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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from______to______
Commission File Number: 2-41015
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LBU, Inc.
(Exact Name of Registrant as specified in its charter)
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Nevada 62-1203301
(Jurisdiction of incorporation) I.R.S Employer Identification No.)
310 Paterson Plank Road, Carlstadt, N.J. 07072
(Address of 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 registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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 [ ] No [X]
As of September 30, 1998, the Registrant had an aggregate of 1,543,997 shares of
its Common Stock outstanding.
1
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LBU, Inc.
Index to Form 10-QSB
Quarter ended September 30, 1998
Page No
Part I
Balance Sheet 3-4
Statements of Operations-Nine months 5
Notes to Financial Statements 6-11
Part II
Item 6. Exhibits and Reports on Form 8-K 12-13
Signatures 14
2
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LBU, Inc.
Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(unaudited) (audited)
----------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 66,608 $ 96,249
Restricted cash 112,522 105,955
Accounts receivable (net of allowance for
bad debts of $25,000) 173,057 229,753
Inventory 1,168,067 1,528,318
Deferred tax asset 233,747 55,516
Other current assets 360,599 292,546
Total current assets 2,114,600 2,308,337
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Noncurrent assets:
Fixed assets, net 289,498 289,177
Other assets 116,316 65,219
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Total assets $ 2,520,414 $ 2,662,733
============== ===============
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Account payable $ 1,064,392 $ 1,076,968
Accrued expenses 190,118 207,233
Customer advances 50,896 31,180
Accrued taxes 17,255 17,255
Lease payable - current 2,788 2,788
Convertible note payable 300,000 0
Note payable - current 663,333 33,333
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Total current liabilities 2,288,782 1,368,757
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Long-term liabilities:
Lease payable 4,511 6,992
Notes payable 46,105 255,657
Convertible note payable 0 300,000
Deferred tax liability. 8,793 8,793
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Total long-term liabilities 59,409 571,442
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Total liabilities 2,348,191 1,940,199
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</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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LBU, Inc.
Balance Sheets, continued
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(unaudited) (audited)
----------- ------------
<S> <C> <C>
Stockholders' equity:
Common stock ($.001 stated value)
50,000,000 shares authorized,
1,543,977 and 1,338,977 issued
and outstanding, respectively 1,544 1,339
Additional paid in capital 1,148,378 1,102,208
Retained earnings (deficit) (977,699) (381,013)
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Total stockholders' equity 172,223 722,534
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Total liabilities and stockholder's equity $ 2,520,414 $ 2,662,733
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</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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LBU, Inc.
Staements of Operations
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months End
September 30, 1998 September 30, 1997
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<S> <C> <C>
Net sales $ 4,413,381 $ 4,322,904
Costs of goods sold 3,541,467 2,841,632
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Gross profit 871,914 1,481,272
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Operating expenses:
Shipping and selling 482,573 517,303
General and administrative expense 1,025,566 679,321
Factor fees and interest 130,685 122,448
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Total operating expenses 1,638,824 1,319,072
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Operating (loss) income (766,910) 162,200
Other income:
Interest 2,401 6,186
Sale of Fixed Assets 1,134 0
Forfeited Deposits (7,000) 0
Rental Income 0 12,000
------------------ ------------------
Total other income (3,465) 18,186
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Income (loss) before income taxes (770,375) 180,386
Income tax provision 173,688 (11,053)
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Net (loss) income $ (596,687) $ 169,333
================== ==================
Net (loss) income per share-Basic $ (.38) $ 0.13
Net (loss) income per
share-Fully diluted $ (.38) $ 0.13
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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LBU, Inc.
Notes to Financial Statements
(unaudited)
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission regarding interim financial reporting. Accordingly, they do not
include all of the information and footnotes in accordance with generally
accepted accounting principals for complete financial statements and should be
read in conjunction with the audited financial statements included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997. In
the opinion of management, the accompanying unaudited financial statements
contain all adjustments, consisting only of those of a normal recurring nature,
necessary for a fair presentation of the Company's financial position and
results of operations at the dates and for the periods presented.
