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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]                 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September  30, 2011

[   ]                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to ______

Commission File Number  000-51872

LILM, INC.
(Exact name of registrant as specified in its charter)

Nevada
 
87-0645394
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
incorporation or organization)
   
     
1390 South 1100 East # 204, Salt Lake City, Utah 84105-2463
(Address of principal executive offices)

(801) 322-0253
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes   X  No___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company

 
Large accelerated filer
[   ]
Accelerated filer
[   ]
 
Non-accelerated filer
[   ]
Smaller reporting company
[X]
 
(Do not check if a smaller reporting company)
   

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No   X  

APPLICABLE ONLY TO CORPORATE ISSUERS

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

 
Class
 
Outstanding as of November 15, 2011
       
 
Common Stock, $0.001 par value
 
2,633,750

 
 

 
 
TABLE OF CONTENTS


Heading
 
Page
     
PART  I    —   FINANCIAL INFORMATION
     
Item 1.
Financial Statements
3
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
11
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
16
     
Item 4(T).
Controls and Procedures
16
     
     
PART II   —   OTHER INFORMATION
     
Item 1.
Legal Proceedings
16
     
Item 1A.
Risk Factors
16
     
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
16
     
Item 3.
Defaults Upon Senior Securities
17
     
Item 4.
(Removed and Reserved)
17
     
Item 5.
Other Information
17
     
Item 6.
Exhibits
17
     
 
Signatures
18



 
2

 

PART  I   —   FINANCIAL INFORMATION

Item 1.                      Financial Statements

The accompanying unaudited balance sheet of LILM, Inc. and Subsidiary and LiL Marc, Inc. (predecessor) (development stage company) as of September 30, 2011 and audited balance sheet at December 31, 2010, related unaudited statements of operations, stockholders' equity (deficit) and cash flows for the three and nine  months ended September 30, 2011 and 2010 and the period April 22, 1997 (date of inception of predecessor) to September 30, 2011, have been prepared by management in conformity with United States generally accepted accounting principles.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.  Operating results for the period ended September 30, 2011, are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2011 or any other subsequent period.








LILM, INC.
(A Development Stage Company)

FINANCIAL STATEMENTS

September 30, 2011 and December 31, 2010







 
3

 

LILM, INC. and SUBSIDIARY and LIL MARC, INC.(predecessor)
(Development Stage Company)
CONSOLIDATED BALANCE SHEETS September 30, 2011 and December 31, 2010

 
       
(Unaudited)
       
       
Sept 30,
   
Dec 31,
 
       
2011
   
2010
 
                 
                 
Assests
           
Current Assests
           
                 
                 
 
Cash
  $ 921     $ -  
 
Inventory
    2,749       2,990  
                     
 
 
Total Current Assets
    3,670       2,990  
                     
 
Equipment-Production Mold, Net
    1,444       1,700  
                     
   
Total Assets
  $ 5,114     $ 4,690  
                     
Liabilities & Stockholders' Deficiency
               
Current Liabilities
               
                     
 
Accounts Payable
  $ 19,798     $ 31,304  
 
Note Payable- Related Party
    43,280       24,774  
                     
                     
   
Total Current Liabilities
    63,078       56,078  
                     
Stockholders' Deficiency
               
                     
 
Common Stock
               
 
   25,000,000 shares authorized at $0.001 par value;
               
 
   2,633,750 shares issued and outstanding
    2,634       2,634  
 
Capital in excess of par value
    147,561       147,561  
 
Accumulated deficit during development stage
    (208,159 )     (201,583 )
                     
   
Total Stockholders' Deficiency
    (57,964 )     (51,388 )
                     
                     
Total Liabilities and Stockholders' Deficiency
  $ 5,114     $ 4,690  
 

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

 
4

 
 
LILM, INC. and SUBSIDIARY and LIL MARC, INC. (predecessor)
(Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three and Nine Months Ended September 30, 2011 and 2010 and the Period
April 22, 1997 (date of inception of LIL MARC, INC. (predecessor)) to September 30, 2011
(UNAUDITED)

 
 
