UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR
15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the month of October 2017
Commission File Number: 000-19884
LEADING BRANDS, INC.
(Registrant)
33 West 8th Avenue Unit
101,
Vancouver, British Columbia V5Y 1M8 Canada
(Address of Principal Executive Offices)
(Indicate by check mark whether the Registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F [X] Form 40-F [ ]
(Indicate by check mark whether the Registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)
Yes [ ] No [X]
(If Yes is marked, indicate below the file number assigned to the Registrant in connection with Rule 12g3-2(b).)
Attached hereto and incorporated by way of reference herein is the following exhibit:
SUBMITTED HEREWITH
Exhibits
This Report on Form 6-K is incorporated by reference into the registration statement on Form F-3, File No. 333-146271, and into the prospectus that forms a part of that registration statement, and to be a part thereof from the date on which this Report is submitted, to the extent not superseded by documents or reports subsequently filed or furnished.
This Form 6-K is hereby filed and incorporated by reference into the registrants Registration Statements on Form S-8 (File Nos. 333-175241 and 333-101555).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LEADING BRANDS, INC. | |
(Registrant) |
Date October 16, 2017 | By | Marilyn Kerzner |
(Signature) | ||
Marilyn Kerzner | ||
Director of Corporate Affairs |
FOR IMMEDIATE RELEASE
CONTACT:
Leading Brands, Inc.
Tel: (604) 685-5200
Email: info@LBIX.com
LEADING BRANDS, INC. ANNOUNCES Q2 RESULTS
Vancouver, Canada, October 16, 2017, Leading Brands, Inc. (NASDAQ: LBIX), announces results for its second quarter of fiscal 2017, which ended August 31, 2017. All financial amounts are denominated in Canadian dollars, with all financial figures rounded to the nearest $000.
The Companys net loss from continuing operations for Q2 was $710,000 (or $0.25 per share) versus a net loss of $949,000 (or $0.33 per share) in Q2 of the prior year. Gross revenue for continuing operations for Q2 2017 was $510,000, versus $568,000 in the comparable period of last year.
Discounts, rebates and slotting fees were $156,000 in Q2 2017, a decrease of $27,000 compared to the same period of the prior year. Selling, General and Administrative Expenses (SG&A) were $713,000 in Q2 of fiscal 2017, versus $818,000 in Q2 of the previous year.
Gross profit margin for the quarter was 0.7%, up from (9.1%) in the same quarter last year.
On September 18, 2017 the Company announced that it had entered into a Definitive Arrangement Agreement with Liquid Media Group, Inc. (Liquid) of Vancouver, Canada whereby LBIX will acquire 100% of Liquid pursuant to a plan of arrangement. Existing LBIX shareholders are anticipated to hold 22.637% and Liquid Shareholders are anticipated to hold 77.363% of the post-transaction entity. For these purposes, existing LBIX shares were valued at $1.50 US.
Liquid is aggregating mature production service studios and creating a vertically integrated studio system for producing film, television and gaming content from inspiration to distribution. Liquid is headquartered in Vancouver, Canada where it is establishing its studio footprint and production hub. Liquid also has satellite offices in both New York and Los Angeles.
Liquid is led by its Chairman, Joshua Jackson, currently a star of the Showtime series The Affair. Krysanne Katsoolis is Liquids CEO, Charles Brezer, Liquids CSO and Daniel Cruz is Liquids CFO. More detailed information on Liquid and its management team may be found at the companys website: www.LiquidMediaGroup.co.
The Company anticipates that the transaction will close within 90 days of September 18, subject to all necessary approvals, including shareholder approval. At that time, the existing LBIX board, with the exception of Tom Gaglardi, will resign and be replaced by Messrs. Jackson, Brezer and Cruz and Ms. Katsoolis. Those individuals will continue their current roles as officers of LBIX.
Company Chairman & CEO Ralph McRae said: We are pleased to have reached an agreement with Liquid and its management. In addition to their impressive content, experience and connections the principals have proven a vision to aggregate the key components necessary to produce World-class entertainment product. We look forward to working with them to see this transaction through to a successful conclusion as soon as practicable.
Liquid Chairman Joshua Jackson said: Vancouver has long been an industry hub, with world class talent and production services at every level. We are excited to be able to harness all of that ability to produce world class content.
Liquid CEO Krysanne Katsoolis added: The demand for content is unprecedented and the opportunity to change the landscape in the media business is exciting. We sincerely wish to thank Ralph McRae and the Board of Leading Brands for their confidence in Liquid.
To clear the way for this transaction the Company recently disposed of its legacy beverage assets. Financial terms were not disclosed.
Non-GAAP Net Income (Loss) before SBC is determined as follows:
Q2 2017 | Q2 2016 | YTD 2017 | YTD 2016 | |||||||||
Net Income (Loss) from continuing operations | $ | (710,000 | ) | $ | (949,000 | ) | $ | (1,488,000 | ) | $ | (1,499,000 | ) |
Add Back SBC | - | - | - | - | ||||||||
Net income (loss) before SBC | $ | (710,000 | ) | $ | (949,000 | ) | $ | (1,488,000 | ) | $ | (1,499,000 | ) |
Non-GAAP Net Income (Loss) per share before SBC is determined as follows:
Q2 2017 | Q2 2016 | YTD 2017 | YTD 2016 | |||||||||
Net Income (Loss) from continuing operations | $ | (0.25 | ) | $ | (0.33 | ) | $ | (0.53 | ) | $ | (0.52 | ) |
Add Back SBC | - | - | - | - | ||||||||
Net income (loss) before SBC | $ | (0.25 | ) | $ | (0.33 | ) | $ | (0.53 | ) | $ | (0.52 | ) |
Pro-forma results for EBITDAS, as defined below, are determined as follows:
Q2 2017 | Q2 2016 | YTD 2017 | YTD 2016 | |||||||||
Net Income (Loss) from continuing operations | $ | (710,000 | ) | $ | (949,000 | ) | $ | (1,488,000 | ) | $ | (1,499,000 | ) |
Add Back: | ||||||||||||
Interest, net | (7,000 | ) | - | (17,000 | ) | - | ||||||
Depreciation and amortization | 32,000 | 58,000 | 63,000 | 113,000 | ||||||||
Non-cash stock based compensation | - | - | - | - | ||||||||
Non-cash income tax expense | - | - | - | - | ||||||||
Total Add Backs | 25,000 | 58,000 | 46,000 | 113,000 | ||||||||
EBITDAS | $ | (685,000 | ) | $ | (891,000 | ) | $ | (1,442,000 | ) | $ | (1,386,000 | ) |
EBITDAS per share reconciles to earnings per share as follows:
Q2 2017 | Q2 2016 | YTD 2017 | YTD 2016 | |||||||||
Net Income (Loss) from continuing operations | $ | (0.25 | ) | $ | (0.33 | ) | $ | (0.53 | ) | $ | (0.52 | ) |
Add Back: | ||||||||||||
Interest, net | - | - | (0.01 | ) | - | |||||||
Depreciation and amortization | 0.01 | 0.02 | 0.02 | 0.04 | ||||||||
Non-cash stock based compensation | - | - | - | - | ||||||||
Non-cash income tax expense | - | - | - | - | ||||||||
Total Add Backs | 0.01 | 0.02 | 0.01 | 0.04 | ||||||||
EBITDAS | $ | (0.24 | ) | $ | (0.31 | ) | $ | (0.52 | ) | $ | (0.48 | ) |
As at August 31, 2017 the Company had 2,802,412 outstanding common shares.
About Leading Brands, Inc.
Leading Brands,
Inc. (NASDAQ:LBIX) and its subsidiaries are involved in the development,
marketing, and distribution of the Companys branded beverage products.
Non-GAAP Measures
Any non-GAAP financial measures
referenced in this release do not have any standardized meaning prescribed by
GAAP and are therefore unlikely to be comparable to similar measures presented
by other issuers.
EBITDAS is a non-GAAP financial measure. EBITDAS is defined as net income (loss) before income taxes, interest expense, depreciation and amortization and stock-based compensation. EBITDAS should not be construed as a substitute for net income (as determined in accordance with GAAP) for the purpose of analyzing operating performance, as EBITDAS is not defined by GAAP. However, the Company regards EBITDAS as a complement to net income and income before taxes.
Forward Looking Statements
Certain information
contained in this press release includes forward-looking statements. Words such
as believe, expect, will, or comparable terms, are intended to identify
forward-looking statements concerning the Companys expectations, beliefs,
intentions, plans, objectives, future events or performance and other
developments. All forward-looking statements included in this press release are
based on information available to the Company on the date hereof. Such
statements speak only as of the date hereof. Important factors that could cause
actual results to differ materially from the Companys estimations and
projections are disclosed in the Companys securities filings and include, but
are not limited to, the following: general economic conditions, weather
conditions, changing beverage consumption trends, pricing, availability of raw
materials, economic uncertainties (including currency exchange rates),
government regulation, managing and maintaining growth, the effect of adverse
publicity, litigation, competition and other risk factors described from time to
time in securities reports filed by Leading Brands, Inc. For all such
forward-looking statements, we claim the safe harbor for forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995.
©2017 Leading Brands, Inc.
# # #
(table follows)
LEADING BRANDS, INC.
