SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
- --------------------------------------------------------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] 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 Small Business Issuer as Specified in its Charter)
- --------------------------------------------------------------------------------
Nevada 62-1203301
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
310 Paterson Plank Road, Carlstadt, N.J. 07072
Address of Principal Executive Offices) (Zip code)
Issuer's Telephone Number, Including Area Code: (201) 933-2800
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report:
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes [_] No [X]
As of December 31, 1999, the Issuer had 1,414,370 shares of Common Stock, par
value $.001, outstanding.
Transitional Small Business Disclosure Format (check one): YES [__] NO [X]
1
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LBU, Inc.
INDEX
Page No
Part I - Financial Information:
Item 1. Condensed Balance Sheets September 30, 1999 and December 31, 1998 3
Condensed Statements of Operations for the Nine Months Ended
September 30, 1999 and 1998 5
Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 6
Notes to Condensed Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II - Other Information:
Item 1. Legal Proceedings 15
Item 2. Default upon Senior Securities and Creditors 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 18
2
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PART I
Item 1. Financial Statements
LBU, Inc.
Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,822 $ 51,330
Restricted cash 63,805 94,124
Accounts receivable (net of allowance for
bad debts of $25,000) 132,100 47,189
Inventory 477,347 675,958
Other current assets 69,022 126,999
----------- -----------
Total current assets 751,096 995,600
Noncurrent assets:
Fixed assets, net 309,690 262,967
Other assets 44,428 44,720
----------- -----------
Total assets $ 1,105,214 $ 1,303,287
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Account payable $ 155,609 $ 1,037,968
Accrued expenses 54,160 198,565
Customer advances 22,790 11,484
Taxes payable 0 15,613
Note payable - current 0 960,677
----------- ----------
Total current liabilities 232,559 2,224,307
----------- -----------
Pre-DIP liabilities:
Accounts Payable 792,747 0
Accrued Expenses 73,030 0
Notes payable 811,312 51,462
Taxes payable 15,613 0
----------- -----------
Total long-term liabilities 1,692,702 51,462
----------- -----------
Total liabilities 1,925,261 2,275,769
----------- -----------
</TABLE>
See accompanying notes to the condensed financial statements.
3
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LBU, Inc.
Balance Sheets, continued
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------- -----------
<S> <C> <C>
Stockholders' equity:
Common stock ($.001 stated value)
50,000,000 shares authorized,
1,543,977 and 1,543,977 issued
and outstanding, respectively 1,544 1,544
Additional paid in capital 1,148,378 1,148,378
Retained earnings (deficit) (1,969,969) (2,122,404)
----------- -----------
Total stockholders' equity (820,047) (972,482)
----------- -----------
Total liabilities and stockholder's equity $ 1,105,214 $ 1,303,287
=========== ===========
</TABLE>
See accompanying notes to the condensed financial statements.
4
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LBU, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Net sales $ 2,802,050 $ 4,413,381
Costs of goods sold 1,700,263 3,541,467
----------- -----------
Gross profit $ 1,101,787 871,914
----------- -----------
Operating expenses:
Shipping and selling 251,090 482,573
General and administrative expense 587,395 $ 1,025,566
Factor fees and interest 87,274 130,685
----------- -----------
Total operating expenses 925,759 1,638,824
----------- -----------
Operating (loss) income 176,028 (766,910)
Other income (expense):
Interest 161 2,401
Sale of Fixed Assets 0 1,134
Forfeited Deposits 0 (7,000)
State Income Tax (825) (4,543)
Prior Year CIT C/B Recovery 25,000 0
Chapter 11 Expenses (47,927) 0
----------- -----------
Total other income (expense) (23,591) (8,008)
----------- -----------
Income (loss) before income taxes 152,437 (774,918)
Income tax provision 0 178,231
----------- -----------
Net (loss) income $ 152,437 $ (596,687)
=========== ============
Net (loss) income per share-Basic $ .05 $ (.14)
Net (loss) income per share-Fully diluted $ .05 $ (.14)
</TABLE>
See accompanying notes to the condensed financial statements.
