SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 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 March 31, 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

                                    LBU, Inc.
             (Exact Name of Registrant as specified in its charter)

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  proceeding 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 15, 1997, the  Registrant had an aggregate of 1,348,997  shares of its
Common Stock outstanding.
                                    

                                       1
<PAGE>

                                    LBU, Inc.
                              Index to Form 10-QSB
                          Quarter ended March 31, 1998

                                                                      Page No

Part I

         Balance Sheets                                                 3
         Statements of Operations                                       5
         Statements of Cash Flows                                       6
         Notes to Financial Statements                                  7
         Management's Discussion and Analysis                           12

Part II

      Item 1.  Legal Proceedings                                        17
      Item 6.  Exhibits and Reports on Form 8-K                         18

Signatures                                                              20


                                       2
<PAGE>

                                   LBU, Inc.
                                 Balance Sheets

                                                  March 31,        December 31,
                                                    1998               1997
                                                (unaudited)         (audited)
                                                -----------         ---------
       ASSETS
Current assets:

  Cash and cash equivalents                                        $   96,249
  Restricted cash                               $  105,955            105,955
  Accounts receivable (net of allowance for                      
     bad debts of $25,000)                         170,562            229,753
  Inventory                                      1,615,319          1,528,318
  Deferred tax asset                                76,704             55,516
  Other current assets                             270,911            292,546
                                                ----------          ---------
    Total current assets                         2,239,451          2,308,337
                                                                 
Noncurrent assets:                                               
  Fixed assets, net                                304,144            289,177
  Other assets                                      96,943             65,219
                                                ----------         ----------
       Total assets                             $2,640,538         $2,662,733
                                                ==========         ==========
                                                                 
         LIABILITIES AND STOCKHOLDERS EQUITY                     
                                                                 
Current liabilities:                                             
  Bank overdraft                                $   38,505            
  Account payable                                  865,599         $1,076,968
  Accrued expenses                                 164,642            207,233
  Customer advances                                 60,047             31,180
  Accrued taxes                                     17,255             17,255
  Lease payable - current                            2,788              2,788
  Note payable - current                            43,333             33,333
                                                 ---------         ----------
     Total current liabilities                   1,192,169          1,368,757
                                                 ---------         ----------
Long-term liabilities:
  Lease payable                                      5,865              6,992
  Notes payable                                    460,733            255,657
  Convertible note payable                         300,000            300,000
  Deferred tax liability                             8,793              8,793
                                                 ---------         ----------
     Total long-term liabilities                   775,391            571,442
                                                 ---------         ----------
         Total liabilities                       1,967,560          1,940,199
                                                 ---------         ----------

    The accompanying notes are an integral part of these financial statements


                                       3

<PAGE>

                                    LBU, Inc.
                            Balance Sheets, continued

                                                     March 31,      December 31,
                                                        1998            1997
                                                    (unaudited)      (audited)
                                                    -----------      ---------
Stockholders' equity:                                             
  Common stock ($.001 stated value)                               
50,000,000 shares authorized,                                     
1,348,977 and 1,338,977 issued                                    
and outstanding, respectively                            1,439           1,339
Additional paid in capital                           1,123,484       1,102,208
Retained earnings (deficit)                           (451,945)       (381,013)
                                                   -----------     -----------
  Total stockholders' equity                           672,978         722,534
                                                   -----------     -----------
    Total liabilities and stockholder's equity     $ 2,640,538     $ 2,662,733
                                                   ===========     ===========


    The accompanying notes are an integral part of these financial statements
   
  
                                       4
<PAGE>

                                    LBU, Inc.
                             Staements of Operations
                                   (unaudited)

                                                     Three            Three
                                                 months ended      months ended 
                                                March 31, 1998    March 31, 1997
                                                --------------    --------------

Net sales                                         $ 1,313,057       $ 1,189,383
Costs of goods sold                                   886,938           747,080
                                                  -----------       -----------
    Gross profit                                      426,119           442,303
                                                  -----------       -----------
    Operating expenses:
Shipping and selling                                  180,331           145,806
General and administrative expense                    289,174           217,230
Factor fees and interest                               49,319            31,357
                                                  -----------       -----------
  Total operating expenses                            518,824           394,393
                                                  -----------       -----------
     Operating (loss) income                          (92,705)           47,910
  Other income:
Interest                                                  584             2,655
Rent                                                   12,000
                                                  -----------       -----------
  Total other income                                      584            14,655
                                                  -----------       -----------
Income (loss) before income taxes                     (92,121)           62,565