     
Three Months Ended
   
Nine Months Ended
       
     
Sept 30,
   
Sept 30,
   
Sept 30,
   
Sept 30,
   
Apr. 22, 1997
 
     
2011
   
2010
   
2011
   
2010
   
to Sept. 30, 2011
 
                                 
Sales
  $ 5,663     $ 2,919     $ 16,647     $ 6,861     $ 46,491  
                                           
Cost of Goods Sold
    (725 )     -       (2,151 )     -       (2,151 )
                                           
 
Gross Profit
    4,938       2,919       14,496       6,861       44,340  
Expenses
                                       
                                           
 
General and administrative
    5,329       6,268       20,594       17,293       223,136  
 
Royalties
    71       29       223       75       458  
 
Depreciation and amortization
    85        -       255        -       28,905  
Total Expenses
    5,485       6,297       21,072       17,368       252,499  
                                           
Net Loss
  $ (547 )   $ (3,378 )   $ (6,576 )   $ (10,507 )   $ (208,159 )
                                           
                                           
Net Loss Per Common Share
                                       
                                           
 
Basic and diluted
  $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )        
                                           
Weighted Average Outstanding Shares
                                       
                                           
 
Basic and diluted (stated in 1000's)
    2,634       2,633       2,634       2,633          


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

 
5

 

LILM, INC. and SUBSIDIARY and LIL MARC, INC. (predecessor)
(Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2011 and 2010 and the Period
April 22, 1997 (date of inception of LIL MARC, INC. (predecessor)) to September 30, 2011
(UNAUDITED)

 
   
Sept 30,
   
Sept. 30,
   
Apr. 22, 1997 to
 
   
2011
   
2010
   
Sept. 30, 2011
 
                   
Cash Flows From Operating Activities
                 
                   
Net Loss
  $ (6,576 )   $ (10,507 )   $ (208,159 )
                         
Adjustments to reconcile net loss to
                       
net cash provided by operating activities
                       
                         
Contributions to capital- expenses
                    100  
Issuance of common stock for expenses
    -       -       8,700  
Depreciation and amortization
    255       -       28,905  
Changes in operating assets and liabilities:
                       
                         
Inventory
    242       -       (2,748 )
Accounts payable
    (11,506 )     8,972       16,577  
                         
Net Cash Flows (Used in) Operations
    (17,585 )     (1,535 )     (156,625 )
                         
Cash Flows From Investing Activities
                       
                         
Purchase of patent
    -       -       (28,650 )
Purchase of Equipment-Production Mold
    -       (510 )     (1,700 )
Purchase office equipment
    -       -       (2,096 )
                         
Net Cash Flows (Used in) Investing Activities
    -       (510.00 )     (32,446 )
                         
Cash Flows From Financing Activities
                       
                         
Notes Payable from related party
    23,452       3,795       57,915  
Payments to related party
    (4,946.00 )     (9,507.00 )     (14,635.00 )
Proceeds from issuance of common stock
    -       7,500       146,712  
                         
Net Cash Flows provided by Financing Activities
    18,506       1,788       189,992  
                         
Net Change in Cash
    921       (257 )     921  
Cash at Beginning of Period
    -       257       -  
                         
Cash at End of Period
  $ 921     -     $ 921  
                         
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
         
                         
Issuance of 922,900 common shares for a patent- 2000
            $ 11,963  
Contributions to capital- expenses- 2001
                  $ 100  
Issuance of common stock for expenses
                  8700  

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

 
6

 

LILM, INC. and SUBSIDIARY and LIL MARC, INC. (predecessor)
(Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(UNAUDITED)




1.    ORGANIZATION

The Company was incorporated under the laws of the state of Nevada on December 30, 1999 with authorized common stock of 25,000,000 shares with a par value of $.001.
 
The principal business activity of the Company is to manufacture and market the LiL Marc urinal used in the training of young boys.
 
During January 2005 the Company organized LiL Marc, Inc., in the state of Utah, and transferred all its assets, liabilities, and operations to LiL Marc Inc. in exchange for all of the outstanding stock of LiL Marc, Inc. for the purpose of continuing the operations in the subsidiary.