CONDENSED CONSOLIDATED
INTERIM STATEMENT OF INCOME (LOSS)
(UNAUDITED)
(EXPRESSED IN
CANADIAN DOLLARS)
Three months ended | Six months ended | |||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | |||||||||
Gross Revenue | $ | 509,901 | $ | 568,118 | $ | 949,145 | $ | 994,671 | ||||
Less: Discount, rebates and slotting fees | (156,441 | ) | (182,746 | ) | (250,052 | ) | (330,330 | ) | ||||
Net Revenue | 353,460 | 385,372 | 699,093 | 664,341 | ||||||||
Cost of sales | 350,835 | 420,251 | 704,967 | 742,811 | ||||||||
Operations, selling, general & administration expenses | 713,281 | 818,319 | 1,461,689 | 1,600,953 | ||||||||
Depreciation of property, plant and equipment | 31,735 | 57,516 | 63,351 | 113,454 | ||||||||
Interest, net | (7,166 | ) | - | (16,543 | ) | - | ||||||
Change in fair value of derivative liability | ||||||||||||
(25,661 | ) | 38,715 | (27,868 | ) | 12,673 | |||||||
Gain on disposal of assets | - | - | 1,065 | (306,774 | ) | |||||||
1,063,024 | 1,334,801 | 2,186,661 | 2,163,118 | |||||||||
Net income (loss) before taxes from continuing operations | (709,564 | ) | (949,429 | ) | (1,487,568 | ) | (1,498,777 | ) | ||||
Income tax expense | - | - | - | - | ||||||||
Net income (loss) from continuing operations | (709,564 | ) | (949,429 | ) | (1,487,568 | ) | (1,498,777 | ) | ||||
Net income (loss) from discontinued operations | $ | (22,162 | ) | $ | 801,505 | $ | (76,936 | ) | $ | 1,645,728 | ||
Net income (loss) | $ | (731,726 | ) | $ | (147,924 | ) | $ | (1,564,504 | ) | $ | 146,951 | |
Basic earnings (loss) per common share | ||||||||||||
Continuing operations | $ | (0.25 | ) | $ | (0.33 | ) | $ | (0.53 | ) | $ | (0.52 | ) |
Discontinued operations | (0.01 | ) | 0.28 | (0.03 | ) | 0.57 | ||||||
Net basic earnings (loss) per common share | $ | (0.26 | ) | $ | (0.05 | ) | $ | (0.56 | ) | $ | 0.05 | |
Diluted earnings (loss) per common share | ||||||||||||
Continuing operations | $ | (0.25 | ) | $ | (0.33 | ) | $ | (0.53 | ) | $ | (0.52 | ) |
Discontinued operations | (0.01 | ) | 0.28 | (0.03 | ) | 0.57 | ||||||
Net diluted earnings (loss) per common share | $ | (0.26 | ) | $ | (0.05 | ) | $ | (0.56 | ) | $ | 0.05 | |
Weighted average common shares outstanding | ||||||||||||
Basic | 2,802,412 | 2,817,471 | 2,802,412 | 2,838,584 | ||||||||
Diluted | 2,802,412 | 2,817,471 | 2,802,412 | 2,838,584 |
Second Quarter Report
Period Ended August 31, 2017
Contents
Note: The financial statements accompanying this report have not been audited or reviewed by the Company's auditors.
2
LEADING BRANDS, INC.
SECOND QUARTER ENDED AUGUST 31, 2017
(Expressed in Canadian dollars)
To our Shareholders:
The Companys net loss from continuing operations for Q2 was $710,000 (or $0.25 per share) versus a net loss of $949,000 (or $0.33 per share) in Q2 of the prior year.
Gross revenue for continuing operations for Q2 2017 was $510,000, versus $568,000 in the comparable period of last year.
Discounts, rebates and slotting fees were $156,000 in Q2 2017, a decrease of $27,000 compared to the same period of the prior year. Selling, General and Administrative Expenses (SG&A) were $713,000 in Q2 of fiscal 2017, versus $818,000 in Q2 of the previous year.
Gross profit margin for the quarter was 0.7%, up from (9.1%) in the same quarter last year.
On September 18, 2017 the Company announced that it had entered into a Definitive Arrangement Agreement with Liquid Media Group, Inc. (Liquid) of Vancouver, Canada whereby LBIX will acquire 100% of Liquid pursuant to a plan of arrangement. Existing LBIX shareholders are anticipated to hold 22.637% and Liquid Shareholders are anticipated to hold 77.363% of the post-transaction entity. For these purposes, existing LBIX shares were valued at $1.50 US.
Liquid is aggregating mature production service studios and creating a vertically integrated studio system for producing film, television and gaming content from inspiration to distribution. Liquid is headquartered in Vancouver, Canada where it is establishing its studio footprint and production hub. Liquid also has satellite offices in both New York and Los Angeles.
Liquid is led by its Chairman, Joshua Jackson, currently a star of the Showtime series The Affair. Krysanne Katsoolis is Liquids CEO, Charles Brezer, Liquids CSO and Daniel Cruz is Liquids CFO. More detailed information on Liquid and its management team may be found at the companys website: www.LiquidMediaGroup.co.
The Company anticipates that the transaction will close within 90 days of September 18, subject to all necessary approvals, including shareholder approval. At that time, the existing LBIX board, with the exception of Tom Gaglardi, will resign and be replaced by Messrs. Jackson, Brezer and Cruz and Ms. Katsoolis. Those individuals will continue their current roles as officers of LBIX.
Company Chairman & CEO Ralph McRae said: We are pleased to have reached an agreement with Liquid and its management. In addition to their impressive content, experience and connections the principals have proven a vision to aggregate the key components necessary to produce World-class entertainment product. We look forward to working with them to see this transaction through to a successful conclusion as soon as practicable.
Liquid Chairman Joshua Jackson said: Vancouver has long been an industry hub, with world class talent and production services at every level. We are excited to be able to harness all of that ability to produce world class content.
Liquid CEO Krysanne Katsoolis added: The demand for content is unprecedented and the opportunity to change the landscape in the media business is exciting. We sincerely wish to thank Ralph McRae and the Board of Leading Brands for their confidence in Liquid.
3
To clear the way for this transaction the Company recently disposed of its legacy beverage assets. Financial terms were not disclosed.
Non-GAAP Net Income (Loss) before SBC is determined as follows:
Q2 2017 | Q2 2016 | YTD 2017 | YTD 2016 | |||||||||
Net Income (Loss) from continuing operations | $ | (710,000 | ) | $ | (949,000 | ) | $ | (1,488,000 | ) | $ | (1,499,000 | ) |
Add Back SBC | - | - | - | - | ||||||||
Net income (loss) before SBC | $ | (710,000 | ) | $ | (949,000 | ) | $ | (1,488,000 | ) | $ | (1,499,000 | ) |
Non-GAAP Net Income (Loss) per share before SBC is determined as follows:
Q2 2017 | Q2 2016 | YTD 2017 | YTD 2016 | |||||||||
Net Income (Loss) from continuing operations | $ | (0.25 | ) | $ | (0.33 | ) | $ | (0.53 | ) | $ | (0.52 | ) |
Add Back SBC | - | - | - | - | ||||||||
Net income (loss) before SBC | $ | (0.25 | ) | $ | (0.33 | ) | $ | (0.53 | ) | $ | (0.52 | ) |
Pro-forma results for EBITDAS, as defined below, are determined as follows:
Q2 2017 | Q2 2016 | YTD 2017 | YTD 2016 | |||||||||
Net Income (Loss) from continuing operations | $ | (710,000 | ) | $ | (949,000 | ) | $ | (1,488,000 | ) | $ | (1,499,000 | ) |
Add Back: | ||||||||||||
Interest, net | (7,000 | ) | - | (17,000 | ) | - | ||||||
Depreciation and amortization | 32,000 | 58,000 | 63,000 | 113,000 | ||||||||
Non-cash stock based compensation | - | - | - | - | ||||||||
Non-cash income tax expense | - | - | - | - | ||||||||
Total Add Backs | 25,000 | 58,000 | 46,000 | 113,000 | ||||||||
EBITDAS | $ | (685,000 | ) | $ | (891,000 | ) | $ | (1,442,000 | ) | $ | (1,386,000 | ) |
EBITDAS per share reconciles to earnings per share as follows:
Q2 2017 | Q2 2016 | YTD 2017 | YTD 2016 | |||||||||
Net Income (Loss) from continuing operations | $ | (0.25 | ) | $ | (0.33 | ) | $ | (0.53 | ) | $ | (0.52 | ) |
Add Back: | ||||||||||||
Interest, net | - | - | (0.01 | ) | - | |||||||
Depreciation and amortization | 0.01 | 0.02 | 0.02 | 0.04 | ||||||||
Non-cash stock based compensation | - | - | - | - | ||||||||
Non-cash income tax expense | - | - | - | - | ||||||||
Total Add Backs | 0.01 | 0.02 | 0.01 | 0.04 | ||||||||
EBITDAS | $ | (0.24 | ) | $ | (0.31 | ) | $ | (0.52 | ) | $ | (0.48 | ) |
As at August 31, 2017 the Company had 2,802,412 outstanding common shares.
