<PAGE>
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the year ended December 31, 1996
Commission File Number: 2-41015
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LBU, INC.
(Exact name of Registrant as specified in its charter)
formerly New Century Media, Ltd.
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NEVADA 62-1203301
(Jurisdiction of Incorporation) (I.R.S. EMPLOYER IDENTIFICATION NO.)
310 PATERSON PLANK ROAD, CARLSTADT, NJ 07072
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 933-2800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the restraints (1) had filed all reports
required to be filed y Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. [ ] Yes [X] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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 []
The aggregate market value of stock held by non-affiliates of the
registrant as of March 31, 1997, was approximately $1,049,832 based upon the
last sales price on March 31, 1997, on the NASDAQ National Market for the
Company's common stock of $2.53 per share.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. As of March 31,
1997, the number of shares outstanding of the Registrant's Common Stock:
1,338,977.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. BUSINESS
LBU, Inc. the "Company" is a leading designer, marketer, and manufacturer
specializing in fashionable bags, promotional products and houseware
accessories for the retail, promotional, OEM and industrial markets. The
Company has its own in-house U.S. manufacturing facility which enables the
company to meet customer demand quickly. The Company's sales have increased
through internal growth averaging 40% per year since 1992 from $996,000 to
$5,100,000 in calendar 1996.
The bag and accessory business now operated by the Company was founded in 1989
by Mr. Jeffrey Mayer its current CEO, as a local New York City "start-up"
company manufacturing and selling designer laundry bags . The customers were
local and regional retail outlets like Zabars, Conway and College bookstores.
These original clients along with many others are still active today. The
Company has since expanded its product line and levels of distribution to
national and international corporate accounts servicing the Retail,
Promotional, O.E.M., and Industrial markets. In 1995 this business was acquired
by the Company in a reorganization which resulted in Mr. Mayer becoming the
Company's principal shareholder and operating officer. See "History of Corporate
Structure."
The Company's business consists of the following:
PROMOTIONAL PRODUCTS INDUSTRY
The promotional product industry which consists of products bearing a logo or
insignia, totaled $8.2 billion in 1996 according to figures published by PPAI,
(Promotional Products Association, Inc.) The promotional products industry is
comprised of direct corporate users, advertising agencies, and more the 2,600 ad
specialty distributors. Promotional products are useable goods imprinted with
the name, corporate logo or advertisers slogan which are given by companies to
promote goodwill, sales, customer loyalty and increased exposure to a targeted
audience. Some of the Company's popular promotional products include, gear and
travel bags, insulated water bottle holders, cosmetic bags, backpacks, duffel
and tote bags and golf shoe bags. The Company has successfully developed
programs for some of the following corporations; Revlon, Tommy Hilfiger, The
Gap, Nynex, AT&T, Sony, Merryl Lynch, Charles Schwab, Merck, and Coca Cola.
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The Company believes that it has a distinct competitive advantage in the
marketplace due to its ability to domestically create, manufacture and
distribute a complete promotional program to its clients in a short
turnaround time. This is due to the Company's unique process "QUICKPRO"/TM/
which utilizes the Company's comprehensive "in-house" operation. This
compares favorably to most of its competitors who typically rely on Asian
imports.
The "QUICKPRO" (TM) process incorporates three separate functions.
1. The Creative Process, which includes the development of a unique
----------------
promotional program through its in-house art and design department. The
company's creative staff using customer budget parameters builds a distinct
customized product design.
2. The Development Process, incorporates an "in-house" production staff
-------------------
consisting of sewers, cutters and printers who manufacture the finished
product.
3. The Marketing Process, packages the program within the client's budget and
-----------------
directs the user on how the program should be presented to their targeted
audience.
RETAIL PRODUCTS INDUSTRY
Houseware Industry
The Company sells a full line of fashionable and wearable bags, houseware and
garment care products to regional, national and international retailers
throughout the United States and abroad. This extensive packaged product line
consists of some of the following items: mesh hosiery and sock/sweater bags,
nylon and canvas laundry novelty bags, hampers, travel bags and a full line of
ironing board pad and cover sets. These products are sold to retailers such as
Kmart, Lechters, Sterns, Safeway and Bed Bath and Beyond. Some products may be
seasonal such as its "Back to School" laundry bag programs which are purchased
by university bookstores and college campuses displaying their college emblems.
The National Association of College Bookstores estimates the college retail
industry to be in excess of $7 billion per year.
Accessory Industry
The accessory market is a $22 billion per year industry as reported in Details
Magazine in March, 1996. In the past year the Company has developed an
extensive line of high end designer bags for this marketplace. These trendy and
fashionable products include over 100 styles using various high-tech fabrics
such as neoprene, denims, nylons, and micro meshes. Examples of some of the
Company's products are cosmetic cases, back packs, water bottle bags, briefcases
and designer travel bags. The Company's clients include some of the leading
department stores and boutiques in the United States such as Nieman Marcus and
Nordstroms, as well as major retailers in Japan , such as Tobu, and Isetan.
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In February, 1997 the Company opened a Showroom in the Accessory Building on
Fifth Avenue in New York City. This showroom provides accessibility and
exposure for the Company's products to buyers of accessory items. It also
allows the Company's sales force to capitalize on the many leads generated at
the various trade shows the Company attends on a regular basis.
