SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
Commission File #000-31935
TERRA BLOCK INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
65-0729440
(IRS Employer Identification Number)
2637 Erie Avenue, Suite 207, Cincinnati, OH 45208
(Address of principal executive offices)(Zip Code)
(513) 533-1220
(Registrant's telephone no., 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 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.
Yes [X] No [ ]
Title of Class Number of Shares Outstanding: Common Stock, par value $.001 per
share 22,965,018 outstanding as of November 12, 2003.
Documents Incorporated by Reference: None
TERRA BLOCK INTERNATIONAL, INC.
FORM 10-QSB
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis or Plan of Operation
Item 3 - Controls and Procedures
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The financial statements of the company are set forth beginning on page F-1.
TERRA BLOCK INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
TERRA BLOCK INTERNATIONAL, INC.
CONTENTS
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PAGE
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Consolidated Financial Statements
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . .2
Statement of Stockholders' Equity (Deficit) . . . . . . . . . . . . . . .3
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . .4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . .5-6
Terra Block International, Inc.
Consolidated Balance Sheet
September 30, 2003
ASSETS
------
Current Assets
Cash and Cash Equivalents ($1,722)
Accounts Receivable 5,000
Total Current Assets 3,278
Property and Equipment, Net
Other Assets
Start Up Costs 33,408
Accumulated Amortization (5,011)
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28,397
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TOTAL ASSETS $ 31,675
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current Liabilities
Accounts Payable $ 121,007
Notes Payable 90,000
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Total Current Liabilities 211,007
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Total Liabilities 211,007
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Stockholders' Equity(Deficit)
Preferred Stock, $.001 Par Value, 10,000,000
Shares Authorized, No Shares Issued
CommonStock, $.001 Par Value, 100,000,000 30,548
Shares Authorized, 30,548,352 Shares Issued
Additional Paid-In-Capital 687,296
Accumulated Deficit (897,176)
Total Stockholders Equity (Deficit) (179,332)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,675
==========
See Accompanying Notes
1
Terra Block International, Inc.
Consolidated Statement of Operations
For The Nine Months Ended September 30, 2003
Revenue $ 30,000
Cost of Sales 36,215
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Gross Profit (6,215)
General & Administrative 52,230
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Income (Loss) from
Operations (58,445)
Interest Expense 0
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Income (Loss) before Taxes (58,445)
Income Taxes 0
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Net Income(Loss) ($58,445)
==========
Net Income(Loss) Per Share-Basic and Diluted ($0.003)
Weighted Average Basic Shares Outstanding 20,593,578
See Accompanying Notes
2
Terra Block International, Inc.
Consolidated Statement of Stockholders' Equity
For The Nine Ended September 30, 2003
Common Stock Additional Accumulated
Shares Amount PIC Deficit Total
----------- --------- --------- ---------- ----------
Balance at December 31, 2002 10,638,803 $ 10,000 $737,296 ($838,731) ($91,435)
Purchase of L.L. Brown 19,909,549 20,548 (50,000) (29,452)
and Stock Issues
Net Income(Loss) (58,445) (58,445)
---------------------------------------------------------
Balance at September 30, 2003 30,548,352 $ 30,548 $687,296 ($897,176) ($179,332)
See Accompanying Notes
3
Terra Block International, Inc.
Consolidated Statement of Cash Flows
For The Nine Months Ended September 30, 2003
Cash flows from operating activities
Net income(loss) ($58,445)
----------
Adjustments to reconcile net loss
used in operating activities
Depreciation/Amortization 5,011
Accounts Receivable (5,000)
Accounts payable 21,571
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Total adjustments 21,582
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Net cash provided(used)in operating
activities (36,863)
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Cash flows from financing activities
Net borrowings(payments) on
notes payable 55,000
Principal payments on
long-term debt
Net advances to stockholders
----------
Net cash provided(used) by
financing activities 55,000
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Cash flows from investing activities
Dispositions of property & equipment
Purchases of property & equipment
Purchase of L.L. Brown (50,000)
Stock Issue 20,548
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Net cash provided(used) by investing
activities (29,452)
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Net increase(decrease) in cash (11,315)
Cash at beginning of period 9,593
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Cash at September 30 ($1,722)
==========
Supplemental disclosures of cash flow information
Cash paid during the period for interest $ 0
==========
See Accompanying Notes
4
Terra Block International, Inc.