4
Ralph McRae
Ralph D. McRae
Chairman & CEO
Safe Harbor for Forward-Looking Statements
This report includes forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements which are not historical facts, are forward-looking statements. The Company, through its management, makes forward-looking public statements concerning its expected future operations, performance and other developments. The words believe, intend, expect, anticipate, project, estimate, predict and similar expressions are also intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and are subject to a wide range of known and unknown risks and uncertainties and although the Company believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will be realized. Forward-looking statements relate to, among other things:
| business objectives, goals and strategic plans; |
| operating strategies; |
| expected future revenues, earnings and margins; |
| anticipated operating, selling and general and administrative costs; |
| availability of raw materials, including water, sugar, cardboard and closures and flavoring; |
| effects of seasonality on demand for our products; |
| anticipated exchange rates, fluctuations in exchange rates and effects of exchange rates on our cost of goods sold; |
| anticipated contribution to earnings in the current year from investment in new product development; |
|
our expectation that we will have adequate cash from operations and credit facility borrowings to meet all future debt service, capital expenditure and working capital requirements in fiscal year 2017; |
| anticipated capital expenditures; and |
| anticipated increased sales volumes with certain product lines; |
Such forward-looking statements are necessarily estimates reflecting the Company's best judgment based upon current information and involve a number of risks and uncertainties, and there can be no assurance that other factors will not affect the accuracy of such forward-looking statements. It is impossible to identify all such factors. Factors which could cause actual results to differ materially from those estimated by the Company include, but are not limited to, those listed under Risk Factors, as well as other possible risk factors such as general economic conditions, weather conditions, changing beverage consumption trends, pricing, availability of raw materials, economic uncertainties (including currency exchange rates), government regulation, managing and maintaining growth, the effect of adverse publicity, litigation, competition and other factors which may be identified from time to time in the Company's public announcements. For all such forward-looking statements, we claim the safe harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
5
Managements Discussion & Analysis
For the three and six months ended August 31, 2017
October 10, 2017
The following information should be read in conjunction with Leading Brands, Inc.s (the Company) February 28, 2017 audited consolidated financial statements. These statements, along with the Companys annual report on Form 20-F, are available on SEDAR at www.sedar.com.
The financial statements have been prepared in accordance with United States generally accepted accounting principles (US GAAP).
The Company maintains its financial records in Canadian dollars. In this report, unless otherwise specified, all dollar amounts are expressed in Canadian dollars.
Overview
Leading Brands, Inc. (the Company) and its subsidiaries are involved in the development, production, marketing, and distribution of the Companys branded beverage products.
The Company sells branded beverage products through its Integrated Distribution System (IDS) of distributors, wholesalers, and retail chains. Its principal product lines include premium waters.
Non-GAAP Measures
In addition to GAAP measures, the Company uses the non-GAAP measures Earnings Before Interest, Taxes, Depreciation, Amortization, and Stock Based Compensation (EBITDAS), Net Income Before Stock Based Compensation, Margin, Margin Percentage, and Total Net Working Capital to make strategic decisions and provide investors with a basis to evaluate operating performance. Non-GAAP measures do not have a standardized meaning prescribed by GAAP and may not be comparable to similar measures used by other companies. Included in this report is a table reconciling GAAP Net Income to Net Income Before Stock Based Compensation. In addition, included in other information in this report are tables calculating EBITDAS, Margin, Margin Percentage, and Total Net Working Capital.
Overall Performance
For the quarter ended August 31, 2017, the Company reported gross sales from continuing operations of $509,901 and a net loss from continuing operations of $709,564 as compared to gross sales of $568,118 and a net loss of $949,430 in the corresponding quarter of the prior year.
For the quarter ended August 31, 2017, the Companys margin percentage increased to 0.7% from (9.1%) for the same period in 2016.
Results of Operations
Revenue
Quarter ended | Quarter ended | ||||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Gross Revenue | $ | 509,901 | $ | 568,118 | $ | (58,217 | ) | ||
Discounts, Allowances and Rebates | (156,441 | ) | (182,746 | ) | 26,305 | ||||
Net Revenue | $ | 353,460 | $ | 385,372 | $ | (31,912 | ) |
Gross revenue from continuing operations for the quarter ended August 31, 2017 was $509,901 compared to $568,118 for the same period of the previous year, representing a decrease of $58,217 or 10.0% .
Discounts, rebates and slotting fees from continuing operations for the quarter ended August 31, 2017 decreased by $26,305 compared to the same period of the prior year.
Six months ended | Six months ended | ||||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Gross Revenue | $ | 949,145 | $ | 994,671 | $ | (45,526 | ) | ||
Discounts, Allowances and Rebates | (250,052 | ) | (330,330 | ) | 80,278 | ||||
Net Revenue | $ | 699,093 | $ | 664,341 | $ | 34,752 |
Gross revenue from continuing operations for the six months ended August 31, 2017 was $949,145 compared to $994,671 for the same period of the previous year, representing a decrease of $45,526 or 4.6% .
Discounts, rebates and slotting fees from continuing operations for the six months ended August 31, 2017 decreased by $80,278 compared to the same period of the prior year.
Cost of Sales
Quarter ended | Quarter ended | ||||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Cost of Sales | $ | 350,835 | $ | 420,251 | $ | (69,416 | ) |
Cost of sales from continuing operations for the quarter ended August 31, 2017 were $350,835 compared to $420,251 for the same period of the previous year, representing a decrease of $69,416 or 16.5% .
Six months ended | Six months ended | ||||||||
August 31, 2017 | August 31, 2017 | Change | |||||||
Cost of Sales | $ | 704,967 | $ | 742,811 | $ | (37,844 | ) |
Cost of sales for the six months ended August 31, 2017 were $704,967 compared to $742,811 for the same period of the previous year, representing a decrease of $37,844 or 5.1% .
Margin
Quarter ended | Quarter ended | ||||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Margin | $ | 2,625 | $ | (34,879 | ) | $ | 37,504 | ||
Margin percentage | 0.7% | (9.1% | ) | 9.8% |
Margin from continuing operations for the quarter ended August 31, 2017 was $2,625 compared to ($34,879) for the same quarter of the previous year. The margin percentage of 0.7% for the quarter ended August 31, 2017 represents 9.8% increase from the prior comparative year.
Six months ended | Six months ended | ||||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Margin | $ | (5,874 | ) | $ | (78,470 | ) | $ | 72,596 | |
Margin percentage | (0.8% | ) | (11.8% | ) | 11.0% |
Margin for the six months ended August 31, 2017 was $(5,874) compared to $(78,470) for the same period of the previous year.
7
Selling, General and Administration Expenses
Selling, general and administration expenses in the quarter ended August 31, 2017 decreased by $105,038 or 12.8% from $818,319 in the same quarter of the prior year to $713,281.
Summary of Quarterly Results
August 31 (Q2) | May 31 (Q1) | February 28/29 (Q4) | November 30 (Q3) | |||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2016 | 2015 | |
Net sales / revenue from continuing operations |
$353,460 | $385,372 | $345,633 | $278,969 | $256,277 | $95,099 | $291,911 | $229,539 |
Net loss from continuing operations |
($709,564) | ($949,429) | ($778,004) | ($549,348) | ($727,978) | ($782,712) | ($876,566) | ($759,472) |
Net income (loss) from discontinued operations |
($22,162) | $801,505 | ($54,774) | $844,223 | ($955,067) | $288,039 | ($4,096,489) | $374,418 |
Net income (loss) |
($731,726) | ($147,924) | ($832,778) | $294,875 | ($1,683,585) | ($494,673) | ($4,973,055) | ($385,054) |
Earnings (loss) per share, basic continuing operations |
($0.25) | ($0.33) | ($0.28) | ($0.19) | ($0.26) | ($0.26) | ($0.31) | ($0.26) |
Earnings (loss) per share, basic discontinued operations |
($0.01) | $0.28 | ($0.02) | $0.29 | ($0.34) | $0.09 | ($1.46) | $0.13 |
Earnings (loss) per share, diluted - continuing operations |
($0.25) | ($0.33) | ($0.28) | ($0.19) | ($0.26) | ($0.26) | ($0.31) | ($0.26) |
Earnings (loss) per share, diluted - discontinued operations |
($0.01) | $0.28 | ($0.02) | $0.29 | ($0.34) | $0.09 | ($1.46) | $0.13 |
The Company recognizes stock based compensation expense as a selling, general and administration expense. This non-cash charge relates to options granted to officers, directors and consultants of the Company.
8
Net Income (Loss) before Stock Based Compensation Expense is as follows:
August 31 (Q2) | May 31 (Q1) | February 28/29 (Q4) | November 30 (Q3) | |||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2016 | 2015 | |
Net income (loss) from continuing operations |
($709,564) | ($949,430) | ($778,004) | ($549,348) | ($727,978) | ($782,712) | ($876,566) | ($759,472) |
Stock based compensation |
- | - | - | - | - | - | - | |
Net income (loss) before stock based compensation |
($709,564) | ($949,430) | ($778,004) | ($549,348) | ($727,978) | ($782,712) | ($876,566) | ($759,472) |
Other Information
EBITDAS | Quarter ended | Quarter ended | Six months ended | Six months ended | ||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | |||||||||
Net income (loss) from continuing operations | $ | (709,564 | ) | $ | (949,429 | ) | $ | (1,487,568 | ) | $ | (1,498,777 | ) |
Interest, net | (7,166 | ) | - | (16,543 | ) | - | ||||||
Depreciation and amortization | 31,735 | 57,516 | 63,351 | 113,454 | ||||||||
Stock based compensation expense | - | - | - | - | ||||||||
Income taxes | - | - | - | - | ||||||||
EBITDAS | $ | (684,995 | ) | $ | (891,913 | ) | $ | (1,440,760 | ) | $ | (1,385,323 | ) |
Margin | Quarter ended | Quarter ended | Six months ended | Six months ended | ||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | |||||||||
Net revenue | $ | 353,460 | $ | 385,372 | $ | 699,093 | $ | 664,341 | ||||
Less: cost of sales | 350,835 | 420,251 | 704,967 | 742,811 | ||||||||
Margin | $ | 2,625 | $ | (34,879 | ) | $ | (5,874 | ) | $ | (78,470 | ) | |
Margin % of Net Revenue | 0.7% | (9.1% | ) | (0.8% | ) | (11.8% | ) |
Related Party Transactions
Quarter ended | Quarter ended | Six months ended | Six months ended | ||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | ||||||||||
i) | Incurred marketing consulting services with a company related by a director in common, Ralph McRae | $ | - | $ | - | $ | 2,812 | $ | 1,500 | ||||
ii) | Incurred bottling services from a company related by a director in common, Ralph McRae | 107,385 | 114,209 | 158,983 | 184,954 | ||||||||
iii) | Incurred management service fees with a company related by an officer in common, Dave Read | - | 37,500 | - | 75,000 |
9
Cash flows
Cash provided by (used in): | Quarter ended | Quarter ended | |||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Operating activities | $ | (907,326 | ) | $ | 109,971 | $ | (1,017,297 | ) | |
Investing activities | $ | (14,681 | ) | $ | (79,246 | ) | $ | 64,565 | |
Financing activities | $ | - | $ | (131,915 | ) | $ | 131,915 |
During the quarter, cash generated from operating activities decreased by $1,017,297 compared to the same period of the prior year.