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

Included in the following financial statements are the combined statements of operations of LIL Marc, Inc. (predecessor) for the period April 22, 1997 to December 30, 1999 and LILM, Inc., and its subsidiary, for the period December 30, 1999 to September 30, 2011.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Methods

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

Dividend Policy

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

Income Taxes

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

On September 30, 2011, the Company had a net operating loss available for carryforward of $152,728. The income tax benefit of approximately $46,000 from the carryforward has been fully offset by a valuation reserve because the use of the future tax benefit is doubtful since the Company has not started full operations.  The net operating loss will expire starting in 2017.


 
7

 

LILM, INC. and SUBSIDIARY and LIL MARC, INC. (predecessor)
(Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2011
(UNAUDITED)

 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue Recognition

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

Advertising and Market Development

The company expenses advertising and market development costs as incurred.

Financial Instruments

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

Basic and Diluted Net Income (Loss) Per Share

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

Financial and Concentrations Risk

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

Estimates and Assumptions

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

Principles of Consolidation

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

 
8

 

LILM, INC. and SUBSIDIARY and LIL MARC, INC. (predecessor)
(Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September  30, 2011
(UNAUDITED)

 
Recent Accounting Pronouncements

The Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.
 
3.    INVENTORY

During December 2010, the Company paid a deposit of $2,990 to a China consortium for parts to be used in its training urinal product. 200 samples were delivered to the Company in January 2011 and sold to customers.  Another 2,100 were delivered to the company in February 2011 and are currently being sold to customers. Inventory is reported at the lower of cost or net realizable value.
 
4.  EQUIPMENT –PRODUCTION MOLD
 
On August 2, 2010, the Company purchased an injection mold from a China consortium for $1,700 to  produce the base and stand for the LiL Marc training urinal.  The Company has determined the mold went into service on or about January 1, 2011 and is being depreciated over a 5 year period. Depreciation expense for the nine months ended September 30, 2011 was $255.

5.  PATENT

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

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

6.  SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES

The Chief Executive Officer (CEO) and two Directors have acquired 72% of the outstanding common stock of the Company. During the nine months ended September 30, 2011, the Company received loans from the CEO and Directors in the amount of $23,452 and repaid prior loans of $4,946. From inception (April 22, 1997) to September, 30, 2011, net loans from the CEO and Directors are $43,280 executed as a note payable on demand with no stated interest.

 
9

 
  
LILM, INC. and SUBSIDIARY and LIL MARC, INC. (predecessor)
(Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2011
(UNAUDITED)
 

7.  PRIVATE PLACEMENT

On September 17, 2009 the Company commenced a private placement offering of 2,200,000 of its common shares $.001 par value at a price of $0.25 per share.  On November 3, 2009 the Company sold 20,000 shares of that offering. On April 6, 2010 the Company sold 20,000 shares of that offering.  On June 29, 2010 the Company sold 10,000 shares of that offering.

8. GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company does not have sufficient working capital for its planned activity, and to service its debt, which raises substantial doubt about its ability to continue as a going concern.
 
Continuation of the Company as a going concern is dependent upon obtaining additional working capital and the management of the Company has developed a strategy, which it believes will accomplish this objective through short term loans from an officer-director, and additional equity investment, which will enable the Company to continue operations for the coming year.
 


 
10

 

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

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

We are a development stage company with limited cash assets, operations and revenue. Ongoing operating expense, including the costs associated with the preparation and filing with the SEC of our periodic reports, have been paid for by the net proceeds from our initial stock offering in 2002 and from advances from a stockholder.  A total of $43,280 has been advanced by Alewine Limited Liability Company, a 72% stockholder that is managed by our President, George I. Norman, III.  The debt is evidenced by a promissory note that is payable upon demand.

It is anticipated that we will require approximately $20,000 over the next 12 months to fund operations and to maintain corporate viability.  If we are unable to generate sufficient revenues, we may have to rely on funds from credit lines, directors and/or stockholders in the future. There can be no assurance at this time that any potential sources of funds will be available.  We also do not have any further commitments from a director or stockholder to provide any additional funding.  We have commenced a private offering of our securities, but there can be no assurance that this will be successful.  If we are unable to obtain necessary additional working capital, there is substantial doubt about our ability to continue as a going concern.