INDUSTRIAL & O.E.M. INDUSTRY
The Industrial and Original Equipment Manufacturer division sells many types of
custom made bags for various commercial, industrial, packaging and government
applications. Some of the products include heavy duty garment and laundry bags
for commercial laundromats, dry cleaners, prisons, hospitals and hotels. The
Company relies on extensive advertising through the Thomas Register and other
industrial and government buying guides as well as attend all the major trade
shows to increase market share.
STRATEGY
The Company's business strategy is to develop a brand name which would
distinguish its line of products and increase market share within each industry
group. The Company intends to concentrate its marketing, sales and financial
resources in the promotional and retail industries by:
1. adding additional experienced in-house sales personnel and increase its
outside distributors twofold during calendar year 1997.
2. using its new Internet Web Site as a source of generating business from new
and existing clients.
3. enhancing its company brochures and catalogs in the promotional and retail
trades.
4. increasing its attendance at Industry Trade Shows utilizing its new high-
tech exhibit display.
5. utilizing new computer and internal control systems to reduce order process
time and increase inventory turnover.
6. promoting the "MADE IN USA...IT MATTERS" advertising campaign in
conjunction with the Company's U.S. "QUICKPRO"/TM/ process.
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OPERATION AND PRODUCTION
The Company's growth is directly related to its ability to manufacture and ship
its customers in short time intervals. Depending upon order size, product type,
customization and raw material availability, the Company's lead times range from
2 days to 4 weeks.
Sales orders are received through in-house sale personnel, outside independent
sales representatives, distributors, catalogs, the Internet and trade shows.
The Company attended 10 trade shows during 1996 and intends to increase that
number in 1997. New orders are processed through the Company's "ARIA Textile
Manufacturing"/TM/ computer system. The computer program provides the Company
with immediate information on customers, orders through the EDI system,
invoices, accounts receivable, inventory allocations, product styles, raw
materials, vendors/subcontractors, the various production stages, production
scheduling, sales rep performance, sale returns and chargebacks. The system
assists the Company in the processing and monitoring of customer orders
throughout the manufacturing and shipping cycles quickly and efficiently. The
Company's Quality Control Department insures that the completed customer order
is consistent with the customer's purchase order specifications.
OPERATIONS PRODUCTION MANAGEMENT
The Company's production facility is a unique vertical operation that involves
creative design, sample, cutting, sewing and printing operations all within a
30,000 square foot facility in Carlstadt, New Jersey, 10 miles from midtown
Manhattan. In order to meet increasing demand for the Company's products, the
company also utilizes outside sewing sub-contractors who are all located in
close proximity to the Company's facility . The use of outside sewing
subcontractors provides the Company with flexibility in that as production
requirements increase, work load can be transferred quickly and efficiently
without increasing overhead costs. This is because the company pays its
subcontractors at a fixed rate per piece sewn. Quality control is assured by
the continual monitoring and inspection of the subcontractors facilities.
Capacity
Management believes that the Company has the ability to increase its sales to
approximately $25,000,000 without having to expand the size of its present
production facility. In order to manage demand and reduce costs, additional
funding may be necessary for the purchase of additional automated production
equipment and to maintain higher raw material and finished goods inventory stock
levels.
Operations Management
The President and Chief Executive Officer, Mr. Jeffrey Mayer has over 15 years
experience in various sales and marketing management positions. Mr. Mayer
founded the Company in 1989. Prior to that time he served as Regional Sales
Manager for Minute Maid Juice, a Coca-Cola Foods Division. Mr. Mayer oversees
the Company's marketing direction and plays a major role in selling national
accounts. The Company's sales and marketing management team consists of
individuals with significant experience to insure that the business strategy is
being successfully implemented.
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Personnel
The Company employs a full-time staff between 35 and 50 employees, depending
upon the time of the year. The Company's employees are not represented by a
trade union and management believes that its relations with its employees are
good.
COMPETITION
Many of the Company's competitors are significantly larger in sales and
financial strength. Gaining entry into the promotional and retail marketplace
is not very difficult, but, doing it well and competitively is. In the
promotional product industry for example, the competition may not always be a
distributor or manufacturer of bags, but very often other types of products
(such as pens, tee shirts, hats, etc.) that can be offered within the customer's
budget. Some of the company's competitors in the promotional products industry
include: Norwood Promotional Products, Inc., Halo, and Cyrk. It's competitors in
the Retail (houseware) industry include Design Trends, Inc. and Seymour
Housewares Inc.
Management believes that in the promotional product industry its creative team
in conjunction with the Quickpro/TM/ process can provide a legitimate
competitive advantage over its competitors who often rely on overseas products
typically from Asian countries. Offering decision makers a "complete marketing
program" including a wide range of customized, quality U.S. products within the
clients budget and delivery constraints, sets the company apart among its
competitors regardless of size. Because of this domestic process many of the
Company's competitors are also its clients.
HISTORY OF CORPORATE STRUCTURE
LBU, Inc., a Delaware corporation ("LBU-Delaware") commenced business operation
in 1989 manufacturing and selling designer laundry bags. LBU-Delaware continued
to operate as a privately-held corporation until March 1995. On March 25,
1995, LBU-Delaware entered into a reorganization transaction with New Century
Media, Ltd. ("New Century"), a Nevada corporation whose Common Stock traded on
the over-the-counter Electronic Bulletin Board. In the reorganization, the
shareholders of LBU-Delaware obtained a controlling interest in New Century in
exchange for all of the stock of LBU-Delaware, and LBU-Delaware became a wholly-
owned subsidiary of New Century. Upon completion of the reorganization, New
Century changed its name to LBU, Inc.
