U.S. 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 quarter ended September 30, 2000
Commission file no.: 000-31935
L.L. Brown International, Inc.
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(Name of small business issuer in its charter)
Nevada 65-0729440
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19435 68th Avenue South, Suite S-105
Kent, Washington 98032
- -------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (425) 251-8086
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
None None
- ----------------------------- -------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
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(Title of class)
Copies of Communications Sent to:
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696
Fax: (561) 659-5371
Indicate by Check whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ----
As of September 30, 2000, there are 10,601,803 shares of voting stock
of the registrant issued and outstanding.
PART I
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
L.L. Brown International, Inc.
INDEX Page
Consolidated Financial Statements Balance sheets............................F-1
Statements of operations....................................................F-2
Statements of stockholders' equity (deficit)................................F-3
Statements of cash flows....................................................F-4
Notes to financial statements...............................................F-5
L.L. Brown International, Inc.
Consolidated Balance Sheets
September 30, 2000 and 1999
ASSETS
2000 1999
Current Assets
Accounts receivable 18,274 98,841
Inventory 81,923 21,125
Deposits 7,854 7,854
-------------- -------------
Total current assets 108,051 127,820
-------------- -------------
Property and Equipment, net 58,511 30,807
-------------- -------------
Other Assets
Due from Stockholders 10,624 7,982
-------------- -------------
TOTAL ASSETS $ 177,185 $ 166,609
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Bank Overdrafts $ 7,890 $ 25,488
Accounts Payable 155,246 168,651
Notes Payable 22,602 24,926
Accrued payroll and business taxes 51,833 37,526
Current maturities of long-term debt 38,787 32,500
-------------- -------------
Total current liabilities 276,358 289,090
-------------- -------------
Long term Debt, less current maturities 77,230 81,851
-------------- -------------
Stockholders' Equity (Deficit)
Preferred stock, $.001 per value, 1,000,000
shares authorized, no shares issued
Common stock, $.001 per value, 20,000,000 shares authorized,
10,578,643 shares issued and outstanding in 2000,
10,444,803 shares issued and outstanding in 1999 10,580 10,445
Additional paid-in capital 188,210 179,595
Accumulated deficit (375,193) (394,372)
-------------- -------------
Total Stockholders' Equity (Deficit) (176,403) (204,332)
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT) $ 177,185 $ 166,609
============== =============
See accompanying notes and accountant's report
F-1
L.L. Brown International, Inc.
Consolidated Statements of Operations
For the Nine Months Ended September 30, 2000 and 1999
2000 1999
Revenues $ 625,663 $ 647,405
Cost of Sales 325,970 $ 320,319
-------------- ------------
Gross Profit 299,693 327,086
General & Administrative $ 300,851 $ 248,846
-------------- ------------
Income(Loss) on Operations (1,158) 78,240
Interest expenses 21,240 20,473
-------------- ------------
Net Income (Loss) before Income Taxes (22,398) 57,767
Income Taxes - -
Net Income (Loss) $ (22,398) $ 57,767
============== ============
Net Income(Loss) per share - basic and diluted: $ (0.002) $ 0.006
Weighted Average Basic shares Outstanding 10556414 10376553
See accompanying notes and accountant's report
F-2
L.L. Brown International, Inc.