Results of Operations

During the third quarter ended September 30, 2011, we realized revenues of $5,663 compared with $2,919 for the third quarter ended September 30, 2010.  Revenues for the 2011 period were the result of internet retail and wholesale orders, which increased 94% ($2,744) for the third quarter.  Revenues for the 2010 period were from internet retail and wholesale orders. The 2011 third quarter increase was due to a 86% increase ($1,035) in retail orders and a 100% increase ($1,709) in wholesale orders.  Our cost of good sales for the third quarter of 2011 were 13% ($725) of our total sales and were an 725% increase ($725) compared to the corresponding period in the third quarter of 2010.

Total expenses were $5,485 for the third quarter of 2011 compared to $6,297 for the corresponding period 2010 period.  Expenses during the third quarter of 2011 were primarily for general and administrative expenses, which decreased 15% ($931) for the third quarter.  The third quarter decrease in general and administrative expense was primarily attributed to a 10% decrease ($412) in general operating expenses, a  32% decrease ($400) in professional fees and partially offset by a 350% increase ($351) in vehicle use.

During the nine months ended September 30, 2011, we realized revenues of $16,647 compared with $6,861 for the nine months ended September 30, 2010.  Revenues for the 2011 period were the result of internet retail and wholesale orders, which increased 143% ($9,786) for the nine months.  Revenues for the 2010 period were from Internet retail and wholesale orders. The 2011 nine month increase was due to a 209% increase ($4,145) in retail orders and a 116% increase ($5,641) in wholesale orders.  Our cost of good sales for the first nine months of 2011 were 13% ($2,151) of our total sales and were an 2,151% increase ($2,151) compared to the corresponding period in the nine months of 2010.

Total expenses were $21,072 for the first nine months of 2011 compared to $17,368 for the corresponding period 2010 period.  Expenses during the first nine months of 2011 were primarily for general and administrative expenses, which increased 19% ($3,310) for the nine month period.  The 2011 nine month increase in general and administrative expenses was primarily attributed to a 118% increase ($8,210) in general operating expenses partially offset by a 28% decrease ($1,715) in professional fees.

The net loss for the third quarter of 2011 was $547 compared with a net loss of $3,378 for the third quarter of 2010, an decrease of $2,823 for the 2011 period.  The third quarter decrease in net loss is due to an decrease in total expenses of $804, an increase of $2,744 in sales for the third quarter period offset by an increase in cost of goods sold of $725.


 
11

 

The net loss for the first nine months of 2011 was $6,576 compared with a net loss of $10,507 for the first nine months of 2010, a decrease of $3,923 for the 2011 period.  The nine month decrease in net loss is due to an increase of $9,786 in sales for the nine month period offset by an increase in total expenses of $3,310 and an increase in Cost of Goods Sold of $2,151.

Liquidity and Capital Resources

At September 30, 2011, we had assets consisting of $921 in cash, $2,749 in inventory and $1,444 in equipment (net of depreciation). At December 31, 2010, we had assets consisting of $2,990 in inventory, and $1,700 in equipment. Total liabilities at September 30, 2011 and December 31, 2010 were $63,078 and $56,078 respectively.  Total liabilities at September 30, 2011 consisted of $10,425 for legal fees, $850 for accounting fees, $8,000 for office rent and storage, $523 for miscellaneous, which includes royalties due of $55 and a demand note in the amount of $43,280 issued to a private limited liability company owned by two directors George Norman and Laurie Norman. The note is payable upon demand and does not bear an interest rate.  Total liabilities at December 31, 2010 consisted of invoices the amount of $21,560 for professional fees, $8,180 in past due rent and storage, $337 in past due telephone and internet, courier charges of $379, Edgar filing fees of $297, miscellaneous payables in uncleared checks of $333 and $118 in royalties and a demand note in the amount of $24,774 issues to a private limited liability company owned by two directors George Norman and Laurie Norman.

Because we currently have only minimal revenues and limited cash reserves, we anticipate that we may have to rely on our directors and stockholders to pay expenses until such time as we realize adequate revenues from the production and sales of our baby product.  There is no assurance that we will be able to generate adequate revenues in the immediate future to satisfy its cash needs.  At September 30, 2011, we had cash on hand of $ 921, working capital of a negative $59,407 and total stockholders’ equity of a negative $57,964.  At December 31, 2010, we had cash on hand of $0, working capital of a negative $53,088 and total stockholders’ equity of a negative $51,388.