New Century formerly operated under the following company names in ascending
order since October 26, 1970; Halycyon Data Management Group, Inc., Quest
International Equities, Inc., Astrotek Inc. and Agri-Quest Mining, Inc. These
companies had engaged in business activities as a manufacturer of computer -
related equipment in the 1970's and 1980's and attempted to develop a copper
mining operation in 1991, which business was assigned to a third party in 1992.
New Century was not active in any business operation after 1992 up until its
reorganization with LBU, Inc. in 1995.
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LBU, Inc. and its management had no relation with any of the predecessor
companies of New Century Media, Ltd. prior to its acquisition on March 24, 1995.
There are no members of management nor any directors of LBU, Inc. that have had
any affiliation with New Century Media or any of it's predecessor companies at
any time prior to its acquisition.
ITEM 2. PROPERTIES.
LBU, Inc.'s administrative offices, warehousing and manufacturing facility
consisting of approximately of 30,000 square feet is located at 310 Paterson
Plank Road, Carlstadt, New Jersey. The building was constructed in 1975. The
company has a 10 year lease expiring in the year 2006. The facility is used to
manufacture, distribute, warehouse and ship the Company's products. LBU, Inc.
opened a showroom in the Accessory Building on Fifth Avenue in New York City in
February, 1997. The lease expires December 31, 1999.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to litigation from time to time in the ordinary course of
business. The Company is currently involved in a dispute with Glenneyre Capital
Corporation, Pominandres Financial Corporation and HJS Financial Services, Inc.
("the Plaintiffs"). The lawsuit stems from a financial service agreement dated
July 24, 1995, between the plaintiff's and LBU, Inc.
300,000 shares of LBU, Inc's. restricted common stock were issued to the
Plaintiffs in return for services in connection with the raising of capital.
Currently, the restrictions on these shares are in dispute in addition to the
actual services which LBU, Inc. claims were not performed. The shares were
stopped by LBU, Inc. November 19, 1995 and subsequently 269,000 shares had been
canceled.
On March 18, 1996 the registered agent of the Company was served with a
complaint arising from a financial services contract entered into by the Company
on July 24, 1995. The lawsuit was filed in the Eighth District Court, Las Vegas,
Nevada. The plaintiffs are Glenneyre Capital Corporation, Pominandres Financial
Corporation and HJS Financial Services Inc. The suit alleges the Company
committed breach of contract, and the other causes of action against the
plaintiffs in connection with the financial services contract and the securities
issued to the plaintiffs which were subsequently canceled by the Company. The
Company believes the action it has taken, in the cancellation of 269,000 shares
of said stock, with paid in capital adjusted pro rata, is appropriate. The
initial complaint had been answered by the Company denying all allegations of
any wrong doing.
Although legal counsel is unable to evaluate the likelihood of an unfavorable
outcome or an estimate of the potential loss, the plaintiffs are requesting in
excess of $10,000 for complaint damages, $60,000 in punitive damages determined
by the fair market value of their services at the time of the service agreement
and an undeterminable amount of punitive damages.
With respect to the $60,000 claim for services to raise capital, such
transaction would have no net effect on the Company's book equity.
Management believes these charges are without merit and that the outcome of the
claim will not have a material impact on the Company's financial position.
Nevertheless, due to uncertainties in the settlement process, it is at least
reasonably possible that management's view of the outcome will change in the
term.
At the present time there are no such legal matters that will have a
material adverse effect on the Company's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders during the
year ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
MARKET INFORMATION:
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the over-the-counter market and is
quoted in NASDAQ under the symbol LBUAA. Set forth below are the high and low
closing bid prices for the first quarter, and each quarter of 1995 and 1996 as
reported by the National Quotation Bureau, Inc.
1995 HIGH BID LOW BID
- ---- -------- -------
First Quarter......................................... N/A N/A
Second Quarter........................................ 2.56 1.75
Third Quarter......................................... 4.47 2.25
Fourth Quarter........................................ 2.50 .80
1996
- ----
First Quarter......................................... 1.30 .40
Second Quarter........................................ 1.15 .50
Third Quarter......................................... 3.87 1.50
Fourth Quarter........................................ 1.70 .50
1997
- ----
First Quarter......................................... 3.30 .50
The above quotations are interdealer prices, without retail mark-up, mark-down
or commissions and may not necessarily represent actual transactions.
The Company has never paid a cash dividend. The Company intends to retain all
of its earnings, if any, for use in the business and does not intend to pay cash
dividends in the foreseeable future. Future dividend policy will depend, among
other things, upon the Company's earnings and financial condition.
As of March 31, 1997 there were 387 holders of record of the Company's Common
Stock.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Sales
Since 1992, the Company's annual revenue has grown by nearly 40% per year. Net
sales increased to $5,103,000 in 1996 from $3,828,000 in 1995. Net income
before taxes increased to $146,000 in 1996, from $4,000 in 1995. Net income
after taxes increased to $105,000 in 1996, from $12,000 in 1995.
The sales and income growth was attributable to three major factors:
1. The successful introduction of the company's new packaged line of laundry
and garment care products to retail companies such as Kmart, Sterns,
Pathmark, and Safeway.
2. The Company's marketing and design efforts in producing over 200 new
product styles in 1996 to the promotional product industry.
3. The utilization of its "QUICKPRO"/TM/ Process. This enabled the Company to
capitalize on booking and fulfilling successfully many client orders that
required short turn around times. The Company expects that a significant
percentage of its future sales growth objectives will be attributable to
the promotional product industry.
