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EX-31.1 - SECTION 302 CERTIFICATION - Liberty Coal Energy Corp.ex31-1.txt
EX-32.1 - SECTION 906 CERTIFICATION - Liberty Coal Energy Corp.ex32-1.txt

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

    For the quarterly period ended December 31, 2010

[ ] TRANISITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

    For the transition period from __________ to __________

                        Commission File Number 000-54073


                            LIBERTY COAL ENERGY CORP.
             (Exact Name of Registrant as Specified in Its Charter)

             Nevada                                              75-3252264
  (State or Other Jurisdiction                                 (IRS Employer
of Incorporation or Organization)                            Identification No.)

99 18th Street, Suite 3000 Denver, Colorado                         80202
(Address of Principal Executive Offices)                         (Zip Code)

                                 (303) 997-3161
              (Registrant's telephone number, including area code)

                                       N/A
              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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. [X] YES [ ] NO

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). [ ] YES [ ] NO

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
the definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]                        Accelerated Filer [ ]
Non-accelerated filer [ ]                          Smaller reporting company [X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

          APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                        DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

57,900,000 common shares issued and outstanding as of February 11, 2011

TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 Item 4. Controls and Procedures 20 PART II - OTHER INFORMATION Item 1. Legal Proceedings 20 Item 1A. Risk Factors 21 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 5. Other Information 21 Item 6. Exhibits 21 SIGNATURES 22 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Our unaudited interim financial statements for the three month period ended December 31, 2010 form part of this quarterly report. They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles. 3
LIBERTY COAL ENERGY CORP. (formerly ESL Teachers Inc.) (An Exploration Stage Company) BALANCE SHEETS December 31, September 30, 2010 2010 ---------- ---------- (unaudited) (unaudited) ASSETS Current asset Cash and bank accounts $ 26,046 $ 59,190 Prepaid expenses 4,374 5,291 ---------- ---------- Total current assets 30,420 64,481 Website, net of amortization 2,956 3,378 Mineral Properties 350,000 350,000 ---------- ---------- Total assets $ 383,376 $ 417,859 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Current liabilities Accounts payable and accrued liabilities $ 12,922 $ 18,590 ---------- ---------- Total liabilities 12,922 18,590 ---------- ---------- Stockholders' equity Common stock authorized - 1,500,000,000 common shares with a par value of $0.001 Common stock issued and outstanding 57,900,000 common shares 57,900 57,900 Additional paid-in capital 346,786 346,786 Additional paid-in capital - warrants 183,314 183,314 Deficit accumulated during the exploration stage (217,546) (188,731) ---------- ---------- Total stockholders' equity 370,454 399,269 ---------- ---------- Total liabilities and stockholders' equity $ 383,376 $ 417,859 ========== ========== The accompanying notes are an integral part of these financial statements. 4
LIBERTY COAL ENERGY CORP. (formerly ESL Teachers Inc.) (An Exploration Stage Company) STATEMENTS OF OPERATIONS (unaudited) Cumulative Amounts From Date of Three Months Three Months Incorporation on Ended Ended August 31, 2007 to December 31, December 31, December 31, 2010 2009 2010 ------------ ------------ ------------ REVENUE $ -- $ -- $ -- ------------ ------------ ------------ OPERATING EXPENSES General & Administrative 845 1,013 19,245 Consulting 15,000 -- 75,000 Amortization 422 -- 844 Investor Relations 8,286 -- 30,402 Transfer Agent -- 1,595 14,309 Legal and Accounting 4,282 500 77,746 ------------ ------------ ------------ Loss before income taxes (28,815) (3,108) (217,546) Provision for income taxes -- -- -- ------------ ------------ ------------ Net loss $ (28,815) $ (3,108) $ (217,546) ============ ============ ============ Basic and diluted loss per Common share (1) (1) (1) ============ ============ Weighted average number of common shares outstanding (Note 5) 57,900,000 73,800,000 ============ ============ ---------- (1) less than $0.01 The accompanying notes are an integral part of these financial statements. 5
