**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

FORM            10-KSB

 

(Mark            One)

 

|   | [ X ] | Annual Report Pursuant to Section 13 or 15(d) of The                            Securities Exchange Act of 1934 |
|--------|-------|-----------------------------------------------------------------------------------------------------------------|

 

For            the Fiscal Year Ended December 31, 2007

 

|   | [    ] | Transition Report Pursuant to Section 13 or 15(d) of The                            Securities Exchange Act of 1934 |
|--------|-----------------------|---------------------------------------------------------------------------------------------------------------------|

 

Commission File Number: 000–51872

 

**LILM, INC.**

(Name            of small business issuer in its charter)

 

|   | Nevada | 87-0645394 |
|--------|--------|------------|

|   | (State or other jurisdiction of | (I.R.S. Employer |
|--------|---------------------------------|------------------|

|   | incorporation or organization) | Identification No.) |
|--------|--------------------------------|---------------------|

 

1390            South 1100 East # 204, Salt Lake City, Utah 84105-2463

(Address of principal executive offices) (Zip Code)

 

Issuer's telephone no.: (801) 322-0253

 

| Securities registered pursuant to Section 12(b) of the                            Exchange Act: | None |
|-------------------------------------------------------------------------------------------------|------|

 

| Securities registered pursuant to Section 12(g) of the                            Exchange Act: | Common |
|-------------------------------------------------------------------------------------------------|--------|

 

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 [ ]

 

Check if there is no disclosure of delinquent filers in response to Item            405 of Regulation S-B contained in this form, and no disclosure will be contained, to            the best of the Registrant's knowledge, in definitive proxy or information statements            incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form            10-KSB. [ ]

 

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

 

|   | State the issuer's revenues for its most recent fiscal                            year. $ 1,693 |
|--------|-------------------------------------------------------------------------------------------------|

 

State the aggregate market value of the voting stock held by            non-affiliates computed by reference to the price at which the stock was sold, or the            average bid and ask prices of such stock as of a specified date within 60 days. $            70,027 (Based on bid price $0.10 per share on February 28, 2008)

 

State 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 March 7, 2008 |
|--------|-------|---------------------------------|

             

|   | Common Stock, Par Value |
|--------|-------------------------|

|   | $0.001 par value | 2,583,750 |
|--------|------------------|-----------|

 

DOCUMENTS INCORPORATED BY REFERENCE

 

A            description of "Documents Incorporated by Reference" is contained in Part III, Item            14.

 

| Transitional Small Business Disclosure                            Format. | Yes [ | ] | No [ X ] |
|---------------------------------------------------------------------------|-------|---|----------|

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**LILM, INC.**

 

**TABLE OF CONTENTS**

 

|   | Page |
|--------|------|

**PART I**

 

| Item 1. | Description of Business | 3 |
|---------|-------------------------|---|

 

| Item 2. | Description of Property | 9 |
|---------|-------------------------|---|

 

| Item 3. | Legal Proceedings | 9 |
|---------|-------------------|---|

 

| Item 4. | Submission of Matter to a Vote of Security                            Holders | 10 |
|---------|-------------------------------------------------------------------------------|----|

 

**PART II**

 

| Item 5. | Market for Common Equity and Related Stockholder                            Matters | 10 |
|---------|-------------------------------------------------------------------------------------|----|

 

| Item 6. | Management's Discussion and Analysis or Plan of                            Operation | 11 |
|---------|--------------------------------------------------------------------------------------|----|

 

| Item 7. | Financial Statements | 15 |
|---------|----------------------|----|

 

| Item 8. | Changes in and Disagreements with Accountants on                            Accounting |
|---------|----------------------------------------------------------------------------------------|

|   | and Financial Disclosure | 15 |
|--------|--------------------------|----|

 

| Item 8A. | Controls and Procedures | 15 |
|----------|-------------------------|----|

 

| Item 8B | Other Information | 15 |
|---------|-------------------|----|

 

**PART III**

 

Item 9.                         Directors,            Executive Officers, Promoters and Control Persons; Corporate Governance;

|   | Compliance with Section 16(a) of the Exchange                            Act | 15 |
|--------|------------------------------------------------------------------------------|----|

 

| Item 10. | Executive Compensation | 17 |
|----------|------------------------|----|

 

| Item 11. | Security Ownership of Certain Beneficial Owners and                            Management | 17 |
|----------|-------------------------------------------------------------------------------------------|----|

 

| Item 12. | Certain Relationships and Related Transactions and                            Director Independence | 18 |
|----------|-----------------------------------------------------------------------------------------------------|----|

 

| Item 13. | Exhibits | 18 |
|----------|----------|----|

 

| Item 14. | Principal Accountant Fees and Services | 18 |
|----------|----------------------------------------|----|

 

|   | Signatures | 20 |
|--------|------------|----|

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**PART I**

 

| **Item 1.** | **Description of Business** |
|-------------|-----------------------------|

 

|   | *History* |
|--------|-----------|

 

LILM, Inc. was organized on December 30, 1999 under the laws of the            State of Nevada as a wholly owned subsidiary of LiL Marc, Inc., a Nevada corporation.            On that date we acquired from LiL Marc, Inc. the U.S. patent rights to the LiL Marc            “Training Urinal” a plastic toilet-training device (U.S. Patent Number            318,325, issued July 16, 1991). We also acquired the trade name “LiL Marc”            and rights to manufacture and market the product. We submitted the Patent Assignment to            the United States Patent Office in Washington, D.C. and, on February 10, 2000, the            assignment was recorded.

 

We are primarily involved in the manufacture and marketing of the LiL            Marc, a plastic boys toilet-training device constructed of white polyethylene plastic            having the appearance of white porcelain. We also intend to explore the potential            development, marketing and manufacturing of complementary baby products.

 

The LiL Marc training urinal was invented by James Curt McKiney and a            patent was issued to him on July 16, 1991. Approximately 3,500 units were sold by the            inventor, primarily between 1992 and 1994. In 1997, LiL Marc, Inc. (Nevada), our            predecessor company, acquired the marketing and patent rights to the LiL Marc training            urinal from the inventor. On December 30, 1999, LiL Marc, Inc. (Nevada) created LILM,            Inc., as a wholly owned subsidiary and the patent and marketing rights to the LiL Marc            were conveyed to LILM, Inc..

 

In June 2000, our current President, George I. Norman, III, acquired in            a private transaction 100% of the 1,000,000 issued and outstanding shares of our common            stock and we ceased to be a subsidiary of LiL Marc, Inc. (Nevada). Subsequently in            October 2002, LiL Marc, Inc. (Nevada) acquired InkSure Technologies, Inc. and became            engaged as a developer and marketer of customized authentication systems designed to            enhance the security of documents and branded products for protection from            counterfeiting and diversion. Since June 2000, we have not had any connection or            relationship with LiL Marc, Inc. (Nevada), now known as InkSure Technologies,            Inc.

 

Since 2000, we have maintained our corporate offices in Salt Lake City,            Utah and also kept an adjunct office in Las Vegas, Nevada until 2004. In December of            2004, we closed our Las Vegas office and moved all operations to Salt Lake City, Utah.            In connection with this move, on December 10, 2004, we created a new Utah corporation            as a wholly owned subsidiary under the name of LiL Marc, Inc. We then transferred all            of our assets to LiL Marc, Inc. (Utah) in January 2005, in exchange for all 1,500,000            shares (100% of LiL Marc’s outstanding common stock. By incorporating in Utah as            LiL Marc, Inc., we consolidated our operations in one location and reduced duplicated            operating expenses.

 

On February 25, 2005, we submitted a subsequent Patent Assignment to the            United Sates Patent Office conveying the patent rights to our wholly owned subsidiary,            LiL Marc, Inc. (Utah). In connection with the assignment of the patent, LiL Marc, Inc.            (Utah) will pay to James Curt McKiney, the inventor of the LiL Marc training urinal, an            ongoing royalty of $0.25 per urinal sold, due each year on March 31 beginning in 2005.            As of December 31, 2006, a total of $36.00 in royalty payments have been paid to the            inventor.

 

|   | *Stock Offering* |
|--------|------------------|

 

On February 21, 2002, we commenced an offering of our common stock            pursuant to an exemption from registration under the Securities Act of 1933 provided by            Rule 504 of Regulation D promulgated thereunder. The offering was for 1,500,000 shares            of common stock at the offering price of $0.08 per share. We sold a total of 763,750            shares to 59 investors for gross proceeds of $61,100 and filed a final Form D with the            SEC in March 2003.

 

Our principal executive offices are located at 1390 South 1100 East #            204, Salt Lake City, Utah 84105-2463 and our telephone number is (801)            322-0253.

 

 

 

3

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**LiL            Marc Training Urinal**

 

The LiL Marc is a simple to use plastic urinal used in the bathroom            ("potty") training of young boys. The LiL Marc is constructed from high quality,            recyclable, high density, white polyethylene plastic and, because of its white            porcelain appearance, looks like a full-sized urinal found in public restrooms, only on            a smaller scale. It is intended to assist in the training of daytime bladder control of            young boys. By using the LiL Marc, a male child can be potty-trained standing up like a            little boy, instead of being trained sit-down fashion like a little girl.

 

The LiL Marc is marketed as a stand alone unit with a removable support            to stand the unit at the proper height for young boys. It can be easily transported to            another room or used when traveling. The LiL Marc may also be attached to a wall or            door using the mounting bracket and screws, both provided with the unit. The mounting            bracket holds the unit securely and slides off easily to empty and clean with any            detergent or bathroom cleaner. The LiL Marc features a built-in pour spout that makes            it easy to empty and clean. The LiL Marc is a one-time purchase and does not need any            other supplies. It is designed so that young boys of all sizes can comfortably stand            while facing the unit. It has a height of 24 inches and a width of just over 10            inches.

