10QSB 1 d51591_10qsb.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) |X| Quarterly report pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2002 |_| Transition report pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________ Commission File Number: 0-24431 LIL MARC, INC. (Exact Name of Small Business Issuer as Specified in Its Charter) Nevada 84-1417774 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 830 Third Avenue, New York, New York 10022 (Address of Principal Executive Offices) (Zip Code) 212-829-5800 (Issuer's Telephone Number, Including Area Code) (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) The number of shares outstanding of the Registrant's Common Stock, $.01 par value per share, as of June 30, 2002, was 2,668,666 shares. Transitional Small Business Disclosure Format (check one): Yes |_| No |X| LIL MARC, INC. INDEX TO FORM 10-QSB PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements 1 Balance Sheets as of June 30, 2002 (Unaudited) 1 and December 31, 2001 (Restated) Statements of Operations (Unaudited) for the 2 Six Months and three months Ended June 30, 2002 and 2001 and from Inception through June 30, 2002 Statements of Stockholders' Equity from Inception through 3 June 30, 2002 (Unaudited after December 31, 2001) Statements of Cash Flows (Unaudited) for the 4 Six Months Ended June 30, 2002 and 2001 and from inception through June 30, 2002 Notes to Financial Statements 5 Item 2. Management's Discussion and Analysis or Plan of Operation 6 PART II. OTHER INFORMATION 8 Item 6 Exhibits and Reports on Form 8-K 8 SIGNATURES 9 Page 1 PART I. FINANCIAL INFORMATION Item 1. Financial Statements LIL MARC, INC. (A Development Stage Company) BALANCE SHEETS
June 30, December 31, 2002 2001 ------------ ------------ A S S E T S (Unaudited) (Restated) Current assets: Cash and cash equivalents $ 203,277 $ 223,681 ------------ ------------ Total current assets $ 203,277 $ 223,681 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ -0- $ -0- ------------ ------------ Total current liabilities -0- -0- ------------ ------------ Stockholders' equity: Common stock, $0.01 par value; 5,000,000 shares authorized; 2,668,666 shares issued and outstanding 26,686 26,686 Additional paid-in capital 288,803 288,803 Accumulated deficit during the development stage (112,212) (91,808) ------------ ------------ 203,277 223,681 ------------ ------------ $ 203,277 $ 223,681 ============ ============
See accompanying notes to financial statements. Page 2 LIL MARC, INC. (A Development Stage Company) STATEMENTS OF OPERATIONS (UNAUDITED)
Period Six months ended Three months ended April 22, 1997 June 30, June 30, (inception) to -------------------------- -------------------------- June 30, 2002 2001 2002 2001 2002 ----------- ----------- ----------- ----------- ------------- Sales $ -- $ -- $ -- $ -- $ 346 Cost of sales -- -- -- -- ----------- ----------- ----------- ----------- Gross margin -- -- -- -- 346 ----------- ----------- ----------- ----------- ------------- Operating expenses: General and administrative 22,325 23,418 6,150 7,067 113,071 Amortization -- -- -- -- 17,191 ----------- ----------- ----------- ----------- ------------- 22,325 23,418 6,150 7,067 130,262 ----------- ----------- ----------- ----------- ------------- Loss from operations (22,325) (23,418) (6,150) (7,067) (129,916) ----------- ----------- ----------- ----------- ------------- Other income (expense) Interest expense -- (3) -- (3) (900) Interest income 1,921 6,011 909 2,609 18,604 ----------- ----------- ----------- ----------- ------------- 1,921 6,008 909 2,606 17,704 ----------- ----------- ----------- ----------- ------------- Net loss $ (20,404) $ (17,410) $ (5,241) $ (4,461) $ (112,212) =========== =========== =========== =========== ============= Net loss per common share $ (.01) $ (.01) $ -- $ -- =========== =========== =========== =========== Weighted average number of shares outstanding 2,668,666 2,668,666 2,668,666 2,668,666 =========== =========== =========== ===========
See accompanying notes to financial statements. Page 3 LIL MARC, INC. (A Development Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 2002 AND PERIOD APRIL 22, 1997 (INCEPTION) TO JUNE 30, 2002 (UNAUDITED)