Cash utilized by investing activities is a result of the Company spending $14,681 on intangible assets.
Cash utilized for financing activities was $nil during the quarter.
Cash provided by (used in): | Six months ended | Six months ended | |||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Operating activities | $ | (1,589,787 | ) | $ | 345,036 | $ | (1,934,823 | ) | |
Investing activities | $ | (9,053 | ) | $ | 204,175 | $ | (213,228 | ) | |
Financing activities | $ | - | $ | (139,789 | ) | $ | 139,789 |
For the six months ended August 31, 2017, cash generated from operating activities decreased by $1,934,823 compared to the same period of the prior year.
Cash utilized by investing activities decreased by $213,228 compared to the same period of the prior year.
Cash utilized for financing activities was $nil during this year.
Liquidity and Capital Resources
Net working capital has decreased by 37.9% since the prior year ended February 28, 2017. As at August 31, 2017, the Company has net working capital of $ 2,475,418 ($3,986,232 at February 28, 2017).
Total Net Working Capital | August 31, 2017 | February 28, 2017 | ||||
Total Current Assets | $ | 3,182,225 | $ | 4,891,278 | ||
Less: Total Current Liabilities | (706,807 | ) | (905,046 | ) | ||
Total Net Working Capital | $ | 2,475,418 | $ | 3,986,232 |
Considering the positive net working capital position, including the cash on hand at August 31, 2017, the Company believes that it has sufficient working capital.
Contractual Obligations
The following table presents our contractual obligations as of August 31, 2017:
Payments due by period | |||||
Contractual obligations |
Total |
Less than 1 year |
1-3 years |
4-5 years |
More than 5 years |
Operating lease obligations | $ 704,288 | $ 123,073 | $ 255,275 | $ 260,752 | $ 65,188 |
Purchase obligations | 58,418 | 18,951 | 39,467 | - | - |
Total | $ 762,706 | $ 142,024 | $ 294,742 | $ 260,752 | $ 65,188 |
10
Risks and uncertainties
The types of risks and uncertainties that may affect the Company are included in the February 28, 2017 annual Managements Discussion and Analysis.
Credit Risk
The Companys credit risk is primarily attributable to its accounts receivable. The credit risk related to accounts receivable arises from customers potential inability to meet their obligations as agreed. The accounts receivable are presented on the balance sheet net of a provision for bad debts, which is estimated by the Companys management based on past experience and its assessment of current economic conditions.
As at August 31, 2017 the Company is exposed to credit risk through the following assets:
August 31, 2017 | February 28, 2017 | |||||
Trade receivables | $ | 95,452 | $ | 74,865 | ||
Other receivables | 19,057 | 10,763 | ||||
Allowance for doubtful accounts | - | - | ||||
$ | 114,509 | $ | 85,628 | |||
Any credit risk exposure on cash balances is considered insignificant as the Company holds cash and cash equivalents only in major financial institutions in Canada. On the basis that these financial institutions are believed by Management to be financially sound, relatively minimal credit risk is deemed to exist.
The Companys customers consist mainly of beverage distributors and wholesale and retail grocery suppliers and distributors principally located in North America. During the quarter ended August 31, 2017, the Companys ten largest customers comprised approximately 83% of sales compared with 93% in the last fiscal year ended February 28, 2017. One customer comprised 24% of sales compared with 74% in the last fiscal year. In addition, to cover credit risk, the Company performs ongoing credit evaluations of its customers financial condition and applies rigorous procedures to assess the credit worthiness of new clients. It sets a specific credit limit per client and regularly reviews this limit.
As at August 31, 2017, 100% of the trade receivables are classified as current, or have been provided for.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage as outlined in Note 10 of the interim financial statements. Managing liquidity requires monitoring of projected cash inflows and outflows using forecasts of the Companys financial position to ensure adequate and efficient use of cash resources. The appropriate liquidity level is established based on historical volatility and seasonal requirements, as well as planned investments.
11
Market risk
Currency risk
The Company concludes sales in U.S. dollars to customers in the U.S. The Company also purchases raw materials as well as equipment in U.S. dollars. Consequently, it is exposed to the risk of exchange rate fluctuations with respect to the receivable and payable balances denominated in U.S. Dollars. The Company has not hedged its exposure to currency fluctuations.
A 5% U.S. dollar rise per Canadian dollar would have an unfavourable impact of approximately $1,169 on net earnings for the quarter ended August 31, 2017. A 5% U.S./Canadian dollar decrease would have a positive impact of similar magnitude.
Interest rate risk
As at August 31, 2017, the Company held no debt such that a 1% change in the interest rate would have no impact.
Fair Value of Financial Instruments
The Companys financial instruments measured at fair value on the balance sheet are limited to cash and cash equivalents which are classified as level 1, and a non-employee stock option embedded derivative liability which is classified as level 3. See Note 6 for results of fair valuation of the derivative liability in the period.
Disclosure of Outstanding Share Data
At October 10, 2017, the Company had 2,802,412 issued and outstanding common shares, 694,000 issued and outstanding stock options, all of which were vested.
Disclosure of Controls and Procedures and Internal Control over Financial Reporting
The Chief Executive Officer and the Principal Financial Officer, together with other members of management, have designed the Companys disclosure controls and procedures in order to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries would have been known to them, and by others, within those entities.
Management has also designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with U.S. GAAP. There have been no changes in the Companys internal controls over financial reporting during the period, which would materially affect, or are likely to materially affect, the Companys internal controls.
While the officers of the Company have designed the Companys disclosure controls and procedures and internal controls over financial reporting, they expect that these controls and procedures may not prevent all errors and fraud. A control system, no matter how well conceived or operated, can only provide reasonable, not absolute assurance that the objectives of the control system are met.
12
LEADING BRANDS, INC.
CONDENSED CONSOLIDATED
INTERIM BALANCE SHEET
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
August 31, 2017 | February 28, 2017 | |||||
ASSETS | ||||||
Cash | $ | 2,716,188 | $ | 4,315,028 | ||
Accounts receivable | 114,509 | 85,628 | ||||
Inventory (Note 2) | 276,466 | 361,102 | ||||
Prepaid expenses and deposits (Note 4) | 75,062 | 129,520 | ||||
3,182,225 | 4,891,278 | |||||
Property, plant and equipment (Note 3) | 707,044 | 765,024 | ||||
Intangible assets (Note 5) | 299,806 | 297,189 | ||||
Deferred tax assets | - | - | ||||
Assets attributable to discontinued operations (Note 12) | - | 26,195 | ||||
Total Assets | $ | 4,189,075 | $ | 5,979,686 | ||
LIABILITIES | ||||||
Accounts payable and accrued liabilities | $ | 406,807 | $ | 605,046 | ||
Liabilities attributable to discontinued operations (Note 12) | 300,000 | 300,000 | ||||
Derivative liability - non-employee stock options (Note 6) | 18,484 | 46,352 | ||||
725,291 | 951,398 | |||||
SHAREHOLDERS' EQUITY | ||||||
Share capital (Note 7) | ||||||
Common shares | 31,305,247 | 31,305,247 | ||||
Treasury stock | - | - | ||||
Additional paid-in capital | 19,455,359 | 19,455,359 | ||||
Accumulated
other comprehensive income -
currency translation adjustment |
577,916 | 577,916 | ||||
Accumulated deficit | (47,874,738 | ) | (46,310,234 | ) | ||
3,463,784 | 5,028,288 | |||||
Total Liabilities and Shareholders' Equity | $ | 4,189,075 | $ | 5,979,686 |
The accompanying notes are an integral part of these
consolidated interim financial statements.
These consolidated interim
financial statements have not been audited or reviewed by the Company's
auditors.
13
LEADING BRANDS, INC.
