 options to purchase shares of the Company
at $0.40.
(9)These shares have been attributed to William Schmidt as managing member
of American Investment Properties.
(10)This number includes 400,000 options to purchase shares of the Company
at $6.00.
19
<PAGE>
<TABLE>
<CAPTION>
Title of Class Name and Address of Beneficial Amount and Nature of Percent
-------------------------------------- --------------------------------- ---------------
<S> <C> <C> <C>
Common Stock Ralph P. Muller 1,663,621(11) 31.39%(6)
No Par Value 6400 North Andrews Street
Suite 200
Fort Lauderdale, Florida 33309
Common Stock All Executive Officers and 3,130,417 41.09%(6)
No Par Value Directors as a Group
(Five persons)
</TABLE>
Changes in Control. There are currently no arrangements in place that will
result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1998, $47,000 was loaned to the Company for
expenses, at 8% per annum, by Larry Ruff, former CEO of the Company from 1992
until April of 1999. Also, during the year ended December 31, 1998, the Company
repaid Larry Ruff $31,182. 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.
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.
- --------
(11)This number includes 1,623,621 shares and options owned by American
Investment Properties, which is owned by Ralph P. Muller.
20
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Exhibits required to be attached by Item 601 of Regulation
S-B are listed in the Index to Exhibits beginning on page 13 of this
Form 10-KSB, which is incorporated herein by reference.
(b) Reports on Form 8-K. No reports on Form 8K have been filed during the
periods covered by this Form 10-KSB.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 31 day of March, 2000.
Liberty Mint, Ltd.
/s/ Daniel R. Southwick
- --------------------------------------
Daniel R. Southwick, President and Director
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
President and Director March 31, 2000
/s/ Daniel R. Southwick
- --------------------------------
Daniel R. Southwick
/s/ Robert Joyce Secretary and Director March 31, 2000
- --------------------------------
Robert Joyce
/s/John Pennington Director March 31, 2000
- --------------------------------
John Pennington
/s/William C. Schmidt
- -------------------------------- Director March 31, 2000
William C. Schmidt
22
<PAGE>
Index to Exhibits
EXHIBIT PAGE
NO. NO. DESCRIPTION
2 * Plan of Reorganization of Liberty Mint, Inc. (incorporated herein
by reference from Exhibit 2 to the Company's Form 10-SB/A-2 as
filed with the Securities and Exchange Commission on March 27,
2000).
3(i) * Articles of Incorporation of the Company formerly known as St.
Joseph Corp. VI, a Colorado corporation, dated March 15, 1990
(incorporated herein by reference from Exhibit 3(i) to the
Company's Form 10-SB/A-2 as filed with the Securities and
Exchange Commission on March 27, 2000).
3(ii) * Articles of Amendment for St. Joseph Corp., dated July 26, 1993,
changing the name of the Company to Petrosavers International,
Inc. (incorporated herein by reference from Exhibit 3(ii) to the
Company's Form 10-SB/A-2 as filed with the Securities and
Exchange Commission on March 27, 2000).
3(iii) * Articles of Amendment for Petrosavers International, Inc., dated
August 19, 1996, changing the name of the Company to Hana
Acquisitions, Inc. (incorporated herein by reference from Exhibit
3(iii) to the Company's Form 10-SB/A-2 as filed with the
Securities and Exchange Commission on March 27, 2000).
3(iv) * Articles of Amendment for Hana Acquisitions, Inc., dated June 9,
1997, changing the name of the Company to Liberty Mint, Ltd.
(incorporated herein by reference from Exhibit 3(iv) to the
Company's Form 10-SB/A-2 as filed with the Securities and
Exchange Commission on March 27, 2000).
3(v) * Articles of Incorporation of Liberty Mint, Ltd., a Nevada
corporation, dated May 26, 1999 (incorporated herein by reference
from Exhibit 3(v) to the Company's Form 10- SB/A-2 as filed with
the Securities and Exchange Commission on March 27, 2000).
3(vi) * Articles of Merger of Liberty Mint, Ltd. changing domicile to
Nevada (incorporated herein by reference from Exhibit 3(vi) to
the Company's Form 10-SB/A-2 as filed with the Securities and
Exchange Commission on March 27, 2000).
3(ii) * By-laws of Liberty Mint, Ltd., a Nevada corporation (incorporated
herein by reference from Exhibit 3(ii) to the Company's Form
10-SB/A-2 as filed with the Securities and Exchange Commission on
March 27, 2000).
10(i) * Lease Agreement with Addendums A and B. (incorporated herein by
reference from Exhibit 10(i) to the Company's Form 10-SB/A-2 as
filed with the Securities and Exchange Commission on March 27,
2000 ).
23
<PAGE>
10(ii) * Manufacturing and Joint Distribution Merchandising Agreement
dated September 1, 1996 (incorporated herein by reference from
Exhibit 10(ii) to the Company's Form 10-SB/A-2 as filed with the
Securities and Exchange Commission on March 27, 2000).
10(iii) * Stock Purchase Agreement between Liberty Mint, Ltd. and Calbear
Gas, LLC dated September 23, 1999 (incorporated herein by
reference from Exhibit 10(iii) to the Company's Form 10-SB/A-2 as
filed with the Securities and Exchange Commission on March 27,
2000).
10(iv) * Option Agreement between Dan Southwick and Calbear Gas, LLC dated
September 23, 1999 (incorporated herein by reference from Exhibit
10(iv) to the Company's Form 10-SB/A-2 as filed with the
Securities and Exchange Commission on March 27, 2000 ).
21 * Subsidiaries of Registrant (incorporated herein by reference from
Exhibit 21 to the Company's Form 10-SB/A-2 as filed with the
Securities and Exchange Commission on March 27, 2000).
23 25 Consent of Independent Public Accountant, dated March 30, 2000.
27 26 Financial Data Schedule "CE"
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the Annual report on Form 10-KSB for Liberty
Mint, Limited, of our report dated March 16, 2000, relating to the December 31,
1999 financial statements of Liberty Mint, Limited, which appears in such Annual
Report.
/s/ Pritchett, Siler & Hardy
Pritchett, Siler & Hardy
March 31, 2000
Salt Lake City, Utah
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED AUDITED FINANCIAL STATEMENTS FILED WITH THE COMPANY'S
DECEMBER 31, 1999 ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001042420
<NAME> Liberty Mint, Ltd.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 53,858
<SECURITIES> 0
<RECEIVABLES> 303,624
<ALLOWANCES> 0
<INVENTORY> 816,943
<CURRENT-ASSETS> 1,379,281
<PP&E> 14,697
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,400,378
<CURRENT-LIABILITIES> 2,282,636
<BONDS> 0
0
0
<COMMON> 3,268,893
<OTHER-SE> (4,151,151)
<TOTAL-LIABILITY-AND-EQUITY> 1,400,378
<SALES> 777,213
<TOTAL-REVENUES> 777,213
<CGS> 543,554
<TOTAL-COSTS> 3,458,284
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (24,160)
<INCOME-PRETAX> (3,258,785)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,258,785)
<DISCONTINUED> (643,088)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,901,873)
<EPS-BASIC> (2.25)
<EPS-DILUTED> (2.25)
</TABLE>
