SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
U.S.A.
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 2012
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-19884
LEADING BRANDS, INC.
[Exact
name of Registrant as specified in its charter]
Not Applicable
[Translation of Registrants name into
English]
British Columbia, Canada
[Jurisdiction of
incorporation or organization]
Suite 1800 1500 West Georgia Street, Vancouver, BC Canada
V6G 2Z6
[Address of principal executive offices]
Marilyn Kerzner, Director of Corporate Affairs
Phone
Number: 604-685-5200
Facsimile: 604-685-5249
Suite 1800 - 1500 West
Georgia Street
Vancouver, British Columbia Canada V6G
2Z6
(Name, telephone, e-mail and/or facsimile number and address of
Company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class: | Name of each exchange on which registered: |
Common Shares Without Par Value | NASDAQ Capital Market |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
1
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report:
As of February 29, 2012, Leading Brands, Inc. had 3,236,668 Common Shares, without par value, outstanding.
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [ X
]
If this report is an annual or transition report, indicate by
check mark if the Registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934.
Yes [ ] No [ X ]
Note Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter
period that the registrant was required to submit and post such files).
Yes [
X ] No [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [ X ] |
Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:
U.S. GAAP [ X ] | International Financial Reporting Standards as issued | Other [ ] |
by the International Accounting Standards Board [ ] |
If Other has been checked in response to the previous
question, indicate by check mark which financial statement item the Registrant
has elected to follow:
Item 17 [ ] Item 18 [ ]
If this is an annual report, indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes [ ] No [ X ]
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Index
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INTRODUCTION
The terms Leading Brands, the Company, we, us and our as used in this Annual Report on Form 20-F, or Annual Report, refer to Leading Brands, Inc. and its consolidated subsidiaries, except where the context requires otherwise.
Unless otherwise specified, all references to dollars or $ in this Annual Report are expressed in Canadian dollars (CDN), unless otherwise indicated, and all references to U.S. dollars, US$ or USD$ are expressed in the currency of the United States of America.
Forward Looking Statements.
This Annual Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Statements which are not historical facts are forward-looking statements. The Company, through its management, makes forward-looking statements concerning its expected future operations, performance, results and other developments. The words may, continue, plan, believe, intend, expect, anticipate, project, estimate, predict and similar expressions are also intended to identify forward-looking statements. Forward-looking statements relate to, among other things:
Such forward-looking statements are necessarily estimates reflecting the Companys 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 Item 3.D. 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 Companys public announcements. Events may occur in the future that the Company is unable to accurately predict, or over which it has no control. If one or more of those uncertainties materialize, or if the underlying assumptions prove incorrect, actual outcomes may vary materially from those forward-looking statements include in this Annual Report.
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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.
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P A R T I
Item 1. Identity of Directors, Senior Management and Advisers
This item is not applicable for an Annual Report.
Item 2. Offer Statistics and Expected Timetable
This item is not applicable for an Annual Report.
Item 3. Key Information
A. |
Selected financial data. |
1. and 2.
The following table sets forth certain selected consolidated financial information with respect to Leading Brands for the periods indicated. It should be read in conjunction with this Annual Report and the Companys consolidated financial statements listed in Item 18 of this Annual Report. The following table is derived from, and is qualified by, the Companys financial statements and the notes thereto which have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP).