The following summarizes Net Sales and Earnings before interest and taxes
("EBIT") for the Company's Major Industry Groups.
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
SALES:
Retail $1,987,000 $2,527,000 $2,805,000
Promotional Products 435,000 957,000 1,887,000
Other (O.E M. & Industrial) 299,000 344,000 408,000
---------- ---------- ----------
TOTAL $2,721,000 $3,828,000 $5,100,000
========== ========== ==========
</TABLE>
Costs of Goods Sold
Costs of goods sold for 1996 increased $1,124,000, or 50%, to $3,370,000, from
$2,246,000 in 1995. Approximately 70% of the increase was attributable to the
increased cost and expenses associated with the increased sales of the company's
new laundry and garment care product lines. Of that amount approximately 25%
was directly related to the cost of developing the product packaging and their
associated catalogs and brochures.
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Gross Profit
Gross profit from 1996 increased $151,000, or 9.5% to $1,733,000 from
$1,582,000 in 1995. This increase was directly attributable to the investment
the company made in it's new laundry and garment care product lines as related
above. The Company believes that gross profit margins should improve
significantly, since the development costs have already been capitalized.
Total Operating Expenses
Total operating expenses increased $69,000, or 4.4% to $1,639,000 from
$1,570,000 in 1995. The increase was attributable to higher factor and interest
charges of 115,000. Not including factor and interest charges, the Company's
total operating expenses actually decreased $46,000 or 2.9%.
This decrease was primarily attributable to the following:
1. Higher efficiencies, through the use of newly acquired computerized
equipment which helped reduced GNA labor costs
2. Increased quality assurance standards, which reduced sales returns and
department store chargebacks.
3. General company purchases at favorable bulk discount pricing and through
increased overall economies of scale.
Operating Income
Operating income for 1996 increased $83,000, or 638% to $95,000 from $13,000 in
1995. Net income for 1996 increased $93,000, from $12,000 in 1995. Part of the
increase was attributable to the Company's success in maximizing its efficiency
of controlling costs. In addition, the Company's move into its new operations
facility during the second quarter of 1995 has greatly helped facilitate the
efficiency of its operations during 1996.
Liquidity and Capital Resources
The Company's cash position as of December 31, 1996 was $185,508. During 1996,
LBU, Inc. increased its line of credit with Summit Bank to $100,000. The
Company is presently negotiating with Summit and several other banks for
additional borrowings. LBU, Inc's primary source of financing is with the CIT
Group Commercial Services. They provide factoring and accounts receivable
financing. The Company pays a 1.25% factor charge on its invoices for the
guarantee of payment on its receivables. In addition, the company benefits from
having The CIT Group collect payments from its customers for their outstanding
invoices.
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The Company pays 2% above the prime lending rate on borrowings up to 85% of the
outstanding accounts receivable. The credit facility is secured by the Company's
account receivable , inventory, fixed assets and all intangibles owned by the
Company. At the present time, the company is exploring other sources of
financing in order to facilitate its continued sales growth.
On March 18, 1997, the Company received an equity investment in the amount of
$375,000 representing 18.67% of the Company's common stock from an investment
group led by John H. Robinson, former Chairman of the Harper Group. Mr.
Robinson has been voted to the Company board of directors on March 18, 1997.
(See security ownership of certain beneficial owners and management for further
discussion.)
Growth and Risks
The Company during the past 4 years, has experienced significant growth .
This resulted solely from internal growth. There has been no acquisitions to
date, nor does the company anticipate that future growth will be fueled by any
acquisitions. There can be no assurance that the Company will be able to
maintain or accelerate its internal growth or that the Company will be able to
effectively manage and finance its expanding operations. The Company is
evaluating potential capital expenditures to expand its production capacity, but
has not entered into any agreements at this time.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LBU, Inc.
Annual Financial Statements
Report of Neil Della Torre & Company, Independent Auditors
Balance Sheets as of December 31, 1995 and December 31, 1996
Statements of Income for the years ended December 31, 1995 and December 31, 1996
Statements of Shareholders' Equity for the years ended December 31, 1995 and
December 31, 1996
Statements of Cash flows for the years ended December 31, 1995 and December 31,
1996
Notes to Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
11
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
POSITION/
NAME AGE OFFICES HELD BUSINESS EXPERIENCE BACKGROUND AND DIRECTORSHIPS
- ---- --- ------------ ------------------------------------------------
Jeffrey Mayer 34 CEO/President Mr. Mayer has over 15 years experience in
Director various sales & marketing positions. At the
age of 15, he was selling designer laundry bags
on the street corners in New York City. The
following year he began selling to many of the
Houseware and Discount stores throughout New
York City. Mr. Mayer subsequently graduated from
Baruch College with a degree in Marketing and
Management. Prior to his forming of LBU, Inc.,
Mr. Mayer was regional sales manager from 1986
to 1988 with a Coca Cola Foods division, Snax
Management. Mr. Mayer leads the company's
marketing and sales direction. He has been with
the Company since its incorporation, in 1989.
Isel Mayer 36 Corporate Isel Mayer manages the Company's creative &
Secretary product development departments. She is
Director responsible for designing and developing future
product lines in the various industries. She has
been with the Company since 1989. Her former
position was East Coast Manager of Ebel USA.
Isel is Jeffrey Mayer's spouse.