Income tax provision                                  (21,188)          (14,171)
                                                  -----------       -----------
Net (loss) income                                 $   (70,933)      $    48,394
                                                  ===========       ===========
Net (loss) income per share-Basic                 $     (0.05)      $      0.04
                                                  ===========       ===========
Net (loss) income per share-Fully diluted         $     (0.05)      $      0.04
                                                  ===========       ===========

    The accompanying notes are an integral part of these financial statements


                                       5
<PAGE>

                                    LBU, Inc.
                            Statements of Cash Flows
                                   (unaudited)

                                                    Three             Three
                                                 months ended      months ended 
                                                March 31, 1998    March 31, 1997
                                                --------------    --------------
Cash flow from operating activities:

Net income (loss)                                 $ (70,933)        $  48,394
                                                  ---------         ---------
  Adjustments to reconcile net income to net                     
  cash provided (used) by operating activities                   
Depreciation and amortization                        10,960             7,955
Non-cash compensation                                10,687      
  (Increase) decrease in                                                       
Accounts receivable                                  59,191          (189,430)
Inventories                                         (87,001)           94,590
Other assets                                        (21,163)     
  Increase (decrease) in                                                        
Accounts payable                                   (211,369)         (108,005)
Accrued expenses                                    (42,591)          (52,000)
Other liabilities                                    28,867           (24,841)
                                                  ---------         ---------
  Total adjustments                                (252,689)         (271,731)
                                                  ---------         ---------
   Net cash used by operating activities           (323,622)         (223,337)
                                                  ---------         --------- 
                                                                
   Cash flow from investing activities:                                        
Capital expenditures                                (25,081)             --
                                                  ---------         ---------
  Net cash used by investing activities             (25,081)             --    
                                                  ---------         ---------
   Cash flow from financing activities:                                        
Repayment of loans                                    3,949            (8,950)
Sales of common stock                                                 375,000  
Proceeds from borrowings                            210,000         
                                                  ---------         ---------
  Net cash provided by financing activities         213,949           366,050
                                                  ---------         ---------

  Net (decrease) increase in cash                  (134,754)          142,713
Cash at beginning of period                         202,204           185,508
                                                  ---------         ---------
Cash at end of period                             $  67,450         $ 328,221
                                                  =========         =========  
Supplemental disclosures:                                        
  Cash paid during the period for                                               
   Interest and factor fees                       $  49,319         $  31,357
   Income taxes                                        --                --
Non-cash financing transactions:                                                
   Issuance of  Common Stock for consulting       $  21,375      
                                                                 
    The accompanying notes are an integral part of these financial statements


                                       6
<PAGE>

                                    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,  results
of operations and cash flows at the dates and for the periods presented.

The  operating  results  for the  three  months  ended  March  31,  1998 are not
necessarily indicative of the results to be expected for the full year.

Note 1 - Organization and Significant Accounting Policies

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.

Fixed Assets: Property and equipment are stated at cost. Furniture, fixtures and
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:  For purposes of the  statements 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.  Restricted  cash
consists of amounts held as collateral for certain  obligations.  As of December
31, 1997 and March 31, 1998,  the Company had committed  $63,688 of cash,  which
serves as collateral  for the Company's  outstanding  debt with Summit Bank, and
$41,267,  which serves as collateral under the Company's financing and factoring
arrangements with the CIT Group.


                                       7
<PAGE>

                                    LBU, Inc.
                    Notes to Financial Statements, continued
                                   (unaudited)

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 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  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.

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
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.  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 1/8% on the gross face  amount of all  amounts
factored, subject to a minimum commission per invoice and other service fees.


                                       8
<PAGE>

                                    LBU, Inc
                    Notes to Financial Statements, continued
                                   (unaudited)

The  components  of accounts  receivable at March 31, 1998 and December 31, 1997
are as follows:

                                                          1998           1997
                                                          ----           ----
                                                                  
Accounts receivable assigned to factor, net            $ 178,016      $ 219,396
Non-factored accounts receivable                          17,546         35,357
Allowance for doubtful accounts                          (25,000)       (25,000)
                                                       ---------      ---------
Net accounts receivable                                $ 170,562      $ 229,753

Note 3 - Related Party Transactions

The $700,000 of notes  described in (b) and (c) in Note 4 and Note 8 are 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 March 31, 1998
and December 31, 1997:

                                                          1998            1997
                                                          ----            ----
Note payable to a bank (a)                              $ 94,066        $ 88,990
Promissory notes payable (b)                             410,000         200,000
Convertible notes payable (c)                            300,000         300,000
Capital lease (d)                                          8,653           9,780
                                                        --------        --------
            Total                                        812,719         598,770

Less, current installments                                46,121          36,121
                                                        --------        --------

Notes and capital lease payable,
    Less current installments                           $766,598        $562,649


(a) Principal of $33,333 matures in 1998;  $30,557 in 1999.  Interest accrues at
prime plus 1.5%.
(b) $400,000 of principal matures on January 1, 1999. Interest accrues at 9.12%.
(c) 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.
(d) Lease payments are $3,812 for each year through December 31, 2000.  Interest
accrues at 12% per annum.


                                       9
<PAGE>

                                    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 quarter
ended March 31, 1998 and 1997 (in 000's):
                                                      1998                 1997
                                                      ----                 ----
Sales:
Retail                                            $  519,618          $  745,061
Promotional Products                                 698,278             345,932
OEM and Industrial                                    98,162              98,390
                                                  ----------          ----------
       Total                                      $1,313,058          $1,189,383

Note 6 - Commitments and Contingencies

In  August  1993,  LBU-Delaware  entered  into  employment  agreements  with the
President  and  principal  shareholder  and his wife,  who is an  officer of the
Company.  These agreements  provided for payments of approximately  $148,999 per
year,  escalating  to  approximately  $163,000 per year in 1996.  The  Company's
executive   officers   currently  do  not  have  employment  or  non-competition
agreements.

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
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.


                                       10
<PAGE>

                                    LBU, Inc.
                    Notes to Financial Statements, continued
                                   (unaudited)

Discovery in connection  with the Wolverton  litigation is proceeding.  Although
management  of the Company  believes the claims made against it in the foregoing
lawsuits  are without  merit,  no  evaluation  of the  potential  likelihood  of
outcomes  can be made at this time and the Company  has not made any  provisions
for losses in its financial statements. The Company intends to vigorously pursue
its litigation and defend itself in these 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.


                                       11
<PAGE>

                                    LBU, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations

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.

The  following  is a  discussion  of the  financial  condition  and  results  of
operations  of the Company for the three months ended March 31, 1998 as compared
to the same  period in the  previous  year.  This  discussion  should be read in
conjunction  with the  Financial  Statements  of the Company  and related  Notes
included elsewhere in this Form 10-QSB.

Results of Operations

Three months ended March 31, 1998 versus three months ended March 31, 1997

The Company's net sales  increased by $138,175 or 11.3% from $ 1,189,382 for the
three  months  ended March 31, 1997 to $ 1,313,057  for the three  months  ended
March 31, 1998 due, primarily,  to internal growth in the Company's Prtomotional
Industry segment,  which increased sales by $ 352,886 or 102% from $ 345,932 for
the three  months  ended March 31, 1997 to $ 698,278 for the three  months ended
March 31, 1998.


                                       12
<PAGE>

                                    LBU, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                             Operations, continued

Costs of goods sold  increased  by $ 139,859  from $ 747,079 or 62% of net sales
for the three  months  ended March 31, 1997 to $ 886,939 or 67% of net sales for
the three months ended March 31, 1998.  This increase is primarily  attributable
to an increase in the costs of materials  consumed in production.  Manufacturing
labor  and  subcontractor  costs,  which  include  sewing,  cutting,   printing,
packaging  and shipping also  increased  during the three months ended March 31,
1998.

As a result of the foregoing,  gross profit decreased by $ 16,184 from $ 442,303
for the three  months  ended March 31,  1997 to $ 426,119  for the three  months
ended March 31, 1998.

Shipping and selling  costs  increased by $ 34,525 from  $145,806 or 12 % of net
sales for the three months ended March 31, 1997 to $ 180,331 or 14% of net sales
for  the  three  months  ended  March  31,  1998.  This  increase  is  primarily
attributable to advertising  and travel  expenses,  which  increased  during the
three months ended March 31, 1998.

General and administrative  expenses increased by $ 71,944 from $ 217,230 or 18%
for the three  months  ended  March 31,  1997 to $ 289,174  or 22% for the three
months ended March 31, 1998. This increase  relates  primarily to an increase in
professional fees incurred in connection with litigation to which the Company is
party.  Office  salaries and expenses,  which comprise the majority of this line
item, also increased during the three months ended March 31, 1998.