 

**Production**

 

In addition to acquiring the patent rights to the LiL Marc, we also            acquired the production air mold and rotational mold used to manufacture the training            unit and its stand. The molds are located at Blow Molded Products in Glen Avon,            California, a specialty boutique blow mold manufacturer. By having another company            manufacture the LiL Marc, we are able to produce a quality product in mass at a            competitive price. Using the air mold enables us to produce large or small orders and,            during test marketing by the inventor, the air mold produced over 3,000 units with a            high quality finish. We have an arrangement with Blow Mold Products whereby we will use            the air mold to manufacture the wall mount and LiL Marc urinal for a specified            production price. The stand is manufactured elsewhere.

 

The arrangement with Blow Molded Products consists of our submitting a            purchase order and payment terms are discussed at the time of the order. All orders are            FOB shipping point with shipping and delivery arranged by us. We are required to            provide a production ready mold, which is currently onsite at Blow Molded Products.            Each order includes the standard terms and conditions concerning any individual order.            We do not have a formal contract with Blow Molded Products other than individual            purchase orders.

 

We use a subcontractor, Rotational Molding of Utah located in Brigham            City, Utah, that uses custom rotation molds to manufacture the stands. Our arrangement            with Rotational Molding is that we submit a purchase order on the terms that payment is            due within 30 days of completing the order. All orders are FOB shipping with shipping            and delivery arranged by us. We do not have a formal contract with Rotational Molding            other than individual purchase orders for each order.

 

Cost of production, based on a projected 5,000 LiL Marcs manufactured,            is approximately $2.94 per urinal and $2.00 per stand. Due to the size and shape of the            LiL Marc, packaging and shipping initially required a special order box. However, we            have developed a shrink wrap package that costs approximately $1.50 per unit. We            currently assemble the product at our Salt Lake City facility and individually shrink            wraps each product using an American International Electric, Inc. shrink packaging            system. This system can wrap one unit in a two-and-a-half minute time period. The            product is then placed in a brown shipping box. Thus, the total manufacturing and            packaging cost are approximately $6.44 per finished LiL Marc, which has a suggested            retail price of $22.95.

 

We are committed to produce our product solely in America and the            product has an industry recyclable rating of 2. This rating appears as a commonly used            recyclable symbol (triangular shape) with the number 2 and the word “HOPE”,            denoting that the product is made of a plastic resin consisting of high density            polyethylene. The recycle applications are common drainage pipe, liquid laundry            detergent bottles, oil bottles, pens, benches, doghouses, recycling containers, floor            tile, picnic tables, fencing, lumber, and mailbox posts.

 

We guarantee the LiL Marc Potty Trainer against defects in materials and            workmanship for a period of two years from the date of purchase. If the product is            found to be defective, we will replace it with a new LiL Marc and pay shipping for the            replaced product. To date, there have been no claims filed or requests for replacement            products.

**Marketing**

 

4

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The LiL Marc, it is marketed through our websites at www.LiLMarc.com and            www.BoysPottyTraining.com The LiL Marc is also represented on several other websites            that specialize in the marketing of potty training products for boys, which enhances            the visibility of the product. Currently these resellers include            PottyTrainingSolutions.com, PottyTrainingConcepts.com, ZipBaby.com and            Babybungalow.com. We have realized only nominal international sales.

 

In 2005, Narmin Parpia of PottyTrainingConcepts.com, an internet web            reseller of our product, displayed the LiL Marc at a national trade show, but met with            little success. Management believes that we need to sponsor our own display at future            shows for any meaningful results. Due to the extremely high costs of participating in            national trade shows, management has no current plans to do so. Management believes            that the world wide web gives the highest degree of visibility for the LiL Marc at this            time.

 

The LiL Marc inventor did perform limited test marketing in 1993, which            included pricing information, product layout suggestions, and some mail order product            introduction. However, we have not performed any significant test marketing in recent            years.

 

**Competition**

 

Competitive conditions in the industry are dependent on the products and            marketing ability of the various companies that are selling similar potty training            products. Management believes that there are currently four or five companies marketing            products similar to the LiL Marc. These products range from simple colored floating            targets to complex molded adaptations that are attached to the toilet bowl. There is            currently only one other free standing urinal in the marketplace, the “Peter            Potty,” but its retail price of $49.95 far exceeds the LiL Marc price of $19.95            and its upper water reservoir and flushing design limits its portability. We offer the            only free-standing training urinal that does not require a water source, making it            completely portable. Current competitors require a commode basin to attach their            product, such as the “Weeman,” or require a water source to fill the urinal            flushing tank, as in the “Peter Potty.”

 

Most of our competitors compete using similar methods, primarily relying            on their websites and the websites of resellers to market their products. Our            competitive position against these other companies varies depending on each individual            competitor’s advertising and marketing budgets. Management believes we can            compete against these smaller companies because of our product’s portability,            ease of cleaning, and no requirement for a water source. Our product is priced in the            middle range of these similar products.

 

The other competition to the LiL Marc is a wide variety of standard            potty trainer “potties” designed for either little boys or girls which are            produced and marketed through much larger companies. These competitors have a marketing            advantage over the LiL Marc because their products are usually sold in nationwide            retail stores through wholesale distributors. Additionally, these larger competitors            have marketing budgets that allow them to advertise in toddler and parenting magazines            and on television. We do not have a budget or the ability for national advertising and            marketing and instead, must rely on our website and on the websites of resellers as            well as word of mouth from customers. When compared with these larger companies, we are            at a competitive disadvantage as to marketing and advertising. Management believes that            our competitive position is more advantageous against these larger companies because            the LiL Marc is a stand alone urinal compared to standard trainer potties. Our product            has similar pricing to most trainer potties.

 

**Research and Development**

 

Presently, we are not allocating funds for research and development            activities to develop new products or technology. Management does not anticipate            allocating funds for primary research in the immediate future. We intend to limit            development activities to improving the existing LiL Marc product, production costs and            the possible development of complimentary accessories. Management believes that future            LiL Marc accessories, once properly sourced, would be relatively inexpensive and their            addition could enhance the overall experience when using the product. Accessories can            also help in creating product loyalty and may also allow us to increase the suggested            retail price. However, it will still be difficult for us to explore any new products            and accessories until such time as revenues from the sale of the LiL Marc product have            provided sufficient capital reserves to commence such a venture. A minimum capital            reserve of $5,000 would be required to explore any accessory possibilities.

 

**Patents and Trademarks**

 

The inventor of the LiL Marc applied for and, on July 16, 1991, was            granted a patent relating to the LiL Marc Training Urinal (U.S. Patent Number 318,325).            The rights to the patent, the trade name LiL Marc and the right to manufacture the            product were subsequently assigned by the inventor to LiL Marc, Inc. (Nevada)            on

 

5

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November 10, 1997. LiL Marc, Inc. subsequently assigned the patent,            trade name and rights to manufacture to LILM on December 30, 1999. We submitted the            Patent Assignment to the United States Patent Office and on February 10, 2000, the            assignment was recorded in the Patent Office. On February 25, 2005 we submitted a            subsequent Patent Assignment to the United Sates Patent Office conveying the patent            rights to our wholly owned subsidiary, LiL Marc, Inc., a Utah corporation. In            connection with the assignment of the patent, our subsidiary, will pay to James Curt            McKiney, the inventor of the LiL Marc training urinal, an ongoing royalty of $0.25 per            urinal sold, due each year on March 31 beginning in 2005.

 

On July 16, 2005 the design patent for the LiL Marc training urinal            expired and as of this date we have not yet applied for a new patent with modifications            to the LiL Marc’s design. Management is evaluating the available options for            making any new filing. At this time we are relying on the complex engineering in the            current production molds for product protection against any copy of the product.            Management believes that a substantial investment of $100,000 or more for production,            marketing and packaging would be necessary to bring a similar product to the market.            However, without patent protection, current competitors and/or other businesses could            duplicate the product and market the same or similar product in direct competition with            the LiL Marc. Presently, we do not anticipate filing additional patent applications if            new and/or improved products are developed.

 

There can be no assurance that any future patent applications will            result in patents being issued or that the existing patent, or any new patents, if            issued, will afford any meaningful protection from competitors. Also, there can be no            assurance that we will have the financial resources necessary to enforce any patent            rights we may hold. We are not aware of any claim that our patent may infringe, or will            infringe any existing patent. However, in the event such a claim is made and we are            unsuccessful against such claim, we may be required to obtain licenses to such other            patents or proprietary technology in order to develop, manufacture or market our            product. There can be no assurance that we will be able to obtain such licenses on            commercially reasonable terms or that the patents underlying the licenses will be valid            and enforceable.

 

**Employees and Compensation**

 

We presently have one full-time employee, our President, George I.            Norman III, and we anticipate that Mr. Norman will devote a minimum of 20 hours            per week to company business. Laurie Norman, our Secretary/Treasurer, continues to            assists Mr. Norman when needed as an office manager. We also have one part-time laborer            and will continue to rely on part-time help for office and secretarial work and labor            for packaging, shipping and inventory control. We may also use the services of certain            outside consultants and advisors as needed on an hourly basis. Our web design and            packaging art is rendered by third parties. When we have generated sufficient revenues            we will consider hiring additional employees. It is not anticipated that we will have            to make significant payroll expenditures until such time as sales of the LiL Marc            exceed 500 units per month. However, there can be no assurance that we will ever            achieve or exceed this level of unit sales.

 

The Board of Directors has considered an employee bonus, profit sharing            or deferred compensation plan, however no such plans are anticipated to be finalized in            the immediate future. We do not have any employment contract with any director or            employee.