Fred King 54 Sales Manager Mr. Fred King manages the Company's domestic in-
Director house sales organization. Mr. King has over
30 years experience in various sales management
positions, including a former owner of a 13
store retail chain until 1993. He has been with
the Company since 1993.
John Robinson 74 Director Mr. Robinson, 45 years as Chairman of the Harper
Group, with 342 global offices in 95 countries
joins LBU, Inc. as a major stockholder and
director. Mr. Robinson is also Chairmen of
Lukens Medical, RJH Properties, Inc. and Vice
Chairman of Commonwealth Inc. New York. He has
been with Commonwealth, Inc. since 1993. Prior
to that he was with The Harper Group for 45
years. He is also a major Stockholder and
Director of The Commercial Bank of San
Francisco, and eight other U.S. Companies.
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ITEM 10. EXECUTIVE COMPENSATION.
<TABLE>
<CAPTION>
Name and Other Annual
Principal Position Year Salary ($) Bonus ($) Compensation ($)
- ------------------ ---- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Jeffrey Mayer 1996 100,000 0 0
President 1995 100,000
1994 53,846
Isel Mayer 1996 50,000 0 0
Corp. Secretary 1995 49,000
1994 26,384
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the name and address, the number of shares,
beneficially owned and percent of the class those shares represent for each
officer, director and person known by the company to be the beneficial owner of
more then 5% of the outstanding common stock as of March 31, 1997.
<TABLE>
<CAPTION>
Name and Address of Amount of Percent
Beneficial Owner Ownership of Class
- ---------------------------- --------- --------
<S> <C> <C>
Jeffrey Mayer 676, 000 50.48
Director
310 Paterson Plank Road
Carlstadt, NJ 07072
Isel Mayer 0 0 /1/
Director/Secretary
310 Paterson Plank Road
Carlstadt, NJ 07072
John P. Holmes & Co. Inc. 250,000 18.67
John H. Robinson 0 0 /2/
Director
316 Townsend Street
San Francsico, CA 94107
Fred King 0 0
Director
310 Paterson Plank Road
Carlstadt, NJ 07072
All officers and directors 676,000 50.48
as a group.
</TABLE>
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Notes to table 4:
1. Does not include 676,000 shares of common stock held by Jeffrey Mayer, who
is the spouse of Isel Mayer.
2. Does not include 250,000 shares of common stock held by John P. Holmes &
Co. Inc., of which Mr. Robinson is a shareholder.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable
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PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Index To Financial Statements
(a) The following documents are filed as part of the Annual Report or are
incorporated by reference as indicated.
1. The following financial statements are included under Item 8:
Report of Neil Della Torre & Company, Independent Auditors
Balance Sheets as of December 31, 1995 and December 31, 1996
Statements of Income for the years ended December 31, 1995 and December 31,
1996
Statements of Shareholders' Equity for the years ended December 31, 1995
and December 31, 1996
Statements of Cash flows for the years ended December 31, 1995 and December
31, 1996
Notes to Consolidated Financial Statements
(b) Reports on Form 8-K - None
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SIGNATURES
In accordance with to the requirements of the Securities Exchange Act
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant)_________________________________________________________________
By (Signature and Title)* ______________________________________________________
Date:______________________________________________________________________
In accordance with The Exchange Act, this report has been signed below by the
following persons on behalf of the registrant's and in the capacities, and on
the dates indicated.
/s/ Jeffrey Mayer April 11, 1997
- ------------------------ -----------------------
Jeffrey Mayer - Director Date
/s/ Isel Mayer April 11, 1997
- ------------------------ -----------------------
Isel Mayer - Director Date
/s/ John Robinson April 11, 1997
- ------------------------ -----------------------
John Robinson - Director Date
/s/ Fred King April 11, 1997
- ------------------------ -----------------------
Fred King - Director Date
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LBU, INC.
(formerly NEW CENTURY MEDIA, LTD.)
FINANCIAL STATEMENTS
* * * *
DECEMBER 31, 1996 and 1995
<PAGE>
March 31, 1997
To The Board of Directors of
LBU, Inc.
Independent Auditor's Report
----------------------------
We have audited the balance sheets of LBU, Inc., (a Nevada corporation)
(formerly New Century Media, Ltd.) as of December 31, 1996 and 1995, and the
related statements of income, changes in stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LBU, Inc., as of December 31,
1996 and 1995, and the results of its operations, changes in stockholders'
equity and cash flows for the years then ended in conformity with generally
accepted accounting principles.
NEIL DELLA TORRE & COMPANY
<PAGE>
LBU, Inc.
---------
(formerly New Century Media, Ltd.)
----------------------------------
Balance Sheets
--------------
December 31,
------------
Assets
------
1996 1995
---- ----
Current assets
Cash $ 185,508 $ 69,555
Accounts receivable (net of allowance for
bad debts of $41,300 and $84,992,
respectively) 168,104 91,495
Inventory 789,090 575,538
Deferred tax asset 45,950 23,000
Other current assets 22,447 7,136
---------- --------
Total current assets 1,211,099 766,724
Noncurrent assets
Fixed assets, net 193,924 148,670
Other assets 109,214 38,782
----------- ---------
Total assets $1,514,237 $ 954,176
========== =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable $ 458,772 $ 282,306
Accrued expenses 164,884 144,643
Customer advances 152,712 92,868
Accrued taxes 67,414 14,700
Leases payable - current 2,474 -
Notes payable - current 33,333 -
---------- ---------
Total current liabilities 879,589 534,517
Long-term liabilities
Leases payable 9,780 -
Notes payable 63,890 -
Deferred tax liability 11,393 -
---------- ---------
Total liabilities 964,652 534,517
---------- ---------
Stockholders' equity
Common stock ($.001 stated value)
Shares: 50,000,000 authorized,
1,088,977 and 1,310,834 issued
and outstanding, respectively 1,089 1,311
Additional paid-in capital 727,458 702,236
Retained earnings (deficit) (178,962) (283,888)
---------- ---------
Total stockholders' equity 549,585 419,659
---------- ---------
Total liabilities and stockholders' equity $1,514,237 $ 954,176
========== =========
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
LBU, Inc.