FISCAL YEAR ENDED Feb. 29, 2012 |
FISCAL YEAR ENDED Feb. 28, 2011 (As Adjusted) |
FISCAL YEAR ENDED Feb. 28, 2010 (As Adjusted) |
FISCAL YEAR ENDED Feb. 28, 2009 (As Adjusted) |
FISCAL YEAR ENDED Feb. 29, 2008 (As Adjusted) | |
Net sales / operating revenue |
$18,404,052 |
$18,909,031 |
$20,526,233 |
$28,195,650 |
$32,578,170 |
Net income (loss) | $1,550,858 | ($82,028) | $1,211,271 | ($5,612,619) | ($5,647,036) |
Earnings (loss) per share, basic |
$0.46 |
($0.02) |
$0.30 |
($1.41) |
($1.53) |
Earnings (loss) per share, diluted |
$0.44 |
($0.02) |
$0.30 |
($1.41) |
($1.53) |
Total assets | $14,981,079 | $15,670,153 | $17,483,684 | $19,087,857 | $27,478,389 |
Net assets | $12,484,400 | $11,668,233 | $11,288,216 | $10,014,920 | $15,287,757 |
Share Capital | $36,678,050 | $40,607,350 | $44,508,673 | $45,283,762 | $45,283,762 |
Long-term debt | $218,374 | $1,628,412 | $2,596,069 | $3,808,986 | $4,947,418 |
Cash dividends declared per common share |
NIL |
NIL |
NIL |
NIL |
NIL |
Weighted average common shares outstanding basic and diluted |
Basic: 3,368,751 Diluted: 3,541,859 |
3,853,866 |
3,980,202 |
3,991,625 |
3,682,599 |
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Please refer to Note 17 of the Companys consolidated financial statements in Item 18 of this Annual Report that describes the basis for the Companys change in accounting principle applied in the fiscal year ended February 29, 2012 and the effects of its retrospective adjustment.
3. |
Exchange Rates |
The Company maintains its financial records and reports its financial results in Canadian dollars. The effective exchange rate to convert from Canadian dollars to U.S. dollars for assets and liabilities would be US$1 = $0.9895 Canadian, and to convert revenues and expenses would be the average rate for the fiscal year of US$1 = $0.9914 Canadian.
Exchange Rate May 15, 2012: 1.0029 |
Exchange rates for the previous six months: US$1 equivalent to the following in Canadian dollars:
April 1-30, 2012 |
March 1-31, 2012 |
Feb. 1-29, 2012 |
Jan. 1-31, 2012 |
Dec. 1-31, 2011 |
Nov. 1-30, 2011 | |
High | 1.0050 | 1.0035 | 1.0040 | 1.0295 | 1.0423 | 1.0522 |
Low | 0.9800 | 0.9842 | 0.9844 | 0.9966 | 1.0052 | 1.0055 |
Average exchange rates for each of the five most recent fiscal years: US$1 -equivalent to the following in Canadian dollars:
Mar. 1, 2011 to Feb. 29, 2012 |
Mar. 1, 2010 to Feb. 28, 2011 |
Mar. 1, 2009 to Feb. 28, 2010 |
Mar. 1, 2008 to Feb. 28, 2009 |
Mar. 1, 2007 to Feb. 29, 2008 | |
Average | 0.9914 | 1.0209 | 1.1052 | 1.1129 | 1.0368 |
B. |
Capitalization and indebtedness. |
This item is not applicable for an Annual Report.
C. |
Reasons for the offer and use of proceeds. |
This item is not applicable for an Annual Report.
D. |
Risk factors. |
Risks Related To Our Business
The Company is vulnerable to exchange rate fluctuations
Our operations are carried out primarily in Canada and in the United States. The Company purchases certain raw materials and goods, priced in U.S. dollars, for resale in Canada and also sells certain products, manufactured in Canada, into the United States. As a result, the Company is vulnerable to exchange rate fluctuations and it does not presently use any financial instruments to hedge foreign currency fluctuations. A significant increase in the value of the U.S. dollar in relation to the Canadian dollar would negatively impact our earnings.
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The Company uses a limited number of suppliers
The Company relies on a limited number of suppliers for certain raw materials. While other sources of supply do exist for these materials, an unexpected disruption in supply or an increase in pricing would have a negative impact on production and our earnings.
The Company depends on exclusive distribution contracts
The Company holds exclusive distribution contracts for Canada with certain suppliers. If certain of these distribution contracts were terminated, it could have a negative impact on our earnings. We cannot assure you that these contracts will be renewed or extended upon their expiration, and even if they are renewed, we cannot be certain that renewal will be granted on the same terms as those currently in effect. Termination, non-extension or non-renewal of any of the contracts would have a material adverse effect on our business, financial condition and results of operation.
The Company relies on independent distributors
We rely on the distribution services of independent distributors in order to distribute and sell some of our beverage products to retailers and consumers. If certain of these distributors were to stop distributing our products, it would have a negative impact on our earnings.