 

**Facilities**

 

Our facilities consist of a corporate general office located at 1390            South 1100 East, #204, Salt Lake City, Utah 84105, consisting of approximately 440            square feet situated in a professional office building with some additional room for            product and supply storage. We are conveniently located near a FedEx Kinkos and US Post            office for order fulfillment. The facilities shared with the personal offices of our            President, Mr. Norman, at a month-to-month base rate of $200 per month plus utilities            and storage as needed. Mr. Norman conducts his consulting business and manages his            personal investments in the same office facilities and pays an additional $250 per            month towards the shared rent. Management believes that the current facilities are            adequate for the immediate future. Additionally, we use storage facilities for            inventory located at a local mini warehouse facility in the Salt Lake City at a cost of            $110 per month. This facility has the capacity to hold approximately 5,000 LiL            Marcs.

**Industry Segments**

 

No information is presented regarding industry segments. We are            presently engaged in the production and marketing of a plastic boys toilet-training            device and have no current plans to participate in another business or industry.            Reference is made to the statements of income and financial statements included            herewith.

6

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**Risk            Factors Related to Our Business**

 

*We are subject to certain substantial risks inherent to our business            and set forth or referred to herein. Prospective investors in our securities should            carefully consider, among other potential risks, the following risk factors as well as            all other information set forth or referred to herein before considering an investment            in our common stock. An investment in our shares involves a high degree of risk. If any            of the following events or outcomes actually occurs, operating results and financial            condition would likely suffer. As a result, the trading price of our common stock could            decline and an investor may lose all or part of the money they paid to purchase their            shares.*

 

***We have a limited operating history and have not recorded            operating profits since inception. Continuing losses may exhaust capital resources and            force us to discontinue operations.***

 

We were incorporated in December 1999 as a wholly owned subsidiary of            LiL Marc, Inc. (Nevada). At that time we acquired from LiL Marc, Inc. (Nevada) the U.S.            patent rights to the LiL Marc “Training Urinal,” the trade name “LiL            Marc” and rights to manufacture and market the product. LiL Marc, Inc.(Nevada)            initially acquired the rights to the LiL Marc product in 1997and marketed the product            until the rights were assigned to us in 1999. Since acquiring the product rights from            LiL Marc, Inc. (Nevada), we have had a limited operating history and incurred net            losses since inception. From inception through December 31, 2007, we have incurred            cumulative losses of approximately $156,445. There can be no assurance that we will            produce future material revenues or achieve profitability in the immediate future or at            any time, or that we will operate on a profitable basis. The potential to generate            profits from our business depends on many factors, including the following:

 

|   | • | the ability to secure adequate funding to increase                            marketing and fund future production of our product; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|

 

|   | • | the size and timing of future customer orders, product                            delivery and customer acceptance, if required; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

 

|   | • | the costs of maintaining and expanding operations;                            and |
|--------|--------|-----------------------------------------------------------------------------------|

 

|   | • | the ability to attract and retain a qualified work force                            as business warrants. |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

 

There can be no assurance that we will be able to achieve any of the            foregoing factors or realize profitability in the immediate future or at any            time.

 

***In order to continue business, we may have to secure additional            capital. Additional required capital may not be available at attractive terms which            would have a material negative effect on our business and operating            results.***

 

In the event we need additional funds in order to continue or increase            current business operations, we may not be able to secure such funding. In the past we            have been dependent on funds raised in our stock offering in 2002 and the infusion of            capital from directors and stockholders in order to continue our business. Currently,            management estimates recurring annual total expenses to be approximately $20,000.            Management further expects that general, administrative and other operating expenses            will increase substantially as we accelerate efforts to expand business and to satisfy            increased reporting and stockholder communications obligations under existing            securities laws.

 

There can be no assurance that we will be able to obtain necessary funds            to continue operations, or that such funds will be available on favorable terms            favorable, or at all. If we borrow funds we will have to pay interest and may also have            to agree to restrictions that limit operating flexibility. In addition, our cash            requirements may vary materially from those now anticipated by management. These            changes may be due to the results of business expansion, potential changes in capital            and debt markets, terms on which financing can be obtained, competitive factors and            other factors. If adequate funds are not available, we may be required to curtail            operations, which would have a negative effect on our financial condition.

***We may not be able to expand the market for our product, which            could cause our business to fail.***

 

It is management’s intent to expand the market for our product,            but only as ongoing business conditions warrant and, if necessary, funds are available.            We presently operate in a limited geographical marketing area and via the Internet. In            order to expand the area in which we operate, we must expand facilities, purchase            additional equipment and retain additional personnel. Also, there can be no assurance            that if we do expand into new areas, such expansion will be successful or that the            business generated form the addition of markets will warrant the expenses necessary to            facilitate the expansion. If we are unable to successfully expand our marketing area            and products offered, our business may not be able to grow or possibly decrease, which            will have a negative impact on future operations.

 

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***We have only one manufacturer of our product and, if this sole            producer is no longer able to produce the units, we may be unable to find a replacement            manufacturer and our business could be negatively affected.***

 

Blow Molded Products is presently the only manufacturer of our product,            although the stand is subcontracted to a separate entity. If Blow Molded Products was            unable to continue to produce the LiL Marc units, we would have to locate another            custom blow molded manufacturing company. Although the product was previously produced            by Flambeau Airmold, in Redland, California, we are not certain whether they could            currently produce the product on reasonable terms. Management is currently not aware of            any other custom blow molded manufacturers that can offer the flexibility of orders as            small as 100 and that is also capable of producing orders as large of 10,000.            Accordingly, there can be no assurance that we could locate an alternate manufacturer            to produce our product and, that if we are able to find an alternate, that the            production costs and associated expenses would be on terms favorable to us. In this            event, we would suffer a delay in production that could negatively affect sales and            have an adverse effect on our business and financial condition.

 

***The design patent for the LiL Marc training urinal has expired            which could allow competitors and other businesses to duplicate and market a similar            product, which would have a negative impact on future revenues and financial            condition.***

 

The design patent for the LiL Marc, our only product, expired in July            2005 and we do not anticipate filing for additional patent applications related to the            product. Without patent protection, we must rely on the complex engineering in the            current production molds for product protection against any copy of the product. It is            possible that a competitor or other business may duplicate the product and market the            same or similar product in direct competition with the LiL Marc. This could have a            severe and negative impact on future sales of the LiL Marc, which would negatively            affect our financial condition.

 

***The industry in which we operate is highly competitive, which            could affect results of operations and make profitability even more difficult to            achieve and sustain.***

 

The baby products and related products industry is highly competitive            and is marked by many competitors and potential competitors, many of which are much            larger with much greater financial resources, such as Fisher–Price. Most existing            and potential competitors also have larger market share and larger production            capability, which may enable them to establish a stronger competitive position than we            have, in part through greater marketing opportunities. If we fail to compete            effectively with these businesses or to address competitive developments quickly and            effectively, we will not be able to grow our business or remain a viable            entity.

 

***Our business could be adversely affected by any adverse economic            developments in the baby products industry and/or the economy in            general.***

 

We depend on the perceived ongoing demand for our baby products, which            may be subject to trends in discretionary spending by the consumer. Therefore, future            business is susceptible to downturns in the baby products industry and the economy in            general. Any significant downturn in the market or in general economic conditions would            likely hurt our business.

 

|   | ***Management will devote only minimal time to our                            business.*** |
|--------|--------------------------------------------------------------------------------------------|

 

Presently, our three directors have other full time obligations and will            devote only such time to our business as necessary, except for our President who will            devote approximately 20 hours per week. The other directors will devote only such time            as may be required as a member of the Board of Directors. Thus, because of their other            time commitments, management anticipates that they will devote only a minimal amount of            time to our business, at least until such time as business warrants devoting more            time.

 

|   | ***Effective voting control of our company is held by                            its three directors.*** |
|--------|----------------------------------------------------------------------------------------------------------|

 

Our three directors own in the aggregate approximately 73% of our            outstanding voting securities. No other person owns as much as of 10% of the            outstanding shares. Accordingly, the current directors will have the ability to elect            all of our directors, who in turn elect all executive officers, without regard to the            votes of other stockholders.

 

|   | ***Currently there is not an active market for our                            common stock.*** |
|--------|------------------------------------------------------------------------------------------------|

 

 

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Although our shares are quoted on the OTC Bulletin Board, there is not            currently an active trading market for the shares. However, there can be no assurance            that an active trading market will ever develop or be maintained. Any trading market            for our common stock will most likely be very volatile and effected by numerous factors            beyond our control. Only companies that report their current financial information to            the SEC may have their securities included on the OTC Bulletin Board. In the event that            we lose this status as a "reporting issuer," any future quotation of our common stock            on the OTC Bulletin Board may be jeopardized.

 

***The so called "penny stock rule" could make it cumbersome for            brokers and dealers to trade in our common stock, making the market less liquid which            could have a negative effect on the price of the shares .***

 

Trading in our common stock is subject to certain provisions of the            Exchange Act, commonly referred to as the "penny stock" rule. A penny stock is            generally defined to be any equity security that has a market price less than $5.00 per            share, subject to certain exceptions. If our stock is deemed to be a penny stock,            trading will be subject to additional sales practice requirements on broker-dealers.            These may require a broker-dealer to:

 

|   | • | make a special suitability determination for purchasers                            of the shares; |
|--------|--------|---------------------------------------------------------------------------------------------------|

 

|   | • | receive the purchaser's written consent to the                            transaction prior to the purchase; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

 

|   | • | deliver to a prospective purchaser of our shares prior                            to the first transaction, a risk disclosure document relating to the                            penny stock market. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Consequently, penny stock rules may restrict the ability of            broker-dealers to trade and/or maintain a market in our common stock. Also, prospective            investors may not want to get involved with the additional administrative requirements,            which may have a material adverse effect on the trading of our shares.