5
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LBU, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 152,437 $ (596,687)
---------- ----------
Adjustments to reconcile net income to net
cash provided (used) by operating activities
Depreciation and amortization 13,601 32,070
(Increase) decrease in
Accounts receivable (84,911) 56,696
Inventories 198,611 360,252
Other assets 57,977 (299,113)
Increase (decrease) in
Accounts payable (89,613) (82,462)
Accrued expenses (71,375) (17,115)
Customer Advances 11,306 19,716
---------- ----------
Total adjustments 35,596 70,044
---------- ----------
Net cash provided by (used in) operating activities 188,033 (526,643)
---------- ----------
Cash flow from investing activities:
Capital expenditures (60,032) (30,662)
---------- ----------
Net cash used by investing activities (60,032) (30,662)
---------- ----------
Cash flow from financing activities:
Repayment of loans (220,828) (130,034)
Sales of common stock -- 46,375
Proceeds from borrowings 20,000 548,000
---------- ----------
Net cash provided by financing activities (200,828) 464,341
---------- ----------
Net (decrease) increase in cash (72,827) (92,964)
Cash at beginning of period 145,454 202,204
---------- ----------
Cash at end of period $ 72,627 $ 109,240
========== ==========
Supplemental disclosures:
Cash paid during the period for
Interest and factor fees $ 94,431 $ 186,335
Income taxes $ 825 $ 4,543
Non-cash financing transactions:
Issuance of Common Stock for consulting $ -- $ 21,375
</TABLE>
See accompanying notes to the condensed financial statements.
6
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LBU, Inc.
Notes to Condensed 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, 1998. 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, results
of operations and cash flows at the dates and for the periods presented.
On March 23, 1999, the company filed petitions for relief under chapter 11 of
the federal bankruptcy laws. The action was precipitated by the decline in sales
and gross margin and an increase in expenses during the year ended December 31,
1998, resulting in the inability to pay approximately $725,000 due John P.
Holmes Co., Inc. that was due January 1, 1999 and other liabilities as they
became due.
A Trustee has been appointed and a plan for recover has been prepared. The
factor has revised their factoring and lending agreement and such financing
continues. A consultant with industry experience has been retained and cost
cutting has been affected.
LBU has continued to operate, and has continued to factor its receivables with
CIT pursuant to an order of the Bankruptcy Court. LBU has filed a plan of
reorganization that provides for: (a) an extension and modification of the CIT
agreement, (b) payment to unsecured creditors of either: (i) one share of stock
for every $2.00 of debt, or (ii) 20 monthly payments equal to 22.5% of
creditor's claims, and (c) retention of stock by existing shareholders. A
confirmation hearing was held on January 13, 2000 in which the Company's Plan of
reorganization was approved.
The operating results for the nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the full year.
Note 1 - 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. 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 has personally guaranteed advances under
these agreements. The factor also charges a commission of 1 1/8% on the gross
face amount of all amounts factored, subject to a minimum commission per invoice
and other service fees.
7
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LBU, Inc.
Notes to Condensed Financial Statements, continued
(unaudited)
Note 1 - Accounts Receivable And Factoring Arrangements (Continued)
Prior to the bankruptcy filing date, the Company and CIT revised their factoring
agreement whereby the Company repaid the $200,000 advanced during early 1999.
Note 2 - Notes and Capital Lease Payable
Notes and capital lease payable consist of the following as of September 30,
1999 and December 31, 1998:
1999 1998
---- ----
Note payable to a bank (a) $ 72,173 $ 73,001
Credit Line from Factor(b) 0 200,000
Promissory notes payable (c) 400,000 200,000
Promissory notes payable (d) 30,000 30,000
Convertible notes payable (e) 300,000 500,000
Capital lease (f) 9,138 9,138
---------- ----------
Total 811,311 1,012,139
Less, current installments -- 960,677
---------- ----------
Notes and capital lease payable,
Less current installments $ 811,311 $ 51,462
========== ==========
(a) CIT extended the Company $200,000 credit, collateralized by inventory and
equipment. This line of credit .was repaid prior to the Company filing for
bankruptcy.