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

Plan of Operation

During the next 12 months, we plan to continue to focus on improving our websites found at http://LiLMarc.com and http://Boyspottytraining.com.  Anticipated improvements include simplifying the ordering process, improving the appearance and layout of the website, and making changes to the website that would increase impulse purchases.  We will also continue to focus on improving our relationships with resellers who sell our product on their websites and on engaging new website hosts for the product.  We anticipate that this can be accomplished through individual calls and e-mails to the website hosts.  Because we lack immediate requisite funds, it may be necessary to rely on advances from directors and/or stockholders, although we have no firm commitment from anyone to advance future funds. Management intends to hold expenses to a minimum and to obtain services on a contingency basis when possible.  Further, our directors will defer any compensation until such time as business warrants the payment of such.

On September 17, 2009 we commenced a private placement offering to sell 2,200,000 of our common shares at a price of $0.25 per share for a term of six months. The Board extended the private placement until December 31, 2010 and is further considering extending the date again and revising the private placement memorandum.  As of September 30, 2011 and to the date of this report, we have sold a total of 50,000 shares ($12,500).  There can be no assurance that any additional shares will be sold in the private placement. In addition, if we are unable to generate sufficient revenues, we may have to rely on funds from credit lines, directors and/or stockholders in the future

The purpose of the private placement is to make a major attempt to take the LiL Marc training urinal to a new level of visibility and, ultimately, to a new level of sales and to retire any debt.

Pending a positive outcome of the private placement, we are considering a new look for the labeling and packaging for the product.  The current packaging has a contemporary approach with a color labeling front and a black and white back, held in place with a clear plastic shrink-wrap exterior.  In addition to the actual LiL Marc, we include multiple sticker inserts to assist in encouraging the potty training process.  This has worked well for internet sales and some wholesale, but may not be sufficient in larger quantities of 5,000 or 10,000 or more.  The newer packaging for the LiL Marc may be in a box with one or two full sheet color labeling.  Part of the labeling development process will include looking at additional or new package inserts.  This can be as simple as a new source of stickers or rewards charts.  We have identified some new strategic items to include in our packaging that further help distinguish our product from others and also help a caregiver and son in the potty training process.  We plan to source or create and make these inserts in quantities of ten thousand to again save on the per item costs.

 
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The LiL Marc has had a consistent market on the Internet with very little additional advertising. Many customers are referred by earlier customers or they are repeat purchasers.  Often when a purchase is made from a new section of the country, it is usually followed by multiple orders from the same geographic area. The product has had success as a gift item for grandchildren, birthdays and baby showers.  While there are other products in the market place, we believe the LiL Marc is unique in that it is completely a stand-alone product that does not require a water source, making it very portable.  The LiL Marc has a simple functional design that caregiver and son can all relate to and it fits into any bathroom setting.  Often the young boy using it considers it his own. Due to the LiL Marc’s uniqueness and potential market of approximately 2,000,000 newborn males every year in the US, we believe there will continue to be a market and a captive audience because every parent and child wants to be successful at potty training.

Our current marketing strategy has been to produce a product that is available to the public through our web sites at www.LiLMarc.com or www.BoysPottyTraining.com, or through our wholesale resellers.   Although our web sites place well in the search engines, we have not done other advertising.  Pending the outcome of the private placement, we plan to use a portion of the proceeds from this offering to introduce the LiL Marc to the market place by reconsidering advertising venues and attending and participating at industry trade shows.  We also intend to explore methods of sales and product distribution with some of the larger industry representatives.  We continue to review and consider options on improving our websites. Recent improvements include simplifying the ordering process, improving the appearance and layout of the website and making changes to the website that might increase impulse purchases.  We continue to focus on improving our relationships with resellers that sell the LiL Marc on their websites and on engaging new website hosts for the product.

Future sales will be the responsibility of existing management and, pending the outcome of the private placement, additional new management who can dedicate full time employment to sales and operations. While the current management team can continue with plans for the upcoming year, upon a successful offering we will use a portion of the proceeds to hire a dedicated marketing member.  We intend to look for someone with a background of prior niche marketing successes along with an understanding of the potty training process for little boys. Our plan would be to employ such a person for marketing while allowing the President and others to oversee operations, manufacturing, public company requirements, and potential acquisitions.