 

|   | ***We have never paid a dividend and do not intend to                            do so in the immediate future.*** |
|--------|--------------------------------------------------------------------------------------------------------------------|

 

We has never paid cash dividends and have no plans to do so in the            foreseeable future. Any future dividend policy will be determined by our Board of            Directors and will depend upon a number of factors, including our financial condition            and performance, cash needs and expansion plans, income tax consequences, and the            restrictions that applicable laws and/or credit arrangements may impose.

 

| **Item 2.** | **Description of Property** |
|-------------|-----------------------------|

 

|   | We do not presently own any property. |
|--------|---------------------------------------|

 

| **Item 3.** | **Legal Proceedings** |
|-------------|-----------------------|

 

There are no material pending legal proceedings to which our company, or            any subsidiary thereof, is 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 4.** | **Submission of Matters to a Vote of Security                            Holders** |
|-------------|------------------------------------------------------------------------------------|

 

No matters were submitted to a vote of our securities holders during the            fourth quarter of the fiscal year ended December 31, 2007.

 

**PART II**

 

| **Item 5.** | **Market for Common Equity and Related Stockholder                            Matters** |
|-------------|-----------------------------------------------------------------------------------------|

 

Our common stock is currently included on the OTC Bulletin Board under            the symbol “LILM,” although there has not been an active trading market for            the shares. Secondary trading of our shares may be subject to certain state imposed            restrictions. Except for being included on the OTC Bulletin Board, there are no plans,            proposals, arrangements or understandings with any person concerning the development of            a trading market in any of our securities.

 

9

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The ability of individual stockholders to trade their shares in a            particular state may be subject to various rules and regulations of that state. A            number of states require that an issuer's securities be registered in their state or            appropriately exempted from registration before the securities are permitted to trade            in that state. Presently, we have no plans to register our securities in any particular            state. Further, our shares most likely will be subject to the provisions of Section            15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the            "penny stock" rule. Section 15(g) sets forth certain requirements for            transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of            penny stock as that used in Rule 3a51-1 of the Exchange Act.

 

The SEC generally defines penny stock to be any equity security that has            a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1            provides that any equity security is considered to be a penny stock unless that            security is: registered and traded on a national securities exchange meeting specified            criteria set by the SEC; authorized for quotation on The NASDAQ Stock Market; issued by            a registered investment company; excluded from the definition on the basis of price (at            least $5.00 per share) or the issuer's net tangible assets; or exempted from the            definition by the SEC. Broker-dealers who sell penny stocks to persons other than            established customers and accredited investors (generally persons with assets in excess            of $1,000,000 or annual income exceeding $200,000, or $300,000 together with            their spouse), are subject to additional sales practice requirements.

 

For transactions covered by these rules, broker-dealers must make a            special suitability determination for the purchase of such securities and must have            received the purchaser's written consent to the transaction prior to the purchase.            Additionally, for any transaction involving a penny stock, unless exempt, the rules            require the delivery, prior to the first transaction, of a risk disclosure document            relating to the penny stock market. A broker-dealer also must disclose the commissions            payable to both the broker-dealer and the registered representative, and current            quotations for the securities. Finally, monthly statements must be sent to clients            disclosing recent price information for the penny stocks held in the account and            information on the limited market in penny stocks. Consequently, these rules may            restrict the ability of broker-dealers to trade and/or maintain a market in our common            stock and may affect the ability of stockholders to sell their shares.

 

As of March 7, 2007, there were 67 holders of record of our common            stock, which does not account for stockholders whose shares may be held in a brokerage            account or in other nominee name. Because there has been only a limited public trading            market for our securities, no trading history is presented herein. We do not currently            have outstanding any options, warrants or other securities or instruments that are            convertible into shares of our common stock. 

 

We have not filed a registration statement under the Securities Act and            all of our outstanding shares of common stock were issued pursuant to exemptions under            that Act. In February 2003, we completed an offering of 763,750 shares of common stock            to a total of 59 investors for gross proceeds of $61,100. After deducting costs and            expenses associated with the offering, the net amount received by us was $55,030. The            offering was made pursuant to an exemption from registration under the Securities Act            provided by Regulation D, Rule 504 of the Securities Act. Sales were made pursuant to            an Offering Memorandum and an amended Form D was filed on March 3, 2003 reporting the            completion of the offering.

 

As provided by Rule 502(d) of Regulation D, securities acquired in            transactions that satisfy the requirements set forth in Rule 504 are not subject to the            resale limitations set forth in Rule 502(d). Accordingly, the 763,750 shares issued            pursuant to the Regulation D offering in 2003 are deemed not to be            “restricted” securities, unless held by an affiliate or control person of            LILM. The balance of 1,820,000 shares outstanding are considered restricted securities,            unless sold or otherwise transferred pursuant to a registration statement under the            Securities Act or pursuant to an appropriate exemption from registration. Presently,            all the 1,820,000 shares remain as restricted securities.

 

Subsequent to the Regulation D offering, a director purchased 63,475            shares from two investors in the offering. These shares are deemed            “control” shares and are included in our calculations for restricted            shares. Thus, a total of 1,883,275 shares are considered restricted securities and are            held by our affiliates or controlling stockholder and no restricted shares are held by            nonaffiliates. Accordingly, the balance of 700,475 shares are considered freely            tradeable and may be sold, transferred or otherwise traded in the public market without            restriction, unless held by an affiliate or controlling stockholder. Because all of the            outstanding restricted shares have been issued and outstanding for more than one year,            Rule 144 of the Securities Act is available to the holders of these shares.

 

Rule 144 is the common means for a stockholder to resell restricted            securities and for affiliates, to sell their securities, either restricted on non            restricted (control) shares. Rule 144 has been amended by the SEC, effective February            15, 2008. Under the amended Rule 144, an affiliate of a company filing reports under            the

 

10

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Exchange Act who has held their shares for more than six months, may            sell in any three-month period an amount of shares that does not exceed the greater            of:

 

•     the average weekly trading volume in            the common stock, as reported through the automated quotation system of a registered            securities association, during the four calendar weeks preceding such sale,            or

 

|   | • | 1% of the shares then outstanding. |
|--------|--------|------------------------------------|

 

Sales            by affiliates under Rule 144 are also subject to certain requirements as to the manner            of sale, filing appropriate notice and the availability of current public information            about the issuer.

 

A non-affiliate stockholder of a reporting company who has held their            shares for more than six months, may make unlimited resales under Rule 144,*provided*only that the issuer has available            current public information about itself. After a one-year holding period, a            non-affiliate may make unlimited sales with no other requirements or            limitations.

 

We cannot predict the effect any future sales under Rule 144 may have on            the market price of our common stock, but such sales may have a substantial depressing            effect on such market price.

 

All of the 1,883,475 shares considered restricted securities and held by            our three directors, are presently eligible for sale pursuant to the provisions of Rule            144, subject to the volume and other limitations set forth under Rule 144.            Accordingly, assuming the conditions of Rule 144 are otherwise met, each of these            individuals could sell up to 25,838 shares per three month period.

 

**Dividend Policy**

 

We have not declared or paid cash dividends or made distributions in the            past, and we do not anticipate that we will pay cash dividends or make distributions in            the foreseeable future. We currently intend to retain and invest future earnings to            finance operations.

 

| **Item 6.** | **Management's Discussion and Analysis or Plan of                            Operation** |
|-------------|------------------------------------------------------------------------------------------|

 

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

 

We are considered a development stage company with minimal cash assets            and limited operations and revenue. Ongoing operating expense, including the costs            associated with the preparation and filing of our registration statement, have been            paid for by (i) the net proceeds of $55,030 (after deducting offering costs) from our            stock offering in 2002; and (ii) from advances from a stockholder. A total of $14,797            has been advanced by Alewine Limited Liability Company, a 73% stockholder that is owned            by two directors, George Norman and Laurie Norman and managed by Mr. Norman, our            President. The debt is evidenced by a note that is payable upon demand with a provision            that an interest rate of 10% would be charged on any outstanding balance not paid when            due.

      It is anticipated that we will            require approximately $20,000 over the next 12 months to fund operations and to            maintain our corporate viability. If we are unable to generate sufficient revenues from            sales of our product, we may have to rely on funds from credit lines, directors and/or            stockholders in the future. In March 2005, our subsidiary LiL Marc, Inc. received            tentative approval for an unsecured credit line with Wells Fargo Bank in the amount of            $15,000. The credit line was never used and was closed. There can be no assurance at            this time that the credit line can be reopened nor do we have any other potential            sources of funds available to us or our subsidiary at this time. We also do not have            any further commitments from a director or stockholder to provide any additional            funding.

 

**Results of Operations**

 

|   | *For the Year Ended December 31, 2007 Compared to the                            Year Ended December 31, 2006* |
|--------|----------------------------------------------------------------------------------------------------------------|

 

We realized revenues of $1,693 for the year ended December 31, 2007            compared to revenues of $2,984 for the year ended December 31, 2006. The decrease in            sales during 2007 is attributed to a decrease in retail orders from our website from            $1,345 in 2006 to $800 in 2007, a 40% decrease, and a 46% decrease in wholesale orders            from $1,639 in 2006 to $893 in 2007.

 

Total expenses for 2007 were $21,574 compared to $18,805 for 2006, a 15%            increase. The increase includes a 15% increase in administrative expenses from $18,157            in 2006 to $20,843 in 2007, primarily due to

 

11

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a 4%            increase in professional fees (from $10,145 in 2006 to $10,551 in 2007), including            legal and accounting expenses. We also recorded a 75% increase in general operating            related expenses in 2007, from $4,181 in 2006 to $7,297 in 2007. These increases were            partially offset by a 100% decrease in part time office help and office expenses from            $266 in 2006 to $0.00 in 2007). We realized a net loss of $19,881 for the year ended            December 31, 2007 compared to a loss of $15,821 in 2006. The increase in net loss is            directly attributed to an increase in general operating related expenses and decrease            in sales during 2007.