Consolidated Statements of Stockholders' Equity(Deficit)
For the Nine Months Ended September 30, 2000 and 1999
Common Stock Additional
------------- paid- in Accumulated
Shares Amount capital Deficit Total
------ ------ ------- ------- -----
Beginning Balance
December 31, 1998 10183968 $ 10,184 $ 150,249 $ (452,139) $ (291,706)
Shares Purchased 29500 30 $ 29,346 29,376
Shares Issued as
Compensation (value$0.001) 231335 $ 231 231
Net Income(Loss) 57,767 57,767
Ending Balance September 30, 1999 10444803 $ 10,445 $ 179,595 $ (394,372) $ (204,332)
=========== ========= ============= ============ ==============
Common Stock Additional
------------- paid- in Accumulated
Shares Amount capital Deficit Total
------ ------ ------- ------- -----
Beginning Balance
December 31, 1999 10465303 $ 10,466 $ 179,719 $ (352,795) $ (162,610)
Shares Purchased 8500 9 8,491 8,500
Shares issued as
Compensation(value $0.001) 104840 105 105
Net Income(Loss) (22,398) (22,398)
Ending Balance
September 30, 2000 10578643 $ 10,580 $ 188,210 $ (375,193) $ (176,403)
=========== ========= ============= ============ ==============
See accompanying notes and accountant's report
F-3
L.L. Brown International, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
Cash flows from operating activities 2000 1999
---- ----
Net Income (Loss) $ (22,398) $ 57,767
--------------- -------------
Adjustments to reconcile net loss used in operating activities
Depreciation 11,850 15,364
Stock issued in Lieu of Cash Compensation 105 231
Changes in operating assets and liabilities
Accounts receivable 53,608 (72,068)
Inventory - -
Deposits - -
Accounts payable (19,526) (38,990)
Accrued liabilities 18,048 15,526
--------------- -------------
Total adjustments 64,085 (79,937)
--------------- -------------
Net cash provided (used) in operating activities 41,687 (22,171)
--------------- -------------
Cash flows from financing activities
Proceeds from issuance of long-term debt
Proceeds from issuance of common stock 8,500 29,376
Bank Overdrafts (9,941) 25,488
Net borrowings(payments) on notes payable (2,418) (1,436)
Principal payments on long-term debt 832 (28,903)
Net advances to stockholders (3,264) 6,962
--------------- -------------
Net cash provided by financing activities (6,291) 31,486
--------------- -------------
Cash Flows from Investing Activities
Dispositions of Property & Equipment 6,442
Purchases Property & Equipment (42,774) (10,288)
--------------- -------------
Net cash provided(used) by Investing Activities (36,332) (10,288)
Net increase in cash (936) (972)
Cash at Beginning of Year 936 972
--------------- -------------
Cash at September 30 $ (0) $ (0)
=============== =============
Supplemental disclosures of cash flow information
Cash paid during the period for Interest $ 21,240 $ 20,473
=============== =============
See accompanying notes and accountant's report
F-4
L.L. Brown International, Inc.
Notes to Consolidated Financial Statements
September 30, 2000 & 1999
Note 1 - Organization
L.L. Brown International, Inc. ("The Company") is a Nevada Corporation that
conducts business from its headquarters in Kent, Washington. The Company was
incorporated in February 1997 as Smart Industries, Inc., and changed its name to
L.L. Brown International, Inc. in March 1998.
In March 1998, the Company acquired 100 percent of the issued and outstanding
shares of the common stock of L.L. Brown & Associates, Inc., a Washington
corporation, by issuing 8,900,000 shares of its stock.
The Company is an educational corporation that designs curriculum and programs
which are intended to teach people how to make positive changes in their lives.
The Company sells materials and delivers seminars to corporations, nonprofit
organizations, universities, welfare agencies, school districts, and youth
service agencies throughout the United States.
Note 2 - Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of L.L. Brown
International, Inc. and its wholly owned subsidiary L.L. Brown & Associates,
Inc. All significant intercompany balances and transactions have been
eliminated.
Accounts Receivable
Accounts receivable consists primarily of trade receivables, bad debts are
written off at the time they become uncollectiable.
Inventories
Inventories consist of printed and audio/visual materials developed by the
Company and are stated at the lower cost or market based on the first-in,
first-out method.
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.
F-5
L.L. Brown International, Inc.
Notes to Consolidated Financial Statements
September 30, 2000 & 1999
Property and equipment
Property is stated at historical cost as detailed in Note 3. Major expenditures
for property and those that substantially increase the useful lives of property
are capitalized. Property is depreciated using the straight-line method over the
estimated useful lives of the assets, ranging between five and seven years.
Leased property is stated at the lower of the present value of future minimum
lease payments or fair value of the property. Leased property is depreciated on
a straight-line basis over the shorter of the lease term or the estimated useful
lives ranging between five and seven years. Amortization of assets held under
capital leases is included in depreciation expense.
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.
Revenue Recognition
The Company recognizes revenue at the time of shipment of product to its
customers or completion of services provided.
Stock-based Compensation
The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations and to
elect the disclosure option of SFAS No. 123, "Accounting for Stock-Based
Compensation". Accordingly, compensation cost for stock options issued to
employees is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock.