The operating results for the nine months ended September 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
Note 1 - Organization and Significant Accounting Policies
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Organization: LBU, Inc. (the "Company"), a Nevada corporation, designs, markets,
- ------------
manufactures and distributes fashionable and functional custom bags, promotional
products and houseware accessories for the retail, promotional, original
equipment manufacturer and industrial markets.
In February 1995, New Century Media, Ltd., a publicly-held Nevada corporation,
entered into a plan of reorganization with LBU, Inc., a Delaware corporation,
whereby the shareholders of LBU-Delaware obtained controlling interest in New
Century Media, Ltd., through a reverse acquisition. New Century Media, Ltd.
changed its name to LBU, Inc. on March 31, 1995.
Inventories: Inventories are valued at the lower of cost or market.
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Fixed Assets: Property and equipment are stated at cost. Furniture, fixtures and
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equipment are depreciated using the straight-line method over the estimated
useful lives of the assets ranging from 5 to 20 years. Leasehold improvements
are amortized over the term of the lease on a straight-line basis.
Cash and Cash Equivalents: The Company considers all highly liquid debt
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instruments purchased with an original maturity of three months or less to be
cash equivalents. Restricted cash consists of amounts held as collateral for
certain obligations. As of December 31, 1997 and September 30, 1998, the Company
had committed $63,688 and $64,652 of cash, which serves as collateral for the
Company's outstanding debt with Summit Bank, and $42,267 and $47,870, which
serves as collateral under the Company's financing and factoring arrangements
with the CIT Group.
6
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LBU, Inc.
Notes to Financial Statements, continued
(unaudited)
Income taxes: Income taxes are provided for the tax effects of transactions
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reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between financial and income tax
reporting methods utilized for depreciation, the amortization of intangible
assets, the reserve method for bad debts and the uniform capitalization rules
under IRS Code Section 263A for and state net operating loss carryforwards.
Deferred taxes represent the future tax return consequences of those
differences, which will be either 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.
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,
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
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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 24,550,000 shares of pre-split outstanding Common Stock
to 1,227,500 shares on a post-split basis.
Note 2 - Accounts Receivable and Factoring Arrangements
- -------------------------------------------------------
The Company entered into a factoring arrangement whereby a factor makes advances
to the Company based upon a percentage of certain eligible invoices. In
addition, the factor makes advances to the Company based upon its eligible
inventory levels. During April 1998, CIT agreed to make advances to the Company
based upon a percentage of its levels of eligible inventories. As of May 14,
1998, approximately $200,000 had been advanced to the Company under this
arrangement. Interest of 2% per annum above the prime rate is charged on
outstanding advances. The advances are collateralized by the Company's accounts
receivable, inventories and certain other assets. In addition, the Company's
President and principal shareholder and his wife, who is also an officer of the
Company, have personally guaranteed advances under these agreements. The factor
also charges a commission of 1 1/4% on the gross face amount of all amounts
factored, subject to a minimum commission per invoice and other service fees.
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LBU, Inc.
Notes to Financial Statements, continued
(unaudited)
The components of accounts receivable at September 30, 1998 and December 31,
1997 are as follows:
1998 1997
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Accounts receivable assigned to factor, net $ 173,819 $ 219,396
Non-factored accounts receivable 24,238 35,357
Allowance for doubtful accounts (25,000) (25,000)
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Net accounts receivable $ 173,057 $ 229,753
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Note 3 - Related Party Transactions
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Of the notes described in (c) and (d) in Note 4 and Note 8, $700,000 is payable
to JPHC, a company whose chairman is a Director and shareholder of the Company.
Note 4 - Notes and Capital Lease Payable
- -----------------------------------------
Notes and capital lease payable consist of the following as of September 30,
1998 and December 31, 1997:
1998 1997
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Note payable to a bank (a) $ 79,438 $ 88,990
Credit Line from Factor(b) 200,000 -
Promissory notes payable (c) 430,000 200,000
Convertible notes payable (d) 300,000 300,000
Capital lease (e) 7,299 9,780
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Total 1,016,737 598,770
Less, current installments 966,121 36,121
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Notes and capital lease payable,
Less current installments $ 50,616 $ 562,649
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(a) Principal of $33,333 matures in 1998; $30,557 in 1999. Interest accrues at
prime plus 1.5%.