The Company is exposed to varying degrees of competition
Increased consolidations of our competitors with and into larger companies, increased market place competition, and more competitive product and pricing pressures could impact the Companys earnings, market share and volume growth. This competition is likely to continue, and we cannot assure you that it will not intensify in the future which could materially and adversely affect our financial condition and results of operations.
Changes in the nonalcoholic beverages business environment could adversely affect our financial results
The nonalcoholic beverages business environment is constantly evolving as a result of, among other things, changes in consumer preferences, including changes based on health and nutrition considerations, shifting consumer tastes and needs, changes in consumer lifestyles and competitive product and pricing pressures. If we are unable to successfully adapt to this constantly changing environment, our earnings and sales could be negatively affected.
Changes in laws and regulations could negatively affect our operations
The Company is subject to various laws and regulations, and changes in such laws and regulations could have a negative impact on our operations. For example:
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The Company depends on protections afforded by trademarks and copyrights
The Company holds a number of trademarks and copyrights relating to certain significant products. We rely on trademark laws and contractual provisions to protect these trademarks and copyrights, and there can be no assurance that other third parties will not infringe or misappropriate our trademarks and copyrights. If we lose some or all of our intellectual property rights, our business may be materially adversely affected.
The Company is vulnerable to operating losses
Historically, the Company has had periods of unprofitable operations. The Companys bottling operations are relatively capital intensive and in periods of low volumes, such as during seasonal fluctuations, fixed costs can result in operating losses.
Increases in costs and/or shortages of raw materials and/or ingredients could harm our business
The principal raw materials used by us are juice concentrates and sugar, the costs of which are subject to fluctuations. We are uncertain whether the prices of any of the above or any other raw materials or ingredients, may rise in the future. We are unsure whether we will be able to pass any of such increases on to our customers. We generally do not use hedging agreements or alternative instruments to manage the risks associated with securing sufficient ingredients or raw materials. In addition, some of these raw materials are available from a limited number of suppliers.
Our failure to accurately estimate demand for our products could adversely affect our business and financial results
We may not correctly estimate demand for our products. Our ability to estimate demand for our products is imprecise, particularly with new products, and may be less precise during periods of rapid growth, particularly in new markets. If we materially underestimate demand for our products or are unable to secure sufficient ingredients or raw materials, we might not be able to satisfy demand on a short-term basis. Moreover, industry-wide shortages of certain raw materials could, from time to time in the future, be experienced. Such shortages could interfere with and/or delay production of certain of our products and could have a material adverse effect on our business and financial results. We generally do not use hedging agreements or alternative instruments to manage this risk.
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A significant portion of the Companys revenue is derived from certain major customers
The Company derives a substantial portion of its revenue from certain major customers, with the largest customer contributing 78% of our total revenue and the ten largest customers comprising 87% of revenue. The loss of certain major customers would have a negative impact on earnings.
The Company depends on key management employees
Our business is dependent upon the continued support of existing senior management, including Ralph D. McRae, who is the Chairman, President, Chief Executive Officer and a director of the Company. Mr. McRae has been with Leading Brands since March 1996, and he has been responsible for our business planning, corporate and brand initiatives and financings. The loss of Mr. McRae, or any key members of our existing management, could adversely affect our business and prospects. There may be a limited number of personnel with the requisite skills to serve in these positions and we may be unable to locate or employ such qualified personnel on acceptable terms.
Possible conflicts of interest may arise with our directors, officers, and other members of management
Certain of our directors, officers, and other members of management presently serve as directors, officers, promoters or members of management of other companies, and therefore it is possible that a conflict may arise between their duties to Leading Brands and their duties to such other companies. All such conflicts will be disclosed in accordance with the provisions of applicable corporate legislation and directors and officers will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.
The Company relies on credit facilities that may not be renewed
The Company has credit facilities that are renewed annually in order to make sure that sufficient funds are available to meet its financial needs. There is a risk that these credit facilities will not be renewed by the existing lender and that the Company would then be required to seek an alternative source of financing.
Instability in the supply of utility services and oil prices may adversely impact our results of operations
Our operations depend on a stable supply of utilities and fuel for our distribution. As a result of recent economic instability, we cannot assure you that such instability will not impair our ability to procure required utility services or fuel in the future which could adversely impact our financial results or operations. Fluctuations in oil prices have adversely affected our cost of energy and transportation and we expect that they will continue to do so in the future.