Note 3 - Property and Equipment
The following is a summary of property and equipment, at cost:
2000 1999
============= =============
Office Equipment $ 84,058 $ 71,793
Furniture & Fixtures 45,122 45,122
Vehicles 42,775 29,740
Leasehold improvements 6,227 6,227
------------- -------------
Less: Accumulated depreciation & amortization $ 178,182 $ 156,412
(119,672) (125,605)
------------- -------------
$ 58,510 $ 30,807
============= =============
F-6
L.L. Brown International, Inc.
Notes to Consolidated Financial Statements
September 30, 2000 & 1999
Note 4 - Notes Payable
Notes payable to banks consisted of the following: 2000 1999
--------- ---------
The Company is obligated under a demand note payable to
a bank on which interest accrues at 9.75%. The note is secured by
substantially all trade receivables, inventory and equipment. $ 9,525 $ 10,000
A line of credit under which the Company may borrow up to
$15,000, is payable to a bank in interest only installments at 14.5%. $ 13,077 $ 14,926
$ 22,602 $ 24,926
======== ========
Note 5 - Long-term Debt
Long-term debt consists of the following: 2000 1999
--------- ---------
Note payable to a bank in monthly installments of $548 including
interests at9.75%, due December 2001, secured by automobile,
Vehicle was traded in on August 8, 2000, debt was liquidated $ $ 13,381
Lease payable to Renton Lincoln in monthly installments of $543,
With balloon payment of $18,226.60 at the end of 36 months,
secured By automobile $ 37,775
Note payable to a bank in monthly installments of $3,207 $ 78,243 $ 100,970
including interest at 9.75%, due October 2002, secured by
substantially all trade receivables, inventory and equipment
$ 116,018 $ 114,351
---------- ---------
Less current maturities $ 38,788 $ 32,500
Long-term debt, less current maturities $ 77,230 $ 81,851
========== =========
Minimum future payments under long-term debt agreements for each of the next
five years and in the aggregate are as follows:
Year ended September 30,
2001 $ 38,788
2002 42,080
2003 16,923
2004 18,226
116,018
=========
F-7
L.L. Brown International, Inc.
Notes to Consolidated Financial Statements
September 30, 2000 & 1999
Note 6 - Advertising
Advertising costs are charged to operations when incurred, which amounted to
$9,628 for 2000 and $2,009 for 1999.
Note 7 - Federal Income Taxes
At September 30, 2000 and 1999, the Company had net operating loss carryforwards
of approximately $350,000 and $450,000 respectively, expiring in year 2013. The
amount recorded as deferred tax assets as of September 30, 2000 and 1999 was
approximately $ 130,000 and $150,000 respectively, which represents the amount
of tax benefits arising from the loss of carryforwards. 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 $130,000 and $150,000 against this deferred tax asset.
Note 8 - Commitments
The Company leases its administrative offices and certain equipment under
operating leases expiring in 2004. The Company is obligated for minimum
non-cancelable rental payments under the lease through its term as follows:
Year ended June30,
2001 $ 73,422
2002 72,082
2003 73,750
2004 39,800
$ 259,054
============
Note 9 - Acquisitions
Effective March 14, 1998 the Company issued 8,900,000 shares of its common stock
for all the outstanding shares of L.L. Brown & Associates, Inc., a Washington
company. L.L. Brown & Associates is an educational corporation that designs
curriculum and programs which are intended to teach people how to make positive
changes in their lives. Based upon the estimated fair market value of L.L. Brown
International's stock ($ .001 per share), the total purchase consideration of
the Company was approximately $ 9,900. The acquisition was accounted for using
the purchase method with the purchase price allocated to the acquired assets and
liabilities based on their respective estimated fair value at the acquisition
date. Such allocations were based on evaluations and estimations. The purchase
allocation is summarized as follows:
Current Assets $ 231,019
Property and Equipment 53,403
Current Liabilities (251,684)
Long-Term Liabilities (22,838)
$ 9,900
===========
The Company had advances of $ 10,624 and $ 7,983 to the Vice President as of
September 30, 2000 and 1999 respectively.
F-8
Item 2. Management's Discussion and Analysis of Results of Operations.