Notes to Consolidated Financial Statements
September 30, 2003
NOTE 1 - ORGANIZATION
Terra Block International, Inc. ("The Company"), a Nevada Corporation, conducts
business from its headquarters in Cincinnati, Ohio. The Company was formerly
L.L. Brown International, Inc. ("L.L. Brown"). L.L. Brown was originally
incorporated as Smart Industries, Inc. in February 1997. During February 2003,
L.L. Brown entered into a Share Exchange Agreement with Terra Block
Consolidated, Inc. ("Consolidated"). The Agreement provided for 100% of the
shares of Consolidated to be acquired by L.L. Brown in exchange for shares of
common stock of L.L. Brown, establishment of a new Board of Directors and a
change of the name of the company to Terra Block International, Inc.
The Company has an Exclusive Licensing Agreement and Purchase Option with Terra
Block, Inc. a Florida corporation; to make, have made, use and sell its Licensed
Products under is License Patent Rights, Trade Secret Materials and all its
existing license rights anywhere in the world.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Consolidated financial statements include the accounts of Terra Block
Consolidated, Inc., its wholly owned subsidiary. All significant intercompany
balances and transactions have been eliminated.
FEDERAL INCOME TAX
The provisions for income taxes is recorded in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". Under the liability method of SFAS 109, deferred tax assets and
liabilities are determined based on temporary differences between financial
reporting and tax bases of assets and liabilities and have been measured using
the enacted marginal tax rates and laws that are currently in effect. The types
of significant temporary differences include depreciation.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3 - NOTES PAYABLE
Promissory notes dated October 2002 to March 2003. Due various dates before
December 2003.
Terra Block International, Inc.
Notes to Consolidated Financial Statements
September 30, 2003
NOTE 4 - FEDERAL INCOME TAXES
At September 30, 2003 the Company had net operating loss carry forwards of
approximately $839,000, expiring in year 2014. The amount of deferred tax
assets as of September 30, 2003 were approximately $280,000, which represents
the amount of tax benefits arising from the loss of carry forwards. Due to the
uncertainty regarding the Company's ability to generate taxable income in the
future to realize the benefit from its deferred tax assets, the Company has
established a valuation allowance of $280,000 against this deferred tax asset.
NOTE 5 - GOING CONCERN
As shown in the accompanying financial statements, the Company has a significant
accumulated deficit. The ability of the Company to continue as a going concern
is dependent upon increasing sales and on obtaining additional capital and
financing. The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
NOTE 6 - START UP COST
Start up cost consist of all cost necessary to get the Company to an operational
position, including bank charges, consulting fees, office supplies, postage,
legal fees, rent, telephone and travel. Start up cost are amortized over five
(5) years using the straight line method. The start up period ended December 31,
2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
The following discussion should be read in conjunction with our unaudited
interim financial statements and related notes thereto included in this
quarterly report and in our audited financial statements and Management's
Discussion and Analysis of Financial Condition or Plan of Operation ("MD&A")
contained in our Form 10-KSB for the year ended December 31, 2002. Certain
statements in the following MD&A are forward looking statements. Words such as
"expects", "anticipates", "estimates" and similar expressions are intended to
identify forward looking statements. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected.
GENERAL
Terra Block International, Inc., a Nevada Corporation, (the "Company" or "Terra
Block") was formerly L.L. Brown International, Inc. ("L.L. Brown"). L.L. Brown
was originally incorporated as Smart Industries, Inc. on February 19, 1997. On
February 14, 2003, L.L. Brown entered into a Share Exchange Agreement with Terra
Block Consolidated, Inc. ("Consolidated"). The Agreement provides for 100% of
the shares of Consolidated to be acquired by L.L. Brown in exchange for shares
of common stock of L.L. Brown; for the establishment of a new Board of Directors
consisting of Consolidated directors; and a change of the name of the company to
Terra Block International, Inc., with total issued and outstanding shares of the
Company immediately after the closing of 10,000,000. The Company's former
subsidiary, LLBA has been spun off, leaving Terra Block Consolidated, Inc. as
the sole operating subsidiary of the Company after effecting the Agreement. The
Company currently trades on the OTC Bulletin Board under the symbol TBLK.
Terra Block engages in the manufacture, distribution and application of
technologically advanced building products through an exclusive licensing
agreement with Terra Block, Inc. ("TBI"). TBCI has the exclusive right to make,
have made, use and sell TBI products anywhere in the world. The license
agreement provides the Company the rights to all patented technologies, trade
secret materials, copyrights, trademarks and all intellectual property. This
technology and expertise is referred to as the "Terra Block System" and has been
used worldwide for 23 years.
Terra Block International is comprised of 3 divisions in order to fully
capitalize on the opportunities represented by its proprietary knowledge and
expertise in manufacturing and construction using the unique Terra Block System.
1. HOUSING: Construction of affordable, efficient housing both
domestically and internationally. This is an enormous market, which,
the Terra Block System addresses effectively and profitably.
2. TERRA BLOCK ENCAPSULATED CELL STORAGE: ("TECSTOR(TM)"): Terra Block's
patented EPA approved above ground hazardous waste storage facility.