(b) Principal of $33,333 matures in 1999; $38,840 in 2000. Interest accrues at
prime plus 1.5%. This loan was repaid in full in November 1999.
(c) $200,000 of principal matured on January 1, 1999 and has become part of the
bankruptcy proceedings.
(d) Principal was due to mature on June 22, 2000. Interest accrues at 9.12%.
This note has become part of the bankruptcy proceedings.
(e) Principal of $500,000 matured on January 1, 1999. Notes are convertible
into Common Stock of the Company at a fixed conversion price of $5.00 per
share. This note has become part of the bankruptcy proceedings.
(f) Lease payments are $3,812 for each year through December 31, 2000. Interest
accrues at 12% per annum. This lease has become part of the bankruptcy
proceedings.
8
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LBU, Inc.
Notes to Condensed Financial Statements, continued
(unaudited)
Note 3 - Commitments and Contingencies
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.
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
170,000 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.
Wolverton has indicated that it supports the bankruptcy reorganization plan as
proposed by the Company. Accordingly, the Wolverton litigation will be resolved
by the plan.
9
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Forward Looking Statements and Associated Risks
The discussion and analysis which follows in this Quarterly Report and in other
reports and documents of the Company and oral statements made on behalf of the
Company by its management and others may contain trend analysis and other
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 which reflect the Company's current views with respect to
future events and financial results. These include statements regarding the
Company's earnings, projected growth and forecasts, and similar matters which
are not historical facts. The Company reminds stockholders that forward-looking
statements are merely predictions and therefore are inherently subject to
uncertainties and other factors which could cause the actual future events or
results to differ materially from those described in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including the emerging of the Company from bankruptcy proceedings, availability
and terms of additional financing; changes which could affect customer payment
practices or customer spending; industry trends; the loss of major customers and
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; the outcome of litigation to
which the Company is a party and the seasonal nature of the Company's business.
The forward-looking statements contained in this Quarterly Report and made
elsewhere by or on behalf of the Company should be considered in light of these
factors.
The Company has attempted to identify additional significant uncertainties and
other factors affecting forward-looking statements in Exhibit 99 incorporated by
reference to this Quarterly Report ("Additional Information Regarding Forward
Looking Statements"). The Company will provide copies of Exhibit 99 to
stockholders free of charge upon receipt of a written request submitted to the
Company's Secretary at LBU, Inc., 310 Paterson Plank Road, Carlstadt, New Jersey
07072. Stockholders may also obtain copies of Exhibit 99 for a nominal charge
from the Public Reference Section of the Securities and Exchange Commission at
450 Fifth Street, N.W., Washington D.C. 20549 or at the Commission's website:
http://www.sec.gov.
Bankruptcy Proceedings
On March 22, 1999, the Company filed for protection under Chapter 11 of the
bankruptcy laws. The action was precipitated by the decline in sales and gross
margin and an increase in expenses during the year ended December 31, 1998,
resulting in the inability to pay approximately $725,000 due John P. Holmes Co.,
Inc. that was due January 1, 1999 and other liabilities as they became due. The
company has continued to operate and factor its receivables utilizing a
financing company, the CIT Group ("CIT"), pursuant to an order of the Bankruptcy
Court. The Company filed with the Bankruptcy Court a plan of reorganization (the
"Reorganization Plan") that provides for: (a) an extension and
10
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modification of the CIT agreement, (b) payment to unsecured creditors of either:
(I) one share of stock for every $2.00 of debt, or (ii) 20 monthly payments
equal to 22.5% of creditor's claims, and (c) retention of stock by existing
shareholders. A confirmation hearing was held on January 13, 2000 in which the
Company's Plan of reorganization was approved.