General
From September 1998 through September 2000, the Company issued shares
totaling One Hundred Seventy Five Thousand Five Hundred (175,500) shares of the
Company's Common Stock. Such shares were issued as payment for services to Neil
Rand d.b.a. Corporate Imaging in connection with their consulting in business
management, public and investor relations and other related corporate advisory
services and assistance to the Company. The shares were issued pursuant to
Section 4(2) of the Act of Regulation D, promulgated thereunder ("Rule 506"),
Section R14-4-126 of the Arizona Code and Section 517.061(11) of the Florida
Code.
The Company relied upon Section R14-4-126 of the Arizona Revised
Statutes for this transaction. The facts relied upon to make the Arizona
Exemption include the following: (i) units were sold to less than thirty-five
(35) persons; (ii) each purchaser who was not an accredited investor either
alone or with purchaser representative had such knowledge and experience in
financial and business matters sufficient to evaluate the merits and risks of
the prospective investment; (iii) the bad boy provisions of the rule apply to
neither the Company nor its predecessors or affiliates; and (iv) neither the
issuer nor any person acting on its behalf offered or sold the securities by any
form of general solicitation or general advertising; (v) the Company filed a
completed SEC Form D with the Arizona Corporation Commission signed by a person
duly authorized by the issuer; (vi) the Forms were filed not later than 15 days
after the first sale of the securities in Arizona; (vii) the Company paid an
appropriate filing fee of $250.00 to the Arizona Corporation Commission.
The Company relied upon Florida Code Section 517.061(11) for this
transaction. In each instance, such reliance is based on the following: (i)
sales of the shares of Common Stock were not made to more than 35 persons; (ii)
neither the offer nor the sale of any of the shares was accomplished by the
publication of any advertisement; (iii) all purchasers either had a preexisting
personal or business relationship with one or more of the executive officers of
the Company or, by reason of their business or financial experience, could be
reasonably assumed to have the capacity to protect their own interests in
connection with the transaction; (iv) each purchaser represented that he was
purchasing for his own account and not with a view to or for sale in connection
with any distribution of the shares; and (v) prior to sale, each purchaser had
reasonable access to or was furnished all material books and records of the
Company, all material contracts and documents relating to the proposed
transaction, and had an opportunity to question the executive officers of the
Company. Pursuant to Rule 3E-500.005, in offerings made under Section
517.061(11) of the Florida Statutes, an offering memorandum is not required;
however each purchaser (or his representative) must be provided with or given
reasonable access to full and fair disclosure of material information. An issuer
is deemed to be satisfied if such purchaser or his representative has been given
access to all material books and records of the issuer; all material contracts
and documents relating to the proposed transaction; and an opportunity to
question the appropriate executive officer. In the regard, the Company supplied
such information and was available for such questioning.
Between May 1999 and July 2000 the Company sold 29,000 shares of its
Restricted Common Stock to six (6) individuals for a total of twenty seven
thousand dollars ($27,000). The offering was conducted pursuant to Section 4(2)
of the Act, Rule 506, Section 25102.1 of the California Code and Section 10-5-9
(13) of the Georgia Code.
The Company relied upon Section 25102.1 of the California Code for
this transaction. The facts relied upon to make the California Exemption include
the following: (i) the Company filed a completed SEC Form D with the California
Department of Corporations; (ii) the Company executed a Form U-2 consent to
service of process in the state of California; (iii) the Forms were filed not
later
than 15 days after the first sale of the securities in California; and (v) the
Company paid an appropriate filing fee.
The Company relied upon Geogia Code Section 10-5-9(13) for this
transaction. Such reliance is based on the following: (i) the number of Georgia
purchasers did not exceed fifteen (15); (ii) the securities were not offered for
sale by means of any form of general or public solicitations or advertisements;
(iii) a legend was placed upon the certificates; and (iv) each purchaser
represented that he purchased for investment.
In July 2000 the Company entered into an agreement with the State of
Washington Department of Social and Health Services ("DSHS"). The agreement is a
Client Service Contract for L.L. Brown to provide a three (3) day, twenty (20)
hour "Independent Thinking Skills for Motivation and Retention" training to
participants. The training will address the psychological barriers and
developmental skills necessary to become gainfully employed. The contract start
date is July 1, 200 and ends June 30, 2001. DSHS shall compensate L.L. Brown a
maximum of $365 per participant who completes the entire three (3) day training,
to be paid by invoice submitted not more than thirty (30) days after performance
of services.