(b) Credit Line from Factor against inventory. Interest paid monthly at 2% per
annum.
(c) $400,000 of principal matures on January 1, 1999. Interest accrues at 9.12%.
$30,000 of principal matures at December 31, 1998 at 5% per annum.
(d) Principal matures on January 1, 1999. Interest accrues at 9.12%. Notes are
convertible into Common Stock of the Company at a fixed conversion price of
$5.00 per share.
(e) Lease payments are $3,812 for each year through December 31, 2000. Interest
accrues at 12% per annum.
8
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LBU, Inc.
Notes to Financial Statements, continued
(unaudited)
Note 5 - Segment Information
- ----------------------------
The following sets forth the Company's net sales by segment for the nine months
ended September 30, 1998 and 1997 :
1998 1997
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Sales:
Retail $1,677,085 $2,680,200
Promotional Products $2,383,226 $1,253,642
OEM and Industrial $ 353,070 $ 389,062
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Total $4,413,381 $4,322,904
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Note 6 - Legal Proceedings
- --------------------------
During March, 1996, Glennyre Capital Corporation, Poimandres Financial
Corporation and HJS Financial Services, Inc. (the "Plaintiff's") filed suit
against the Company in the State of Nevada. The lawsuit stems from a financial
service agreement dated July 24, 1995, by and between the Plaintiff's and LBU.
As part of the financial service agreement, 300,000 shares of LBU Common Stock
("the Shares") were issued to the Plaintiffs in return for financial and other
consulting services, which were to include raising capital. LBU claims such
services were not rendered and that the Shares were improperly registered and,
accordingly, on November 19, 1995, the Company invalidated the Shares and
subsequently 269,000 shares were returned and canceled by LBU's stock transfer
agent.
The Company and its legal counsel believe the action it has taken by
invalidating and canceling the Shares is appropriate. The Company has since
initiated a counter-suit against the Plaintiffs for breach of contract, fraud,
and other causes of action.
Discovery in this case is proceeding.
In a related claim on September 12, 1997, Wolverton Securities Ltd.
("Wolverton") filed an action against the Company in U.S. District Court for the
District of Nevada. Wolverton Securities, Ltd. seeks to have the Company reissue
approximately 140,000 shares of the common stock referred to in the preceding
paragraphs. Wolverton also seeks specific damages in the amount $405,000 and
unspecified punitive damages. The Company filed an answer and third-party
complaint against the Plaintiff's and certain of their affiliates in the same
court during October 1997.
9
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LBU, Inc.
Notes to Financial Statements, continued
(unaudited)
Note 6 - Legal Proceedings & Issues - (continued)
- -------------------------------------------------
Discovery in connection with the Wolverton litigation is proceeding. As of
August 13, 1998, the Company is considering a settlement offer from Wolverton in
the amount of 140,000 shares of common stock and $30,000 in cash. Management and
its attorneys are evaluating the outcome and its affects on the Company. The
Company has not made any provisions for settlement in its financial statements.
The Company will continue to vigorously pursue its counter suit and defend
itself in these and all other matters.
The Company is involved in litigation from time to time which is incidental to
the conduct of its business.
Note 7 - Shareholders Equity
- ----------------------------
Common Stock
In March 1997, the Company sold 250,000 shares of restricted Common Stock to
John P. Holmes and Co., Inc. ("JPHC") for $375,000 in a private placement
transaction.
On February 19, 1998, the Company entered into a consulting agreement with JPO,
LLC ("JPO"), to provide financial services to the Company. In conjunction with
the agreement, the Company granted JPO 10,000 shares of restricted Common Stock
and 100,000 stock purchase warrants with an exercise price of $4.00 per share.
The warrants have a term of five years and are exercisable from the date of the
grant.