Accumulated deficit Additional during the Total Common stock Treasury Stock paid-in development stockholders' Shares Amount Shares Amount capital stage equity ---------- -------- -------- -------- ---------- ----------- ------------- Balance, April 22, 1997 -- $ -- -- $ -- $ -- $ -- $ -- Common stock issued for cash at $0.00 per share 666,666 6,666 -- -- (1,666) -- 5,000 Issuance of shares to acquire patent rights recorded at predecessor cost of $0.00 per share 400,000 4,000 -- -- (1,000) -- 3,000 Issuance of 540,000 shares of common stock at $0.10 per share 540,000 5,400 -- -- 48,600 -- 54,000 Stock offering costs -- -- -- -- (8,843) -- (8,843) Net loss, December 31, 1997 -- -- -- -- -- (9,251) (9,251) ---------- -------- -------- -------- ---------- ----------- ------------- Balance, December 31, 1997 1,606,666 16,066 -- -- 37,091 (9,251) 43,906 Issuance of 75,000 shares of common stock at $0.10 per share 75,000 750 -- -- 6,750 -- 7,500 Net loss, December 31, 1998 -- -- -- -- -- (21,560) (21,560) ---------- -------- -------- -------- ---------- ----------- ------------- Balance, December 31, 1998 1,681,666 16,816 -- -- 43,841 (30,811) 29,846 Issuance of 87,000 shares of common stock at $0.10 per share 87,000 870 -- -- 7,830 -- 8,700 Net loss, December 31, 1999 -- -- -- -- -- (21,166) (21,166) ---------- -------- -------- -------- ---------- ----------- ------------- Balance, December 31, 1999 1,768,666 17,686 -- -- 51,671 (51,977) 17,380 Repurchase of 100,000 shares of -- -- 100,000 (25,000) 21,132 -- (3,868) Common stock at $0.25 per share Cancellation of treasury stock (100,000) (1,000) (100,000) 25,000 (24,000) -- -- Common stock issued for cash at $0.25 per share 1,000,000 10,000 -- -- 240,000 -- 250,000 Net loss, December 31, 2000, as restated -- -- -- -- -- (19,087) (19,087) ---------- -------- -------- -------- ---------- ----------- ------------- Balance, December 31, 2000, as restated 2,668,666 26,686 -- -- 288,803 (71,064) 244,425 Net loss, December 31, 2001 -- -- -- -- -- (20,744) (20,744) ---------- -------- -------- -------- ---------- ----------- ------------- Balance, December 31, 2001 2,668,666 26,686 -- -- 288,803 (91,808) 223,681 Net loss, Six Months Ended June 30, 2002 -- -- -- -- -- (20,404) (20,404) ---------- -------- -------- -------- ---------- ----------- ------------- Balance, June 30, 2002 2,668,666 $ 26,686 -- $ -- $ 288,803 $ (112,212) $ 203,277 ========== ======== ======== ======== ========== =========== =============
See accompanying notes to financial statements. Page 4 LIL MARC, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS (UNAUDITED)
Period April 22, 1997 Six Months Ended (inception) to June 30, June 30, 2 0 0 2 2 0 0 1 2 0 0 2 --------- --------- ------------- Cash flows from operating activities: Net loss $ (20,404) $ (17,410) $ (112,212) Adjustments to reconcile net loss to net cash used by operating activities: Amortization -- -- 17,191 Common stock issued for services -- -- 8,700 Changes in assets and liabilities: Increase in accounts payable and accrued expenses -- 15,517 8,700 --------- --------- ------------- Net cash used by operating activities (20,404) (1,893) (77,621) --------- --------- ------------- Cash flows used by investing activities: Cash included pursuant to sale of subsidiary -- -- (1,109) Purchase of patent rights -- -- (28,650) --------- --------- ------------- Net cash used by investing activities -- -- (29,759) --------- --------- ------------- Cash flows from financing activities: Stock offering costs -- -- (5,843) Common stock issued for cash -- -- 316,500 --------- --------- ------------- Net cash provided by financing activities -- -- 310,657 --------- --------- ------------- Net increase (decrease) in cash and cash equivalents (20,404) (1,893) 203,277 Cash and cash equivalents, beginning of period 223,681 245,542 -- --------- --------- ------------- Cash and cash equivalents, end of period $ 203,277 $ 243,649 $ 203,277 ========= ========= ============= Supplemental cash flow information: Cash paid during the period for: Interest $ -- $ 3 $ 900 Income taxes 939 701 1,743 Noncash financing activities: Patent rights and deferred interest acquired for common stock and assumption of note payable $ -- $ -- $ 30,000 Sale of noncash net assets of subsidiary Book value of patent $ -- $ 11,459 Accounts payable assumed $ -- $ 8,700 Common stock acquired for treasury $ -- $ 25,000 Treasury stock cancelled $ -- $ 25,000 Increase in additional paid-in capital $ -- $ 21,132