From April 1999 through August 2000, the Company issued 205,500
shares of its Restricted Common Stock to thirty four (34) individuals for
release from debt for all services rendered on behalf of the Company to date.
Such services were as follows: Alonza Fant Nelson received 10,000 shares for
storage and delivery of training materials; Larriee Brown received 2,500 shares
for setting up conferences; Lavern Calloway Otis received 5,000 shares for
services relating to internet research; Albert M Brown received 2,500 shares for
conference services; Edgar Brown received 2,500 shares for conference services;
Howard Scott received 2,500 shares for transportation of training materials;
Earnest Scott received 1,000 shares for conference services; Stephanie brown
received 1,000 shares for conference set-up services; Darsel Brown received
1,000 shares for conference registration services; Yvonne Brown received 1,000
shares for conference registration services; Jim & Floretta Esclavon received
2,000 shares for proofreading of books; Shirlene Fant Rand received 6,000 shares
for marketing and sales of L.L. Brown books; Shirlene Fant Rand received 12,000
shares for public relations consulting services; Sharon Hamilton received 1,000
shares for conference set-up services; Beverly Brown received 1,000 shares for
conference set-up services; Dr. Barbara Susan Levy received 75,000 shares for
media consulting services; Charles Aycock received 2,500 shares as a staff
bonus; John Arvizu received 2,500 shares as a staff bonus; Maria Tagaleoo
received 2,500 shares as a staff bonus; Brian Tutt received 2,500 shares for
conference set-up; Jewel Natasha Timoteo received 1,500 as a staff bonus; Nikki
Esclavon received 1,500 shares as a staff bonus; Michael Shelby Edwards received
2,500 shares for conference services; Clayton Frank Chong received 1,000 shares
for conference services; Thelma Lee Standhart received 2,500 shares for
marketing services; Lewis and Shirley Sheffield received 10,000 shares for
marketing services; Margaret Tami Henley received 2,500 shares as a staff bonus;
Margaret Tami Henley received another 1,000 shares as a staff bonus; Jimmy
Calloway received 6,000 shares for board participation and strategic planning
services; Jewel Morris received 1,000 shares as a board participant; Maria
Tageleoo received another 2,000 shares as a staff bonus; Jewel Timoteao received
2,000 shares as a staff bonus; Charles Steele received 10,000 shares for board
participation and public relations services; Alan & Viola Ose received 5,000
shares for storage of materials; Steve and Sandy Mundahl received 6000 shares
for their co-writing services; Eddie L. Young & Natilyne W. Young received 5,000
shares for the marketing and training services; and Shirley Scheffield received
10,000 shares for marketing and public relations services. The offering was
conducted pursuant to Section 4(2) of the Act, Rule 506, Section 8-6-11 of the
Alabama Code, Section R14-4-126 of the Arizona Code, Section 25102.1 of the
California Code, Section 10-5-9 (13) of the Georgia Code, Rule 803.7 and Section
402(b)(21) of the Michigan Code, Section .1205 of the North Carolina Code,
Sec. 48-2-125 of the Tennessee Code, Section 460-44A-506 of the Washington Code,
and Section 17-4-114 of the Wyoming Code.
The Company relied upon Section 8-6-11 of the Alabama Code of 1975, as
amended for this transaction. The facts relied upon to make the Alabama
Exemption include the following: (i) the sale was to not more than 10 persons
within a 12 month period; (ii) the issuer reasonably believes that all buyers
are purchasing for investment purposes only; (iii) the issuer makes a reasonable
inquiry to determine if the purchaser is acquiring the securities for him or
herself or for other persons; (iv) the issuer provides written disclosure to
each purchaser prior to the sale that the securities have not been registered
under the Act and therefore, cannot be resold unless they are registered under
the Act or unless an exemption from registration is available; (v) a legend is
placed on the certificate that states that the securities have not been
registered under the act and setting forth the restrictions on transferability
and sale of the securities; (vi) no commission or other remuneration is paid for
soliciting any prospective buyer; (vii) no public advertisement or general
solicitation is used in connection with the issue; (viii) the Company filed a
completed SEC Form D with the Alabama Securities Division; (ix) the Company
executed a Form U-2 consent to service of process in the state of Alabama and
(x) the Company paid an appropriate filing fee to the Alabama Securities
Commission.
