Creatd, Inc. - Quarter Report: 2008 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

For the Quarter Ended September 30, 2008

 

 

For the transition period from to  

 

Commission File Number 000-51872

 

LILM, INC.

(Exact name of registrant as specified in its charter)

 

 

1390 South 1100 East # 204, Salt Lake City, Utah 84105-2463

(Address of principal executive offices)

 

(801) 322-0253

(Registrant’s telephone number, including area code)

 

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 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 o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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 o No x

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

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

 

 

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I

 

 

The accompanying unaudited balance sheets of LILM, Inc., and Subsidiary and LiL Marc, Inc. (predecessor) (development stage company) as of September 30, 2008 and December 31, 2007, related unaudited statements of income and cash flows for the nine months ended September 30, 2008 and 2007and the period April 22, 1997 (date of inception of predecessor) to September 30, 2008, have been prepared by management in conformity with United States generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the our December 31, 2007 audited financial statements. Operating results for the period ended September 30, 2008, are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2008 or any other subsequent period.

 

 

 

 

LILM, INC.

(A Development Stage Company)

 

FINANCIAL STATEMENTS

 

September 30, 2008 and December 31, 2007

 

 

 

LILM, INC. and SUBSIDIARY and LIL MARC, INC. (predecessor)

(Development Stage Company)

CONSOLIDATED BALANCE SHEETS - unaudited

For the Three and Nine Months Ended September 30, 2008 and 2007 and the

Period April 22, 1997 (date of inception of predecesor) to September 30, 2008

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

LILM, INC. and SUBSIDIARY and LIL MARC, INC. (predecessor)

(Development Stage Company)

CONSOLIDATED STATEMENT OF CASH FLOWS - unaudited

For the Three and Nine Months Ended September 30, 2008 and 2007 and the

Period April 22, 1997 (date of inception of predecesor) to September 30, 2008

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

LILM, INC, and SUBSIDIARY and LIL MARC, INC. (predecessor)

(Development Stage Company)

CONSOLIDATED STATEMENT OF CASH FLOWS - unaudited

For the Nine Months Ended September 30, 2008 and 2007 and the

Period April 22, 1997 (date of inception of predecessor) to September 30, 2008

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

 

 

LILM, INC. and SUBSIDIARY and LIL MARC, INC. (predecessor)

( Development Stage Company )

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2008

 

 

The Company was incorporated under the laws of the state of Nevada on December 30, 1999 with authorized common stock of 25,000,000 shares with a par value of $.001.

 

The principal business activity of the Company is to manufacture and market the “LiL Marc” urinal used in the training of young boys.

 

During January 2005 the Company organized “LiL Marc, Inc.”, in the state of Utah, and transferred all its assets, liabilities, and operations to LiL Marc Inc. in exchange for all of the outstanding stock of LiL Marc, Inc. for the purpose of continuing the operations in the subsidiary.

 

“LiL Marc, Inc.” (predecessor) was incorporated under the laws of the state of Nevada on April 22, 1997 for the purpose of marketing and sales of the “Lil Marc” training urinal for use by young boys. The marketing and sales activity was transferred to LILM, Inc. on December 30, 1999.

 

Included in the following financial statements are the combined statement of operations of LIL Marc, Inc. (predecessor) for the period April 22, 1997 to December 30, 1999 and LILM, Inc., and its subsidiary, for the period December 30, 1999 to September 30, 2008.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Accounting Methods

 

The Company recognizes income and expenses based on the accrual method of accounting.

 

Dividend Policy

 

The Company has not yet adopted a policy regarding payment of dividends.

 

Income Taxes

 

The Company utilizes the liability method of accounting for income taxes. Under the liability method deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws that will be in effect, when the differences are expected to reverse. An allowance against deferred tax assets is recorded, when it is more likely than not, that such tax benefits will not be realized.

 

On September 30, 2008, the Company had a net operating loss available for carryforward of$113,374. The income tax benefit of approximately $34,000 from the carryforward has been fully offset by a valuation reserve because the use of the future tax benefit is doubtful since the Company has not started full operations. The net operating loss will expire starting in 2021 through 2029.

 

LILM, INC. and SUBSIDIARY and LIL MARC, INC. (predecessor)

( Development Stage Company )

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2008

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

 

Revenue Recognition

 

Revenue is recognized upon the completion of the sale and shipment of the training urinal products.