Wolverton Securities Ltd. ("Wolverton"), which filed a suit against the Company,
also indicated that it supports the Reorganization Plan. Accordingly, the
Company expects that the Wolverton litigation will be resolved by the
Reorganization Plan. The Company believes that a hearing in the matter of the
Reorganization Plan will be held by the end of January, 2000. However, there is
no assurance that the Bankruptcy Court will grant the Company's request for
approval of the Reorganization Plan.
Results of Operations
Nine months ended September 30, 1999 versus Nine months ended September 30, 1998
The Company's net sales decreased by $ 1,611,331 to $ 2,802,050 or 37% for the
nine months ended September 30, 1999 from $ 4,413,381 for the nine months ended
September 30, 1998. This decrease was due primarily to the loss of one large
retail customer and the decrease in the Company's sales effort as a result of
the departure of two sales representatives in the first quarter of 1999.
Costs of sales decreased by $ 1,841,204 to $ 1,700,263 (or 61% of net sales) for
the nine months ended September 30, 1999 from $ 3,541,467 (or 80% of net sales)
for the nine months ended September 30, 1998. This decrease is primarily
attributable to the decrease in sales in the 1999 nine-month period and better
pricing of orders shipped.
As a result of the foregoing, gross profit increased by $229,873 to $ 1,101,787
for the nine months ended September 30, 1999 from $ 871,914 for the nine months
ended September 30, 1998.
Shipping and selling costs decreased by $ 231,483 to $ 251,090 (or 9 % of net
sales) for the nine months ended September 30, 1999 from $482,573 (or 11 % of
net sales) for the nine months ended September 30, 1998. This decrease is
primarily due to an increase in sales of promotional products and decrease in
sales of retail products.
General and administrative expenses decreased by $ 438,171 to $ 587,395 (or 21 %
of sales) for the nine months ended September 30, 1999 from $ 1,025,566 (or 23%
of sales) for the nine months ended September 30, 1998. This decrease primarily
is due to a reduction in legal fees, salaries and overhead expenses.
Factor fees and interest decreased by $ 43,411 to $ 87,274 (or 3% of sales) for
the nine months ended September 30, 1999 from $ 130,685 (or 3% of sales) for the
nine months ended September 30, 1998. This decrease is a direct result of a
decrease in sales.
11
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As a result of the foregoing, total operating expenses decreased by $ 713,065 to
$926,759 (or 33% of sales) for the nine months ended September 30, 1999 from
$1,638,824 (or 37% of sales) for the nine months ended September 30, 1998.
As a result of the foregoing, the Company incurred a net income of $152,437 for
the nine months ended September 30, 1999 as compared to net loss of $596,687 for
the nine months ended September 30, 1998.
Liquidity and Capital Resources
The Company's cash position as of September 30, 1999 and December 31, 1998 was
$72,627 and $145,454, respectively, of which $ 63,805 and $ 94,124 was
restricted and not available for general corporate purposes. Net cash provided
by (used in) operating activities for the nine months ended September 30,1999
and 1998 was $ 188,033 and $ (526,643), respectively, representing an increase
of $714,676 in the 1999 period.
During the nine months ended September 30, 1998, cash used in investing
activities totaled $30,662, which consists primarily of capital expenditures for
manufacturing equipment in the Company's Carlstadt facility. During the nine
months ended September 30, 1999, cash used in investing activities totaled
$60,032, which consists primarily of capital expenditures for upgrading the
Company's computer hardware and software to correct any Y2K problems.
During the nine months ended September 30, 1998, net cash generated by financing
activities totaled $464,341 which includes $548,000 of proceeds from borrowings
during the period. During the nine months ended September 30, 1999, net cash
used in financing activities was $200,828 which includes a repayment of the loan
from the company's factor, CIT, and principal payments to the Company's credit
line in the amount of $220,828 and the borrowing of $20,000 from its bank credit
line prior to the filing of bankruptcy.