Management continues to review its production of either additional stands or urinals. Our manufacturing is presently at two different locations in two different states by two different processes and using two different types of molds. We would like to organize all of our manufacturing at one location using the same process.  This would involve making a new blow mold for the LiL Marc’s base and stand to match up with the blow mold used to make the urinal.  Our plan would be to use Blow Molder Products in Glen Avon, CA, the current manufacturer of the LiL Marc urinal.  In addition, the Company on August 2, 2010 purchased an injection mold from a China consortium for a total price of $1700 to produce the base and stand for the LiL Marc training urinal. The new production mold went into use on or about January 1, 2011 and the Company received delivery of its first production run in February 2011.

Our ancillary operations are currently housed in our corporate office with some light storage and a separate storage for inventory at another location.  Pending the outcome of our private placement or other financing activities, we intend to consolidate these functions in a light industrial facility, large enough to receive delivery and send orders from inventory stored on site and would include a place for product and labeling development, professional space for any corporate duties and also possibly housing for a company van.

In our private placement memorandum, we have considered three different uses of proceeds models should only a partial amount of the shares be sold in the private placement.   Our working capital estimates vary significantly with respect to the number of shares sold.  Our working capital needs and priorities can change substantially from a decision to carry higher inventory levels, higher more key personnel, or a strategic acquisition that might involve cash expenses and/or company stock.   We are not offering any sales projections because there were too many variables at our stage of development as a start-up company to accurately project future operations.

 
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We also intend to set aside a portion of the proceeds from the private placement to continue to stay current in our public filing requirements. Additionally, proceeds will be set aside for investor relations to keep current information available to the public and investment banking community.

Management has determined that for future products, a next generation urinal will require new molds, engineering, new labeling and new pricing.  While some proceeds have been allocated from the private placement to contemplate a next generation urinal, management does not believe it can proceed along these lines unless the existing product is in a national distribution sales chain.  We also intend to allocate some of the proceeds from the private placement for other products that might carry the LiL Marc logo to be marketed alongside the LiL Marc training urinal.

If we cannot generate or secure adequate funds during the next 12 months, we may be forced to seek alternatives such a joint venture or licensing our product.  If we are unsuccessful in securing alternative sources of revenue, we may have to cease operations or sell off existing inventory at liquidating prices.

After paying certain costs and expenses related to ongoing administrative costs and the associated professional fees, including any residual or ongoing cost of preparing and filing our registration statement, management estimates that it will have sufficient funds to operate for the next six to twelve months.  If business revenues do not provide enough funds to continue operations, it may be necessary for us to seek additional financing.  This would most likely come from current directors, although the directors are under no obligation to provide additional funding and there is no assurance outside funding will be available on acceptable terms, or at all.

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

We estimate that we will need a minimum monthly expenditure of approximately $1,000 for office costs.  This monthly cost includes an office phone and fax (approximately $55 per month), 800 number (base of $5 plus per call charge of $0.15 per minute), office rent ($200 per month), storage rent ($130 per month), and part time help for packaging (estimated to be from $80 to $120 per month).  Additionally, there is a monthly Internet commerce cost of $100.

We have recently had 2,300 new stand and bases made by a Chinese subcontractor, Shuangwei Traffic Facilities Co. Ltd. at a total cost of $4,266.   Management also estimates that during the next twelve months, we may seek an estimate from Shuangwei to produce a matching urinal for the stand and bases.  Management does not have an estimate of what the costs would be and are unknown at this time.  Depending on continuing sales, we may need to order an additional 5,000 complete urinals and stands and bases at our current estimated cost of $6.22 each for a total cost of $31,150.  This would be using our subcontractor in China  for the stands and bases and our manufacturer in southern California for the urinals.  This production cost will be funded from product sales or through a loan from a director(s).