---------
(formerly New Century Media, Ltd.)
----------------------------------
Statements of Income
--------------------
For the years ended December 31,
--------------------------------
1996 1995
---- ----
Net sales $5,103,401 $3,827,995
Costs of goods sold 3,369,565 2,245,633
---------- ----------
Gross profit 1,733,836 1,582,362
---------- ----------
Operating expenses
Shipping and selling 637,605 668,672
General and administrative expense 831,281 846,491
Factor fees and interest 169,814 54,578
---------- ----------
Total operating expenses 1,638,700 1,569,741
---------- ----------
Income from operations 95,136 12,621
---------- ----------
Other income (expense)
Loss on sale of fixed assets - (19,932)
Interest 2,946 1,023
Rent 48,000 10,000
---------- ----------
Total other income (expense) 50,946 (8,909)
---------- ----------
Income before income taxes 146,082 3,712
Income taxes (benefit) 41,156 (8,300)
---------- ----------
Net income $ 104,926 $ 12,012
========== ==========
Earnings per share $.10 $.01
========== ==========
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
LBU, Inc.
---------
(formerly New Century Media, Ltd.)
----------------------------------
Statement of Changes in Stockholders' Equity
--------------------------------------------
For the years ended December 31, 1996 and 1995
----------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Retained
----------------- Paid-in Earnings
Shares Amount Capital (Deficit) Total
------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994, 102,500 $ 103 $ 636,311 $(636,414) $ -
as adjusted for 20 to 1 stock
split
Recapitalization pursuant to
a plan of reorganization 200,000 200 (183,067) 340,514 157,647
Capital investment 625,000 625 124,375 - 125,000
Financial services agreement 300,000 300 539,700 - 540,000
Financial service fees charged
to additional paid in capital - (540,000) (540,000)
Capital investment 83,334 83 124,917 - 125,000
Net income for the year ended
December 31, 1995 - - - 12,012 12,012
--------- -------- --------- --------- ---------
Balance at December 31, 1995 1,310,834 1,311 702,236 (283,888) 419,659
Capital investment 38,000 38 14,962 - 15,000
Capital investment 9,143 9 9,991 - 10,000
Financial services agreement
shares retired (269,000) (269) (483,931) - (484,200)
Reversal of services fees
charged to paid in capital - - 484,200 - 484,200
Net income for the year ended
December 31, 1996 104,926 104,926
--------- -------- --------- --------- ---------
Balance at December 31, 1996 1,088,977 $ 1,089 $ 727,458 $(178,962) $ 549,585
========= ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
LBU, Inc.
---------
(formerly New Century Media, Ltd.)
----------------------------------
Statement of Cash Flows
-----------------------
For the year ended December 31,
-------------------------------
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash flow from operating activities
Net income $ 104,926 $ 12,012
--------- ---------
Adjustments to reconcile net income to net
cash provided (used) by operating activities
Depreciation and amortization 34,814 16,268
Provision for bad debts 3,961 36,692
Deferred tax asset (22,950) (23,000)
Loss on sale of fixed assets - 19,932
(Increase) decrease in
Accounts receivable (80,570) (84,465)
Inventories (213,553) (154,642)
Other current assets (15,311) 59,171
Other assets (73,425) (38,782)
Increase (decrease) in
Accounts payable 176,466 (56,121)
Accrued expenses 20,241 48,409
Taxes payable 52,714 14,700
Customer advances 59,844 92,868
Deferred tax liability 11,393 -
--------- ---------
Total adjustments (46,376) (68,970)
--------- ---------
Net cash provided (used) by operating activities 58,550 (56,958)
--------- ---------
Cash flow from investing activities
Capital expenditures (77,075) (130,356)
--------- ---------
Net cash (used) by investing activities (77,075) (130,356)
--------- ---------
Cash flow from financing activities
Net borrowing from banks 259,478 -
Repayment of loans (150,000) (55,000)
Sale of capital stock 25,000 250,000
--------- ---------
Net cash provided by financing activities 134,478 195,000
--------- ---------
Net increase in cash 115,953 7,686
Cash at beginning of period 69,555 61,869
--------- ---------
Cash at end of period $ 185,508 $ 69,555
========= =========
Supplemental disclosures
Cash paid during the period for
Interest and factor fees $ 169,814 $ 54,578
Income taxes - 3,155
Non-cash financing activities
The Company issued 300,000 shares of
common stock in 1995 for financial services.
The financial services fees were charged to
additional paid in capital. $ - $ 540,000
--------- ---------
Subsequently, in 1996, 269,000 shares of such
common stock were retired. Transactions
previously made in 1995 were adjusted pro-rata. $(484,200) $ -
========= =========
In connection with the recapitalization
pursuant to a plan of reorganization
200,000 shares of common stock were
issued to acquire LBU, Inc.-Delaware
in February 1995. $ - $ 157,647
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
LBU, Inc.