CONDENSED CONSOLIDATED
INTERIM STATEMENT OF INCOME (LOSS)
(UNAUDITED)
(EXPRESSED IN
CANADIAN DOLLARS)
Three months ended | Six months ended | |||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | |||||||||
Gross Revenue | $ | 509,901 | $ | 568,118 | $ | 949,145 | $ | 994,671 | ||||
Less: Discount, rebates and slotting fees | (156,441 | ) | (182,746 | ) | (250,052 | ) | (330,330 | ) | ||||
Net Revenue | 353,460 | 385,372 | 699,093 | 664,341 | ||||||||
Cost of sales | 350,835 | 420,251 | 704,967 | 742,811 | ||||||||
Operations, selling, general & administration expenses | 713,281 | 818,319 | 1,461,689 | 1,600,953 | ||||||||
Depreciation of property, plant and equipment | 31,735 | 57,516 | 63,351 | 113,454 | ||||||||
Interest, net | (7,166 | ) | - | (16,543 | ) | - | ||||||
Change in fair value of derivative liability (Note 6) | (25,661 | ) | 38,715 | (27,868 | ) | 12,673 | ||||||
Gain on disposal of assets | - | - | 1,065 | (306,774 | ) | |||||||
1,063,024 | 1,334,801 | 2,186,661 | 2,163,117 | |||||||||
Net income (loss) before taxes from continuing operations | (709,564 | ) | (949,429 | ) | (1,487,568 | ) | (1,498,776 | ) | ||||
Income tax expense | - | - | - | - | ||||||||
Net income (loss) from continuing operations | (709,564 | ) | (949,429 | ) | (1,487,568 | ) | (1,498,776 | ) | ||||
Net income (loss) from discontinued operations (note 12) | $ | (22,162 | ) | $ | 801,505 | $ | (76,936 | ) | $ | 1,645,727 | ||
Net income (loss) | $ | (731,726 | ) | $ | (147,924 | ) | $ | (1,564,504 | ) | $ | 146,951 | |
Basic earnings (loss) per common share | ||||||||||||
Continuing operations | $ | (0.25 | ) | $ | (0.33 | ) | $ | (0.53 | ) | $ | (0.52 | ) |
Discontinued operations | (0.01 | ) | 0.28 | (0.03 | ) | 0.57 | ||||||
Net basic earnings (loss) per common share | $ | (0.26 | ) | $ | (0.05 | ) | $ | (0.56 | ) | $ | 0.05 | |
Diluted earnings (loss) per common share | ||||||||||||
Continuing operations | $ | (0.25 | ) | $ | (0.33 | ) | $ | (0.53 | ) | $ | (0.52 | ) |
Discontinued operations | (0.01 | ) | 0.28 | (0.03 | ) | 0.57 | ||||||
Net diluted earnings (loss) per common share | $ | (0.26 | ) | $ | (0.05 | ) | $ | (0.56 | ) | $ | 0.05 | |
Weighted average common shares outstanding | ||||||||||||
Basic | 2,802,412 | 2,817,471 | 2,802,412 | 2,838,584 | ||||||||
Diluted | 2,802,412 | 2,817,471 | 2,802,412 | 2,838,584 |
The accompanying notes are an integral part of these
consolidated interim financial statements.
These consolidated interim
financial statements have not been audited or reviewed by the Company's
auditors.
14
LEADING BRANDS, INC.
CONDENSED CONSOLIDATED
INTERIM STATEMENT OF CASH FLOWS
(UNAUDITED)
(EXPRESSED IN
CANADIAN DOLLARS)
Three months ended | Six months ended | |||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | |||||||||
Cash provided by (used in) | ||||||||||||
Operating activities | ||||||||||||
Net loss from continuing operations | $ | ( 709,564 | ) | $ | (949,429 | ) | $ | (1,487,568 | ) | $ | (1,498,777 | ) |
Net income (loss) from discontinued operations | (22,162 | ) | 801,505 | (76,936 | ) | 1,645,728 | ||||||
Net income for the period | (731,726 | ) | (147,924 | ) | (1,564,504 | ) | 146,951 | |||||
Items not involving cash | ||||||||||||
Depreciation of property, plant and equipment | 31,735 | 171,846 | 63,350 | 342,099 | ||||||||
Amortization of leasehold inducement | - | (1,213 | ) | - | (2,425 | ) | ||||||
Loss on disposal of assets | - | - | 1,065 | (306,774 | ) | |||||||
Stock-based compensation | - | - | - | - | ||||||||
Change in derivative liability (Note 6) | (25,661 | ) | 38,715 | (27,868 | ) | 12,673 | ||||||
Change in deferred tax asset | - | (37,337 | ) | - | (10,178 | ) | ||||||
Changes in non-cash operating working capital items | ||||||||||||
Accounts receivable, net | (49,271 | ) | (31,529 | ) | (28,881 | ) | (136,504 | ) | ||||
Inventory, net | (2,022 | ) | 69,051 | 84,637 | 18,253 | |||||||
Prepaid and other assets | 2,326 | 141,089 | 80,653 | 249,393 | ||||||||
Accounts payable | (132,707 | ) | (92,727 | ) | (198,239 | ) | 31,548 | |||||
(907,326 | ) | 109,971 | (1,589,787 | ) | 345,036 | |||||||
Investing activities | ||||||||||||
Purchase of capital assets | - | (10,451 | ) | - | (10,451 | ) | ||||||
Purchase of intangible assets | (14,681 | ) | (68,795 | ) | (20,053 | ) | (92,148 | ) | ||||
Proceeds on sale of capital assets | - | - | 11,000 | 306,774 | ||||||||
(14,681 | ) | (79,246 | ) | (9,053 | ) | 204,175 | ||||||
Financing activities | ||||||||||||
Repurchase of common shares | - | (131,915 | ) | - | (139,789 | ) | ||||||
Issue of common shares | - | - | - | - | ||||||||
Repayment of long-term debt | - | - | - | - | ||||||||
- | (131,915 | ) | - | (139,789 | ) | |||||||
Increase (decrease) in cash | (922,007 | ) | (101,190 | ) | (1,598,840 | ) | 409,422 | |||||
Cash, beginning of period | 3,638,195 | 793,431 | 4,315,028 | 282,819 | ||||||||
Cash, end of period | $ | 2,716,188 | $ | 692,241 | 2,716,188 | $ | 692,241 | |||||
Supplementary disclosure of cash flow information | ||||||||||||
Cash paid (received) during the period | ||||||||||||
Interest received | $ | 7,166 | $ | - | $ | 16,543 | $ | - | ||||
Interest paid | $ | - | $ | - | $ | - | $ | - |
The accompanying notes are an integral part of these
consolidated interim financial statements.
These consolidated interim
financial statements have not been audited or reviewed by the Company's
auditors.
15
LEADING BRANDS, INC.
CONDENSED CONSOLIDATED
INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
Three Months ended | Six Months Ended | |||||||||||||||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | |||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||
Common Stock | ||||||||||||||||||||||||
Beginning of period | 2,802,412 | $ | 31,305,247 | 2,855,947 | $ | 31,903,277 | 2,802,412 | $ | 31,305,247 | 2,859,837 | $ | 31,946,732 | ||||||||||||
Shares issued during the period | - | - | - | - | - | - | - | - | ||||||||||||||||
Shares cancelled during the period | - | - | (53,535 | ) | (775,568 | ) | - | - | (57,425 | ) | (819,023 | ) | ||||||||||||
2,802,412 | $ | 31,305,247 | 2,802,412 | $ | 31,127,709 | 2,802,412 | $ | 31,305,247 | 2,802,412 | $ | 31,127,709 | |||||||||||||
Treasury Stock | ||||||||||||||||||||||||
Beginning of period | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Shares issued during the period | - | (775,568 | ) | - | (819,023 | ) | ||||||||||||||||||
Shares cancelled during the period | - | 775,568 | - | 819,023 | ||||||||||||||||||||
$ | - | $ | - | $ | - | $ | - | |||||||||||||||||
Additional Paid-In Capital | ||||||||||||||||||||||||
Beginning of period | $ | 19,455,359 | $ | 18,989,244 | $ | 19,455,359 | $ | 18,953,663 | ||||||||||||||||
Shares cancelled during the period | - | 643,653 | - | 679,234 | ||||||||||||||||||||
Stock based compensation on issued options | - | - | - | - | ||||||||||||||||||||
Exercise of stock options | - | - | - | - | ||||||||||||||||||||
$ | 19,455,359 | $ | 19,632,897 | $ | 19,455,359 | $ | 19,632,897 | |||||||||||||||||
Accumulated Other Comprehensive Income | ||||||||||||||||||||||||
Beginning of period | $ | 577,916 | $ | 577,916 | $ | 577,916 | $ | 577,916 | ||||||||||||||||
Foreign exchange translation adjustment | - | - | - | - | ||||||||||||||||||||
$ | 577,916 | $ | 577,916 | $ | 577,916 | $ | 577,916 | |||||||||||||||||
Accumulated Deficit | ||||||||||||||||||||||||
Beginning of period | $ | (47,143,012 | ) | $ | (39,505,670 | ) | $ | (46,310,234 | ) | $ | (39,800,545 | ) | ||||||||||||
Net income (loss) | (731,726 | ) | (147,924 | ) | (1,564,504 | ) | 146,951 | |||||||||||||||||
$ | (47,874,738 | ) | $ | (39,653,594 | ) | $ | (47,874,738 | ) | $ | (39,653,594 | ) | |||||||||||||
Total Shareholders Equity | $ | 3,463,784 | $ | 11,684,928 | $ | 3,463,784 | $ | 11,684,928 |
The accompanying notes are an integral part of these
consolidated interim financial statements.
These consolidated interim
financial statements have not been audited or reviewed by the Company's
auditor.
LEADING BRANDS, INC.
Notes to Consolidated
Interim Financial Statements
For the three and six months ended August
31, 2017
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Leading Brands, Inc. (the
Company) and its subsidiaries are involved in the development, marketing, and
distribution of the Companys branded beverage products.
Basis of Presentation
The accompanying unaudited
consolidated interim financial statements have been prepared in accordance with
United States generally accepted accounting principles (U.S. GAAP) without
audit or review by the companys auditors.
These consolidated interim financial statements do not include all the disclosures required under U.S. GAAP and should be read in conjunction with the Companys audited consolidated financial statements for the year ended February 28, 2017.