 

Advertising and Market Development

 

The company expenses advertising and market development costs as incurred.

 

Financial Instruments

 

The carrying amounts of financial instruments, including cash and accounts payable, are considered by management to be their estimated fair values due to their short term maturities.

 

Basic and Diluted Net Income (Loss) Per Share

 

Basic net income (loss) per share amounts are computed based on the weighted average number of shares actually outstanding. Diluted net income (loss) per share amounts are computed using the weighted average number of common shares and common equivalent shares outstanding as if shares had been issued on the exercise of any common share rights unless the exercise becomes antidilutive and then only the basic per share amounts are shown in the report.

 

Financial and Concentrations Risk

 

The Company does not have any concentration or related financial credit risk.

 

Estimates and Assumptions

 

Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing these financial statements.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its subsidiary from its inception. All significant intercompany accounts and balances have been eliminated in consolidation.

 

LILM, INC. and SUBSIDIARY and LIL MARC, INC. (predecessor)

( Development Stage Company )

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2008

 

Office Equipment

 

Office equipment consists of computers and is depreciated over three years on the straight method.

 

Recent Accounting Pronouncements

 

The Company does not expect that the adoption of other recent accounting pronouncements will

have a material impact on its financial statements.

 

3. PATENT

 

The Company acquired a patent, from a related party, for the “LiL Marc” training urinal and was recorded at the predecessor cost, less amortization. The patent was issued on July 16, 1991 and has been fully amortized.

 

The terms of the acquisition of the patent includes a royalty of $.25, due to the inventor, on the sale of each training urinal.

 

4. SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES

 

Officer-directors have acquired 73% of the outstanding common stock of the Company and have made demand, no interest, loans to the Company of $21,003.

 

5. GOING CONCERN

        

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company does not have sufficient working capital for its planned activity, and to service its debt, which raises substantial doubt about its ability to continue as a going concern.

 

Continuation of the Company as a going concern is dependent upon obtaining additional working capital and the management of the Company has developed a strategy, which it believes will accomplish this objective through short term loans from an officer-director, and additional equity investment, which will enable the Company to continue operations for the coming year.

 

 

 

The following information should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Form 10-QSB.

 

We are a development stage company with minimal cash assets and limited operations and revenue. Ongoing operating expense, including the costs associated with the preparation and filing of our registration statement and periodic reports, have been paid for by (i) the net proceeds of $55,030 (after deducting offering costs) from our stock offering in 2002; and (ii) from advances from a stockholder. A total of $21,003 has been advanced by Alewine Limited Liability Company, a 73% stockholder that is managed by our President, George I. Norman, III. The debt is evidenced by a promissory note that is payable upon demand with a provision that an interest rate of 10% would be charged on any outstanding balance not paid when due.

 

It is anticipated that we will require approximately $20,000 over the next 12 months to fund operations and to maintain our corporate viability. If we are unable to generate sufficient revenues, we may have to rely on funds from credit lines, directors and/or stockholders in the future. In March 2005, our subsidiary LiL Marc, Inc., received tentative approval for an unsecured credit line with Wells Fargo Bank in the amount of $15,000. The credit line was never used and was closed. There can be no assurance at this time that the credit line can be reopened nor do we have any other potential sources of funds available to it or its subsidiary at this time. We also do not have any further commitments from a director or stockholder to provide any additional funding.

 

Results of Operations

 

During the third quarter ended September 30, 2008, we realized revenues of $446 compared with $324 for the third quarter ended September 30, 2007, an increase of 38% for the 2008 period. This increase in revenues was due to a 110% increase ($186) in wholesale orders offset by a 27% decrease ($35) in retail orders.

 

Total expenses were $4,261 for the third quarter of 2008 compared to $4,256 for the corresponding 2007 period, an increase of .1% for the 2008 period. Expenses during the third quarter of 2008 were primarily for administrative expenses, which increase 4% for the third quarter. The third quarter increase in administrative expenses was primarily attributed to a 670% increase ($1,675) in rent and storage due to accrued invoicing and varying monthly charges. During this same period, we had a 34% decrease ($903) in general operating expenses and a 49% decrease ($600) in professional fees.

