SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 quarterly period ended March 31, 2000
[ ] 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)
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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 May 4, 2000, the Issuer had 1,814,334 shares of Common Stock, par value
$.001, outstanding.
Transitional Small Business Disclosure Format (check one): YES___ NO_X_
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LBU, Inc.
INDEX
Page No
Part I - Financial Information:
Item 1. Condensed Balance Sheets March 31, 2000 and December 31, 1999 3
Condensed Statements of Operations for the Three Months Ended
March 31, 2000 and 1999 5
Condensed Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 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 6. Exhibits and Reports on Form 8-K 13
Signatures 15
2
<PAGE>
PART I
Item 1. Financial Statements
LBU, Inc.
Balance Sheets
March 31, December 31,
2000 1999 .
ASSETS
Current assets:
Cash and cash equivalents 16,593 $ 20,546
Accounts receivable (net of allowance for
bad debts of $4,721 and $53,135 respectively) 397,285 222,813
Inventory 629,735 680,084
Deferred Tax Asset 4,370 4,370
Other current assets 32,339 32,431
---------- ----------
Total current assets 1,080,322 960,244
Noncurrent assets:
Fixed assets, net 231,150 286,043
Other assets 126,788 82,244
---------- ----------
Total assets $1,438,260 $1,328,531
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable $ 176,335 $ 113,647
Accrued expenses 12,282 82,009
Customer advances 121,474 91,438
Taxes payable 42,853 15,613
Accounts payable - Reorganization Settlement 86,861 0
---------- ----------
Total current liabilities 439,805 302,707
---------- ----------
Pre-bankruptcy and long term liabilities:
Accounts payable 0 792,689
Accrued expenses 0 73,030
Notes payable 0 739,139
Taxes payable 0 0
---------- ----------
Pre-bankruptcy liabilities 0 1,604,858
Long-term liabilities
Deferred Income Tax 19,744 19,744
Accounts Payable-Reorganization Settlement 47,066 0
---------- ----------
Total long term liabilities 66,810 1,624,602
---------- ----------
Total liabilities 506,615 1,927,309
---------- ----------
See accompanying notes to the condensed financial statements
3
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LBU, Inc.
Balance Sheets, continued
March 31, December 31,
2000 1999
Stockholders' equity:
Common stock ($.001 stated value)
50,000,000 shares authorized,
2,041,347 and 1,359,477, respectively,
issued and outstanding 1,544 1,544
Additional paid in capital 1,148,378 1,148,379
Accumulated deficit (218,277) (1,748,701)
----------- -----------
Total stockholders' equity 931,645 (598,778)
----------- -----------
Total liabilities and stockholder's equity $ 1,438,260 $ 1,328,531
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See accompanying notes to the condensed financial statements
4
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LBU, Inc.
Statements of Operations
Three Three
months ended months ended
March 31, 2000 March 31, 1999
-------------- --------------
Net sales $ 976,340 $ 1,010,225
Costs of sales 518,695 616,460
----------- -----------
Gross profit 457,645 393,765
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Operating expenses:
Shipping and selling 123,928 68,284
General and administrative 219,129 186,385
Factor fees and interest 24,625 42,257
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Total operating expenses 367,682 296,926
----------- -----------
Operating income (loss) 89,963 96,839
Other income (expense):
Interest income 0 156
Insurance loss adjustment fee 0 (8,965)
Insurance proceeds in excess of replacement 8,349 0
State income tax 0 (825)
Chapter 11 legal expense (413) (10,511)
----------- -----------
Total other income (expense) 7,936 (20,145)
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Income (loss) before income taxes 97,899 76,694
Income taxes 27,565 0
----------- -----------
Net income $ 70,334 $ 76,694
=========== ===========
Net income per share-Basic $ 0.04 $ 0.06
=========== ===========
Net income per share-Fully diluted $ 0.04 $ 0.06
=========== ===========
See accompanying notes to the condensed financial statements
5
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LBU, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Three Three
months ended months ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 70,334 $ 76,694
--------- ---------
Adjustments to reconcile net income to net
cash provided (used) by operating activities
Depreciation and amortization 16,003 13,601
Non-cash compensation
(Increase) decrease in
Accounts receivable (249,859) (51,018)
Inventories 50,349 169,072
Current assets 92 80,214
Increase (decrease) in
Accounts payable 51,846 (219,034)
Accrued expenses (69,727) (4,892)
Customer Advances 30,036 50,885
Income Taxes Payable 27,240 0
--------- ---------
Total adjustments 144,020) 38,828
--------- ---------
Net cash provided by (used in) operating activities (73,686) 115,522
--------- ---------
Cash flow from investing activities:
Capital expenditures (5,654) 0
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Net cash used by investing activities (5,654) 0
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Cash flow from financing activities:
Repayment of loans (799,613) (207,535)
Proceeds from loans and factor advances 875,000 20,000
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Net cash provided by (used in) financing activities 75,387 (187,535)
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Net (decrease) increase in cash (3,953) (72,013)
Cash at beginning of period 20,546 145,454
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Cash at end of period $ 16,593 $ 73,441
========= =========
Supplemental disclosures:
Cash paid during the period for
Interest and factor fees $ 24,625 $ 45,575
</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, 1999. 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,
1999, 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 was appointed and a plan for recovery was been prepared. The factor
revised their factoring and lending agreement and such financing continues. A
consultant with industry experience was retained and cost cutting was put into
affect.
LBU continued to operate, and 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.