Stock Purchase Warrants
In connection with certain financing transactions, during August and September
1997, the Company granted JPHC stock warrants to purchase 10,000 shares of the
Company's Common Stock at $5.00 per share and to purchase 40,000 shares at $5.00
per share. The warrants have a term of three years and are exercisable from the
date of the grant. During February and March 1998, JPHC loaned the Company an
additional $200,000 in the form of promissory notes payable and agreed to defer
principal repayments under all of its debt with the Company until January 1,
1999. In connection with these transactions, the Company granted JPHC stock
warrants to purchase 100,000 shares at $4.25 per share. The warrants have a term
of two years and are exercisable from the date of the grant.
10
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LBU, Inc.
Notes to Financial Statements, continued
(unaudited)
Note 8. - Forward Looking Statements and Associated Risks
- ---------------------------------------------------------
This Annual Report on Form 10-QSB contains certain forward-looking statements
within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, including statements concerning the Company's
products, results of operations and prospects. These forward-looking statements
involve risks and uncertainties, including risks relating to general economic
and business conditions, among them, the availability and terms of additional
financing; changes which could affect customer payment practices or customer
spending; industry trends; the loss of major customers; changes in demand for
the Company's products; the timing of orders received from customers; cost and
availability of raw materials; increases in costs relating to manufacturing and
transportation of products; dependence on foreign manufacturing; the outcome of
litigation to which the Company is a party and the seasonal nature of the
business as detailed elsewhere in this Quarterly Report on Form 10-QSB, the
Company's Annual Report on Form 10-KSB and from time to time in the Company's
filings with the Securities and Exchange Commission. Such statements are based
on management's current expectations and are subject to a number of factors and
uncertainties, including those set forth above, which could cause actual results
to differ materially from those, described in the forward-looking statements.
11
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
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2.1 Plan of Reorganization dated February 17, 1995 by
and between New Century Media, Ltd. a Nevada
Corporation. and LBU, Inc. a Delaware Corporation.*
3.1 Articles of Incorporation of LBU, Inc. dated
September 2, 1994. #
3.2 By-laws of LBU, Inc. dated October 4, 1994. #
3.3 Form of two-year stock purchase warrant.**
3.4 Form of Three-year stock purchase warrant.**
10.1 Factoring Agreement dated October 25, 1993 by and
between LBU, Inc. (Delaware) and The CIT
Group/Commercial Services Inc.+
10.2 Guaranty dated October 25, 1993 by and between CIT
and Jeffrey and Isel Mayer, individually, relating
to the above Factoring Agreement.+
10.3 Inventory Security Agreement dated January 4, 1995
by and between LBU, Inc. and The CIT
Group/Commercial Services, Inc.+
10.4 Lease agreement dated April 1, 1995 by and between
Albert Frassetto Enterprises, a sole proprietorship,
and Bags of Carlstadt, Inc. +
10.5 Subscription Agreement dated March 27, 1997 by and
between JPHC and the Registrant.+ 10.6 Promissory
note dated August 21, 1997, as amended on February
21, 1998, by and between the Registrant and JPHC.+
10.7 Promissory note dated September 19, 1997, as amended
on November 21, 1997 and February 21, 1998, by and
between the Registrant and JPHC.+
10.8 Consulting agreement dated February 19, 1998 by and
between JPO, LLC and the Registrant. +
List of Subsidiaries
21.1 Subsidiary State of Incorporation
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LBU, Inc. Delaware
Bags of Carlstadt, Inc. New Jersey
27.1 Financial Data Schedule.**
* Filed as an Exhibit to the New Century Media, Ltd. (a predecessor of
the Registrant) Form 10-K/A for the year ended December 31, 1994
dated March 10, 1995.
12
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Item 6. Exhibits and Reports on Form 8-K, continued
# Filed as an Exhibit to the New Century Media, Ltd. Form 10-
Q for the quarter ended September 30, 1994 dated November
8, 1994.
+ Filed as an Exhibit to the Company's Form 10-KSB for the
year ended December 31, 1997.
** Filed as an Exhibit to the Company's Form 10-QSB for the
quarter ended March 31, 1998.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
September 30, 1998.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: November 13, 1998
LBU, INC.
By: /s/ Jeffrey Mayer
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Jeffrey Mayer
Chairman of the Board
Chief Executive Officer, President
/s/ Isel Pineda-Mayer
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Isel Pineda-Mayer
Treasurer, Secretary
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