LIBERTY COAL ENERGY CORP. (formerly ESL Teachers Inc.) (An Exploration Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY (unaudited) Deficit Additional Accumulated Common Stock Additional Paid-in During the Total --------------------- Paid in Capital Exploration Stockholders' Shares Amount Capital Warrants Stage Equity ------ ------ ------- -------- ----- ------ Inception, August 31, 2007 -- $ -- $ -- $ -- $ -- $ -- Initial sale of common stock 45,000,000 45,000 (30,000) -- -- 15,000 Net loss for the year -- -- -- -- (4,158) (4,158) ----------- ------- -------- -------- --------- -------- Balance September 30, 2007 45,000,000 45,000 (30,000) -- (4,158) 10,842 Private placement on May 31, 2008 at $0.05 per share 28,800,000 28,800 19,200 -- -- 48,000 Net loss for the period -- -- -- -- (31,673) (31,673) ----------- ------- -------- -------- --------- -------- September 30, 2008 73,800,000 73,800 (10,800) -- (35,831) 27,169 Net loss for the period -- -- -- -- (22,552) (22,552) ----------- ------- -------- -------- --------- -------- September 30, 2009 73,800,000 73,800 (10,800) -- (58,383) 4,617 Private placement on February 1, 2010 at $0.25 per unit 1,000,000 1,000 157,343 91,657 -- 250,000 Stock issued with respect to property acquisition 100,000 100 40,700 -- -- 40,800 Private placement on February 11, 2010 at $0.25 per unit 1,000,000 1,000 157,343 91,657 -- 250,000 Cancellation of stock (18,000,000) (18,000) 18,000 -- -- -- Net loss for the period -- -- -- -- (130,348) (130,348) ----------- ------- -------- -------- --------- -------- September 30, 2010 57,900,000 57,900 346,786 183,314 (188,731) 399,269 Net loss for the period -- -- -- -- (28,815) (28,815) ----------- ------- -------- -------- --------- -------- December 31, 2010 57,900,000 $57,900 $346,786 $183,314 $(217,546) $370,454 ========== ======= ======== ======== ========= ======== The accompanying notes are an integral part of these financial statements. 6
LIBERTY COAL ENERGY CORP. (formerly ESL Teachers Inc.) (An Exploration Company) STATEMENTS OF CASH FLOWS (unaudited) Cumulative Amounts From Date of Three Months Three Months Incorporation on Ended Ended August 31, 2007 to December 31, December 31, December 31, 2010 2009 2010 ---------- ---------- ---------- CASH FLOWS USED IN OPERATING ACTIVITIES Net loss for the period $ (28,815) $ (3,108) $ (217,546) Adjustment for non-cash items: Amortization 422 -- 844 (Increase) Decrease in prepaid expenses 917 445 (4,374) Increase (Decrease) in accounts payable and accrued liabilities (5,668) (3,150) 12,922 ---------- ---------- ---------- Net cash used in operating activities (33,144) (5,813) (208,154) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock -- -- 563,000 ---------- ---------- ---------- Net cash used in financing activities -- -- 563,000 ---------- ---------- ---------- CASH FLOWS USED IN INVESTING ACTIVITY Investment in website -- -- (3,800) Acquisition of mineral properties -- -- (325,000) ---------- ---------- ---------- Net cash used in financing activities -- -- (328,800) ---------- ---------- ---------- Change in cash during the period (33,144) (5,813) 26,046 Cash, beginning of the period 59,190 17,430 -- ---------- ---------- ---------- Cash, end of the period $ 26,046 $ 11,617 $ 26,046 ========== ========== ========== SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS: Cash paid for income taxes $ -- $ -- $ -- ========== ========== ========== Cash paid for interest $ -- $ -- $ -- ========== ========== ========== The accompanying notes are an integral part of these financial statements. 7
LIBERTY COAL ENERGY CORP. (formerly ESL Teachers Inc.) (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS NOTE 1 - NATURE OF OPERATIONS Liberty Coal Energy Corp. (the "Company") was incorporated in the state of Nevada on August 31, 2007 to develop business activities in teacher recruiting. The Company changed its business focus in March, 2010 and now intends to enter the business of coal exploration, development, and production. The Company has not yet commenced significant business operations and is considered to be in the exploration stage (formerly in the development stage). NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES MANAGEMENT CERTIFICATION The financial statements herein are certified by the officers of the Company to present fairly, in all material respects, the financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America, consistently applied. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and amounts due to Company stockholder. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from its other financial instruments and that their fair values approximate their carrying values except where separately disclosed. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles of the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. The more significant areas requiring the use of estimates include asset impairment, stock-based compensation, and future income tax amounts. Management bases its estimates on historical experience and on other assumptions considered to be reasonable under the circumstances. However, actual results may differ from the estimates. MINERAL PROPERTIES Costs of exploration, carrying and retaining unproven mineral lease properties are expensed as incurred. Mineral property acquisition costs are capitalized including licenses and lease payments. Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company's title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects. Impairment losses are recorded on mineral properties used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. 8