 

During the nine month period ended September 30, 2008, we realized revenues of $1,077 compared with $1,358 for the nine month period ended September 30, 2007. This decrease in revenues for nine month period of 2008 was due to a 58% decrease ($381) in retail orders offset by a 14% increase ($100) in wholesale orders. Revenues for both nine month periods were the result of internet retail and wholesale orders.

 

Total expenses were $9,983 for the nine month period ended September 30, 2008 compared to $14,265, for the corresponding 2007 period, a decrease of 30% for the 2008 period. Expenses during the 2008 nine month period were primarily for administrative expenses, which decreased 30% ($4,086), primarily due to a 34% decrease ($3,555) in professional fees, and a 56% decrease ($3,555) in general operating expenses. Also during this same period, we had a 69% increase ($1,325) in rent and storage payments due to accrued invoicing and varying monthly charges.

 

 

 

The net loss for the third quarter of 2008 was $3,815 compared with a net loss of $3,932 for the third quarter of 2007, a decrease of 2% for the 2008 period. The decrease in net loss during the third quarter of 2008 was due to a 34% decrease ($903) in general operating expenses, a 49% decrease ($600) in professional fees, and a 174% ($174) decrease in depreciation expenses.

 

The net loss for the first nine months of 2008 was $8,906 compared with a net loss of $12,907 for the first nine months of 2007, a decrease of 31% for the 2008 period. The decreased net loss during the first nine months of 2008 was due to the 30 % decrease ($4, 086) in administrative expenses, 38% decrease ($8) in royalty expenses and 36% ($188) decrease in depreciation expenses.

 

Liquidity and Capital Resources

 

At September 30, 2008 and December 31, 2007, we had total assets consisting of cash and office equipment of $59 and $561, respectively. Total liabilities at September 30, 2008 and December 31, 2007were $27,715 and $19,311 respectively. Total liabilities at September 30, 2008 consisted of $4,500 for legal fees, $2,200 in rent and storage fees, $12 in royalty payments and a demand note in the amount of $21,003 issued to a private limited liability company owned by two directors, George Norman and Laurie Norman . The note is payable upon demand and does not bear an interest rate. If a portion of the principal is not paid when due then the note will bear an interest rate of 10% per annum.

 

Because we currently have only minimal revenues and limited cash reserves, it anticipates that we may have to rely on our directors and stockholders to pay expenses until such time as we realize adequate revenues from the production and sales of our baby product. There is no assurance that we will be able to generate adequate revenues in the immediate future to satisfy its cash needs. At December 31, 2007, we had cash on hand of $226, working capital of a negative <$19,085> and total stockholders’ equity of a negative <$18,750.> At September 30, 2008, we had cash on hand of $59 working capital of a negative <$27,656> and total stockholders’ equity of a negative <$27,656.>.

 

In the opinion of management, inflation has not and will not have a material effect on the ongoing operations of the Company.

 

Plan of Operation

 

During the next 12 months, we plan to continue to focus on improving our website found at http://LiLMarc dot com and http://Boyspottytraining dot com. Anticipated improvements include simplifying the ordering process, improving the appearance and layout of the website, and making changes to the website that would increase impulse purchases. We will also continue to focus on improving our relationships with resellers who sell our product on their websites and on engaging new website hosts for the product. We anticipate that this can be accomplished through individual calls and E-mails to the website hosts. Additionally, we are committed to the production of additional stands when sale of more than 500 LiL Marcs is achieved. Because we lack immediate requisite funds, it may be necessary to rely on advances from directors and/or stockholders, although we have no firm commitment from anyone to advance future funds. Management intends to hold expenses to a minimum and to obtain services on a contingency

 

basis when possible. Further, our directors will defer any compensation until such time as business warrants the payment of such.

 

After paying certain costs and expenses related to ongoing administrative costs and associated professional fees, including the cost of preparing and filing requisite reports with the SEC, management estimates that we will have sufficient funds to operate for the next six to twelve months. If business revenues do not provide enough funds to continue operations, it may be necessary to seek additional financing. This would most likely come from current directors, although the directors are under no obligation to provide additional funding and there is no assurance outside funding will be available on acceptable terms, or at all. If we cannot generate or secure adequate funds during the next 12 months, we may be forced to seek alternatives such a joint venture or licensing our product. If we are unsuccessful in securing alternative sources of revenue, we may have to cease operations or sell off existing inventory at liquidating prices.