The Company relied upon Section R14-4-126 of the Arizona Revised
Statutes for several transactions. The facts relied upon to make the Arizona
Exemption include the following: (i) units were sold to less than thirty-five
(35) persons; (ii) each purchaser who was not an accredited investor either
alone or with purchaser representative had such knowledge and experience in
financial and business matters sufficient to evaluate the merits and risks of
the prospective investment; (iii) the bad boy provisions of the rule apply to
neither the Company nor its predecessors or affiliates; and (iv) neither the
issuer nor any person acting on its behalf offered or sold the securities by any
form of general solicitation or general advertising; (v) the Company filed a
completed SEC Form D with the Arizona Corporation Commission signed by a person
duly authorized by the issuer; (vi) the Forms were filed not later than 15 days
after the first sale of the securities in Arizona; (vii) the Company paid an
appropriate filing fee of $250.00 to the Arizona Corporation Commission.
The Company relied upon Section 25102.1 of the California Code for
this transaction. The facts relied upon to make the California Exemption include
the following: (i) the Company filed a completed SEC Form D with the California
Department of Corporations; (ii) the Company executed a Form U-2 consent to
service of process in the state of California; (iii) the Forms were filed not
later than 15 days after the first sale of the securities in California; and (v)
the Company paid an appropriate filing fee.
The Company relied upon Geogia Code Section 10-5-9(13) for this
transaction. Such reliance is based on the following: (i) the number of Georgia
purchasers did not exceed fifteen (15); (ii) the securities were not offered for
sale by means of any form of general or public solicitations or advertisements;
(iii) a legend was placed upon the certificates; and (iv) each purchaser
represented that he purchased for investment.
The Company relied upon Rule 803.7 and Section 402(b)(21) of the
Michigan Uniform Securities Act for several transactions. The facts relied upon
to make the Michigan Exemption include the following: (i) the Company filed a
completed SEC Form D with the Michigan Securities Division; (ii) the Company
executed a Form U-2 consent to service of process in the state of Michigan;
(iii) the Forms were filed not later than 15 days after the first sale of the
securities in Michigan; (iv) the Company provided the Michigan State Securities
Administrator a copy of the information furnished by the Company to the
offerees, which constitutes disclosure adequate to satisfy the anti-fraud
provisions of the act; and (v) the Company paid an appropriate filing fee of
$100.
The Company relied upon Rule .1205 of the North Carolina Code for
this transaction. Such reliance is based on the following: (i) no commission,
discount, finders fee or other similar remuneration or compensation shall be
paid, directly or indirectly to any person for soliciting any prospective
purchaser of the security sold to a North Carolina Resident; (ii) any prospectus
or disclosure document used in the offering shall disclose conspicuously the
legends required by Rule .1316 of the North Carolina Code; (iii) not less than
10 business days prior to any sale or receipt of signed subscription agreement
of the securities to a resident of North Carolina, the issuer shall file with
the administrator (a) a statement signed by the issuer and acknowledged before a
notary public identifying the issuer, including name, form of organization,
address and telephone number, (b) a statement signed by the issuer and
acknowledged before a notary public identifying the persons who will be selling
the securities in North Carolina and describing any commissions, discounts, fees
or other remuneration or compensation to be paid to such persons, (c) a summary
of the proposed offering; (iv) a Form U-2 Consent to Service of Process is filed
naming the North Carolina Secretary of State as the service agent, signed by the
issuer; (v) a filing fee of $25.00 is submitted, payable to the North Carolina
Secretary of State; (vi) if the sale is offered to not more than 5 individuals
who reside in North Carolina, compliance with .1205 is not required; (vii)
neither the issuer nor any person acting on the issuer's behalf shall offer or
offer to sell by any means or any form of general solicitation or general
advertising.
The Company relied upon Section. 48-2-125, as interpreted by Rule
0780-4-2-.11 of the Tennessee Securities Act of 1980 for this transaction. The
facts relied upon to make the Tennessee Exemption include the following: (i) the
Company filed a completed SEC Form D with the Tennessee Division of Securities;
(ii) the Form was filed not later than 15 days after the first sale; (iii) the
Company provided the Tennessee Division of Securities a copy of the information
furnished by the Company to the offerees, (iv) the Company executed a Form U-2
consent to service of process; and (v) the Company paid an appropriate filing
fee.