Management believes that funds for the cost of operations for the next 12 months will come from current working capital, revenue generated from product sales, and possibly loans or advances from officers and directors, although no officer or director has made any such commitment.  In the event we are unable to generate or secure adequate funds to achieve the milestones set forth above, management will explore various alternatives in order to attain our goals.  This may involve seeking a joint venture with another baby product company or marketing company to manufacture and market the LiL Marc training urinal.  We may also consider licensing our product to another baby product or marketing company in exchange for a royalty.  Presently, we have no firm plan or commitment to pursue any alternative.

If we find it necessary to pursue one or more alternatives, it would most likely reduce future revenues from our own product sales and such revenues may not be enough to meet all of our obligations.  Also, if no viable alternative is available, we may have to cease operations temporarily or sell off existing inventory at liquidating prices.  There can be no assurance that we will be able to generate or secure adequate funds to accomplish our objectives during the next twelve months, nor is there any assurance that alternative pursuits will be successful in generating the necessary funds needed to continue operations.

 
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Management estimates that we will require approximately $20,000 to maintain operations during the next 12 months.  Unless we realize an increase in sales, we will not have sufficient funds to pay ongoing costs and expenses related to operations and administrative activities.  In this event, we will need to seek additional financing, most likely from current directors, although our directors are under no obligation to provide additional funding and there is no assurance outside funding will be available on acceptable terms, or at all. If we cannot generate or secure adequate funds during the next 12 months, we may be forced to seek alternatives such a joint venture or licensing our product.  If we are unsuccessful in securing alternative sources of revenue, we may have to cease operations or sell off existing inventory at liquidating prices.
 
 
Currently, we have two employees.  Our President devotes approximately 20 hours per week to our business and our Secretary assists on an as-needed basis.  We also have a part-time laborer for packaging and shipping product.  Management believes that these employees will be adequate for the foreseeable future, or until production reaches a level to justify additional employees.  Further, we believe that in the event increased business necessitates additional employees, we will be able to pay the added expenses of these employees from increased revenues.

Inflation

In the opinion of management, inflation has not and will not have a material effect on our operations in the immediate future.  Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.

Off-balance Sheet Arrangements

We have no off-balance sheet arrangements.

Forward-Looking and Cautionary Statements

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

 
the ability to maintain current business and, if feasible, expand the marketing of products;
     
 
the ability to attract and retain new individual and retail customers;
     
 
the sufficiency of existing capital resources and the ability to raise additional capital to fund cash requirements for future operations;
     
 
uncertainties involved in the rate of growth of business and acceptance of the Company’s product and;
     
 
anticipated size or trends of the market segments in which we compete and the anticipated competition in those markets;
     
 
future capital requirements and our ability to satisfy its needs;
     
 
general economic conditions.

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

 
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Item 3.                  Quantitative and Qualitative Disclosures About Market Risk.

This item is not required for a smaller reporting company.

Item 4(T).             Controls and Procedures.

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

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.  Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives.  Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment.  Based on the evaluation described above, our management, including our principal executive officer and principal accounting officer, have concluded that, as of September 30, 2011, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting.  Management has evaluated whether any change in our internal control over financial reporting occurred during the third quarter of fiscal 2011. Based on its evaluation, management, including the chief executive officer and principal accounting officer, has concluded that there has been no change in our internal control over financial reporting during the third quarter of fiscal 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART  II   —   OTHER INFORMATION

Item 1.                 Legal Proceedings

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

Item 1A.              Risk Factors

This item is not required for a smaller reporting company.

Item 2.                 Unregistered Sales of Equity Securities and Use of Proceeds

This Item is not applicable.

 
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Item 3.                 Defaults Upon Senior Securities

This Item is not applicable.

Item 4.                 (Removed and Reserved)


Item 5.                 Other Information

This Item is not applicable.

Item 6.                 Exhibits

Exhibit 31.1
 
Certification of C.E.O. and Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
Exhibit 32.1
 
Certification of C.E.O. and Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
Exhibit 10.1
 
*Interactive Data File
     
*      In accordance with Rule 406T of Regulation S-T, these XBRL (eXtensible Business Reporting Language) documents are furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

 
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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.

 
LILM, INC.
   
   
   
Date: November 21, 2011
By:  /S/   George I. Norman, III
 
George I. Norman, III
 
President, C.E.O. and Director
 
(Principal Accounting Officer)



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