LOSS PER SHARE Basic loss per share is calculated using the weighted average number of common shares outstanding and the treasury stock method is used to calculate diluted earnings per share. For the years presented, this calculation proved to be anti-dilutive. DIVIDENDS The Company has not adopted any policy regarding payment of dividends. No dividends have been paid during the period shown. INCOME TAXES The Company provides for income taxes using an asset and liability approach. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. No provision for income taxes is included in the statement due to its immaterial amount, net of the allowance account, based on the likelihood of the Company to utilize the loss carry-forward. See Note 5. NET LOSS PER COMMON SHARE Net loss per common share is computed based on the weighted average number of common shares outstanding and common stock equivalents, if not anti-dilutive. The Company has not issued any potentially dilutive common shares. RECENTLY ADOPTED PRONOUNCEMENTS VARIABLE INTEREST ENTITIES In June 2009, the FASB issued changes to require an enterprise to perform an analysis to determine whether the enterprise's variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity's economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise's involvement in a variable interest entity. The guidance became effective for the Company on February 1, 2010. The adoption of the guidance did not have an impact on the Company's consolidated financial statements. CODIFICATION OF GAAP In June 2009, the FASB issued guidance to establish the Accounting Standards Codification TM ("Codification") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, the FASB will issue Accounting Standards Updates ("ASU"). ASUs will not be authoritative in their own right as they will only serve to update the Codification. The issuance of SFAS 168 and the Codification does not change GAAP. The guidance became effective for the Company for the period ending October 31, 2009. The adoption of the guidance did not have an impact on the Company's consolidated financial statements. 9
SUBSEQUENT EVENTS On July 31, 2009, the Company adopted changes issued by the FASB that establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, the guidance sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The Company has evaluated subsequent events through the date the financial statements were issued. BUSINESS COMBINATIONS The Company adopted the changes issued by the FASB that requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose additional information needed to evaluate and understand the nature and financial effect of the business combination. The Company also adopted the changes issued by the FASB which requires assets and liabilities assumed in a business combination that arise from contingencies be recognized on the acquisition date at fair value if it is more likely than not that they meet the definition of an asset or liability; and requires that contingent consideration arrangements of the target assumed by the acquirer be initially measured at fair value. The guidance is effective for the Company's acquisitions occurring on or after February 1, 2009. The Company applied these new provisions to two acquisitions that occurred during the year, Rock Coast Media, Inc. and Pixel Bridge, Inc. These acquisitions are more fully disclosed in Note 5 in our Consolidated Financial Statements. NON-CONTROLLING INTERESTS In December 2007, the FASB issued changes to establish accounting and reporting standards for all entities that prepare consolidated financial statements that have outstanding non-controlling interests, sometimes called minority interest. These standards require that ownership interests in subsidiaries held by outside parties be clearly identified, labeled and presented in equity separate from the parent's equity; the amount of net income attributable to the parent and the non-controlling interest be separately presented on the consolidated statement of income; accounting standards applied to changes in a parent's interest be consistently applied; fair value measurement upon deconsolidation of a non-controlling interest be used; and the interests of the non-controlling owners be already identified and distinguished. The adoption of this guidance had no impact on the Company's consolidated financial statements. INTANGIBLE ASSETS In April 2008, the FASB adopted changes to require companies estimating the useful life of a recognized intangible asset to consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension as adjusted for entity-specific factors. The guidance is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively to intangible assets whether acquired before or after the effective date. The Company adopted the guidance on February 1, 2009. The adoption had no impact on the Company's consolidated financial statements. 10
HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") In May 2008, the FASB issued changes to identify the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP (the GAAP hierarchy). The guidance is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU section 411, THE MEANING OF PRESENT FAIRLY IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Management is currently evaluating the guidance and assessing the impact, if any, on the Company's consolidated financial statements. REVENUE RECOGNITION In September 2009, the FASB issued new revenue recognition guidance on multiple deliverable arrangements. It updates the existing multiple-element revenue arrangements guidance currently included under the Accounting Standards Codification ("ASC") 605-25. The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) requires the use of the relative selling price method to allocate the entire arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for the first annual reporting period beginning on or after fiscal 2011, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. Management is currently evaluating the impact of adopting this guidance on the Company's consolidated financial statements. RECLASSIFICATIONS Certain balances in the prior years have been reclassified to conform to the current year presentation. NOTE 3 - MINERAL PROPERTIES CAMPBELL PROPERTY On February 1, 2010 the Company entered into, and closed, a Mineral and Mining Lease with Miller and Associates, LLC. Pursuant to this agreement, the Company issued 100,000 (post split) shares of its common stock to Miller and Associates, LLC and acquired a 5 year lease on certain mining claims in the state of Wyoming. In addition to the 100,000 (post split) shares issued, the Company agreed to pay an annual fee of US $20,000, adjusted for inflation, as well as a production royalty of 4% on the gross sales of product produced by the mineral claims considered by this agreement. SHERIDAN PROPERTY The Company acquired a mineral property leasehold interest in exchange for $55,000 (paid), $25,000 within 90 days of the each of the next three following anniversaries of the date of the Agreement. Additionally, the Company must spend $2,750,000 on development of the property within three years of the date of the Agreement. Additionally, the lessor would receive a royalty of $1 per ton of coal produced from the property and sold with a maximum of $5,000,000. The maximum amount of royalty must be paid within 15 years of the date of the Agreement. 11
NOTE 4 - CAPITAL STOCK The company has 1,500,000,000 common shares authorized at a par value of $0.001 per share. On August 31, 2007, the company issued 1,500,000 common shares to founders for total proceeds of $15,000. On May 31, 2008, the company completed a private placement whereby it issued 960,000 common shares at $0.05 per share for total proceeds of $48,000. On February 1, 2010, the company completed a private placement whereby it issued 1,000,000 units for $0.25 per unit. Each unit consists of one common share and common share purchase warrant allowing the holder to purchase a common share at $0.25 per share expiring February 1, 2012. On February 1, 2010, the company issued 100,000 common shares as partial consideration to acquire the Campbell Property. On February 11, 2010, the company completed a private placement whereby it issued 1,000,000 units for $0.25 per unit. Each unit consists of one common share and common share purchase warrant allowing the holder to purchase a common share at $0.25 per share expiring February 1, 2012. On March 15, 2010, the Company increased its authorized common shares from 50,000,000 shares to 1,500,000,000 shares and effected a 30 for 1 forward stock split. All share amounts reflected in the financial statements have been adjusted to reflect the results of the stock split. On March 20, 2010, the Company cancelled 18,000,000 of its common stock outstanding. WARRANTS Outstanding at Issue Date Number Price Expiry Date September 30, 2010 ---------- ------ ----- ----------- ------------------ February 1, 2010 1,000,000 $0.25 February 1, 2012 1,000,000 February 11, 2010 1,000,000 $0.25 February 11, 2012 1,000,000 NOTE 6 - INCOME TAXES The Company provides for income taxes using an asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company's opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance equal to the deferred tax asset has been recorded. The cumulative net operating loss carry-forward is approximately $217,546 at December 31, 2010, and will expire beginning in the year 2028. 12
The cumulative tax effect at the expected rate of 22% of significant items comprising our net deferred tax amount is as follows: December 31, September 30, 2010 2010 -------- -------- Deferred tax asset attributable to: Net operating loss carryover $ 47,860 $ 41,388 Valuation allowance (47,860) (41,388) -------- -------- Net deferred tax asset $ -- $ -- ======== ======== NOTE 7 - RELATED PARTY TRANSACTION As at December 31, 2010, there is a balance owing to an officer of the Company in the amount of $5,000 (2009 - $5,908). This amount is included in accounts payable. The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities that become available. They may face a conflict in selecting between the Company and other business interests. The Company has not formulated a policy for the resolution of such conflicts. NOTE 8 - GOING CONCERN The accompanying financial statements have been prepared assuming that the company will continue as a going concern. As discussed in the notes to the financial statements, the Company has no established source of revenue. This raises substantial doubt about the Company's ability to continue as a going concern. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. The financial statements do not include any adjustments that might result from this uncertainty. The Company's activities to date have been supported by equity financing. It has sustained losses in all previous reporting periods with an inception to date loss of $217,546 as of December 31, 2010. Management continues to seek funding from its shareholders and other qualified investors to pursue its business plan. In the alternative, the Company may be amenable to a sale, merger or other acquisition in the event such transaction is deemed by management to be in the best interests of the shareholders. NOTE 9 - SUBSEQUENT EVENTS Management has evaluated subsequent events through February 9, 2011, the date these financial statements were issued, and has determined it does not have any material subsequent events to disclose. 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2010 filed with the Securities and Exchange Commission on January 11, 2011, that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States Dollars and all references to "common shares" refer to the common shares in our capital stock. As used in this quarterly report, the terms "we", "us", "our company", mean Liberty Coal Energy Corp., a Nevada corporation, unless otherwise indicated. CORPORATE HISTORY The address of our principal executive office is 99 18th Street, Suite 3000, Denver, Colorado 80202. Our telephone number is 303.997.3161. Our common stock is quoted on the OTC Bulletin Board under the symbol "LBTG". We were incorporated on August 31, 2007 as "ESL Teachers Inc." under the laws of the State of Nevada. Our original business plan was to develop and sell online employment services specifically for both ESL Teachers and ESL operations seeking to hire teachers worldwide. On March 15, 2010, we changed our name to Liberty Coal Energy Corp. by way of a merger with our wholly owned subsidiary "Liberty Coal Energy Corp." which was formed solely for the purpose of the change of name. The change of name was to better represent the new business direction of our company to that of a coal exploration, development and production company. In addition, on March 15, 2010, we effected a 30 for 1 forward stock split of our authorized and issued and outstanding shares of common stock such that our authorized capital increased from 50,000,000 shares of common stock, $0.001 par value per share to 1,500,000,000 shares of common stock, par value $0.001 per share. Other than as set out herein, we have not been involved in any bankruptcy, receivership or similar proceedings, nor have we been a party to any material reclassification, merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of our business. OUR CURRENT BUSINESS Our primary business focus is to acquire, explore and develop coal properties in North American. We are currently developing two properties, the Sheridan County Project in Sheridan County, Wyoming and the Campbell Project in Campbell County, Wyoming. 14
Our first project is the Sheridan County Project. On March 2, 2010, we entered into a letter of agreement for the acquisition of private mineral leasehold rights to certain coal mining properties in Sheridan County, Wyoming with Rocking Hard Investment, LLC and Synfuel Technology, Inc. In consideration of for the mineral leasehold, we paid $50,000 and are required to pay $25,000 within 90 days of the next three anniversary dates of the agreement. Additionally, we must spend $2,750,000 on development of the property within three years of the date of the agreement. As part of the agreement, we have also agreed to enter into a royalty agreement with Rocking Hard pursuant to which Rocking Hard would receive a royalty of $1.00 per ton of coal produced from the property and sold with a maximum of $5,000,000. The maximum amount of royalty must be paid within 15 years of the date of the agreement. The second project is the Campbell Project. On February 1, 2010, we entered into a lease agreement with Miller and Associates, LLC to acquire a 100% interest in the project by issuing 100,000 post-split shares of common stock, an annual payment of $20,000 adjusted annually by the CPI (consumer price index as published by the US Government) according to this formula each year previous payment times 1+ fractional CPI index. For example, if CPI is 3% the following payment will be $20,000 x 1.03 or $20,600. In addition, we agreed to pay on the 25th day of each calendar month, for the right to mine all coal on the project a production royalty of 4% of the gross sales price of all coal mined and sold from the project. We are an exploration stage company with limited operations and no revenues from our business activities. The following is a discussion and analysis of our plan of operation for the quarter ended December 31, 2010, and the factors that could affect our future financial condition and plan of operation. GOING CONCERN CONSIDERATION Our registered independent auditors included an explanatory paragraph in their report on our financial