 

**Liquidity and Capital Resources**

 

At December 31, 2007 and 2006, we had total assets consisting of cash            and office equipment of $561 and $11,928, respectively. Total liabilities at December            31, 2007 and 2006 were $19,311 and $10,797 respectively. Total liabilities at December            31, 2007 consisted of an invoice in the amount of $4,500 for professional fees and a            demand note in the amount of $14,797 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. If a portion of the principal is not paid            when due then the note will bear an interest rate of 10% per annum.

 

Because we currently have only minimal revenues and limited cash            reserves, we may have to rely on 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 cash needs. At December 31, 2006, we had cash on hand of            $10,897, working capital of $100 and total stockholders’ equity of $1,131. At            December 31, 2007, we had cash on hand of $226, working capital of a negative $19,085            and total stockholders’ equity of a negative 18,750.

 

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

 

**Plan            of Operation**

 

During the next 12 months, we plan to focus on improving our website            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 relationships with resellers that sell our            product on their websites and on engaging new website hosts for the product. Management            anticipates that this can be accomplished through individual calls and e-mails to the            website hosts. Additionally, we are committed to the production of additional stands            when sale of more than 500 LiL Marcs is achieved. 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, directors will defer any compensation until such time as            business warrants the payment of such.

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            during 2008. If additional equipment does become necessary, we believe that we may have            to seek outside financing to acquire the equipment or assets.

 

Currently, we have two employees; our President that devotes            approximately 20 hours per week to our business, our Secretary that assists on an            as-needed basis and sometimes a part-time laborer for packaging and shipping.            Management believes that these employees will be adequate for the foreseeable future,            or until our 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.

 

12

             

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To achieve our goals during the next twelve months, we will require a            total monthly estimated expenditure of approximately $550. This monthly cost will            consist of office phone and fax (approximately $52 per month), 800 number (base of $5            plus per call charge of $0.15 per minute), office rent ($200 per month), storage rent            ($100 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 $65.

 

Management also estimates that during the next six months, depending on            continuing sales, we may need to order an additional 2,000 unit stands at a cost of            $3.67 each, for a total cost of $7,340. These stands will take 10 weeks to produce on a            rotational mold by the manufacturer, Rotational Mold of Utah. 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.

 

**Net            Operating Loss**

 

We have accumulated approximately $104,468 of net operating loss            carryforwards as of December 31, 2007. This loss carry forward may be offset against            taxable income and income taxes in future years and expires starting in the year 2021            through 2028. The use of these losses to reduce future income taxes will depend on the            generation of sufficient taxable income prior to the expiration of the net operating            loss carryforwards. In the event of certain changes in control, there will be an annual            limitation on the amount of net operating loss carryforwards which can be used. This            could occur in the event we are purchased, acquired by or merged with another company            whereby the stockholders of the new or merging company would be issued the majority of            the issued and outstanding shares and our current stockholders would hold a minority of            the issued and outstanding shares. This could result in an annual limitation on the            amount of net operating loss carryforwards that could be used by the ongoing            business.

 

The income tax benefit of approximately $31,000 at December 31, 2007            from the carryforwards has been fully offset by a valuation reserve because the use of            the future tax benefit is doubtful since we have not started full            operations.

 

**Recent Accounting Pronouncements**

 

In September 2006, the Financial Accounting Standards Board            (“FASB”) issued Statement of Financial Accounting Standards            (“SFAS”) No.  157, “*Fair Value            Measurements*.” SFAS 157 defines fair value,            establishes a framework for measuring fair value in accordance with U.S. GAAP, and            expands disclosures about fair value measurements. The statement clarifies that the            exchange price is the price in an orderly transaction between market participants to            sell an asset or transfer a liability at the measurement date. The statement emphasizes            that fair value is a market-based measurement and not an entity-specific measurement.            It also establishes a fair value hierarchy used in fair value measurements and expands            the required disclosures of assets and liabilities measured at fair value.            SFAS 157 is effective for financial statements issued for fiscal years beginning            after November 15, 2007. The adoption of this standard is not expected to have a            material impact on our financial condition, results of operation or            liquidity.

 

In June 2006, the FASB issued FASB Interpretation No. 48            (“FIN 48”), “*Accounting for Uncertainty            in Income Taxes* *— an            interpretation of FASB Statement No.* *109*,” which prescribes comprehensive            guidelines for recognizing, measuring, presenting and disclosing in the financial            statements tax positions taken or expected to be taken on tax returns. FIN 48,            effective for fiscal years beginning after December 15, 2006, seeks to reduce the            diversity in practice associated with certain aspects of the recognition and            measurement

 

13

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related            to accounting for income taxes. We are currently assessing the impact of FIN 48 on            our consolidated financial position and results of operations.

 

In March 2006, the FASB issued SFAS No. 156, “Accounting for            Servicing of Financial Assets, an amendment of FASB Statement No. 140, Accounting for            Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”            This statement requires all separately recognized servicing assets and servicing            liabilities to be initially measured at fair value, if practicable. It permits for            subsequent measurement using either fair value measurement with changes in fair value            reflected in earnings, or the amortization and impairment requirements of Statement No.            140. Subsequent measurement of separately recognized servicing assets and servicing            liabilities at fair value, eliminates the necessity for entities that manage risks            inherent in servicing assets and servicing liabilities with derivatives, to qualify for            hedge accounting treatment and eliminates the characterization of declines in fair            value as impairments or direct write-downs. SFAS No. 156 is effective for an entity's            first fiscal year beginning after September 15, 2006. The adoption of this statement is            not expected to have a material effect on our future reported financial position or            results of operations.

 

**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 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 our 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                            these 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 report identify important risks and uncertainties affecting our future, which            could cause actual results to differ materially from the forward-looking statements            made herein.

 

| **Item 7.** | **Financial Statements** |
|-------------|--------------------------|

 

Financial statements for the fiscal years ended December 31, 2007 and            2006 have been examined to the extent indicated in their reports by Madsen &            Associates, CPA’s Inc., independent certified public accountants and have been            prepared in accordance with accounting principles generally accepted in the United            States of America and pursuant to Regulation S-B as promulgated by the SEC. The            aforementioned financial statements are included herein starting with page            F-1.

 

| **Item 8.** | **Changes in and Disagreements with Accountants on                            Accounting and Financial Disclosure** |
|-------------|---------------------------------------------------------------------------------------------------------------------|

 

|   | None |
|--------|------|

 

| **Item 8A.** | **Controls and Procedures** |
|--------------|-----------------------------|

 

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As of the end of the period covered by this annual 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 as            defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. 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 upon the required evaluation, our chief executive officer and            principal accounting officer concluded as of December 31, 2007, our disclosure controls            and procedures are effective in timely alerting them to material information relating            to the company required to be disclosed by us in the reports that we file or submit            under the Exchange Act to be recorded, processed, summarized and reported within the            time periods specified in the SEC’s rules and forms. There have been no            significant changes in our internal controls over financial reporting or in other            factors that could significantly affect internal controls over financial reporting            subsequent to the date we carried out our evaluation.

 

| **Item 8B.** | **Other Information** |
|--------------|-----------------------|

 

|   | Not applicable. |
|--------|-----------------|

 

**PART III**

 

| **Item 9.** | **Directors, Executive Officers, Promoters and Control                            Persons; Corporate Governance; Compliance with                            Section** **16(a)                            of the Exchange** **Act** |
|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | Our executive officers and directors are as                            follows: |
|--------|---------------------------------------------------------------------------------|

 

 

|   | **Name** | **Age** | **Position** |
|--------|----------|---------|--------------|

|   | George I. Norman III | 53 | President, Chief Executive Officer and                            Director |
|--------|----------------------|----|----------------------------------------------------------------------------|

|   | Laurie J. Norman | 45 | Secretary / Treasurer and Director |
|--------|------------------|----|------------------------------------|

|   | Jessie Scott Bean | 52 | Director |
|--------|-------------------|----|----------|

___________________________

 

All directors hold office until the next annual meeting of stockholders            and until their successors have been duly elected and qualified. There are no            agreements with respect to the election of directors. We have not compensated directors            for service on the Board of Directors or any committee thereof, but directors are            entitled to be reimbursed for expenses incurred for attendance at meetings of the Board            and any committee of the Board. However, directors may defer their expenses and/or take            payment in shares of our common stock. As of the date hereof, no director has accrued            any expenses or compensation. Officers are appointed annually by the Board of Directors            and each executive officer serves at the discretion of the Board. We do not have any            standing committees.

 

No director, officer, affiliate or promoter has, within the past five            years, filed any bankruptcy petition, been convicted in or been the subject of any            pending criminal proceedings, or is any such person the subject or any order, judgment,            or decree involving the violation of any state or federal securities laws.

 

Directors currently devote only such time to company affairs as needed.            The time devoted could amount to as little as 1% of the time they devote to their own            business affairs, or if business conditions ultimately warrant, they could possibly            elect to devote their full time to our business. Presently, there are no other persons            whose activities are material to our operations.

 

Currently, there is no arrangement, agreement or understanding between            management and non-management stockholders under which non-management stockholders may            directly or indirectly participate in or influence the management of our affairs.            Present management openly accepts and appreciates any input or suggestions from            stockholders. However, the Board of Directors is elected by the stockholders and the            stockholders have the ultimate say in who represents them on the Board. There are no            agreements or understandings for any officer or director to resign at the request of            another person and none of the current offers or directors are acting on behalf of, or            will act at the direction of any other person.

 

15

 

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|   | The business experience of each of the persons listed                            above during the past five years is as follows: |
|--------|----------------------------------------------------------------------------------------------------------------------------------|

 

***George I. Norman, III***has been our            President and a director since December 30, 1999. He attended the University of Utah            from 1973 to 1975, studying general education, accounting, business and finance. Mr.            Norman returned to the University in 1979 and continued his studies in humanities,            science, and finance. Mr. Norman has been self-employed since 1979 in Salt Lake City,            Utah, as a financial and marketing consultant. In his business, Mr. Norman consults            with both individual and corporate clients and provides consulting services related to            making general business decisions, reviewing business plans and providing            recommendations for raising capital. Also, Mr. Norman provides consulting services in            the area of real estate management.