Interim Financial Reporting
These unaudited
consolidated interim financial statements follow the same accounting policies
and methods of their application as the figures presented in the audited
financial statements for the year ended February 28, 2017. Results of operations
for interim periods are not necessarily indicative of the results to be expected
in future periods or annual results. The Companys financial results are
impacted by seasonal factors with stronger sales occurring in the warmer months.
2. INVENTORY
August 31, 2017 | February 28, 2017 | |||||
Finished goods | $ | 167,524 | $ | 279,666 | ||
Raw materials | 108,942 | 81,436 | ||||
$ | 276,466 | $ | 361,102 |
3. PROPERTY, PLANT AND EQUIPMENT
August 31, 2017 | |||||||||
Cost | Accumulated | Net | |||||||
Depreciation & | |||||||||
Impairment | |||||||||
Plant and equipment | $ | 379,689 | $ | 97,958 | $ | 281,731 | |||
Buildings | - | - | - | ||||||
Automotive equipment | 27,800 | 17,873 | 9,927 | ||||||
Land | - | - | - | ||||||
Land improvements | - | - | - | ||||||
Leasehold improvements | 500,724 | 243,861 | 256,863 | ||||||
Furniture and fixtures | 212,652 | 190,269 | 22,383 | ||||||
Computer hardware and software | 1,761,497 | 1,625,357 | 136,140 | ||||||
$ | 2,882,362 | $ | 2,175,318 | $ | 707,044 |
17
3. PROPERTY, PLANT AND EQUIPMENT (continued)
February 28, 2017 | |||||||||
Cost | Accumulated | Net | |||||||
Depreciation & | |||||||||
Impairment | |||||||||
Plant and equipment | $ | 379,688 | $ | 94,431 | $ | 285,257 | |||
Buildings | - | - | - | ||||||
Automotive equipment | 61,550 | 38,251 | 23,299 | ||||||
Land | - | - | - | ||||||
Land improvements | - | - | - | ||||||
Leasehold improvements | 500,724 | 220,510 | 280,214 | ||||||
Furniture and fixtures | 212,652 | 187,768 | 24,884 | ||||||
Computer hardware and software | 1,761,497 | 1,610,127 | 151,370 | ||||||
$ | 2,916,111 | $ | 2,151,087 | $ | 765,024 |
4. PREPAID EXPENSES AND DEPOSITS
August 31, 2017 | February 28, 2017 | |||||
Slotting fees | $ | 542 | $ | 3,792 | ||
Insurance premiums | 7,431 | 52,561 | ||||
Rental deposits and other | 67,089 | 99,362 | ||||
75,062 | $ | 155,715 | ||||
Attributable to discontinued operations | $ | - | 26,195 | |||
Attributable to continuing operations | $ | 75,062 | 129,520 |
5. INTANGIBLE ASSETS
August 31, 2017 | |||||||||
Cost | Amortization | Net | |||||||
Brand license and patent | $ | 351,090 | $ | 51,284 | $ | 299,806 |
February 28, 2017 | |||||||||
Cost | Amortization | Net | |||||||
Brand license and patent | $ | 331,037 | $ | 33,848 | $ | 297,189 |
6. DERIVATIVE LIABILITY
In accordance with the guidance of ASC 815-40-15, stock options granted to non-employees that are exercisable in a currency other than the functional currency of the Company are required to be accounted for as derivative liabilities because they are considered not to be indexed to the Companys stock due to their exercise price being denominated in a currency other than the Companys functional currency.
The non-employee options are required to be re-valued with the change in fair value of the liability recorded as a gain or loss on the change in fair value of derivative liability and included in other items in the Companys Consolidated Statements of Income (Loss) at the end of each reporting period. The fair value of the options will continue to be classified as a liability until such a time as they are exercised, expire or there is an amendment to the respective agreements that renders these financial instruments to be no longer classified as a liability.
18
The change in derivative liability for non-employee options is summarized as follows:
August 31, 2017 | February 28, 2017 | |||||
Derivative liability, beginning of period | $ | 44,145 | $ | 59,990 | ||
Warrants issued during the period | - | - | ||||
Change in fair value of non-employee options | (25,661 | ) | (13,638 | ) | ||
Derivative liability, end of period | $ | 18,484 | $ | 46,352 |
An estimate for the fair value of non-employee stock options is determined through use of the Black-Scholes Model. Assumptions applied by management as at August 31, 2017 were as follows: (1) risk-free rate of 1.07%; (2) dividend yield of nil; (3) an expected volatility of 71.03%; (4) an expected life of 28 months; and (5) an exercise price of USD $2.82.
7. SHARE CAPITAL
As of August 31, 2017 the company had outstanding 2,802,412 common shares.
Stock Options | ||||||
Outstanding | Weighted Average | |||||
Options | Exercise Price - USD | |||||
Options outstanding as at February 28, 2017 | 868,000 | $ 2.94 | ||||
Options granted first quarter | - | $ - | ||||
Options cancelled first quarter | (174,000 | ) | $ 3.07 | |||
Options outstanding as at May 31, 2017 | 694,000 | $ 2.86 | ||||
Options granted first quarter | - | $ - | ||||
Options cancelled first quarter | - | $ - | ||||
Options outstanding as at August 31, 2017 | 694,000 | $ 2.86 |
8. RELATED PARTY TRANSACTIONS
Quarter ended | Quarter ended | Six months ended | Six months ended | ||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | ||||||||||
i) | Incurred marketing consulting services with a company related by a director in common, Ralph McRae | $ | - | $ | - | $ | 2,812 | $ | 1,500 | ||||
ii) | Incurred bottling services from a company related by a director in common, Ralph McRae | 107,385 | 114,209 | 158,983 | 184,954 | ||||||||
iii) | Incurred management service fees with a company related by an officer in common, Dave Read | - | 37,500 | - | 75,000 |
19
9. COMMITMENTS AND CONTINGENCIES
The Company is committed to certain agreements and operating leases. The minimum amounts due over the remaining terms of those agreements are as follows:
Year 1 | $ | 142,024 | |
Year 2 | 144,731 | ||
Year 3 | 150,011 | ||
Year 4 | 130,376 | ||
Year 5 and thereafter | 195,564 | ||
Total future minimum payments | $ | 762,706 |
The Company is party to legal claims which have arisen in the normal course of business, none of which are expected to have a material adverse effect on the financial position or results of the Company.
10. CAPITAL MANAGEMENT
The Companys objectives when managing capital are to safeguard the Companys ability to continue as a going concern in order to provide opportunities for growth to shareholders and to maintain financial flexibility in, or to take advantage of opportunities as they arise.
In the management of capital, the Company includes shareholders equity and cash. The Company manages its capital structure and can adjust it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may purchase shares for cancellation pursuant to normal course issuer bids, issue new shares, issue new debt, or refinance its existing indebtedness.
11. SEGMENTED INFORMATION
The Company operates in one industry segment being the distribution of beverages. The Companys principal operations are comprised of a distribution system for beverages and waters. Substantially all of the Companys operations, assets and employees are located in Canada and net revenue from export sales during all periods reported are less than 10%.
12. DISCONTINUED OPERATIONS
On December 15, 2016 the Company approved the discontinuation of all activities relating to the Companys co-packing operations. As a result the co-packing operations have ceased and all assets have been liquidated and all liabilities will be settled. All costs associated with the discontinuation were recorded as of February 28, 2017.
In conjunction with the discontinuance of the co-packing operations, the Company has presented the assets and liabilities under the captions assets of discontinued operations and liabilities of discontinued operations respectively in the accompanying balance sheets as at August 31, 2017 and February 28, 2017, and consist of the following:
20
Assets of discontinued operations: | August 31, 2017 | February 28, 2017 | ||||
Accounts Receivable | $ | - | $ | - | ||
Prepaid expenses and deposits | - | 26,195 | ||||
Total current assets | - | 26,195 | ||||
Property, plant and equipment | - | - | ||||
Deferred tax assets | - | - | ||||
Total assets | $ | - | $ | 26,195 | ||
Liabilities of discontinued operations: | ||||||
Accounts payable and accrued liabilities | $ | 300,000 | $ | 300,000 | ||
Lease inducement | - | - | ||||
Total liabilities | $ | 300,000 | $ | 300,000 |
Amounts presented for the quarters ended August 31, 2017 and August 31, 2016 have been reclassified to conform to the current presentation. The following table provides the amounts reclassified for the periods then ended:
Amounts reclassified | August 31, 2017 | August 31, 2016 | ||||
Gross Revenue | $ | 6,361 | $ | 2,659,037 | ||
Less: Discounts, rebates slotting fees | (5,077 | ) | (78,011 | ) | ||
Net Revenue | 1,284 | 2,581,026 | ||||
Cost of sales | 10,248 | 1,546,520 | ||||
Selling, general, and administrative | 13,198 | 156,008 | ||||
Depreciation of property, plant, equipment and | ||||||
intangible assets | - | 114,330 | ||||
23,446 | 1,816,858 | |||||
Net Income (loss) before taxes | (22,162 | ) | 764,168 | |||
Income tax provision (recovery) | - | (37,337 | ) | |||
Total amount reclassified as discontinued operations | $ | (22,162 | ) | $ | 801,505 |
21
LEADING BRANDS, INC. AT A GLANCE
Shareholder Information:
Leading Brands, Inc.
NASDAQ:LBIX
Toll
Free:
1-866-685-5200
Website:
www.LBIX.com
The Companys annual report on Form 20-F, along with all other publicly reported documents, is available on SEDAR at www.sedar.com.
LEADING BRANDS, INC.