statements as of and for the years ended September 30, 2010 and 2009, regarding concerns about our ability to continue as a going concern. Due to this doubt about our ability to continue as a going concern, management is open to new business opportunities, which may prove more profitable to our shareholders. Historically, we have been able to raise a limited amount of capital through private placements of our equity stock, but we are uncertain about our continued ability to raise funds privately. If we are unable to secure adequate capital to continue our acquisition and exploration efforts, our business may fail and our stockholders may lose some or all of their investment. RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2010 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2009 The following summary of our results of operations should be read in conjunction with our financial statements for the quarter ended December 31, 2010 which are included herein. The following table summarizes key items of comparison and their related increase (decrease) for the three months ended December 31, 2010, and 2009: Three Months Ended December 31, 2010 2009 -------- -------- Amortization $ 422 $ -- General and administrative 845 1,013 Legal and accounting 4,282 500 Investor Relations 8,286 Nil Consulting 15,000 Nil Transfer agent -- 1,595 -------- -------- Net Loss $ 28,815 $ 3,108 ======== ======== 15
We had a net loss of $28,815 for the quarter ended December 31, 2010, which was $25,707 greater than the net loss of $3,108 for the quarter ended December 31, 2009. The significant change in our results over the two periods is primarily the result of increased activity related to the acquisition of our mineral property interests. PERIOD FROM INCEPTION, AUGUST 31, 2007 TO DECEMBER 31, 2010 Since inception, we have an accumulated deficit of $217,546. We expect to continue to incur losses as a result of continued exploration and development of our coal mining interests. LIQUIDITY AND CAPITAL RESOURCES Our balance sheet as of December 31, 2010, reflects assets of $383,376. We had cash in the amount of $26,046 and a working capital in the amount of $17,498 as of December 31, 2010. We have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months. Three Months Three Months Ended Ended December 31, December 31, 2010 2009 -------- -------- Net Cash (Used in) Operating Activities $(33,144) $ (5,831) Net Cash (Used in) Investing Activities -- Nil Net Cash Provided by Financing Activities -- Nil -------- -------- Increase (Decrease) in Cash $(33,144) $ (5,813) ======== ======== Our current cash requirements are significant due to planned exploration and development of our current coal mining property interests, and we anticipate generating losses. In order to execute on our business strategy, including the exploration and development of our current coal interest, we will require additional working capital, commensurate with the operational needs of our planned projects and obligations. Our management believes that we should be able to raise sufficient amounts of working capital through debt or equity offerings, as may be required to meet our short-term obligations. However, changes in our operating plans, increased expenses, acquisitions, or other events, may cause us to seek additional equity or debt financing in the future. We anticipate continued and additional operations on our properties. Accordingly, we expect to continue to use debt and equity financing to fund operations for the next twelve months, as we look to expand our asset base and fund exploration and development of our properties. There are no assurances that we will be able to raise the required working capital on terms favorable, or that such working capital will be available on any terms when needed. Any failure to secure additional financing may force us to modify our business plan. In addition, we cannot be assured of profitability or continued operations in the future. OPERATING ACTIVITIES Net cash flow used in operating activities during the three months ended December 31, 2010 was $33,144, an increase of $27,331 from the $5,813 net cash outflow during the three months ended December 31, 2009. INVESTING ACTIVITIES The primary driver of cash used in investing activities in previous periods was capital spending in the acquisition of coal properties. Cash used in investing activities during the three months ended December 31, 2010 was $Nil, which resulted in no change from the $Nil cash used in investing activities during the three months ended December 31, 2009. 16