 

***Laurie J. Norman***has been            Secretary-Treasurer and a director since December 30, 1999. From April 22, 1997 to May            19, 2000 Mrs. Norman was Secretary-Treasurer and director of LiL Marc, Inc., a public            development stage company developing child products through its wholly owned            subsidiary, LILM, Inc. She graduated in 1985 from Adams State College in Alamosa,            Colorado, with a Bachelor of Science degree in biology. She studied German at the            Goethe Institute in Murnau, Republic of Germany in 1990. Mrs. Norman has worked with            children and adults as a ski instructor in the United States and New Zealand since            1981. Mrs. Norman has also worked in the main offices of the Alta Ski Resort near Salt            Lake City, Utah and, since November 1991,teaches skiing part-time at the Resort from            November to April each year. Since January 1997, Mrs. Norman has been the            Secretary/Treasurer and Assistant Manager of the Alewine Limited Liability Company.            Laurie J. Norman is the wife of George I. Norman, III.

 

***Jessie Scott Bean***has been a            director since September 30, 2001. Since July 7, 2001, he has been employed as a            salesperson for time shares at Consolidated Resorts in Las Vegas, Nevada. From June 2,            2000 to June 28, 2001, Mr. Bean was a salesperson of vacation packages for Vacation            Consultants International in Las Vegas and from May 1997 to June 1, 2000, he was a            licensed auction and wholesale salesperson for Donkey Motors, also in Las Vegas. From            September 8, 1997 to September 1998, Mr. Bean was a salesperson of vacation packages            for Global Odyssey in Pleasanton, California, and from 1996 to 1997, he was an auto            salesperson for Willden Pride Dodge in Las Vegas. Mr. Bean graduated from Clark High            School in Las Vegas, Nevada.

 

**Compliance With Section 16(a) of the Exchange Act**

 

Section 16(a) of the Exchange Act requires our directors and executive            officers, and persons who own greater than 10% of our common stock, to file with the            SEC initial reports of ownership and reports of changes in ownership of our common            stock and other equity securities. To the best of our knowledge, based solely on a            review of the copies of such reports furnished to us, all reports under Section 16(a)            required to be filed by its directors, executive officers and greater than 10%            beneficial owners were timely filed as of the date of this filing.

 

**Code            of Ethics**

 

We currently do not have a code of ethics. During the current fiscal            year, we do intend to adopt a code of ethics that applies to our principal executive            officer, principal financial officer, principal accounting officer or controller or            persons performing similar functions.

 

| **Item 10.** | **Executive Compensation** |
|--------------|----------------------------|

 

The following discussion addresses any and all compensation awarded to,            earned by or paid to our named executive officers for the fiscal years ended December            31, 2006 and 2007. We have not had a bonus, profit sharing, or deferred compensation            plan for the benefit of employees, officers or directors. Both production and marketing            are the responsibility of George Norman. We anticipate that during 2007 Mr. Norman will            devote a minimum of 20 hours per week to our business. Laurie Norman, our Secretary /            Treasurer, continues to assists Mr. Norman when needed as an office manager.

 

We have not paid any salaries or other compensation to officers or            directors for their service on the Board of Directors for the years ended December 31,            2006 and 2007. Further, we have not entered into an employment agreement with any            officers, directors or any other persons and no such agreements are anticipated in the            immediate future. It is intended that directors will defer any compensation until            such time as business operations provide sufficient cash flow to provide for salaries.            As of the date hereof, no person has accrued any compensation.

 

| **Item 11.** | **Security Ownership of Certain Beneficial Owners and                            Management** |
|--------------|-----------------------------------------------------------------------------------------------|

 

16

----

 

The following table sets forth information, to the best of our            knowledge, as of March 7, 2008, with respect to each person known by us to own            beneficially more than 5% of the outstanding common stock, each director and all            directors and officers as a group.

 

| **Name and Address** | **Amount and Nature of** | **Percent** |
|----------------------|--------------------------|-------------|

| **of Beneficial Owner** | **Beneficial Ownership** | **of                            Class**(1) |
|-------------------------|--------------------------|--------------------------------------------|

| Alewine Limited Liability Company                            (2) | 1,863,475 | 72% |
|------------------------------------------------------------------|-----------|-----|

1390            South 1100 East Ste. 204

Salt            Lake City, UT 84105

| Jessie Scott Bean | 20,000 | 1% |
|-------------------|--------|----|

8313            Aspenbrook

Las            Vegas, NV 89145

| All directors and officers as | 1,883,475 | 73% |
|-------------------------------|-----------|-----|

a group            (3 persons)

 

|   | * | Director and/or executive officer |
|--------|---|-----------------------------------|

 

|   | Note: | Unless otherwise indicated, we have been advised that                            each person above has sole voting power over the shares indicated                            above. |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | (1) | Based upon 2,583,750 shares of common stock outstanding                            on March 7, 2008. |
|--------|-----|------------------------------------------------------------------------------------------------------|

 

|   | (2) | Alewine Limited Liability Company is a Nevada limited                            liability company managed by Mr. Norman, our President, through                            which he manages his personal investments and conducts his                            self-employment consulting business in the area of real estate                            management and corporate finance. Alewine Limited Liability Company is                            owned by George Norman and Laurie Norman, our Secretary. By resolution                            of its members, Mr. Norman has voting and investment control over                            Alewine. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| **Item 12.** | **Certain Relationships and Related Transactions and                            Director Independence.** |
|--------------|----------------------------------------------------------------------------------------------------------|

 

There have been no material transactions during the past two fiscal            years between us and any officer, director, nominee for election as director, or any            stockholder owning greater than five percent (5%) of our outstanding shares, nor any            member of the above referenced individuals' immediate families.

 

| **Item 13.** | **Exhibits** |
|--------------|--------------|

 

|   | (a) | Exhibits |
|--------|-----|----------|

 

| Exhibit No. | Exhibit Name |
|-------------|--------------|

|   | 3.1* | Articles of Incorporation (Nevada) |
|--------|------|------------------------------------|

|   | 3.2* | By-Laws of Registrant |
|--------|------|-----------------------|

|   | 4.1* | Instrument defining rights of holders (See Exhibit No.                            3.1, Articles of Incorporation) |
|--------|------|-------------------------------------------------------------------------------------------------------------------|

|   | 10.1** | Promissory Note |
|--------|--------|-----------------|

|   | 21.1* | Subsidiaries |
|--------|-------|--------------|

|   | 31.1 | Certification of C.E.O Pursuant to Section 302 of the                            Sarbanes-Oxley Act of 2002. |
|--------|------|--------------------------------------------------------------------------------------------------------------|

|   | 31.2 | Certification of Principal Accounting Officer Pursuant                            to Section 302 of the Sarbanes-Oxley Act of 2002. |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.1 | Certification of C.E.O. Pursuant to 18 U.S.C. Section                            1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of                            2002. |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.2 | Certification of Principal Accounting Officer Pursuant                            to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the                            Sarbanes-Oxley Act of 2002. |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

________________

|   | * | Included as exhibit to Form 10-SB filed March 30,                            2006. |
|--------|---|------------------------------------------------------------------------------------|

|   | ** | Included as Exhibit to Amendment No. 1 to Form 10-SB/A                            filed August 22, 2006 |
|--------|----|---------------------------------------------------------------------------------------------------------|

 

| **Item 14.** | **Principal Accountant Fees and Services** |
|--------------|--------------------------------------------|

 

We do not have an audit committee and as a result our entire Board of            Directors performs the duties of an audit committee. Our Board of Directors will            approve in advance the scope and cost of the engagement of an auditor before the            auditor renders audit and non-audit services. As a result, we do not rely on            pre-approval policies and procedures.

 

17

----

             

We do not have an audit committee and as a result our entire Board of            Directors performs the duties of an audit committee. Our Board will approve in advance            the scope and cost of the engagement of an auditor before the auditor renders audit and            non-audit services. As a result, we do not rely on pre-approval policies and            procedures.

 

|   | *Audit Fees* |
|--------|--------------|

 

The aggregate fees billed by our independent auditors, Madsen &            Associates, CPA’s Inc., for professional services rendered for the audit of our            annual financial statements for the years ended December 31, 2007 and 2006, and for the            review of quarterly financial statements included in our Quarterly Reports on Form            10-QSB for the quarters ended March 31, June 30 and September 30, 2007 and 2006, were            $4,700 for 2007 and $2,670 for 2006.

 

|   | *Audit Related Fees* |
|--------|----------------------|

 

For the years ended December 31, 2007 and 2006, there were no fees            billed for assurance and related services by Madsen & Associates. relating to the            performance of the audit of our financial statements which are not reported under the            caption "Audit Fees" above.

 

|   | *Tax Fees* |
|--------|------------|

 

For the years ended December 31, 2007 and 2006, no fees were billed by            Madsen & Associates for tax compliance, tax advice and tax planning.          

 

We do not use Madsen & Associates for financial information system            design and implementation. These services, which include designing or implementing a            system that aggregates source data underlying the financial statements or generates            information that is significant to our financial statements, are provided internally or            by other service providers. We do not engage Madsen & Associates to provide            compliance outsourcing services.

 

The Board of Directors has considered the nature and amount of fees            billed by Madsen & Associates and believes that the provision of services for            activities unrelated to the audit is compatible with maintaining Madsen &            Associates' independence.

 

18

 

----

 

**SIGNATURES**

 

In accordance with Section 13 or 15(d) of the Exchange Act, the            Registrant caused this report to be signed on its behalf by the undersigned, thereunto            duly authorized.