The Reorganization Plan was confirmed on January 13, 2000. JPHC elected a stock
distribution of 362,500 shares of Common Stock, under the Reorganization Plan in
satisfaction of its $700,000 claim. In addition, JPHC would no longer be
entitled to the 60,000 shares issuable upon the conversion of the $300,000
convertible note. Of the $904,858 balance of the $1,604,858 Liabilities Subject
to Compromise, a total of $146,140 is subject to payout under the 20-month cash
payment election and additional 87,370 shares are to be issued under the 1 share
for $2 of debt election. Management estimates that approximately, $30,000 of
Liabilities Subject to Compromise is subject to dispute. Accordingly, the total
debt reduction is $1,458,718 as a result of the Reorganization. The total
increase in shares issued and outstanding as a result of the Reorganization plan
is 681,870.
The operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year.
7
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LBU, Inc.
Notes to Condensed Financial Statements, continued
(unaudited)
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.
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 March 31, 2000
and December 31, 1999:
2000 1999
---- ----
Accounts Payable-Reorganization Settlement $133,927 $ 0
Promissory notes payable (a) 0 200,000
Promissory note payable(b) 0 30,000
Convertible notes payable (b) 0 500,000
Capital lease (d) 0 9,139
-------- --------
Total 133,927 739,139
Less, current installments 86,861 0
-------- --------
Notes and capital lease payable,
Less current installments $ 47,066 $739,139
======== ========
(a) $200,000 of principal matured on January 1, 1999 and has become part of the
bankruptcy proceedings.
(b) Principal was due to mature on June 22, 2000. Interest accrues at 9.12%.
This note has become part of the bankruptcy proceedings.
(c) 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.
(d) 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
The Company entered into a ten-year lease agreement for its facilities in
Carlstadt, New Jersey, which commenced on July 1, 1995. The minimum future
rental payments under the non-cancelable operating leases as of March 31, 2000
are:
Year Ending
December 31 Amount
----------- ------
2000 $ 116,224
2001 160,121
2002 167,465
2003 172,521
2004 179,368
9
<PAGE>
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.
Results of Operations
Three months ended March 31, 2000 versus three months ended March 31, 1999
The Company's net sales decreased by $ 33,885 or 4% to $ 976,340 for the three
months ended March 31, 2000 from $ 1,010,225 for the three months ended March
31, 1999. This decrease was due primarily to the
Costs of sales decreased by $ 97,765 to $ 518,695 (or 53% of net sales) for the
three months ended March 31, 2000 from $ 616,460 (or 61% of net sales) for the
three months
10
<PAGE>
ended March 31, 1999. This decrease is primarily attributable to the decrease in
sales in the 2000 three-month period and better pricing of orders shipped.
As a result of the foregoing, gross profit increased by $63,880 to $ 457,645 for
the three months ended March 31, 2000 from $ 393,765 for the three months ended
March 31, 1999.
Shipping and selling costs increased by $ 55,644 to $ 123,928 (or 12 % of net
sales) for the three months ended March 31, 2000 from $68,284 (or 6 % of net
sales) for the three months ended March 31, 1999. This increase is primarily due
to the hiring of additional salespeople and the implementation of an aggressive
commission schedule.
General and administrative expenses increased by $ 32,744 to $ 219,129 (or 22 %
of sales) for the three months ended March 31, 2000 from $ 186,385 (or 18% of
sales) for the three months ended March 31, 1999. This increase primarily is due
the hiring of a data processing consultant to implement the new computer system
and an increase in insurance costs.
Factor fees and interest decreased by $ 17,632 to $ 24,625 (or 2% of sales) for
the three months ended March 31, 2000 from $ 42,257 (or 4% of sales) for the
three months ended March 31, 1999. This decrease is a direct result of a
decrease in factoring activity and the repayment of debt to the factor at the
end of March 1999.
As a result of the foregoing, total operating expenses increased by $ 70,756 to
$367,682 (or 37% of sales) for the three months ended March 31, 2000 from
$296,926 (or 29% of sales) for the three months ended March 31, 1999.
As a result of the foregoing, the Company incurred a net income of $70,334 for
the three months ended March 31, 2000 as compared to net income of $76,694 for
the three months ended March 31, 1999.
Liquidity and Capital Resources
The Company's cash position as of March 31, 2000 and March 31, 1999 was $16,593
and $73,441, respectively. Net cash provided by (used in) operating activities
for the three months ended March 31, 2000 and 1999 was $ (73,686) and $ 115,522,
respectively, representing an decrease of $189,208 in the 2000 period.
During the three months ended March 31, 1999, cash used in investing activities
totaled $5,654, which consists primarily of capital expenditures for
manufacturing equipment in the Company's Carlstadt facility. No cash was used
for investing activities during the three months ended March 31, 2000.
During the three months ended March 31, 1999, net cash used in financing
activities totaled $187,535 which includes a repayment of the loan from the
company's factor, CIT, in the amount of $207,535 and the borrowing of $20,000
from its bank credit line prior to the filing of bankruptcy. During the three
months ended March 31, 2000, net cash used in financing activities was $75,387
which is a direct result of advances from Company's factor, CIT.
11
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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, 1999,
$200,000 had been advanced to the Company under this arrangement. As of March
31, 2000, 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.
Income taxes
As of December 31, 1999 the Company had federal and state net operating loss
carryforwards of approximately $1,750,000 and $1,920,000 respectively, which
will begin to expire in 2018 and 2007, respectively. As a result of the debt
compromised by the final bankruptcy settlement, the federal and state operating
carryforward losses as of March 31, 2000 are $291,282 and $111.292,
respectively, which will begin to expire in 2019 and 2008, 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.
12
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PART II. Other Information
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.
13
<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.
14
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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: June 15, 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
15
