Leading Brands announces results for its second quarter of fiscal 2016

The Company experienced a breakthrough in sales of its branded beverage portfolio, delivering an increase in branded sales revenue of 108.3% in Q2 and 54.0% YTD.

Sales of HappyWater^® led the way with a remarkable increase in revenue of 94.2% in Q2 and 66.2% YTD.

YTD net income was $147,000 or $0.05 per share ($0.05 fully diluted) versus net loss of ($424,000) or ($0.15) per share in the first half of last year.  Q2 2016 net loss was ($148,000) or ($0.05) per share (($0.05) fully diluted) versus net loss of ($13,000) or $0.00 per share in the same quarter of fiscal 2015. 

YTD net income before SBC was $147,000 or $0.05 per share ($0.05 fully diluted), compared to net loss of ($340,000) or ($0.12) per share a year ago. Q2 2016 net loss before stock based compensation (SBC) was ($148,000) or ($0.05) per share (($0.05) fully diluted) versus net income of $71,000 or $0.03 per share in the same quarter last year.

Q2 2016 EBITDAS (Earnings Before Interest, Depreciation, Amortization and SBC) was $(13,000) or $0.00 per share ($0.00 fully diluted), versus $242,000 or $0.09 per share during the same period last year. YTD EBITDAS was $479,000 or $0.17 per share ($0.17 fully diluted), versus ($67,000) or ($0.02) per share in the first half of last year.

Leading Brands Chairman and CEO Ralph McRae stated: “We have been working diligently for the past three years to re-establish our portfolio of premium brands as leaders in their respective categories.  I am personally gratified to see these results as a vindication of our approach and those efforts.  In particular, our breakthrough in Asia, and specifically China, has been a long time coming.  Much of our success was based on the coalescence of our determined commitment to that market with a realization by our international customers that safe, premium, quality food products are critical to the health and wellbeing of their families.  When it comes to those attributes, established Canadian suppliers such as Leading Brands have a distinct advantage.”

“These major gains in our branded business have for the past several years been overshadowed by the relentless decline in volumes of our principal co-pack customer.  As a result, the company has decided to exit the co-pack business to focus our efforts and resources where they can deliver the growth and returns our shareholders expect and deserve.  The company will wind down operations at its hot fill bottling plant over the next few months in connection with the previously scheduled expiration of our current co-pack agreement.  This will likely result in a non-cash write down of certain assets as well as our incurring associated termination costs in the current fiscal year.  This transition may have a material adverse impact on our reported results, which we are intently focused on minimizing in both magnitude and duration.” 

Non-GAAP Net Income (Loss) before SBC is determined as follows:

			Q2 2016				Q2 2015				YTD 2016		YTD 2015
Net Income (Loss)		$		(148,000	)	$		(13,000	)	$	147,000	$		(424,000	)
Add Back SBC				-				84,000			-			84,000
Net income (loss) before SBC		$		(148,000	)	$		71,000		$	147,000	$		(340,000	)

Non-GAAP Net Income (Loss) per share before SBC is determined as follows:

			Q2 2016				Q2 2015		YTD 2016		YTD 2015
Net Income (Loss)		$		(0.05	)	$	-	$	0.05	$		(0.15	)
Add Back SBC				-			0.03		-			0.03
Net income (loss) before SBC - Basic		$		(0.05	)	$	0.03	$	0.05	$		(0.12	)

Pro-forma results for EBITDAS, as defined below, are determined as follows:

			Q2 2016				Q2 2015				YTD 2016				YTD 2015
Net Income (Loss)		$		(148,000	)	$		(13,000	)	$		147,000		$		(424,000	)
Add Back:
Interest, net				-				(1,000	)			-				(4,000	)
Depreciation and amortization				172,000				172,000				342,000				342,000
Non-cash stock based compensation				-				84,000				-				84,000
Non-cash income tax expense				(37,000	)			-				(10,000	)			(65,000	)
Total Add Backs				135,000				255,000				332,000				357,000
EBITDAS		$		(13,000	)	$		242,000		$		479,000		$		(67,000	)

EBITDAS per share reconciles to earnings per share as follows:

			Q2 2016				Q2 2015		YTD 2016		YTD 2015
Net Income (Loss)		$		(0.05	)	$	-	$	0.05	$		(0.15	)
Add Back:
Interest, net				-			-		-			-
Depreciation and amortization				0.06			0.06		0.12			0.12
Non-cash stock based compensation				-			0.03		-			0.03
Non-cash income tax expense				(0.01	)		-		-			(0.02	)
Total Add Backs				0.05			0.09		0.12			0.13
EBITDAS		$		0.00		$	0.09	$	0.17	$		(0.02	)

Gross profit margin for the quarter was 33.7%, down from 38.2% in the same quarter last year, due to a change in product mix.  The company continues to feel the drag of decreasing volumes from its principal co-pack customer and is now in a position to take constructive steps to address that trend.

Gross revenue for Q2 2016 was $3,227,000, versus $3,888,000 in the comparative period of last year. A decrease in revenue for co-packaging services was the primary contributor to both the drop in revenue and gross profit margin in the quarter.

Discounts, rebates and slotting fees were $261,000 in Q2 2016, an increase of $149,000 compared to the same period of the prior year as a result of new listing fees for Happy Water^®. Selling, General and Administrative Expenses (“SG&A”) were $974,000 in Q2 of fiscal 2016, versus $1,277,000 in Q2 of the previous year.  This shows the benefit of cost cutting measures implemented throughout much of 2015.

As at August 31, 2016 the Company had outstanding 2,802,412 common shares.

About Leading Brands, Inc.

Leading Brands, Inc. (NASDAQ:LBIX) is North America’s only fully integrated healthy beverage company.  Leading Brands creates, designs, bottles, distributes and markets its own proprietary premium beverage brands via its unique Integrated Distribution System (IDS)™ which involves the Company finding the best and most cost-effective route to market. 

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.

 (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, 2016				August 31, 2015					August 31, 2016				August 31, 2015
Gross Revenue		$		3,227,155		$		3,888,224			$		6,260,877		$		7,071,009
Less: Discount, rebates and slotting    fees				(260,757	)			(111,749	)				(440,769	)			(198,804	)
Net Revenue				2,966,398				3,776,475					5,820,108				6,872,205
Cost of sales				1,966,771				2,333,201					3,715,751				4,465,911
Operations, selling, general &   administration expenses				974,327				1,277,449					1,919,586				2,509,234
Depreciation of property, plant and   equipment				171,846				172,030					342,099				342,499
Interest, net				-				(1,134	)				-				(3,599	)
Change in fair value of derivative   liability				38,715				7,715					12,673				46,656
Gain on disposal of assets				-				-					(306,774	)			-
				3,151,659				3,789,261					5,683,335				7,360,701
Net income (loss) before taxes				(185,261	)			(12,786	)				136,773				(488,496	)
Income tax expense				(37,337	)			-					(10,178	)			(64,939	)
Net and comprehensive income (loss)		$		(147,924	)	$		(12,786	)		$		146,951		$		(423,557	)
Earnings per share
Basic income (loss) per share		$		(0.05	)	$		-			$		0.05		$		(0.15	)
Weighted average number of shares   outstanding – basic				2,817,471				2,877,735					2,838,584				2,892,311
Fully diluted income (loss) per share		$		(0.05	)	$		-			$		0.05		$		(0.15	)
Weighted average number of shares   outstanding – diluted				2,817,471				3,116,460					2,838,584				3,121,035