---------
(formerly New Century Media, Ltd.)
----------------------------------
Notes to the Financial Statements
---------------------------------
December 31, 1996
-----------------
Note 1 - Organization And Significant Accounting Policies
- ---------------------------------------------------------
Organization: LBU, Inc. ("Company"), a Nevada corporation, previously known as
- -------------
New Century Media Ltd. is a leading designer, marketer and manufacturer
specializing in fashionable bags, promotional products and houseware accessories
for the retail, promotional, OEM and industrial markets.
In February 1995, the Company entered into a plan of reorganization with LBU,
Inc. (a Delaware corporation) (LBU-Delaware) whereby the shareholders of LBU-
Delaware would obtain controlling interest of New Century Media, Ltd., in a
transaction accounted for as a reverse acquisition. New Century Media, Ltd.
ultimately changed its name to LBU, Inc. on March 31, 1995.
Inventories: Inventories are valued at the lower of cost or market.
- ------------
Fixed Assets: Property and equipment are stated at cost. Depreciation of
- -------------
furniture, fixtures and equipment is provided using the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are
amortized over the term of the lease on the straight-line basis.
Cash and Cash Equivalents: For purposes of the statement of cash flows, the
- --------------------------
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Income Taxes: Income taxes are provided for the tax effects of transactions
- -------------
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the accelerated
depreciation methods, the reserve method for bad debt and the uniform
capitalization rules under IRS Code Section 263A for financial and income tax
reporting. The deferred taxes represent the future tax return consequences of
those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Effective March 31, 1995, LBU-
Delaware became a taxable entity. Previously, its earnings and losses were
included in the personal tax returns of the stockholders, and the Company did
not record an income tax provision (see note 6).
Advertising: The Company follows the policy of charging the costs of
- ------------
advertising to expense as incurred. Advertising expense was $117,401 and
$24,930 for the years ended December 31, 1996 and 1995, respectively.
Estimates: The preparation of financial statements in conformity with generally
- ----------
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Stockholders Equity: In August 1995, the Company declared a 20 for 1 reverse
- --------------------
stock split on the then issued and outstanding common shares. All outstanding
share amounts included in the accompanying financial statements have been
retroactively adjusted to reflect the 20 for 1 reverse stock split. The result
of this action reduced the previous 24,550,000 shares of common stock to
1,227,500 shares.
- 6 -
<PAGE>
LBU, Inc.
---------
(formerly New Century Media, Ltd.)
----------------------------------
Notes to the Financial Statements
---------------------------------
December 31, 1996
-----------------
(continued)
-----------
Note 1 - Organization and Significant Accounting Policies (continued)
- ---------------------------------------------------------------------
In July 1995, the Company entered into a financial services agreement with
Glenneyre Capital Corp. (GCC), Poimandres Financial Corp. (PFC) and Bristol
Media, Ltd. (BML) (a group of financial consultants). The agreement required
GCC, PFC and BML to provide certain professional services relating to raising of
capital to the Company in exchange for 300,000 shares of the Company's common
stock. The agreement specified that such services were assigned a value of
$60,000. However, the Company has recorded the issuance of the 300,000 shares
based upon the then market value of its common stock, $540,000, resulting in a
charge to additional paid in capital for the period ended December 31, 1995 (see
note 8).
Note 2 - Accounts Receivable And Factoring Arrangements
- -------------------------------------------------------
The Company entered into a factoring arrangement with a factor whereby the
factor make advances to the Company on approved accounts receivable balances.
Interest of 2% per annum above the prime rate is charged on outstanding
advances. The factor has a lien against all assigned receivables. In addition,
the Company's president/principal shareholder and his wife, who is also an
officer of the Company, have personally guaranteed factor advances under this
agreement.
The factor also charges a commission of 1 1/8% on the gross face amount of all
accounts factored during each calendar month. The minimum commission on each
invoice is $5.00. Further, a fee is charged for each new customer, for any
customer that has not had any activity with the factor for at least 18 months
and other miscellaneous activity.
The components of accounts receivable at December 31, 1996 and 1995 are
summarized as follows:
1996 1995
---------- ---------
Accounts receivable assigned to factor, net $ 41,512 $ 80,153
Non-factored accounts receivable 167,892 96,334
Allowance for doubtful accounts (41,300) (84,992)
-------- --------
Net accounts receivable $168,104 $ 91,495
======== ========
Note 3 - Inventories
- --------------------
As of December 31, 1996 and 1995 inventories were as follows:
Raw materials $448,875 $298,527
Work in process 44,340 26,823
Finished goods 295,875 250,188
-------- --------
Total $789,090 $575,538
======== ========
- 7 -
<PAGE>
LBU, Inc.
---------
(formerly New Century Media, Ltd.)
----------------------------------
Notes to the Financial Statements
---------------------------------
December 31, 1996
-----------------
(continued)
-----------
Note 4 - Equipment and Leasehold Improvements
- ---------------------------------------------
Equipment and leasehold improvements at December 31, 1996 and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Machinery and equipment $131,637 $ 81,088
Furniture and fixtures 59,085 38,981
Leasehold improvements 72,905 66,483
-------- --------
Total 263,627 186,552
Less accumulated depreciation and amortization 69,703 37,882
-------- --------
Net equipment and leasehold improvements $193,924 $148,670
======== ========
</TABLE>
Note 5 - Related Party Transactions
- -----------------------------------
During 1995, loans in the amount of $55,000 were repaid to related parties plus
interest of approximately $6,500.