Currently, LBU's primary source of financing is the CIT Group ("CIT"), which
provides factoring and accounts receivable financing. The Company pays a 1.125%
factor charge on its invoices for the guarantee of payment on eligible
receivables which CIT then collects from the Company's customers. The Company
pays 2% above the prime-lending rate on borrowings up to 85% of an invoice
amount.
During April 1998, CIT agreed to make advances to the Company based upon a
percentage of its levels of eligible inventories. As of December 31, 1998,
$200,000 had been advanced to the Company under this arrangement. As of March
31, 1999, the $200,000 advanced by CIT was repaid by the company from accounts
receivable payments as part of the agreement with CIT to continue with its
factoring arrangement during the bankruptcy proceedings.
12
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During 1997, the Company received an equity investment in the amount of $375,000
from the sale of 250,000 shares of its Common Stock to John P. Holmes Co., Inc.
(JPHC) and $500,000 in debt financing, $300,000 of which is convertible into
Common Stock of the Company, from JPHC. During the first quarter of 1998, JPHC
provided the Company with an additional $200,000 of debt financing. The proceeds
of these financings were used by the Company primarily to fund its working
capital needs during 1997 and 1998.
The Notes were due on April 1, 1998, however, JPHC agreed not to require
repayment before January 1, 1999. Due to the Company's inability to repay the
notes upon demand in January 1999, a total of $700,000 was included in the debts
listed in the Company's bankruptcy proceedings. The Creditors Committee, of
which JPHC is a member, supports the Plan of Reorganization.
The Company generated an operating loss in 1998 of approximately $1.7 million
and has experienced a decline in its gross margins in each year since 1994.
These events had a significant negative impact on the Company's liquidity.
Management of the Company believes that a significant portion of the 1998
operating loss was due to the loss of a large retail customer in 1998, and the
loss of two key sales people in the fourth quarter of 1998 which resulted in
decreased sales. The Company further believes that the declines in gross margins
since 1994 relate primarily to (i) costs associated with the expansion of the
Company's business and product lines and (ii) competition, which impacts the
Company's ability to maintain its gross margins on its products. While there can
be no assurances that the Company will be able to operate profitably, improve
gross margins or cash flows or increase liquidity during 1999 the Company
believes that the filing of protection under the bankruptcy laws in the first
quarter of 1999 together with the reduction of costs and shipping only orders
that have a profitable gross margin would result in better operating results and
improved financial condition. In the event that the Company is unsuccessful in
its efforts to emerge from bankruptcy procedures or cannot operate profitably on
a sustained basis, it may be required to significantly alter its strategy and
implement cost reduction or other cash flow enhancement programs.
Year 2000 Issue
The Company recognizes the need to ensure its operations will not be adversely
impacted by the inability of the Company's systems to process data having dates
on or after January 1, 2000 ("Year 2000"). Processing errors due to software
failure arising from calculations using the Year 2000 date are a recognized
risk. The company is in the process of changing its main operating system to one
that is recognized as full compliant with year 2000 issues.
The Company initiated communications with third-party suppliers of all its
production machines and equipment and raw materials used, operated or maintained
by the Company to identify and, to the extent possible, to resolve issues
involving the Year 2000 problem. The Company was notified by such third-party
suppliers that they are Year 2000 compliant. The Company also ran tests using
special software to ensure that its production machines and equipment are Year
2000 compliant.
In addition, the operation of the office and facilities equipment of the
Company, such as fax machines, photocopiers, telephone switches, security
systems and other common devices, may be affected by the Year 2000 problem. The
Company completed upgrading and replacing these internal systems and believes
that they are Year 2000 compliant and will not have a material adverse effect on
its business or results of operations but it cannot provide any assurance to
this effect.
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Income taxes
As of December 31, 1998 the Company had federal and state net operating loss
carryforwards of approximately $1,750,000 and $1,930,000, respectively which
will begin to expire in 2018 and 2005, respectively.
New Financial Standards
In June 1997, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in financial
reports issued to shareholders. It also establishes standards for disclosures
about products and services, geographic areas and major customers. SFAS 131 is
effective for financial statements for fiscal years beginning after December 15,
1997. Financial statement disclosures for prior periods are required to be
restated.