The unique properties of construction with the Terra Block System
provide an exceptional, cost effective facility for the storage and
maintenance of low and mid-level hazardous waste, the storage of which
is an enormous problem worldwide.
3. MACHINES: Manufacture and sales of the block-making machine worldwide.
TBI has sold machines worldwide for 23 years.
The Terra Block System features a line of machines developed, perfected and
patented by TBI, that manufacture Compressed Earth Blocks ("CEB's") using common
soil as the only raw material. This is accomplished by compacting the soil at up
to 460,000 lbs. of hydraulic pressure to form a rock hard construction block.
The hydraulic pressure causes the particles to bond together just like natural
materials formed under great pressure such as sandstone, limestone and diamonds.
The blocks are quick and easy to manufacture, durable and have no maintenance
requirements. Each block is rock solid and will not crumble or disintegrate
under normal wear. In addition, the blocks require no additives, are incredibly
energy efficient and are inexpensive to produce. Walls and structures built with
Terra Blocks do not require mortar. They are dry-stacked and extraordinarily
strong. The final result is a facility that is weather resistant and
structurally sound, all at a much lower cost than traditional methods of
construction.
The Company's goals are to utilize the unique properties and cost effectiveness
of Compressed Earth Block ("CEB") construction to profitably become:
- The leading provider of high quality, structurally sound, low cost,
environmental friendly and durable, residential and commercial
buildings in the world.
- The leading international purveyor of CEB construction equipment
- A provider of a revolutionary, cost effective solution to the
ever-growing problem of the storage of hazardous waste worldwide.
RESULTS OF OPERATIONS
The Company has developed plans and commenced some work in each of its three
divisions:
- HOUSING DEVELOPMENT AND CONSTRUCTION: The Company is working toward
developments both domestically and abroad to capitalize on its unique
construction and building system.
- MANUFACTURING AND SALES: The Company is working to develop markets
worldwide for its line of products.
- TECSTOR: The Company is working to finalize a beta site for it's
patented above ground hazardous waste storage facility.
HOUSING DEVELOPMENT AND CONSTRUCTION
The Company has completed a prototype in Guatemala for a "World House" and
received a letter of intent for a second housing project from Guatemalan housing
developer, TERRAZE.
The "World House" is an ultra low-cost housing solution for crisis situations
such as the replacement refugee camps or shantytowns where pricing and speed are
the utmost concerns. It is a small, approximately 200 square foot, shelter that,
as a part of a cooperative housing development, provides a clean, dry, safe
place to live for a large number of displaced families and/or individuals. Each
house can be completed in approximately 2 days and costs approximately $2,500,
which includes all building costs including the basic electricity.
Additionally, the Company has executed a Letter of Intent with Guatemalan
housing developer TERRAZE to build 4,100+ houses for its development in the
Frajaines area of Guatemala, C.A. The housing developer, TERRAZE is responsible
for urbanization of the property, including electricity, water, sewer, gas and
roads, while Terra Block will build the two-story homes using the Terra Block
System.
The next phase in this division is to begin a World House development over the
next nine months, to continue on the TERRAZE project and to continue expansion
in additional markets.
MANUFACTURING AND SALES
In the third quarter of 2003, the Company started generating revenue with the
sale of an exclusive right to negotiate for a license to use and sell the Terra
Block System in the Territory of Guam. The Company plans to continue
negotiations for licenses and/or joint ventures in other markets.
TECSTOR
TECSTOR provides for the long-term containment and storage of hazardous waste.
TECSTOR is a patented EPA approved design for above ground hazardous waste
Storage
The next phase in this division is to begin construction of up to five TECSTOR
facilities in Guatemala and to expand to additional markets.
LIQUIDITY AND CAPITAL RESOURCES
In Note # 5 to our financial statements, our independent auditors have indicated
that certain factors raise substantial doubt about our ability to continue as a
going concern.
Since the Company was acquired by L.L. Brown International, Inc. in February of
2003, the Company has derived nominal revenue and has suffered a loss from
operations and has been dependent on existing stockholders and new investors to
provide the cash resources to sustain its operations. During the nine months
ended September 30, 2003, the Company reported a net loss of $ 58,445.
The Company's long-term viability as a going concern is dependent on certain key
factors, as follows:
- The Company's ability to continue to successfully obtain adequate
sources of outside financing to support near term operations and to
allow the Company to continue forward with current strategic plans.
- The Company's ability to generate revenue from housing projects,
TECSTOR and licensing agreements.
- The Company's ability to increase profitability and sustain a cash
flow level that will ensure support for continuing operations.