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Litigation or legal proceedings could expose us to significant liabilities and thus negatively affect our financial results
We are a party, from time to time, to various litigation claims and legal proceedings. Defending such proceedings could result in significant ongoing expenditures and the continued diversion of our managements time and attention from the operation of our business, which could have a negative effect on our business operations. Our failure to successfully defend or settle any litigation or legal proceedings could result in liability that, to the extent not covered by our insurance, could have a material adverse effect on our financial condition, revenue and profitability, and could cause the market value of our common shares to decline.
Other risks related to our business that may affect our sales and earnings
Risks Related To Our Industry
The Company competes with large companies with greater resources
Leading Brands competes, to some degree, with other larger companies in the beverage industry. Some of these competitors have substantially greater marketing, cash, distribution, production, technical and other resources than the Company. We cannot assure you that such competition will not intensify in the future which could materially and adversely affect our financial condition and operations.
Our industry is subject to various regulations and we must be in compliance with current and changing rules and regulations
The production and marketing of our beverages, including contents, labels, caps and containers, are subject to the rules and regulations of various federal, provincial, state and local health agencies. If a regulatory authority finds that a current or future product or production run is not in compliance with any of these regulations, we may be fined, or production may be stopped, thus adversely affecting our financial condition and operations. Similarly, any adverse publicity associated with any non-compliance may damage our reputation and our ability to successfully market our products.
Significant additional labeling or warning requirements may inhibit sales of affected products
Regulatory or governmental authorities may seek to adopt significant additional product labeling or warning requirements relating to the chemical content or perceived adverse health consequences of certain of our products. These types of requirements, if they become applicable to one or more of our products under current or future environmental or health laws or regulations may inhibit sales of such products.
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Risks Related To Our Capital Stock
Our common shares have experienced significant price volatility
Our common share price has experienced significant price volatility, with closing trading prices on the NASDAQ Capital Market ranging from a low of US$0.25 to a high of US$23.35 during the five year period from March 1, 2007 to February 29, 2012. During this period, the stock market for other small capitalization stocks has also experienced significant price fluctuations, which have often been unrelated to the operating performance of the affected companies. Such future fluctuations could adversely affect the market price of our common shares. The Company has had periods where the bid price of the Companys common shares closed below US$1.00 per share, and therefore there is a risk that the Company will not continue to meet the minimum requirement for continued listing under NASDAQs Marketplace Rule 5550(a)(2).
Sales of a substantial number of our common shares into the public market could result in significant downward pressure on the price of our common shares
Our common shares are traded on the NASDAQ Capital Market under the symbol LBIX. As of February 29, 2012, there were 3,236,668 common shares issued and outstanding. The concurrent sale of a substantial number of our common shares in the public market could cause a reduction in the market price of our common shares.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses to us
In order to maintain our current status as a foreign private issuer (as such term is defined in Rule 405 under the Securities Act), where more than 50% of our outstanding voting securities are directly or indirectly owned by residents of the United States, we must not have any of the following: (i) a majority of our executive officers or directors being U.S. citizens or residents, (ii) more than 50% of our assets being located in the United States, or (iii) our business being principally administered in the United States. If we were to lose our foreign private issuer status:
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We are incorporated in British Columbia, Canada, all of our directors and officers live in Canada, and most of our assets are in Canada; therefore, investors may have difficulty initiating legal claims and enforcing judgments against us and our directors and officers
We are a corporation existing under the laws of British Columbia, all of our directors and officers are citizens of Canada and the majority of our assets and operations are located outside of the United States. It may not be possible for shareholders to enforce, in Canada, judgments against us obtained in the United States, including actions predicated upon the civil liability provisions of the U.S. federal securities laws.