Unit 101 33 West 8th
Avenue
Vancouver BC Canada V5Y 1M8
Tel: 604-685-5200
Toll free:
1-866-685-5200
www.LBIX.com
22
LEADING BRANDS, INC.
Managements Discussion & Analysis
For
the three and six months ended August 31, 2017
October 10, 2017
The following information should be read in conjunction with Leading Brands, Inc.s (the Company) February 28, 2017 audited consolidated financial statements. These statements, along with the Companys annual report on Form 20-F, are available on SEDAR at www.sedar.com.
The financial statements have been prepared in accordance with United States generally accepted accounting principles (US GAAP).
The Company maintains its financial records in Canadian dollars. In this report, unless otherwise specified, all dollar amounts are expressed in Canadian dollars.
Overview
Leading Brands, Inc. (the Company) and its subsidiaries are involved in the development, production, marketing, and distribution of the Companys branded beverage products.
The Company sells branded beverage products through its Integrated Distribution System (IDS) of distributors, wholesalers, and retail chains. Its principal product lines include premium waters.
Non-GAAP Measures
In addition to GAAP measures, the Company uses the non-GAAP measures Earnings Before Interest, Taxes, Depreciation, Amortization, and Stock Based Compensation (EBITDAS), Net Income Before Stock Based Compensation, Margin, Margin Percentage, and Total Net Working Capital to make strategic decisions and provide investors with a basis to evaluate operating performance. Non-GAAP measures do not have a standardized meaning prescribed by GAAP and may not be comparable to similar measures used by other companies. Included in this report is a table reconciling GAAP Net Income to Net Income Before Stock Based Compensation. In addition, included in other information in this report are tables calculating EBITDAS, Margin, Margin Percentage, and Total Net Working Capital.
Overall Performance
For the quarter ended August 31, 2017, the Company reported gross sales from continuing operations of $509,901 and a net loss from continuing operations of $709,564 as compared to gross sales of $568,118 and a net loss of $949,430 in the corresponding quarter of the prior year.
For the quarter ended August 31, 2017, the Companys margin percentage increased to 0.7% from (9.1%) for the same period in 2016.
Results of Operations
Revenue
Quarter ended | Quarter ended | ||||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Gross Revenue | $ | 509,901 | $ | 568,118 | $ | (58,217 | ) | ||
Discounts, Allowances and Rebates | (156,441 | ) | (182,746 | ) | 26,305 | ||||
Net Revenue | $ | 353,460 | $ | 385,372 | $ | (31,912 | ) |
Gross revenue from continuing operations for the quarter ended August 31, 2017 was $509,901 compared to $568,118 for the same period of the previous year, representing a decrease of $58,217 or 10.0% .
Discounts, rebates and slotting fees from continuing operations for the quarter ended August 31, 2017 decreased by $26,305 compared to the same period of the prior year.
Six months ended | Six months ended | ||||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Gross Revenue | $ | 949,145 | $ | 994,671 | $ | (45,526 | ) | ||
Discounts, Allowances and Rebates | (250,052 | ) | (330,330 | ) | 80,278 | ||||
Net Revenue | $ | 699,093 | $ | 664,341 | $ | 34,752 |
Gross revenue from continuing operations for the six months ended August 31, 2017 was $949,145 compared to $994,671 for the same period of the previous year, representing a decrease of $45,526 or 4.6% .
Discounts, rebates and slotting fees from continuing operations for the six months ended August 31, 2017 decreased by $80,278 compared to the same period of the prior year.
Cost of Sales | |||||||||
Quarter ended | Quarter ended | ||||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Cost of Sales | $ | 350,835 | $ | 420,251 | $ | (69,416 | ) |
Cost of sales from continuing operations for the quarter ended August 31, 2017 were $350,835 compared to $420,251 for the same period of the previous year, representing a decrease of $69,416 or 16.5% .
Six months ended | Six months ended | ||||||||
August 31, 2017 | August 31, 2017 | Change | |||||||
Cost of Sales | $ | 704,967 | $ | 742,811 | $ | (37,844 | ) |
Cost of sales for the six months ended August 31, 2017 were $704,967 compared to $742,811 for the same period of the previous year, representing a decrease of $37,844 or 5.1% .
Margin
Quarter ended | Quarter ended | ||||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Margin | $ | 2,625 | $ | (34,879 | ) | $ | 37,504 | ||
Margin percentage | 0.7% | (9.1% | ) | 9.8% |
Margin from continuing operations for the quarter ended August 31, 2017 was $2,625 compared to ($34,879) for the same quarter of the previous year. The margin percentage of 0.7% for the quarter ended August 31, 2017 represents 9.8% increase from the prior comparative year.
Six months ended | Six months ended | ||||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Margin | $ | (5,874 | ) | $ | (78,470 | ) | $ | 72,596 | |
Margin percentage | (0.8% | ) | (11.8% | ) | 11.0% |
Margin for the six months ended August 31, 2017 was $(5,874) compared to $(78,470) for the same period of the previous year.
2
Selling, General and Administration Expenses
Selling, general and administration expenses in the quarter ended August 31, 2017 decreased by $105,038 or 12.8% from $818,319 in the same quarter of the prior year to $713,281.
Summary of Quarterly Results
August 31 (Q2) | May 31 (Q1) | February 28/29 (Q4) | November 30 (Q3) | |||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2016 | 2015 | |
Net sales / revenue from continuing operations |
$353,460 | $385,372 | $345,633 | $278,969 | $256,277 | $95,099 | $291,911 | $229,539 |
Net loss from continuing operations |
($709,564) | ($949,429) | ($778,004) | ($549,348) | ($727,978) | ($782,712) | ($876,566) | ($759,472) |
Net income (loss) from discontinued operations |
($22,162) | $801,505 | ($54,774) | $844,223 | ($955,067) | $288,039 | ($4,096,489) | $374,418 |
Net income (loss) |
($731,726) | ($147,924) | ($832,778) | $294,875 | ($1,683,585) | ($494,673) | ($4,973,055) | ($385,054) |
Earnings (loss) per share, basic continuing operations |
($0.25) | ($0.33) | ($0.28) | ($0.19) | ($0.26) | ($0.26) | ($0.31) | ($0.26) |
Earnings (loss) per share, basic discontinued operations |
($0.01) | $0.28 | ($0.02) | $0.29 | ($0.34) | $0.09 | ($1.46) | $0.13 |
Earnings (loss) per share, diluted - continuing operations |
($0.25) | ($0.33) | ($0.28) | ($0.19) | ($0.26) | ($0.26) | ($0.31) | ($0.26) |
Earnings (loss) per share, diluted - discontinued operations |
($0.01) | $0.28 | ($0.02) | $0.29 | ($0.34) | $0.09 | ($1.46) | $0.13 |
The Company recognizes stock based compensation expense as a
selling, general and administration expense.
This non-cash charge relates to
options granted to officers, directors and consultants of the Company.
3
Net Income (Loss) before Stock Based Compensation Expense is as follows:
August 31 (Q2) | May 31 (Q1) | February 28/29 (Q4) | November 30 (Q3) | |||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2016 | 2015 | |
Net income (loss) from continuing operations |
($709,564) |
($949,430) |
($778,004) |
($549,348) |
($727,978) |
($782,712) |
($876,566) |
($759,472) |
Stock based compensation |
- | - | - | - | - | - | - | - |
Net income (loss) before stock based compensation |
($709,564) | ($949,430) | ($778,004) | ($549,348) | ($727,978) | ($782,712) | ($876,566) | ($759,472) |
Other Information
EBITDAS | Quarter ended | Quarter ended | Six months ended | Six months ended | ||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | |||||||||
Net income (loss) from | ||||||||||||
continuing operations | $ | (709,564 | ) | $ | (949,429 | ) | $ | (1,487,568 | ) | $ | (1,498,777 | ) |
Interest, net | (7,166 | ) | - | (16,543 | ) | - | ||||||
Depreciation and amortization | 31,735 | 57,516 | 63,351 | 113,454 | ||||||||
Stock based compensation expense | - | - | - | - | ||||||||
Income taxes | - | - | - | - | ||||||||
EBITDAS | $ | (684,995 | ) | $ | (891,913 | ) | $ | (1,440,760 | ) | $ | (1,385,323 | ) |
Margin | Quarter ended | Quarter ended | Six months ended | Six months ended | ||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | |||||||||
Net revenue | $ | 353,460 | $ | 385,372 | $ | 699,093 | $ | 664,341 | ||||
Less: cost of sales | 350,835 | 420,251 | 704,967 | 742,811 | ||||||||
Margin | $ | 2,625 | $ | (34,879 | ) | $ | (5,874 | ) | $ | (78,470 | ) | |
Margin % of Net Revenue | 0.7% | (9.1% | ) | (0.8% | ) | (11.8% | ) |
Related Party Transactions
Quarter ended | Quarter ended | Six months ended | Six months ended | ||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | ||||||||||
i) | Incurred marketing consulting services with a company related by a director in common, Ralph McRae | $ | - | $ | - | $ | 2,812 | $ | 1,500 | ||||
ii) | Incurred bottling services from a company related by a director in common, Ralph McRae | 107,385 | 114,209 | 158,983 | 184,954 | ||||||||
iii) | Incurred management service fees with a company related by an officer in common, Dave Read | - | 37,500 | - | 75,000 |
4
Cash flows
Cash provided by (used in): | Quarter ended | Quarter ended | |||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Operating activities | $ | (907,326 | ) | $ | 109,971 | $ | (1,017,297 | ) | |
Investing activities | $ | (14,681 | ) | $ | (79,246 | ) | $ | 64,565 | |
Financing activities | $ | - | $ | (131,915 | ) | $ | 131,915 |
During the quarter, cash generated from operating activities decreased by $1,017,297 compared to the same period of the prior year.