Note 6 - Income Taxes
- ---------------------
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current taxes
Federal $ 37,311 $ 8,000
State 15,402 6,700
-------- --------
Total current provision 52,713 14,700
-------- --------
Deferred tax benefit
Federal (1,557) (7,800)
State - (5,200)
Change in tax status (10,000) (10,000)
-------- --------
Total deferred benefit (11,557) (23,000)
-------- --------
Total tax provision $ 41,156 $ (8,300)
======== ========
</TABLE>
As discussed in Note 1, LBU-Delaware changed its tax status from nontaxable to
taxable effective March 31, 1995. Accordingly, the deferred tax asset at the
date that the termination election was filed of approximately $10,000 has been
recorded through a credit to the deferred tax provision.
Note 7 - Bank Note and Capital Leases Payable
- ---------------------------------------------
The following is a summary of a bank note payable and a capital lease as of
December 31, 1996:
Interest
Total Current Long Term Terms Rate
- ----- -------- --------- ------- --------
Bank Note:
Prime +
$ 97,223 $33,333 $63,890 3 years 1.50%
======== ======= =======
Principal matures at $33,333, in 1997 and 1998 and $30,557 in 1999.
Lease:
$ 12,254 $ 2,474 $ 9,780 5 years 12%
======== ======= =======
The lease payments are $3,812 for each year through December 31, 2000.
- 8 -
<PAGE>
LBU, Inc.
---------
(formerly New Century Media, Inc.)
----------------------------------
Notes to the Financial Statements
---------------------------------
December 31, 1996
-----------------
(continued)
-----------
Note 8 - Segment Information
- ----------------------------
The following is pertinent segment information for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Sales:
Retail $2,805,000 $2,527,000
Promotional Products 1,887,000 957,000
Other (O.E.M. & Industrial) 408,000 344,000
---------- ----------
Total $5,100,000 $3,828,000
========== ==========
</TABLE>
Foreign sales are $391,000 in 1996 and $348,000 in 1995.
Note 9 - Commitments and Contingencies
- --------------------------------------
In August, 1993, LBU-Delaware entered into employment agreements with the
president/principal shareholder and his wife, who is also an officer of the
Company. These agreements provide for payments of approximately $148,999 per
year, and escalates periodically to approximately $163,000 per year, through
1996.
The Company entered into a ten year lease agreement for its new facilities in
Carlstadt, New Jersey. The rent commencement date is July 1, 1995. At that
time, the Company incurred incidental non-recurring costs due to the relocation
of approximately $200,000. The minimum future rental payments under the non-
cancelable operating leases as of December 31, 1996 are:
Year Ending
December 31, Amount
------------ ------
1997 $138,821
1998 143,228
1999 148,369
2000 154,245
2001 160,121
The Company is currently involved in a dispute with Glenneyre Capital
Corporation, Pominandres Financial Corporation and HJS Financial Services, Inc.
("the Plaintiffs"). The lawsuit stems from a financial service agreement dated
July 24, 1995, between the plaintiff's and LBU, Inc.
300,000 shares of LBU, Inc's. restricted common stock were issued to the
Plaintiffs in return for services in connection with the raising of capital.
Currently, the restrictions on these shares are in dispute in addition to the
actual services which LBU, Inc. claims were not performed. The shares were
stopped by LBU, Inc. on November 19, 1995.
On March 18, 1996 the registered agent of the Company was served with a
complaint arising from a financial services contract entered into by the Company
on July 24, 1995. The lawsuit was filed in the Eighth District Court, Las
Vegas, Nevada. The plaintiffs are Glenneyre Capital Corporation, Pominandres
Financial Corporation and HJS Financial Services, Inc. The suit alleges the
Company committed breach of contract, and the other causes of action against the
plaintiffs in connection with the financial services contract and the securities
issued to the plaintiffs which were subsequently canceled by the Company. The
Company believes the action it has taken, in the cancellation of 269,000 shares
of said stock, with paid in capital adjusted pro rata, is appropriate. The
initial complaint has been answered by the Company denying all allegations of
any wrong doing.
- 9 -
<PAGE>
LBU, Inc.
---------
(formerly New Century Media, Inc.)
----------------------------------
Notes to the Financial Statements
---------------------------------
December 31, 1996
-----------------
(continued)
-----------
Note 9 - Commitments and Contingencies (continued)
- --------------------------------------------------
Although legal counsel is unable to evaluate the likelihood of an unfavorable
outcome or an estimate of the potential loss, the plaintiffs are requesting in
excess of $10,000 for complaint damages, $60,000 in punitive damages determined
by the fair market value of their services at the time of the service agreement
and an undeterminable amount of punitive damages.
With respect to the $60,000 claim for services to raise capital, such
transaction would have no net effect on the Company's book equity.
Management believes these charges are without merit and that the outcome of the
claim will not have a material impact on the Company's financial position.
Nevertheless, due to uncertainties in the settlement process, it is at least
reasonably possible that management's view of the outcome will change in the
near term.
Note 10 - Subsequent Event
- --------------------------
On March 18, 1997, the Company received an equity investment in the amount of
$375,000 representing 18% of the Company's common stock from an investment group
led by John H. Robinson, former Chairman of the Harper Group. Mr. Robinson has
been voted to the Company board of directors on March 18, 1997.
- 10 -
