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, 2001
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19435 68th Avenue South, Suite S-105
Kent, Washington 98032
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(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
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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 twelve (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
ninety (90) days.
Yes X No
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As of September 30, 2001, there were 10,638,803 shares of voting stock of
the registrant issued and outstanding.
PART I
Item 1. Financial Statements
L.L. Brown International, Inc.
Consolidated Financial Statements
September 30, 2001 and 2000
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, 2001 and 2000
ASSETS
2001 2000
---- ----
Current Assets
Cash and Cash Equivalents $ 519 $ 0
Accounts receivable net 29,612 18,274
Inventory 53,163 81,923
Deposits 7,854 7,854
Total current assets 91,148 108,051
Property and Equipment, net 45,656 58,511
Other Assets
Due from Stockholders 12,557 10,624
TOTAL ASSETS $ 149,361 $ 177,185
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
============= ==============
Current Liabilities
Bank Overdrafts $ 8,961 $ 7,890
Accounts Payable 261,332 155,246
Notes Payable 22,164 22,602
Accrued payroll and business taxes 55,536 51,833
Current maturities of long-term debt 44,217 38,787
Total current liabilities 392,210 276,358
Long-term Debt, less current maturities 34,958 77,230
Stockholders' Equity (Deficit)
Preferred stock, $.001 par value, 1,000,000
shares authorized, no shares issued
Common stock, $.001 par value, 20,000,000
shares authorized, 10,638,803 shares issued
and outstanding in 2001, 10,465,303 shares
issued and outstanding in 2000 10,640 10,580
Additional paid-in capital 604,628 188,210
Accumulated deficit (893,074) (375,193)
Total Stockholders' Equity (Deficit) (277,806) (176,403)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 149,361 $ 177,186
============= ==============
See accompanying notes
F-1
L.L. Brown International, Inc.
Consolidated Statements of Operations
For the Nine Months Ended September 30, 2001 and 2000
2001 2000
---- ----
Revenues $ 413,563 $ 625,663
Cost of Sales 211,028 325,970
-------------- ------------
Gross Profit 202,535 299,693
General & Administrative $ 284,031 $ 300,851
-------------- ------------
Income (Loss) on Operations (81,496) (1,158)
Interest expenses 11,453 21,240
-------------- ------------
Income (Loss) before Income Taxes (92,949) (22,398)
Income Taxes -- --
Net Income (Loss) $ (92,949) $ (22,398)
============== ============
Net Income (Loss) per share - basic and diluted $ (0.009) $ (0.002)
Weighted Average Basic shares Outstanding 10,608,723 10,556,414
See accompanying notes
F-2
L.L. Brown International, Inc.
Consolidated Statements of Stockholders' Equity (Deficit
For the Nine Months Ended September 30, 2001 and 2000
Additional
Common Stock paid-in Accumulated
Beginning Balance Shares Amount capital Deficit Total
------- -------- ------- -------- ------
December 31, 1999 10,465,303 $ 10,466 $ 179,719 $ (352,795) $(162,610)
Shares Purchased 8,500 9 $ 8,491 8,500
Shares Issued as 104,840 105 105
Compensation (value $0.001)
Net Income (Loss) (22,398) (22,398)
Ending Balance
September 30, 2000 10,578,643 $ 10,580 $ 188,210 $ (375,193) $(176,403)
=========== ========= =========== ============ ==========
Additional
Common Stock paid-in Accumulated
Beginning Balance Shares Amount capital Deficit Total
------- -------- ------- -------- ------
December 31, 2000 10,602,803 $10,604 $ 568,664 ($800,125) $(220,857)
Shares Purchased
Shares Issued as
Compensation (value $0.001) 36,000 36 35,964 36,000
Net Income (Loss) (92,949) (92,949)
Ending Balance
September 30, 2001 10,638,803 $ 10,640 $ 604,628 $( 893,074) $(277,806)
=========== ======== ========= ============ ==========
See accompanying notes
F-3
L.L. Brown International, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2001 and 2000
Cash flows from operating activities 2001 2000
---- ----
Net Income (Loss) $ (92,949) $ (22,398)
-------------- ------------
Adjustments to reconcile net loss
used in operating activities
Depreciation 10,146 11,850
Stock issued in Lieu of Cash Compensation 36,000 105
Changes in operating assets and liabilities
Accounts receivable 11,588 53,608
Inventory (378)
Deposits
Accounts payable 38,448 (19,526)
Accrued liabilities 2,255 18,048
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Total adjustments 98,059 64,085
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Net cash provided (used) in operating activities 5,110 41,687
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Cash flows from financing activities
Proceeds from issuance of long-term debt
Proceeds from issuance of common stock 8,500
Bank Overdrafts 8,961 (9,941)
Net borrowings (payments) on notes payable 214 (2,418)
Principal payments on long-term debt (26,012) 832
Net advances to stockholders 0 (3,264)
Net cash provided by financing activities (16,837) (6,291)
-------------- ------------
Cash Flows from Investing Activities
Dispositions of Property & Equipment 6,442
Purchases Property & Equipment (1,525) (42,774)
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Net cash provided (used) by Investing Activities (1,525) (36,332)
Net increase(decrease) in cash (13,252) (936)
-------------- ------------
Cash at Beginning of Year 13,771 936
Cash at September 30 $ 519 $ 0
============== ============
Supplemental disclosures of cash flow information
Cash paid during the period for interest $ 11,453 $ 21,240
============== ============
See accompanying notes
F-4
L.L. Brown International, Inc.
Notes to Consolidated Financial Statements
September 30, 2001 and 2000
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 allowance
is accrued at 1% of net sales.