Cash utilized by investing activities is a result of the Company spending $14,681 on intangible assets.
Cash utilized for financing activities was $nil during the quarter.
Cash provided by (used in): | Six months ended | Six months ended | |||||||
August 31, 2017 | August 31, 2016 | Change | |||||||
Operating activities | $ | (1,589,787 | ) | $ | 345,036 | $ | (1,934,823 | ) | |
Investing activities | $ | (9,053 | ) | $ | 204,175 | $ | (213,228 | ) | |
Financing activities | $ | - | $ | (139,789 | ) | $ | 139,789 |
For the six months ended August 31, 2017, cash generated from operating activities decreased by $1,934,823 compared to the same period of the prior year.
Cash utilized by investing activities decreased by $213,228 compared to the same period of the prior year.
Cash utilized for financing activities was $nil during this year.
Liquidity and Capital Resources
Net working capital has decreased by 37.9% since the prior year ended February 28, 2017. As at August 31, 2017, the Company has net working capital of $ 2,475,418 ($3,986,232 at February 28, 2017).
Total Net Working Capital | August 31, 2017 | February 28, 2017 | ||||
Total Current Assets | $ | 3,182,225 | $ | 4,891,278 | ||
Less: Total Current Liabilities | (706,807 | ) | (905,046 | ) | ||
Total Net Working Capital | $ | 2,475,418 | $ | 3,986,232 |
Considering the positive net working capital position, including the cash on hand at August 31, 2017, the Company believes that it has sufficient working capital.
Contractual Obligations
The following table presents our contractual obligations as of August 31, 2017:
Payments due by period | |||||
Contractual obligations |
Total |
Less than 1 year |
1-3 years |
4-5 years |
More than 5 years |
Operating lease obligations | $ 704,288 | $ 123,073 | $ 255,275 | $ 260,752 | $ 65,188 |
Purchase obligations | 58,418 | 18,951 | 39,467 | - | - |
Total | $ 762,706 | $ 142,024 | $ 294,742 | $ 260,752 | $ 65,188 |
5
Risks and uncertainties
The types of risks and uncertainties that may affect the Company are included in the February 28, 2017 annual Managements Discussion and Analysis.
Credit Risk
The Companys credit risk is primarily attributable to its accounts receivable. The credit risk related to accounts receivable arises from customers potential inability to meet their obligations as agreed. The accounts receivable are presented on the balance sheet net of a provision for bad debts, which is estimated by the Companys management based on past experience and its assessment of current economic conditions.
As at August 31, 2017 the Company is exposed to credit risk through the following assets:
August 31, 2017 | February 28, 2017 | |||||
Trade receivables | $ | 95,452 | $ | 74,865 | ||
Other receivables | 19,057 | 10,763 | ||||
Allowance for doubtful accounts | - | - | ||||
$ | 114,509 | $ | 85,628 | |||
Any credit risk exposure on cash balances is considered insignificant as the Company holds cash and cash equivalents only in major financial institutions in Canada. On the basis that these financial institutions are believed by Management to be financially sound, relatively minimal credit risk is deemed to exist.
The Companys customers consist mainly of beverage distributors and wholesale and retail grocery suppliers and distributors principally located in North America. During the quarter ended August 31, 2017, the Companys ten largest customers comprised approximately 83% of sales compared with 93% in the last fiscal year ended February 28, 2017. One customer comprised 24% of sales compared with 74% in the last fiscal year. In addition, to cover credit risk, the Company performs ongoing credit evaluations of its customers financial condition and applies rigorous procedures to assess the credit worthiness of new clients. It sets a specific credit limit per client and regularly reviews this limit.
As at August 31, 2017, 100% of the trade receivables are classified as current, or have been provided for.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage as outlined in Note 10 of the interim financial statements. Managing liquidity requires monitoring of projected cash inflows and outflows using forecasts of the Companys financial position to ensure adequate and efficient use of cash resources. The appropriate liquidity level is established based on historical volatility and seasonal requirements, as well as planned investments.
6
Market risk
Currency risk
The Company concludes sales in U.S.
dollars to customers in the U.S. The Company also purchases raw materials as
well as equipment in U.S. dollars. Consequently, it is exposed to the risk of
exchange rate fluctuations with respect to the receivable and payable balances
denominated in U.S. Dollars. The Company has not hedged its exposure to currency
fluctuations.
A 5% U.S. dollar rise per Canadian dollar would have an unfavourable impact of approximately $1,169 on net earnings for the quarter ended August 31, 2017. A 5% U.S./Canadian dollar decrease would have a positive impact of similar magnitude.
Interest rate risk
As at August 31, 2017, the
Company held no debt such that a 1% change in the interest rate would have no
impact.
Fair Value of Financial Instruments
The Companys financial instruments measured at fair value on the balance sheet are limited to cash and cash equivalents which are classified as level 1, and a non-employee stock option embedded derivative liability which is classified as level 3. See Note 6 for results of fair valuation of the derivative liability in the period.
Disclosure of Outstanding Share Data
At October 10, 2017, the Company had 2,802,412 issued and outstanding common shares, 694,000 issued and outstanding stock options, all of which were vested.
Disclosure of Controls and Procedures and Internal Control over Financial Reporting
The Chief Executive Officer and the Principal Financial Officer, together with other members of management, have designed the Companys disclosure controls and procedures in order to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries would have been known to them, and by others, within those entities.
Management has also designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with U.S. GAAP. There have been no changes in the Companys internal controls over financial reporting during the period, which would materially affect, or are likely to materially affect, the Companys internal controls.
While the officers of the Company have designed the Companys disclosure controls and procedures and internal controls over financial reporting, they expect that these controls and procedures may not prevent all errors and fraud. A control system, no matter how well conceived or operated, can only provide reasonable, not absolute assurance that the objectives of the control system are met.
Safe Harbor for Forward-Looking Statements
This report includes forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements which are not historical facts, are forward-looking statements. The Company, through its management, makes forward-looking public statements concerning its expected future operations, performance and other developments. The words believe, intend, expect, anticipate, project, estimate, predict and similar expressions are also intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and are subject to a wide range of known and unknown risks and uncertainties and although the Company believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will be realized. Forward-looking statements relate to, among other things:
7
|
business objectives, goals and strategic plans; |
|
operating strategies; |
|
expected future revenues, earnings and margins; |
|
anticipated operating, selling and general and administrative costs; |
|
availability of raw materials, including water, sugar, cardboard and closures and flavoring; |
|
effects of seasonality on demand for our products; |
|
anticipated exchange rates, fluctuations in exchange rates and effects of exchange rates on our cost of goods sold; |
|
anticipated contribution to earnings in the current year from investment in new product development; |
|
our expectation that we will have adequate cash from operations and credit facility borrowings to meet all future debt service, capital expenditure and working capital requirements in fiscal year 2017; |
|
anticipated capital expenditures; and |
|
anticipated increased sales volumes with certain product lines; |
Such forward-looking statements are necessarily estimates reflecting the Company's best judgment based upon current information and involve a number of risks and uncertainties, and there can be no assurance that other factors will not affect the accuracy of such forward-looking statements. It is impossible to identify all such factors. Factors which could cause actual results to differ materially from those estimated by the Company include, but are not limited to, those listed under Risk Factors, as well as other possible risk factors such as general economic conditions, weather conditions, changing beverage consumption trends, pricing, availability of raw materials, economic uncertainties (including currency exchange rates), government regulation, managing and maintaining growth, the effect of adverse publicity, litigation, competition and other factors which may be identified from time to time in the Company's public announcements. For all such forward-looking statements, we claim the safe harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
8
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Ralph McRae, Chief Executive Officer of Leading Brands, Inc., certify the following:
1. |
Review: I have reviewed the interim financial report and interim MD&A (together, the interim filings) of Leading Brands, Inc. (the issuer) for the interim period ended August 31, 2017. | ||
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. | ||
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. | ||
4. |
Responsibility: The issuers other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer. | ||
5. |
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuers other certifying officer and I have, as at the end of the period covered by the interim filings | ||
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that | ||
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and | ||
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and | ||
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuers GAAP. | ||
5.1 |
Control framework: The control framework the issuers other certifying officer and I used to design the issuers ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control - Integrated Framework. | ||
5.2 |
N/A | ||
5.3 |
N/A | ||
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuers ICFR that occurred during the period beginning on June 1, 2017 and ended on August 31, 2017 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: October 16, 2017
/s/ Ralph McRae
_______________________
Ralph
McRae
Chief Executive Officer
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Fei Xu, acting as Interim Chief Financial Officer of Leading Brands, Inc., certify the following:
1. |
Review: I have reviewed the interim financial report and interim MD&A (together, the interim filings) of Leading Brands, Inc. (the issuer) for the interim period ended August 31, 2017. | ||
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. | ||
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. | ||
4. |
Responsibility: The issuers other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer. | ||
5. |
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuers other certifying officer and I have, as at the end of the period covered by the interim filings | ||
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that | ||
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and | ||
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and | ||
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuers GAAP. | ||
5.1 |
Control framework: The control framework the issuers other certifying officer and I used to design the issuers ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control - Integrated Framework. | ||
5.2 |
N/A | ||
5.3 |
N/A | ||
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuers ICFR that occurred during the period beginning on June 1, 2017 and ended on August 31, 2017 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: October 16, 2017
s/s Fei Xu
_______________________
Fei Xu
Corporate Controller and Principal Financial Officer
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