FINANCING ACTIVITIES Financing activities during the three months ended December 31, 2010, provided $Nil, which resulted in no change from the $Nil cash used in financing activities during the three months ended December 31, 2009. APPLICATION OF CRITICAL ACCOUNTING POLICIES MANAGEMENT CERTIFICATION The financial statements herein are certified by the officers of the Company to present fairly, in all material respects, the financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America, consistently applied. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and amounts due to Company stockholder. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from its other financial instruments and that their fair values approximate their carrying values except where separately disclosed. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles of the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. The more significant areas requiring the use of estimates include asset impairment, stock-based compensation, and future income tax amounts. Management bases its estimates on historical experience and on other assumptions considered to be reasonable under the circumstances. However, actual results may differ from the estimates. MINERAL PROPERTIES Costs of exploration, carrying and retaining unproven mineral lease properties are expensed as incurred. Mineral property acquisition costs are capitalized including licenses and lease payments. Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company's title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects. Impairment losses are recorded on mineral properties used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. LOSS PER SHARE Basic loss per share is calculated using the weighted average number of common shares outstanding and the treasury stock method is used to calculate diluted earnings per share. For the years presented, this calculation proved to be anti-dilutive. DIVIDENDS The Company has not adopted any policy regarding payment of dividends. No dividends have been paid during the period shown. 17
INCOME TAXES The Company provides for income taxes using an asset and liability approach. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. No provision for income taxes is included in the statement due to its immaterial amount, net of the allowance account, based on the likelihood of the Company to utilize the loss carry-forward. See Note 5. NET LOSS PER COMMON SHARE Net loss per common share is computed based on the weighted average number of common shares outstanding and common stock equivalents, if not anti-dilutive. The Company has not issued any potentially dilutive common shares. RECENT ACCOUNTING PRONOUNCEMENTS VARIABLE INTEREST ENTITIES In June 2009, the FASB issued changes to require an enterprise to perform an analysis to determine whether the enterprise's variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity's economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise's involvement in a variable interest entity. The guidance became effective for the Company on February 1, 2010. The adoption of the guidance did not have an impact on the Company's consolidated financial statements. CODIFICATION OF GAAP In June 2009, the FASB issued guidance to establish the Accounting Standards Codification TM ("Codification") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, the FASB will issue Accounting Standards Updates ("ASU"). ASUs will not be authoritative in their own right as they will only serve to update the Codification. The issuance of SFAS 168 and the Codification does not change GAAP. The guidance became effective for the Company for the period ending October 31, 2009. The adoption of the guidance did not have an impact on the Company's consolidated financial statements. SUBSEQUENT EVENTS On July 31, 2009, the Company adopted changes issued by the FASB that establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, the guidance sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The Company has evaluated subsequent events through the date the financial statements were issued. 18
BUSINESS COMBINATIONS The Company adopted the changes issued by the FASB that requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose additional information needed to evaluate and understand the nature and financial effect of the business combination. The Company also adopted the changes issued by the FASB which requires assets and liabilities assumed in a business combination that arise from contingencies be recognized on the acquisition date at fair value if it is more likely than not that they meet the definition of an asset or liability; and requires that contingent consideration arrangements of the target assumed by the acquirer be initially measured at fair value. The guidance is effective for the Company's acquisitions occurring on or after February 1, 2009. The Company applied these new provisions to two acquisitions that occurred during the year, Rock Coast Media, Inc. and Pixel Bridge, Inc. These acquisitions are more fully disclosed in Note 5 in our Consolidated Financial Statements. NON-CONTROLLING INTERESTS In December 2007, the FASB issued changes to establish accounting and reporting standards for all entities that prepare consolidated financial statements that have outstanding non-controlling interests, sometimes called minority interest. These standards require that ownership interests in subsidiaries held by outside parties be clearly identified, labeled and presented in equity separate from the parent's equity; the amount of net income attributable to the parent and the non-controlling interest be separately presented on the consolidated statement of income; accounting standards applied to changes in a parent's interest be consistently applied; fair value measurement upon deconsolidation of a non-controlling interest