Factor fees and interest  increased by $ 17,962 from $ 31,357 or 2% of sales for
the three  months  ended March 31, 1997 to $ 49,319 or 3% of sales for the three
months ended March 31, 1998.  This  increase is the result of interest on higher
advance amounts,  factor fees and wire transfer  expenses in connection with the
Company's increased sales levels.

As a result of the foregoing,  total operating  expenses  increased by $ 124,431
from $ 394,393 or 33% for the three  months ended March 31, 1997 to $ 518,824 or
39% for the three months ended March 31, 1998.


                                       13
<PAGE>

                                    LBU, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                             Operations, continued

Liquidity and Capital Resources

The  Company's  cash  position  as of March 31, 1998 and  December  31, 1997 was
$(38,505) and $ 202,204, respectively, of which $ 105,955 was restricted and not
available for general corporate purposes.  Net cash used in operating activities
for the  three  months  ended  March  31,1998  and  1997 was $  (323,622)  and $
(223,337),  respectively,  representing  a decrease  of $ 100,285  in 1998.  The
decrease was  primarily due to the  operating  loss incurred by the Company,  an
increase in  inventory  levels and  reductions  in accounts  payable and accrued
liabilities.  The increase in inventory relates primarily to raw materials.  The
reduction  in  accounts  payable  relates   primarily  to  the  satisfaction  of
obligations  relating to the fourth quarter of 1998 when the Company operated at
significantly higher production levels.

During the three months ended March 31, 1998, cash used in investing  activities
totaled  $25,081,   which  consists   primarily  of  capital   expenditures  for
manufacturing equipment in the Company's Carlstadt facility.

During the three months ended March 31,  1998,  net cash  generated by financing
activities  totaled $213,949 which includes $210,000 of proceeds from borrowings
during the quarter.

Currently,  LBU's primary  source of financing is the CIT Group  ("CIT"),  which
provides factoring and accounts receivable  financing.  The Company pays a 1.25%
factor  charge  on its  invoices  for  the  guarantee  of  payment  on  eligible
receivables which CIT then collects from the Company's  customers.  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.  The Company pays 2% above
the  prime-lending  rate on  borrowings  up to 85% of an  invoice  amount and on
inventory  advances.  These  facilities  are secured by the  Company's  accounts
receivable and inventory and certain other assets and by the personal guarantees
of the Company's current executive officers.

During 1997, the Company received an equity investment in the amount of $375,000
from a sale of Common Stock to JPHC and $500,000 in debt financing,  $300,000 of
which is  convertible  into Common Stock of the  Company,  from the same entity.
During the first quarter of 1998,  JPHC provided the Company with and 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.  On
March 31, 1998, the Company had total  indebtedness of  approximately  $800,000,
substantially  all of which is in the form of  promissory  notes payable to JPHC
(the "Notes").


                                       14
<PAGE>

                                    LBU, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                             Operations, continued

The  Notes  were due on April 1,  1998,  however,  JPHC  agreed  not to  require
repayment  before  January 1, 1999.  The  Company's  will attempt to negotiate a
restructuring  of the Notes which would  include a further  extension of the due
dates of the Notes during 1998.  However,  there can be no assurances  that such
negotiations  will be  successful.  In the event that due dates of the Notes are
not  deferred  beyond  January  1,  1999 and the  Company  is  unable  to obtain
alternative financing,  the Company does not believe that it can repay the Notes
at that  time,  which  would  have a material  adverse  effect on the  Company's
business.

During 1997 and for the three  months ended March 31, 1998,  the  Company's  net
loss and changes in its working  capital  utilized  approximately  $712,000  and
$324,000 in working capital,  respectively. The Company's ability to satisfy its
financial  obligations under outstanding  indebtedness will depend on its future
operating  performance,  which is subject  to  prevailing  economic  conditions,
levels of interest  rates and  financial,  business and other  factors,  many of
which are beyond the Company's control.  Although the Company currently believes
that its cash flow during 1998 will be sufficient to meet the Company's  working
capital and capital expenditure requirements,  debt service (on borrowings other
than the Notes) and interest on the Notes,  there can be no assurances that this
will be the case or that  JPHC  will  agree to  restructure  the  Notes or allow
additional deferrals of the due dates of all or a portion of the Notes.