See accompanying notes to financial statements. Page 5 LIL MARC, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2002 AND 2001 1. The Company and basis of presentation: The financial statements presented herein as of June 30, 2002 and for the six months ended June 30, 2002 and 2001 and the period April 22, 1997 (inception) to June 30, 2002 are unaudited and, in the opinion of management, include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of financial position and results of operations. Such financial statements do not include all of the information and footnote disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles of the United States of America. The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB. The results of operations for the six months and three months ended June 30, 2002 are not necessarily indicative of the results that may be expected for any other interim period or the full year ending December 31, 2002. 2. Net loss per common share: Net loss per common share for the six months and three months ended June 30, 2002 and 2001 is based on 2,668,666 of weighted average common shares outstanding. 3. Restatement The Company's financial statements had been restated as of December 31, 2000 to reflect the correction of an error in accounting for the sale of its wholly-owned subsidiary LILM, Inc. to one of its stockholders for 100,000 shares of that stockholder's common stock. These 100,000 shares of the Company's treasury stock were cancelled. The Company had previously recorded a gain on the sale of the wholly-owned subsidiary. In accordance with APB 9, the sale should have been reflected as a capital transaction. The effect of this restatement for 2001 is as follows: For the year ended December 31, 2001: As previously As reported restated ------------------------------------------------------------------------- Balance Sheet: Additional paid-in capital $ 267,671 $ 288,803 Accumulated deficit (70,676) (91,808) Accumulated deficit as of January 1, 2001 and 2002 has been increased by $21,132 for the effects of this restatement. Item 2. Management's Discussion and Analysis or Plan of Operation This document includes statements that may constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company would like to caution readers regarding certain forward-looking statements in this document and in all of its communications to shareholders and others, press releases, securities filings, and all other communications. Statements that are based on management's projections, estimates and assumptions are forward-looking statements. The words "believe," "expect," "anticipate," "intend," and similar expressions generally identify forward-looking statements. While the Company believes in the veracity of all statements made herein, forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic and competitive uncertainties and contingencies and known and unknown risks. Many of the uncertainties and contingencies can affect events and the Company's actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. The following discussion and analysis should be read in conjunction with the financial statements and related notes thereto which are included in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001 filed with the Securities and Exchange Commission. Plan of Operation Pursuant to a Stock Purchase Agreement dated as of May 19, 2000 (the "Purchase Agreement") by and among ComVest Capital Partners, LLC ("ComVest") and the Company, George I. Norman III, Laurie J. Norman, Alewine Limited Liability Company ("Alewine"), and Linda Bryson (the latter four parties, collectively the "Sellers"), on May 25, 2000 (the "Closing Date"), ComVest purchased 1,194,166 shares of the common stock of the Company (the "Common Stock") from the Sellers for an aggregate purchase price of $315,000. Also pursuant to the Purchase Agreement, ComVest purchased from the Company, for an aggregate purchase price of $250,000, (i) 1,000,000 newly issued shares of Common Stock and (ii) a warrant (the "Warrant") to purchase an additional 3,000,000 shares of Common Stock. In November 2001, the Warrant terminated without having been exercised. Subsequent to the Closing Date, pursuant to a stock sale agreement between the Company and