 

Because we rely on others for production of our product, we do not anticipate making any significant capital expenditures for new equipment or other assets during 2008. If additional equipment does become necessary, we believe that we may have to seek outside financing to acquire the equipment or assets.

 

Currently, we have three employees. Our President devotes approximately 20 hours per week to our business and our Secretary assists on an as-needed basis. We also have a part-time laborer for packaging and shipping product. Management believes that these employees will be adequate for the foreseeable future, or until production reaches a level to justify additional employees. Further, we believe that in the event increased business necessitates additional employees, we will be able to pay the added expenses of these employees from increased revenues.

 

Forward-Looking and Cautionary Statements

 

This report includes "forward-looking statements" that may relate to such matters as anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market performance and similar matters. When used in this report, the words "may,” "will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend” and similar expressions are intended to identify forward-looking statements regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, operating results, and financial position. We caution readers that a variety of factors could cause its actual results to differ materially from the anticipated results or other matters expressed in forward-looking statements. These risks and uncertainties, many of which are beyond our control, include:

 

 

 

 

 

 

 

 

Although management believes the expectations reflected in these forward-looking statements are reasonable, such expectations cannot guarantee future results, levels of activity, performance or achievements. Actual results may differ materially from those included within the forward-looking statements as a result of various factors. Cautionary statements in the risk factors section and elsewhere in this registration statement identify important risks and uncertainties affecting our future, which could cause actual results to differ materially from the forward-looking statements made herein.

 

 

 

Item 4(T). Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure and control procedures are also designed to ensure that such information is accumulated and communicated to management, including the chief executive officer and principal accounting officer, to allow timely decisions regarding required disclosures.

 

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment. Based on the evaluation described above, our management, including our principal executive officer and principal accounting officer, have concluded that, as of September 30, 2008, our disclosure controls and procedures were effective, except for those events discussed below.

 

Changes in Internal Control Over Financial Reporting. Management has evaluated whether any change in our internal control over financial reporting occurred during the third quarter of fiscal 2008. Based on its evaluation, management, including the chief executive officer and principal accounting officer, initiated certain changes in our internal control over financial reporting during the third quarter of fiscal 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Based on the evaluation by our chief executive officer and principal accounting officer, we concluded that, as of the end of our fiscal year ended December 31, 2007, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports

 

we submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms. We also concluded that such information was not accumulated and communicated to our chief executive officer and principal accounting officer, in a manner that allowed for timely decisions regarding required disclosure. Our conclusion is premised on the following reason:

 

We overlooked the inclusion of our “Management’s Annual Report on Internal Control over Financial Reporting” in our initial Annual Report filed on Form 10-KSB for the year ended December 31, 2007 and Amendment no. 1 to that report and, as a result, we have determined that we had a material weakness in our ability to determine certain changes in the laws that affect our disclosure obligations.

 

In light of the above weakness, during the third quarter of 2008 we developed a plan to ensure that we are aware of changes in the laws that affect our disclosure obligations, to ensure that all information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported accurately and timely. Accordingly, we have taken the following steps to address the material weakness in our disclosure controls and procedures:

 

1.         Before each report is prepared, we will review the SEC’s website (www.sec.gov) in an effort to determine any recent changes in the laws affecting our disclosure obligations; and

 

2.         As each report is prepared, we will discuss with our independent consultants, who assist us in the preparation of the reports and financial statements included within the reports, whether they are aware of any recent changes in the laws affecting our disclosure obligations.

 

The remainder of our plan involves seeking additional training of existing personnel in the area of SEC reporting issues and/or, to the extent deemed necessary, the possible hiring of personnel or outside consultants who are familiar and conversant with SEC reporting issues. We also plan to allot sufficient time and resources to conduct management’s review of internal control over financial reporting prior to the end of the fiscal year ending December 31, 2008 and to timely file our “Management’s Report on Internal Control Over Financial Reporting” in our Annual Report on Form 10-K for the year ending December 31, 2008.

 

PART II

 

 

There are no material pending legal proceedings to which we are a party or to which any of our property is subject and, to the best of our knowledge, no such actions against us are contemplated or threatened.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.