While reciprocal enforcement of judgment legislation exists between Canada and the United States, we and our insiders may have defenses available to avoid, in Canada, the effect of U.S. judgments under Canadian law, making enforcement difficult or impossible. As such, there is uncertainty as to whether Canadian courts would enforce (a) judgments of U.S. courts obtained against us or such persons predicated upon the civil liability provisions of the U.S. federal and state securities laws or (b) in original actions brought in Canada, liabilities against us or such persons predicated upon the U.S. federal and state securities laws. Therefore, our shareholders in the United States may have to avail themselves of remedies under Canadian corporate and securities laws for any perceived oppression, breach of fiduciary duty and like legal complaints. Canadian law may not provide for remedies equivalent to those available under U.S. law.
We may be deemed to be a controlled foreign corporation or a passive foreign investment company under the Internal Revenue Code of 1986, as amended (the Code)
If more than 50% of the voting power of all of our classes of shares or total value of our shares is owned, directly or indirectly, by citizens or residents of the United States, U.S. domestic partnerships and corporations or estates or trusts other than foreign estates or trusts (U.S. Shareholders), each of which owns 10% or more of the total combined voting power of all of our classes of shares (10% U.S. Shareholders), we could be treated as a controlled foreign corporation, as such term is defined under Subpart F of the Code. This classification would effect many complex results, including the required inclusion by such U.S. Shareholders in income of their pro rata shares of our Subpart F income (as specifically defined by the Code), if any, and the requirement that 10% U.S. Shareholders comply with certain additional U.S. tax reporting obligations. While we do believe that we are a controlled foreign corporation, we have not made a determination as to whether we are a controlled foreign corporation under the Code, and cannot give any assurance that we would not be determined to be a controlled foreign corporation under the Code now or in the future.
Even if we are not a controlled foreign corporation, we could be treated as a passive foreign investment company under the Code, depending upon the nature of our income and assets and those of our subsidiaries. Such a status would effect many complex results to our U.S.
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Shareholders, including those who own less than 10% of the total combined voting power of our outstanding shares. These results might include imposition of higher rates of tax on certain dividends and on gains from sale of our shares than would otherwise apply. While we do not believe that we are a passive foreign investment company nor ever have been, we have not made a determination as to whether we are or have ever been a passive foreign investment company and so cannot give any assurance in this regard, whether now or in the future.
Item 4. Information on the Company
A. | History and development of the Company. |
1. |
The legal name of the Company is Leading Brands, Inc. |
| |
2. |
The Company was incorporated under the Company Act (British Columbia) on February 4, 1986 under the name 2060 Investments Ltd. On May 21, 1986, the Company changed its name to Camfrey Resources Ltd. On March 16, 1993, the Company changed its name to Brio Industries Inc., and on October 25, 1999, the Company changed its name to Leading Brands, Inc. |
| |
3. |
The Company is a corporation incorporated under the laws of the province of British Columbia, Canada, and is governed by the Business Corporations Act (British Columbia). The head office of the Company is located at: |
Suite 1800 1500 West Georgia Street | |
Vancouver BC | |
Canada V6G 2Z6 | |
Tel: 604-685-5200 |
4. |
During the last fiscal year there were no material reclassifications, mergers or consolidations of the Company or any of its subsidiaries; acquisitions or dispositions of material assets other than in the ordinary course of business; material changes in the mode of conducting the business; material changes in the types of products produced or services rendered; name changes; or bankruptcy, receivership or similar proceedings with respect to the Company or its subsidiaries. |
5. |
The Company expended $401,709 on the purchase of property, plant, and equipment in the fiscal year ended February 29, 2012 of which $371,033 was for bottling equipment and $30,676 was for office equipment, computers and software. The Company expended $597,762 on the purchase of property, plant and equipment in the year ended February 28, 2011 of which $529,542 was for bottling equipment and $68,220 was for office equipment, computers and software. The Company expended $349,068 on the purchase of property, plant and equipment in the year ended February 28, 2010 of which $337,990 was for bottling equipment and $11,078 was for computers and software. |
6. |
Capital expenditures that are planned for the fiscal year ending February 28, 2013 are in Canada and will be funded with cash on hand, by the Companys primary lender, or some combination of the two. |
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7. |
There have been no indications of public takeover offers by third parties in respect of the Companys shares or by the Company in respect of other companies shares during the last and current fiscal year. |
B. |
Business overview. |
1. |