Alewine, the Company sold all of the issued and outstanding capital stock of its wholly-owned subsidiary, LILM, Inc., to Alewine in exchange for 100,000 shares of Common Stock. The 100,000 shares became treasury stock and subsequently were cancelled. As a result of such transactions, the Company has no further interest in the business of its former subsidiary (the development, manufacture, and marketing of the Lil Marc training urinal). Subsequent to the above-referenced transactions, the Company's plan of operation had been to merge or effect a business combination with a domestic or foreign private operating entity. -6- On July 9, 2002 the Company announced that it had entered into an Agreement and Plan of Merger, dated July 5, 2002 (the "Merger Agreement"), with Inksure Technologies Inc. ("InkSure"), pursuant to which a newly formed wholly owned subsidiary of the Company, LILM Acquisition Corp., will be merged with and into InkSure (the "Merger"). Pursuant to the Merger, the current stockholders of InkSure, immediately after giving effect to the Merger, will hold at least 90% of the fully-diluted equity capitalization of the Company and the current stockholders of the Company, immediately after giving effect to the Merger, will hold up to 10% of the fully-diluted equity capitalization of the Company. Upon consummation of the Merger, the Company's Board of Directors and management intend to resign and will be replaced by InkSure's Board of Directors and management. Following the Merger, the Company will change its name to InkSure Technologies Inc. and will continue the existing businesses conducted by Inksure. InkSure develops, markets and sells customized authentication systems designed to enhance the security of documents and branded products and to meet the growing demand for protection from counterfeiting and diversion. Consummation of the Merger is subject to the terms and conditions specified in the Merger Agreement, including approval of the Merger by InkSure's stockholders, the absence of material adverse changes relating to the Company and InkSure, and the receipt by the Company and InkSure of all third party and governmental consents necessary to consummate the Merger. There can be no assurance that the Merger will be consummated or, if consummated, as to the timing thereof. The foregoing description only purports to be a summary of the Merger and is qualified in its entirety by reference to the Company's Current Report on Form 8-K dated July 5, 2002. Liquidity and Capital Resources At June 30, 2002, the Company had cash and cash equivalents of $203,277. As the Company's current operations are limited to consummating the Merger or locating another business combination candidate, the Company believes that its cash and cash equivalents will fund all operations until consummation of the Merger or other combination, including the expenses thereof. From and after consummation of the Merger, funding of InkSure's business will be dependent upon the current resources of InkSure plus additional funds raised through the sale of securities by the Company, if any. Comparative Operations The Company did not generate any revenues from operations during the six months ended June 30, 2002 or 2001. General and administrative expenses decreased by 4.7% from 2001 to 2002 (an insignificant change). Interest income decreased from 2001 to 2002 by 68% because of lower interest rates and lower cash balances. Because the reduction in general and administrative expenses was exceeded by the reduction in interest income, the net loss during 2002 increased by 17.2% from 2001. -7- PART II. OTHER INFORMATION Item 3. Exhibits and Reports on Form 8-K (a) Exhibits The following exhibits are being filed with this Report: 99.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K During the quarter ended June 30, 2002, the Company filed no Reports on Form 8-K. -8- SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LIL MARC, INC. Dated: As of August 13, 2002 By: /s/ Keith M. Rosenbloom ------------------------------------ Keith M. Rosenbloom President and a Director (Principal Executive Officer) Dated: As of August 13, 2002 By: /s/ Joseph P. Wynne ------------------------------------ Joseph P. Wynne Chief Financial Officer, Secretary, and a Director (Principal Financial and Accounting Officer) -9-