The Company relied upon Section 460-44A-506 of the Washington Code for
several transactions. The facts relied upon to make the Washington Exemption
include the following: (i) the Company filed a completed SEC Form D with the
Washington Department of Financial Institutions, Securities Division; (ii) the
Form was filed not later than 15 days after the first sale; and (iii) the
Company executed a Form U-2 consent to service of process, and (iv) the Company
paid an appropriate filing fee of $300.00 to the Washington State Treasurer.
The Company relied upon Section 17-4-114 of the Wyoming Code for this
transaction. The facts relied upon to make the Wyoming Exemption include the
following: (i) the sale was to not more that 15 persons with 12 months, (ii) the
issuer reasonably believes that all the buyers are purchasing for investment
purposes, (iii) no commission or other remuneration is paid for soliciting any
prospective buyer in Wyoming, (iv) the Company filed a completed SEC Form D with
the Wyoming Secretary of State; (v) the Company executed a Form U-2 consent to
service of process in the state of Wyoming; and (vi) the Company paid an
appropriate filing fee.
In September 2000, the Company entered into a Consulting Contract
with David Penney & Associates ("DPA"). DPA is to locate possible merger and
acquisition candidates, as well as sources of financing for the Company. As
compensation, DPA shall be entitled to a fee of ten percent (10%) of the
financing obtained or ten percent (10%) of the total value of the stock to be
exchanged. DPA also has piggy-back registration rights in the event restricted
shares are issued.
Discussion and Analysis
The Company has been engaged in the motivational training business
since its inception in February 1997. In March 1998, it acquired L.L. Brown and
Associates, Inc., a Washington corporation ("LLBA") formed in September 1992 as
a wholly-owned subsidiary, which was also engaged in the motivational training
business. Both the Company's and LLBA's founding philosophies arose from the
diversified experience of their management in the motivational training and
related industries.
The Company was formed in February 1997 and had little or no
operations until March, 1998, when it acquired LLBA. L.L. Brown is a public
educational corporation which designs and markets curricula and training
materials that teach people how to make positive changes in their lives. Its
principle purpose is to teach techniques in critical thinking, self-image
psychology and self motivation which helps people to improve the quality of
their lives.
L.L. Brown's seminars and training material are widely used by
corporations, non-profit agencies, universities, social service agencies, school
districts and youth services agencies. The Company works with people to show
them that change is possible and shows organizations and their employees how to
become resilient, focused, goal oriented and innovative. They use techniques in
self-image psychology and mind/brain research and apply it to everyday
situations, such as transition and decision making. Their customers are taught
to achieve their personal and professional goals with an array of products and
services.
Results of Operations -For the Nine Months Ending September 30, 2000 and
September 30, 1999
Financial Condition, Capital Resources and Liquidity
Through the 3rd quarter ended September 30, 1999 and 2000 the Company
recorded revenues of $647,405 and $625,663 respectively. For the third quarter
ended September 30, 1999 and 2000 the Company had general and administrative
expenses and total operating expenses of $248,846 and $300,851 respectively.
This increase of $52,005 was due to an increase in advertising, customer
entertainment, insurance costs, temporary support staffing and rent.
Through the 3rd quarter ended September 30, 1999 and 2000, the
Company had research and experimentation expenses of $0 and $0, respectively.
Net Losses
Through the 3rd quarter ended September 30, 1999 the Company reported
a net income of $57,767. Through the 3rd quarter ended September 30, 2000 the
Company reported a net loss of $22,398. The decrease is primarily due to less
revenues and higher administrative expenses.
The ability of the Company to continue as a going concern is
dependent upon increasing sales and obtaining additional capital and financing.
The Company is currently seeking financing to allow it to continue its planned
operations.
Employees
At September 30, 2000, the Company employed five (5) persons. None of
these employees are represented by a labor union for purposes of collective
bargaining. The Company considers its
relations with its employees to be excellent. The Company plans to employ
additional personnel as needed upon product rollout to accommodate fulfillment
needs.