The Company  generated an operating  loss in 1997 and for the three months ended
March 31, 1998 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
1997  operating  loss  relates to a single  order which was  shipped  during the
fourth quarter and that 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.  There can be no assurances that the Company will
be able to operate  profitably,  improve gross margins or cash flows or increase
liquidity during 1998 and beyond.  In the event that the Company is unsuccessful
in its efforts to raise  additional  capital 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.

Since its inception,  the Company has required  significant  capital to fund its
operations  and growth.  During  1998,  the Company  intends to seek  additional
financing  through  the  issuance  of  debt,  equity,   other  securities  or  a
contribution  thereof.  Although there can be no assurances  that any additional
capital will be raised, any such financing which involves the issuance of equity
securities would result in dilution to existing shareholders and the issuance of
debt  securities  would subject the Company to the risks  associated  therewith,
including  the risks that interest  rates may  fluctuate and the Company's  cash
flows may be insufficient to pay interest and principal on such indebtedness.


                                       15
<PAGE>

                                    LBU, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                             Operations, continued

The Company  currently has no commitments to obtain  additional  funds from CIT,
JPHC or any other  financing  source  and there  can be no  assurances  that the
Company  will be  able  to  obtain  additional  financing  on  terms  which  are
acceptable to it. The inability of the Company to obtain  additional  acceptable
financing would have a significant negative impact on the Company's operations.

Inflation

Inflation  affects  the cost of goods  and  services  used by the  Company.  The
competitive  environment  somewhat  limits the ability of the Company to recover
higher costs by raising prices,  although the Company does selectively  increase
prices for  certain  products.  Moreover,  the  Company's  products  are sold to
distributors  based on catalog and product  sheet  prices,  which are  published
annually. As such, the Company generally is not able to raise prices until a new
catalog is published.  The Company  attempts to mitigate the adverse  effects of
future inflation through selective prices increases,  improved  productivity and
cost containment efforts.

New Financial Standards

In June 1997,  the FASB issued SFAS No. 131.  "Disclosures  about Segments of an
Enterprise  and Related  Information."  SFAS 131  established  standards for the
reporting of financial information from operating segments in annual and interim
financial  statements.  This  statement  requires  that for  evaluating  segment
performance  and  deciding how to allocate  resources to segments.  Because this
statement  addresses  how  supplemental  financial  information  is disclosed in
annual and interim  reports,  the adoption  will have no material  impact on the
Company's financial statements. SFAS No. 131 will become effective in 1999.


                                       16
<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 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  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
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.

Discovery in connection  with the Wolverton  litigation is proceeding.  Although
management  of the Company  believes the claims made against it in the foregoing
lawsuits  are without  merit,  no  evaluation  of the  potential  likelihood  of
outcomes  can be made at this time and the Company  has not made any  provisions
for losses in its financial statements. The Company intends to vigorously pursue
its litigation and defend itself in these matters.

The Company is involved in  litigation  from time to time which is incidental to
the conduct of its business.


                                       17
<PAGE>

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.*
      3.1   Articles of Incorporation of LBU, Inc. dated September 2, 1994. #
      3.2   By-laws of LBU, Inc. dated October 4, 1994. #
      4.1   Form of two-year stock purchase warrant.**
      4.2   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. +
      21.1  List of Subsidiaries
            Subsidiary                State of Incorporation
            ----------                ----------------------
            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.

      #     Filed as an Exhibit to the New Century Media, Ltd. Form 10-Q for the
            quarter ended September 30, 1994 dated November 8, 1994.


                                       18
<PAGE>

Item 6. Exhibits and Reports on Form 8-K, continued

      +     Filed as an Exhibit to the Company's Form 10-KSB for the year ended
            December 31, 1997.
      **    Filed herewith

(b) Reports on Form 8-K

      The Company did not file any reports on Form 8-K during the quarter ended
      March 31, 1998.


                                       19
<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: May 15, 1998

                                    LBU, INC.

                                    By: /s/ Jeffrey Mayer
                                    ----------------------
                                    Jeffrey Mayer
                                    Chairman of the Board
                                    Chief Executive Officer, President
                                    (principal executive officer)
                                    Director

                                    /s/ Isel Pineda-Mayer
                                    ----------------------- 
                                    Isel Pineda-Mayer
                                    Treasurer, Secretary
                                    (principal financial and
                                     accounting officer)
                                     Director