The adoption of SFAS 131 has had no impact on the Company's results of
operations, financial position or cash flows. Management does not receive, nor
does the Company generate, discrete financial operating results for any portion
of the business other than for product sales.
14
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
During March, 1996, Glenneyre Capital Corporation, Poimandres Financial
Corporation and HJS Financial Services, Inc. (the "Plaintiff's") filed a 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 Plaintiff's 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, based on legal advice, believes 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
170,000 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 a third-party complaint
against the Plaintiffs and certain of their affiliates in the same court during
October 1997.
Wolverton has indicated that it supports the Chapter 11 Plan of Reorganization
currently being proposed. Accordingly, if the Reorganization Plan is approved,
the Wolverton litigation will be resolved pursuant to the terms of the
Reorganization Plan.
The Company is involved in litigation from time to time which is incidental to
the conduct of its business.
Item 2. Default upon Senior Securities and Creditors
On March 22, 1999, the Company filed for protection from its creditors to the
extent of $1,803,283. Included in this amount was $824,603 of notes payable;
$963,067 payable to various vendors and suppliers; and $15,613 in state
franchise tax payable to New York and New Jersey. The notes payable included an
amount of $700,000 of a note payable to John P. Holmes Co., Inc. (JPHC) due
January 1, 1999 plus accrued interest at 9.12%.
15
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
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.(1)
3.1 Certificate of Incorporation of LBU, Inc. dated
September 2, 1994. (2)
3.2 By-laws of LBU, Inc. dated October 4, 1994. (2)
3.3 Form of two-year stock purchase warrant.(3)
3.4 Form of Three-year stock purchase warrant.(3)
10.1 Factoring Agreement dated October 25, 1993 by and
between LBU, Inc. (Delaware) and The CIT
Group/Commercial Services Inc. (4)
10.2 Guaranty dated October 25, 1993 by and between CIT
and Jeffrey and Isel Mayer, individually, relating
to the above Factoring Agreement.(4)
10.3 Inventory Security Agreement dated January 4, 1995
by and between LBU, Inc. and The CIT
Group/Commercial Services, Inc.(4)
10.4 Lease agreement dated April 1, 1995 by and between
Albert Frassetto Enterprises, a sole
proprietorship, and Bags of Carlstadt, Inc. (4)
10.5 Subscription Agreement dated March 27, 1997 by and
between JPHC and the Registrant.(4)
10.6 Promissory note dated August 21, 1997, as amended
on February 21, 1998, by and between the Registrant
and John P. Holmes & Company, Inc. (4)
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.(4)
10.8 Consulting agreement dated February 19, 1998 by and
between JPO, LLC and the Registrant. (4)
21.1 List of Subsidiaries
Subsidiary State of Incorporation
---------- ----------------------
LBU, Inc. Delaware
Bags of Carlstadt, Inc. New Jersey
27.1 Financial Data Schedule (filed via EDGAR only).
99 Additional Information Regarding Forward Looking
Statements
(1) 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 and incorporated herein by reference
thereto.
16
<PAGE>
(2) Filed as an Exhibit to the New Century Media, Ltd. Form 10-Q for
the quarter ended September 30, 1994 dated November 8, 1994 and
incorporated herein by reference thereto.
(3) Filed as an exhibit to the Registrant's Form 10-QSB for the
quarter ended March 31, 1998 and incorporated herein by reference
thereto.
(4) Filed as an Exhibit to the Company's Form 10-QSB/a for the year
ended December 31, 1997 (filed on April 22, 1998) and
incorporated herein by reference thereto.
(b) Reports on Form 8K filed during the last quarter of the period covered
by this report:
None.
17
<PAGE>
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: March 9, 2000
LBU, INC.
By: /s/ Jeffrey Mayer
--------------------------------------
Jeffrey Mayer
Chairman of the Board
Chief Executive Officer, President
(Principal executive and financial
And accounting officer)
Director
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