be used; and the interests of the non-controlling owners be already identified and distinguished. The adoption of this guidance had no impact on the Company's consolidated financial statements. INTANGIBLE ASSETS In April 2008, the FASB adopted changes to require companies estimating the useful life of a recognized intangible asset to consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension as adjusted for entity-specific factors. The guidance is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively to intangible assets whether acquired before or after the effective date. The Company adopted the guidance on February 1, 2009. The adoption had no impact on the Company's consolidated financial statements. HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") In May 2008, the FASB issued changes to identify the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP (the GAAP hierarchy). The guidance is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU section 411, THE MEANING OF PRESENT FAIRLY IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Management is currently evaluating the guidance and assessing the impact, if any, on the Company's consolidated financial statements. REVENUE RECOGNITION In September 2009, the FASB issued new revenue recognition guidance on multiple deliverable arrangements. It updates the existing multiple-element revenue arrangements guidance currently included under the Accounting Standards Codification ("ASC") 605-25. The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) requires the use of the relative selling price method to allocate the entire arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue 19
recognition. ASU 2009-13 will be effective for the first annual reporting period beginning on or after fiscal 2011, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. Management is currently evaluating the impact of adopting this guidance on the Company's consolidated financial statements. RECLASSIFICATIONS Certain balances in the prior years have been reclassified to conform to the current year presentation. REVENUES We have not generated revenues since inception. OFF-BALANCE SHEET ARRANGEMENTS We have no off-balance sheet arrangements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a "smaller reporting issuer", we are not required to provide the information required by this Item. ITEM 4. CONTROLS AND PROCEDURES MANAGEMENT'S REPORT ON DISCLOSURE CONTROLS AND PROCEDURES Our management evaluated, with the participation of our chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, our chief executive officer and our chief financial officer (our principal executive officer, principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures are effective as of December 31, 2010 to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and our chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures include components of our internal control over financial reporting. Management's assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance that the control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met. CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING There have been no changes in our internal controls over financial reporting that occurred during the period covered by this quarterly report, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder, is an adverse party or has any material interest adverse to our interest. 20
ITEM 1A. RISK FACTORS Not Applicable. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. [REMOVED AND RESERVED] ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS Exhibit No. Description ----------- ----------- (3) (I) ARTICLES OF INCORPORATION; AND (II) BY-LAWS 3.1 Articles of Incorporation (Incorporated by reference to our Registration Statement on Form SB-2 originally filed on January 23, 2008). 3.2 By-laws (Incorporated by reference to our Registration Statement on Form S1/A filed on February 27, 2008). 3.3 Articles of Merger (Incorporated by reference to our Current Report on Form 8-K filed on March 29, 2010). 3.4 Certificate of Change (Incorporated by reference to our Current Report on Form 8-K filed on March 29, 2010). (10) MATERIAL CONTRACTS 10.1 Mineral and Mining Lease with Miller and Associates LLC dated February 1, 2010. (Incorporated by reference to our Current Report on Form 8-K filed on February 10, 2010). 10.2 Letter of Agreement with Rocking Hard Investment, LLC and Synfuel Technology, Inc. dated March 2, 2010 (Incorporated by reference to our Current Report on Form 8-K filed on March 4, 2010). 10.3 Letter Agreement with Rocking Hard Investment, LLC and Synfuel Technology, Inc., dated March 2, 2010 (Incorporated by reference to our Current Report on Form 8-K filed on March 4, 2010). (31) RULE 13A-14(A)/15D-14(A) CERTIFICATIONS 31.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (32) SECTION 1350 CERTIFICATIONS 32.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 . ---------- * Filed herewith 21
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LIBERTY COAL ENERGY CORP. Date: February 11, 2011 /s/ Edwin G. Morrow --------------------------------------------- EDWIN G. MORROW President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) 2