2003 OUTLOOK
The Company anticipates continuing development of the projects currently
underway in Guatemala and plans to expand into additional geographical markets.
The Company is currently planning to begin a World House development over the
next nine months, and to begin construction on the TERRAZE project for up to
4,100 homes in Guatemala. In addition, the Company has plans to build up to five
TECSTOR facilities in Guatemala. The Company also plans on continuing to sell
licenses and the machinery to different geographic areas. The origination of
these projects is contingent upon securing financing.
Our plan of operation calls for additional capital to facilitate growth and
support long-term development and marketing programs. It is likely that we will
seek additional financing through subsequent future public or private sales of
our securities, including equity securities, borrowing, or other sources of
third party financing. Further, the sale of equity securities would
substantially dilute our existing stockholders' interests, and borrowings from
third parties could result in our assets being pledged as collateral. Loan
terms, which would increase our debt service requirements, could restrict our
operations. There is no assurance that we can obtain financing on favorable
terms. Any such additional financing may result in significant dilution to
existing stockholders. We may also seek funding for the development and
marketing of our services through strategic partnerships and other arrangements
with investment partners. There can be no assurance, however, that such
collaborative arrangements or additional funds will be available when needed, or
on terms acceptable to us, if at all. If adequate funds are not available, we
may be required to curtail one or more of our future programs.
FORWARD-LOOKING INFORMATION
The statements contained herein and other information contained in this report
may be based, in part, on management's estimates, projections, plans and
judgments. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated. In this report, the words
"anticipates", "believes", "expects", "intends", "future", "plans", "targets"
and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on the forward-looking statements
contained herein. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that may arise
after the date hereof. Additionally, these statements are based on certain
assumptions that may prove to be erroneous and are subject to certain risks
including, but not limited to, the Company's dependence on limited cash
resources, its dependence on certain key personnel within the Company, and its
ability to raise additional capital. The Company's ability to generate
long-term value for the common stockholder is dependent upon the utilizing the
Terra Block process. There are many companies participating in the building
industry, many with resources greater than the Company. Greater competition for
profitable operations can increase prices and make it more difficult to develop
project at reasonable multiples of cash flow. The Company believes that it will
be able to compete in this environment and will be able to find attractive
investments; however, it is not possible to predict competition or the effect
this will have on the Company's operations. The Company's operations are also
significantly affected by factors, which are outside the control of the Company,
including the environmental and governmental regulations. Accordingly, actual
results may differ, possibly materially, from the predictions contained herein.
ITEM 3. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Gregory A. Pitner, President, has concluded that our disclosure controls and
procedures are appropriate and effective. He has evaluated these controls and
procedures as of a date within 90 days of the filing date of this report on Form
10-QSB. There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
James E. Hines, Chief Financial Officer, has concluded that our disclosure
controls and procedures are appropriate and effective. He has evaluated these
controls and procedures as of a date within 90 days of the filing date of this
report on Form 10-QSB. There were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
PART II
Pursuant to the Instructions on Part II of the Form 10-QSB, Items 1 and 3 are
omitted.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 5. OTHER INFORMATION
Craig A. Kaufman joined the Board of Directors in the 3rd Quarter 2003. Mr.
Kaufman is a business consultant with 18 years of experience as an entrepreneur,
financier, investor, and advisor to both private and public companies. As
President of Kaufman and Associates, Inc., a worldwide consulting company, Mr.
Kaufman has been successful helping his clients build their businesses by
monitoring focus, utilizing unique marketing strategies and pioneering
innovative business techniques. Mr. Kaufman is a managing director of SageGroup
Strategies, Inc. the largest Professional "Troubled-Company" Specialist firm in
the world with over 600 professionals and offices throughout the worldIn
addition, Mr. Kaufman has authored and been the subject of numerous articles
that have appeared locally and internationally in periodicals such as American
Venture, Barter Age, Units, New York Real Estate Journal, Inventor's Digest and
Wealth Building among others.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit 31.1 - Certification of Chief Executive Officer of Terra Block
International, Inc. required by Rule 13a - 14(1) or Rule 15d - 14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2 - Certification of Chief Financial Officer of Terra Block
International, Inc. required by Rule 13a - 14(1) or Rule 15d - 14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.1 -- Certification of Chief Executive Officer of Terra Block
International, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
and Section 1350 of 18 U.S.C. 63.
Exhibit 32.2 -- Certification of Chief Financial Officer of Terra Block
International, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
and Section 1350 of 18 U.S.C. 63.
(B) Reports on Form 8-K
None
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.
TERRA BLOCK INTERNATIONAL, INC.
DATE: NOVEMBER 14, 2003 BY: /S/ GREGORY A. PITNER
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GREGORY A. PITNER, PRESIDENT,
CEO AND CHAIRMAN