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, 2001 and 2000
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 costs 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:
2001 2000
---- ----
Office Equipment $ 85,584 $ 84,058
Furniture & Fixtures 45,122 45,122
Vehicles 42,775 42,775
Leasehold improvements 6,227 6,227
Less: Accumulated depreciation & amortization $ 179,708 $ 178,182
(134,052) ( 119,672)
$ 45,656 $ 58,510
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F-6
L.L. Brown International, Inc.
Notes to Consolidated Financial Statements
September 30, 2001 and 2000
Note 4 - Notes Payable
Notes payable to banks consisted of the following: 2001 2000
---- ----
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 $ 9,525
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% $ 12,639 $ 13,077
$ 22,164 $ 22,602
========== ==========
Note 5 - Long-term Debt
Long-term debt consists of the following: 2001 2000
---- ----
Note payable to a bank in monthly installments of $548 including
interests at 9.75%, due December 2001, secured by automobile,
Vehicle was traded in on August 8, 2000, debt was liquidated $ 0 $ 0
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 $ 34,517 $ 37,775
Note payable to a bank in monthly installments of $3,207 including
interest at 9.75%, due October 2002, secured by substantially all
trade receivables, inventory and equipment $ 44,658 $ 78,243
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$ 79,175 $ 116,018
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Less current maturities $ 42,217 $ 38,788
Long-term debt, less current maturities $ 34,958 $ 77,230
========== ==========
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 40,258
2003 6,516
2004 15,512
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$ 101,074
F-7
L.L. Brown International, Inc.
Notes to Consolidated Financial Statements
September 30, 2001 and 2000
Note 6 - Advertising
Advertising costs are charged to operations when incurred, which amounted to
$1,998 for 2001 and $9,628 for 2000.
Note 7 - Federal Income Taxes
At September 30, 2001 and 2000, the Company had net operating loss carry
forwards of approximately $800,000 and $350,000 respectively, expiring in year
2014. The amount recorded as deferred tax assets as of September 30, 2001 and
2000 were approximately $264,000 and $130,000 respectively, 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 $264,000 and $130,000 against this deferred
tax asset.
Note 8 - Commitments
The Company leases its administrative offices and certain equipment under
operation leases expiring in 2003. The Company is obligated for minimum
non-cancelable rental payments under the lease through its term as follows:
Year ended September 30,
2001 $ 64,106
2002 55,920
2003 55,920
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$ 240,052
Note 9 - Related Party Transactions
The Company had advances of $12,557 and $10,624 to the Vice President as of
September 30, 2001 and 2000 respectively.
F-8
Item 2. Management's Discussion and Analysis of Results of Operations.
Discussion and Analysis
L.L. Brown International, Inc., a Nevada corporation, of which L.L. Brown
and Associates, Inc., a Washington corporation ("LLBA") is a wholly owned
subsidiary (collectively the "Company") has been engaged in the motivational
training business since its inception in February 1997. In March 1998, the
Company acquired 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 Three Months Ending September 30, 2001 and
September 30, 2000
Financial Condition, Capital Resources and Liquidity
For the 3rd quarter ended September 30, 2001 and 2000 the Company recorded
revenues of $413,563 and $625,663 respectively. The decrease in revenues was due
to the fact that last year (this quarter), the Company had three (3) large
ongoing contracts with welfare agencies, two (2) of which did not receive
funding this year and for which the Company no longer provides services.
For the 3rd quarter ended September 30, 2001 and 2000 the Company had
general and administrative expenses of $300,851 and $284,031 respectively.
Net Losses
For the 3rd quarter ended September 30, 2001 the Company reported a net
loss of $92,949. For the 3rd quarter ended September 30, 2000 the Company
reported a net loss of $22,398.
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.
11
Employees
At September 30, 2001, the Company employed three (3) 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.
12
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, 2001,
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:
Exhibit No. Description
- ----------------------------------------------------------------------
2.1 [1] Share Exchange Agreement between L.L. Brown International, Inc. and LL Brown &
Associates, Inc. dated March 14, 1998.
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] Renumbered as Exhibit 10.12.
13
10.1 [1] Consulting Agreement between Neil Rand of Corporate Imaging and L.L. Brown
dated March 2, 1998.
10.2 [1] Renumbered as Exhibit 2.1.
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.
10.10 [2] Service Agreement between the Company and CWA District 7 dated December 5,
2000.
10.11 [2] Service Agreement between the Company and Arizona, AFLCIO dated January 29,
2001.
10.12 [1] Promissory Note between L.L. Brown and KeyBank National Association in the
amount of $126,104.00 dated October 1998.
11.1 [3] Statement re: computation of per share earnings.
16.1 [4] Letter on change of certifying accountant pursuant to Regulation SK Section
304(a)(3).
16.2 [5] Letter on change of certifying accountant pursuant to Regulation SK Section
304(a)(3).
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14
[1] Incorporated herein by reference to the Company's Registration Statement on
Form 10-SB filed November 13, 2000.
[2] Incorporated herein by reference to the Company's Annual Report on Form
10KSB filed March 21, 2001.
[3] Incorporated herein by reference to the Company's First Amended
Registration Statement on Form 10SB filed April 5, 2001.
[4] Incorporated herein by reference to the Company's Current Report on Form 8K
filed August 17, 2001.
[5] Incorporated herein by reference to the Company's amended Current Report on
Form 8K filed August 27, 2001.
* Filed Herewith.
(b) A report on Form 8-K was filed on August 17, 2001 to disclose a change
in the Registrant's Certifying Accountant. On August 27, 2001, the Registrant
filed an amended Current Report on Form 8-K to disclose additional information
regarding the change of accountants at the request of the Commission.
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:
15
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: November 12, 2001 By: /s/ Carolyn Scott Brown
----------------------------------
Carolyn Scott Brown, President
By: /s/ Lester L. Brown
----------------------------------
Lester L. Brown, Vice-President
16