 

**LILM, Inc.**

 

 

By:/S/GEORGEI.NORMAN,III 

George I. Norman, III

|   | President and C.E.O. |
|--------|----------------------|

 

| Dated: | March 14, 2008 |
|--------|----------------|

 

In accordance with the Exchange Act, this report has been signed below            by the following persons on behalf of the Registrant and in the capacities and on the            dates indicated.

 

|   | Signature | Title | Date |
|--------|-----------|-------|------|

             

             

|   | March 14 , 2008 |
|--------|-----------------|

| /S/ | GEORGEI.NORMAN,III | President, C.E.O. and director |
|-----|--------------------|--------------------------------|

|   | George I. Norman, III | (Principal Accounting Officer) |
|--------|-----------------------|--------------------------------|

 

 

|   | March 14 , 2008 |
|--------|-----------------|

| /S/ | LAURIEJ.NORMAN | Secretary / Treasurer and Director |
|-----|----------------|------------------------------------|

|   | Laurie J. Norman |  

                              |
|--------|------------------|--------------------------------------------|

 

March            14 , 2008

 

| /S/ | JESSIESCOTTBEAN | Director |
|-----|-----------------|----------|

               Jessie Scott Bean

 

 

 

19

----

 

 

**LILM, INC. and SUBSIDIARY and LIL MARC, INC.            (predecessor)**

**(Development Stage Company)**

 

**FINANCIAL STATEMENTS**

 

**December 31, 2007**

 

F-1

 

----

 

 

****LILM, INC. and SUBSIDIARY and LIL MARC, INC.            (predecessor)****

**(Development Stage Company)**

 

FINANCIAL STATEMENTS

 

December 31, 2007

 

 

 

 

**C            O N T E N T S**

 

| Report of Independent Registered Public Accounting Firm | F-3                                                                                                                                                                                                                                                                               |
|---------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                    |                                                                                                                                                                                                                                                                              |
| Balance Sheets                                          | F-4                                                                                                                                                                                                                                                                               |
|                                                    |                                                                                                                                                                                                                                                                              |
| Statements of Operations                                |  F-5                                                                                                                                                                                                                                                                         |
|                                                    |                                                                                                                                                                                                                                                                              |
| Statements of Stockholders’ Equity (Deficit)      | F-6                                                                                                                                                                                                                                                                               |
|                                                    |                                                                                                                                                                                                                                                                              |
| Statements of Cash Flows                                | F-7                                                                                                                                                                                                                                                                               |
|                                                    |                                                                                                                                                                                                                                                                              |
| Notes to the Financial Statements                       |                                                                  F-8 |

 

F-2

 

----

 

**MADSEN & ASSOCIATES, CPA’s            INC.**                                                                     684 East Vine St, # 3

| **Certified Public Accountants and Business                            Consultants** | Murray, Utah 84107 |
|--------------------------------------------------------------------------------------|--------------------|

|   | Telephone 801-268-2632 |
|--------|------------------------|

|   | Fax 801-262-3978 |
|--------|------------------|

 

Board            of Directors

LILM,            INC. and Subsidiary and LIL Marc INC. (predecessor)

Salt            Lake City, Utah

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING            FIRM**

 

We have            audited the accompanying consolidated balance sheet of LILM, INC. and Subsidiary and            LIL Marc INC. (predecessor) (development stage company) at December 31, 2007, and the            consolidated statements of operations, stockholders' equity, and cash flows for the            years ended December 31, 2007, and 2006 and the period April 22, 1997 (date of            inception of predecessor) to December 31, 2007. These financial statements are the            responsibility of the Company's management. Our responsibility is to express an opinion            on these financial statements based on our audit.

 

We            conducted our audit in accordance with the standards of the Public Company Accounting            Oversight Board (United States). Those standards require that we plan and perform the            audit to obtain reasonable assurance about whether the financial statements are free of            material misstatement. An audit includes examining, on a test basis, evidence            supporting the amounts and disclosures in the financial statements. An audit also            includes assessing the accounting principles used and significant estimates made by            management, as well as evaluating the overall financial statement presentation. We            believe that our audit provide a reasonable basis for our opinion.

 

In our            opinion, the consolidated financial statements referred to above present fairly, in all            material respects, the financial position of LILM, INC. and Subsidiary and LIL Marc            INC. (predecessor) at December 31, 2007, and the results of operations, and cash flows            for the years ended December 31, 2007 and 2006 and the period April 22, 1997 (date of            inception of LIL Marc, INC. (predecessor) to December 31, 2007, in conformity with            accounting principles generally accepted in the United States of America.

 

The            accompanying financial statements have been prepared assuming that the Company will            continue as a going concern. The Company will need additional working capital for its            planned activity and to service its debt, which raises substantial doubt about its            ability to continue as a going concern. Management's plans in regard to these matters            are described in the notes to the financial statements. These financial statements do            not include any adjustments that might result from the outcome of this            uncertainty.

 

Salt            Lake City, Utah

February 5, 2008

|   | /s/ Madsen & Associates, CPA’s Inc. |
|--------|-----------------------------------------------|

 

 

 

F-3

 

----

 

 

****LILM, INC. and SUBSIDIARY and LIL            MARC, INC. (predecessor)****

**(Development Stage Company)**

CONSOLIDATED BALANCE            SHEET

 

December 31, 2007

 

 

| **Assets**                                                                                                                                                                                                                                                                                                                                                                                                                                                    |         |   |   |   |   |      |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------|--------|--------|--------|-----------|
| **Current Assets**                                                                                                                                                                                                                                                                                                                                                                                                                                            |         |   |   |   |   |      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         |   |   |   |   |      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         |   |   |   |   |      |
|     Cash                                                                                                                                                                                                                                                                                                                                                                                                                                  |         |   |   |   |   | $226      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         |   |   |   |   |      |
|                                                          Total Current                        Assets                                                   |    |   |   |   |   | $226      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         |   |   |   |   |      |
| **Office Equipment-     ** net of                        accumulated depreciation                                                                                                                                                                                                                                                                                                                                               |         |   |   |   |   | **$335**  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |              |   |   |   |   |      |
|                                                      Total Assets                                                                                                                                                                                                                        |         |   |   |   |   | $561      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         |   |   |   |   |      |
| **Liabilities & Stockholders' Equity**                                                                                                                                                                                                                                                                                                                                                                                                                    |         |   |   |   |   |      |
| **Current Liabilities**                                                                                                                                                                                                                                                                                                                                                                                                                                       |         |   |   |   |   |      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         |   |   |   |   |      |
|      Accounts                        Payable                                                                                                                                                                                                                                                                                                                                                                                              |         |   |   |   |   | $4,514    |
|      Accounts Payable-                        Related Party                                                                                                                                                                                                                                                                                                                                                                               |         |   |   |   |   | $14,797   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         |   |   |   |   |      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         |   |   |   |   |      |
|                                                      Total Current Liabilities                                                                                                                                                                                                           |         |   |   |   |   | $19,311   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         |   |   |   |   |      |
| **Stockholders' Equity**                                                                                                                                                                                                                                                                                                                                                                                                                                      |         |   |   |   |   |      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         |   |   |   |   |      |
|      Common                        Stock                                                                                                                                                                                                                                                                                                                                                                                                  |              |   |   |   |   |      |
|      25,000,000 shares                        authorized at $0.001 par value;                                                                                                                                                                                                                                                                                                                                                             |              |   |   |   |   |      |
|      2,583,750 shares                        issued and outstanding                                                                                                                                                                                                                                                                                                                                                                       |              |   |   |   |   | $2,584    |
|      Capital in excess of                        par value                                                                                                                                                                                                                                                                                                                                                                                |              |   |   |   |   | $135,111  |
|      Accumulated deficit                        during development stage                                                                                                                                                                                                                                                                                                                                                                  |         |   |   |   |   | -156,445  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         |   |   |   |   |      |
|                                                      Total Stockholders' Equity                                                                                                                                                                                                          |         |        |   |   |   | ($18,750) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         |   |   |   |   |      |

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

 

F-4

----

 

** **

****LILM, INC. and SUBSIDIARY and LIL            MARC, INC. (predecessor)****

****(Development Stage            Company)****

**CONSOLIDATED STATEMENT OF            OPERATIONS**

**For the Years Ended December 31,            2007 and 2006 and the Period**

**April 22, 1997 (date of inception of LIL Marc, Inc.            (predecessor)) to December 31, 2007**

** **

 

|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|-------------------|--------|-------------------|--------|-----------------------|--------|
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
|                                                                                                        |   |   |   |   | **Dec. 31, 2007** |   | **Dec. 31, 2006** |   | ****Apr. 22, 1997**** |   |
|                                                                                                        |   |   |   |   |              |   |              |   | **to Dec. 31, 2007**  |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
| **Revenues**                                                                                                |   |   |   |   | **$1,693**        |   | **$2,984**        |   | **$19,411**           |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
| **Expenses**                                                                                                |   |   |   |   |              |   |              |   |                  |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
|                                  Administrative                |        |   |   |   | 20,843            |   | 18,157            |   | 146,108               |   |
|                                  Royalties                     |        |   |   |   | 35                |   | 116               |   | 116                   |   |
|                                  Depreciation and amortization |   |   |   |   | 696               |   | 632               |   | 29,632                |   |
|                                                                                                        |   |   |   |   | 21,574            |   | 18,805            |   | 175,856               |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
| **Net Loss**                                                                                                |   |   |   |   | **-19,881**       |   | **-15,821**       |   | **-156,445**          |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
| **Net Loss Per Common Share**                                                                               |   |   |   |   |              |   |              |   |                  |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
|                                  Basic and dilluted            |   |   |   |   | ($0.01)           |   | ($0.01)           |   |                  |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
| **Average Outstanding Shares**                                                                              |   |   |   |   |              |   |              |   |                  |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |
|                                  Basic (stated in 1000's)      |        |   |   |   | 2,584             |   | 2,584             |   |                  |   |
|                                                                                                        |   |   |   |   |              |   |              |   |                  |   |