Research and Development Plans
The Company believes that research and development is an important
factor in its future growth. The self improvement and motivation industry is
closely linked to psychological advances, which enhance the quality of the
Company's products and services for its use by the public. Therefore, the
Company must continually invest in the latest technology to appeal to the public
and to effectively compete with other companies in the industry. No assurance
can be made that the Company will have sufficient funds to research
psychological advances as they become available. Additionally, due to the rapid
advance rate at which self-psychology advances, the Company's research and
materials may be outdated quickly, preventing or impeding the Company from
realizing its full potential profits.
Forward-Looking Statements
This Form 10-QSB includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included or incorporated by reference in
this Form 10-QSB which address activities, events or developments which the
Company expects or anticipates will or may occur in the future, including such
things as future capital expenditures (including the amount and nature thereof),
expansion and growth of the Company's business and operations, and other such
matters are forward-looking statements. These statements are based on certain
assumptions and analyses made by the Company in light of its experience and its
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate in the
circumstances. However, whether actual results or developments will conform with
the Company's expectations and predictions is subject to a number of risks and
uncertainties, general economic market and business conditions; the business
opportunities (or lack thereof) that may be presented to and pursued by the
Company; changes in laws or regulation; and other factors, most of which are
beyond the control of the Company.
Consequently, all of the forward-looking statements made in this Form
10-QSB are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequence to or effects on the Company or its business or operations.
PART II
Item 1. Legal Proceedings.
The Company knows of no legal proceedings to which it is a party or
to which any of its property is the subject which are pending, threatened or
contemplated or any unsatisfied judgments against the Company.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the quarter ending September 30, 2000,
covered by this report to a vote of the Company's shareholders, through the
solicitation of proxies or otherwise.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed herewith by Item 601 of Regulation S-B,
as described in the following index of exhibits, are incorporated herein by
reference, as follows:
Item 1. Index to Exhibits
Exhibit No. Description
- ---------- -------------------------------
3.(i).1 (1) Articles of Incorporation of Smart Industries, Inc. filed February 19, 1997.
3.(i).2 (1) Certificate of Amendment of Articles of Incorporation changing name to L.L. Brown
International, Inc. filed March 24, 1998.
3.(ii).1 (1) Bylaws of Smart Industries, Inc.
4.1 (1) Form of Private Placement Offering of 1,600,000 common shares at $0.01 per share
dated February 1997.
4.2 (1) Form of Private Placement Offering of 500,000 common shares at $1.00 per share
dated April 1998.
4.3 (1) Promissory Note between L.L. Brown and KeyBank National Association in the
amount of $126,104.00 dated October 1998.
10.1 (1) Consulting Agreement between Neil Rand of Corporate Imaging and L.L. Brown
dated March 2, 1998.
10.2 (1) Share Exchange Agreement between L.L. Brown International, Inc. and LL Brown
& Associates, Inc. dated March 14, 1998.
10.3 (1) Agreement between Steven Mundahl and Lester L. Brown to assist in writing
auto-biography, dated September 1998.
10.4 (1) Production Agreement between KBDI and Lester Brown dated September 1998.
10.5 (1) Standard Industrial Lease between L.L. Brown and Cook Inlet Region, Inc. dated
January 1999.
10.6 (1) Service Contract between L.L. Brown and the County of Washtenaw, dated
January 2000.
10.7 (1) Agreement between L.L. Brown and Kern County for an Independent Thinking
Skills Training for CalWorks Participants, dated May 2000.
10.8 (1) Client Service Contract between L.L. Brown and the State of Washington
Deportment of Social and Health Services, dated June 2000.
10.9 (1) Non-Circumvention/Finder's Fee Agreement between L.L. Brown and David
Penney & Associates, dated September 2000.
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(1) Incorporated herein by reference to the Company's Registration Statement on
Form 10-SB.
Item 2. Description of Exhibits
The documents required to be filed as Exhibits Number 2 and 6 and in
Part III of Form 1-A filed as part of this Registration Statement on Form 10-SB
are listed in Item 1 of this Part III above. No documents are required to be
filed as Exhibit Numbers 3 , 5 or 7 in Part III of Form 1-A and the reference to
such Exhibit Numbers is therefore omitted. The following additional exhibits are
filed hereto:
SIGNATURES
-----------------------------
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
L.L. Brown International, Inc.
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(Registrant)
Date: 1/5/00 By: /s/ Carolyn Scott Brown
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Carolyn Scott Brown, President
By: /s/ Lester L. Brown
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Lester L. Brown, Vice-President