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

 

F-5

----

****LILM, INC. and SUBSIDIARY and LIL            MARC, INC. (predecessor)****

**(Development Stage Company)**

STATEMENT OF CHANGES            IN STOCKHOLDERS' EQUITY

For the Period            December 30, 1999 (date of inception) to December 31,            2007

 

|                                                               |       |       |       |       |          |             |       |       |           |       |            |
|--------------------------------------------------------------------|------------|------------|------------|------------|---------------|------------------|------------|------------|----------------|------------|-----------------|
|                                                               |       |       |       |       |          |             |       |       | **Capital in** |       |            |
|                                                               |       |       |       |       |          | **Common Stock** |       |       | **Excess of**  | ** ** | **Accumulated** |
| ** **                                                         | ** ** | ** ** | ** ** | ** ** | **Shares**    | ** **       | **Amount** | ** ** | **Par Value**  |       | **Deficit**     |
|                                                               |       |       |       |       |          |             |       |       |           |       |            |
| **Balance December 30, 1999                        (predecessor)** |       |       |       |       |          |             |       |       | **51,977**     |       | **-51,977**     |
|                                                               |       |       |       |       |          |             |       |       |           |       |            |
| Issuance of common shares for cash                        and      |       |       |       |       |          |             |       |       |           |       |            |
| a patent at .0129-December 30, 1999                                |       |       |       |       | 1,000,000     |             | 1,000      |       | 11.963         |       |            |
| Net operating loss for the year                        ended       |       |       |       |       |          |             |       |       |           |       |            |
| 31-Dec-00                                                          |       |       |       |       |          |             |       |       |           |       | -8,867          |
| Inssuance of common shares for cash                                |       |       |       |       |          |             |       |       |           |       |            |
| at .025-June 27, 2001                                              |       |       |       |       | 800,000       |             | 800        |       | 19,200         |       |            |
| Issuance of common shares for cash                                 |       |       |       |       |          |             |       |       |           |       |            |
| at .025-August 31, 2001                                            |       |       |       |       | 20,000        |             | 20         |       | 480            |       |            |
| Stock offering costs                                               |       |       |       |       |          |             |       |       | -375           |       |            |
| Capital contribution- related party                                |       |       |       |       |          |             |       |       | 100            |       |            |
| Net operating loss for the year                        ended       |       |       |       |       |          |             |       |       |           |       |            |
| 31-Dec-01                                                          |       |       |       |       |          |             |       |       |           |       | -13,537         |
| Stock offering costs                                               |       |       |       |       |          |             |       |       | -2,500         |       |            |
| Net operating loss for the year                        ended       |       |       |       |       |          |             |       |       |           |       |            |
| 31-Dec-02                                                          |       |       |       |       | 763,750       |             | 764        |       | 60,336         |       | -13,858         |
| Issuance of common shares for cash                                 |       |       |       |       |          |             |       |       | -6,070         |       |            |
| at .08-February 20, 2003                                           |       |       |       |       |          |             |       |       |           |       |            |
| Stock offering costs                                               |       |       |       |       |          |             |       |       |           |       |            |
| Net operating loss for the year                        ended       |       |       |       |       |          |             |       |       |           |       |            |
| 31-Dec-03                                                          |       |       |       |       |          |             |       |       |           |       | -18,081         |
| Net operating loss for the year                        ended       |       |       |       |       |          |             |       |       |           |       |            |
| 31-Dec-04                                                          |       |       |       |       |          |             |       |       |           |       | -1,731          |
| Net operating loss for the year                        ended       |       |       |       |       |          |             |       |       |           |       |            |
| 31-Dec-05                                                          |       |       |       |       |          |             |       |       |           |       | -12,692         |
| Net operating loss for the year                        ended       |       |       |       |       |          |             |       |       |           |       |            |
| 31-Dec-06                                                          |       |       |       |       |          |             |       |       |           |       | -15,821         |
|                                                               |       |       |       |       |          |             |       |       |           |       |            |
| **Balance December 31, 2006**                                      |       |       |       |       | **2,583,750** |             | **2,584**  |       | **135,111**    |       | **-136,564**    |
|                                                               |       |       |       |       |          |             |       |       |           |       |            |
| Net operating loss for the year                                    |       |       |       |       |          |             |       |       |           |       |            |
| ended December 31, 2007                                            |       |       |       |       |          |             |       |       |           |       | -19,881         |
|                                                               |       |       |       |       |          |             |       |       |           |       |            |
| **Balance December 31, 2007**                                      |       |       |       |       | **2,583,750** |             | **2,584**  |       | **135,111**    |       | **-156,445**    |
|                                                               |       |       |       |       |          |             |       |       |           |       |            |
|                                                               |       |       |       |       |          |             |       |       |           |       |            |

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

F-6

----

****LILM, INC. and SUBSIDIARY and LIL            MARC, INC. (predecessor)****

**(Development Stage Company)**

CONSOLIDATED            STATEMENT OF CASH FLOWS

For the Years Ended            December 31, 2007 and 2006 and the Period

April 22, 1997 (date of            inception of LIL Marc, Inc. (predecessor)) to December 31, 2007

 

 

|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|-------------------|------------|-------------------|------------|----------------------|
|                                                                                                                                                                  |       |       |       |       |       |       | **Dec. 31, 2007** |       | **Dec. 31, 2006** |       | **Apr. 22, 1997 to** |
| ** **                                                                                                                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **        | ** ** | **Dec. 31, 2007**    |
| **Cash Flows From**                                                                                                                                                   |       |       |       |       |       |       |              |       |              |       |                 |
| **Operating Activities**                                                                                                                                              |       |       |       |       |       |       |              |       |              |       |                 |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |
|                                       Net Loss                                                  |            |       |       |       |       |       | -19,881           |       | -15,821           |       | -156,445             |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |
|                                       Adjustments to reconcile net loss to                 |       |       |       |       |       |       |              |       |              |       |                 |
|                                       net cash provided by operating activities                 |       |       |       |       |       |       |              |       |              |       |                 |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |
|                                       Issuance of common stock for expenses                     |       |       |       |       |       |       |              |       |              |       | 8,700                |
|                                       Depreciation and amortization                        |       |       |       |       |       |       | 696               |       | 632               |       | 29,482               |
|                                       Changes in acocunts payable                               |       |       |       |       |       |       | -486              |       | -1,047            |       | 126                  |
|                                       Contributions to capital- expenses                   |       |       |       |       |       |       |              |       |              |       | 100                  |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |
|                                       Net Cash Flows Used in Operations                    |       |       |       |       |       |       | -19,671           |       | -16,236           |       | -118,037             |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |
| **Cash Flows From Investing Activities**                                                                                                                              |       |       |       |       |       |       |              |       |              |       |                 |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |
|                                       Purchase of patent                                   |       |       |       |       |       |       |              |       |              |       |                 |
|                                       Purchase office equipment                            |       |       |       |       |       |       |              |       |              |       | -28,650              |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       | -194              |       | -2,096               |
| **Cash Flows From Financing Activities**                                                                                                                              |       |       |       |       |       |       |              |       |              |       |                 |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |
|                                       Advances from related party                          |       |       |       |       |       |       | 9,000             |       | 5,797             |       | 14,797               |
|                                       Proceeds from issuance of common stock net of costs  |            |       |       |       |       |       |              |       |              |       | 134,212              |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |
| Net Change in Cash                                                                                                                                                    |       |       |       |       |       |       | -10,671           |       | -10,633           |       | 226                  |
| Cash at Beginning of Period                                                                                                                                           |       |       |       |       |       |       | 10,897            |       | 21,530            |       |                 |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |
| Cash at End of Period                                                                                                                                                 |       |       |       |       |       |       | 226               |       | 10,897            |       | 226                  |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |
| **NON CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES**                                                                                                            |       |       |       |       |       |       |              |       |              |       |                 |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |
| Issuance of 922,900 common shares for a patent-                        2000                                                                                           |       |       |       |       |       |       |              |       |              |       | 11,963               |
| Contributions to capital- expenses-                        2001                                                                                                       |       |       |       |       |       |       |              |       |              |       | 100                  |
|                                                                                                                                                                  |       |       |       |       |       |       |              |       |              |       |                 |

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

 

F-7

 

 

----

 

 

**LILM, INC. and SUBSIDIARY and LIL MARC, INC.            (predecessor)**

**(            Development Stage Company )**

**NOTES TO FINANCIAL STATEMENTS**

**December 31, 2007**

 

 

**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 $0.001

 

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 these financial statements are the combined statement 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            December 31, 2007.

 

**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            December 31, 2007, the Company had a net operating loss available for carryforward of            $104,468. The income tax benefit of approximately $31,000 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 2021 through 2028.

 

 

 

F-8

----

 

 

**LILM, INC. and SUBSIDIARY and LIL MARC, INC.            (predecessor)**

**(            Development Stage Company )**

**NOTES TO FINANCIAL STATEMENTS (Continued)**

**December 31, 2007**

 

 

**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 income (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 only the basic per share            amounts are shown in the report.

 

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.

 

F-9

----

 

**LILM, INC. and SUBSIDIARY and LIL MARC, INC.            (predecessor)**

**(            Development Stage Company )**

**NOTES TO FINANCIAL STATEMENTS (Continued)**

**December 31, 2007**

 

 

Office Equipment

 

Office            equipment consists of computers and is depreciated over three years on the straight            method.

 

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.            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.

 

**4.            SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES**

 

Officer-directors have acquired 73% of the outstanding common stock of            the Company and have made demand, no interest, loans to the Company of            $14,797.

 

**5.            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.

 

 

F-10