The Company and its subsidiaries are engaged in beverage bottling, distribution, sales, merchandising, brand development, brand licensing and brand management of beverage products. The Company has evolved into a fully integrated bottling and distribution operation with customers across Canada, the western United States, and Asia. |
In the fiscal year ended February 29, 2012, Leading Brands of Canada, Inc. was the principal operating subsidiary engaged in the Companys beverage business in Canada, and Blue Beverage Company, Inc. was the principal sales subsidiary in the United States. | |
2. |
Beverage Bottling, Distribution and Sales and Marketing |
Bottling Plant. In the fiscal year ended February 29, 2012, the Company operated a 50,000 square foot bottling plant in Edmonton, Alberta. The Company bottles juices and new age beverages for a co-pack customer (as defined below) and the Companys own branded products. The Companys plant is primarily a hot fill plant designed to allow for extended shelf life of products without the use of preservatives. In a hot fill process, the liquid is heated to a high temperature prior to filling. The bottle is filled and capped while the liquid remains at the high temperature and then the filled bottle is sent through a cooling tunnel. The cooling causes a pressure seal which preserves the product without the need to add any artificial preservatives. | |
The Company provides beverage packaging (co-pack) services to a major branded beverage company. Co-pack customers own their brands, and handle the distribution of the product to market. The Company simply co-packs or makes the product at the customers request. The Company charges a co-pack fee that equates to the packaging service provided and also bills for any materials not supplied by the customer. | |
Certain co-pack customers are charged only the co-pack fee because they supply all raw materials to make the product. Other co-pack customers request the Company to provide some or all of the raw materials. The selling price to customers is the cost of the raw materials supplied by the Company plus the co-pack fee. As a result, when a co-pack customer requests a change from a billing method in which the customer supplies the raw materials to a billing method where it requests the Company to supply the raw materials, it can cause a significant change in revenue, with little or no change in gross profit, since the cost of sales changes by approximately the same dollar amount. | |
The Companys Edmonton plant is designed and equipped to handle various types of containers on its two lines that can fill containers of glass or polyethylene teraphalate (PET). The Companys goal for beverage operations during the coming year is to expand the volume of cases packaged through co-pack operations and to expand the distribution of the Companys own branded product lines. |
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The Company operates in Canada as a fully integrated healthy beverage distributor.
Distribution. In addition to the bottling plant, the sales and distribution system has a regional warehouse distribution center located in Edmonton, Alberta. In addition, there are third party distribution centers in Greater Vancouver, Metro Toronto, Greater Montreal and in Washington State. The sales and distribution system distributes a variety of beverages to retail, wholesale and distribution outlets. As a market of approximately 34,000,000 people, covering more than 2,000,000 square miles, the Company believes that it is more cost effective for the Company to use a network of distributors to assist in the distribution of its products in Canada.
Sales and Marketing. The Company believes it differentiates itself in the marketplace with its customer service and product innovation. By selecting the right mix of products and flavours and determining the merchandising strategy for those items, the Company has been successful in increasing the turns of its customers beverage inventory.
The Company has a sales and marketing team and outside broker network that covers most of Canada and the western United States. Through its distribution network, broker network, and the Companys sales team, the Company maintains contact with its customers and provides the sales and merchandising services necessary to ensure proper presentation of the Companys brands on store shelves and to assure appropriate ordering and pull-through of the Companys products.
The sales and marketing team in Canada covers all aspects of the retail trade, including chain grocery and drug stores, mass merchandise centers, food service outlets and convenience stores.
The Company also contracts with outside sales professionals in the United States. These salespeople are primarily focused on marketing select brands to U.S. third party regional distributors, major wholesale customers and retail chains. The Company has a third party distribution center in Kent, Washington to service customers in the United States.
The Companys marketing department continuously develops and implements innovative marketing programs for all the brands represented. From sales booklets and point of sale materials to contests, sampling events, interactive websites and in-store demonstrations, the Company works to bring its brands to the top of its consumers minds. The Companys goal is to promote and market all the brands it represents in a healthy, positive and informed environment.
Brand Licensing and Brand Development
The Company has increased its focus on the development of its own brands. Several of the Companys branded products, including TrueBlue®, PureBlue®, LiteBlue® and TrueBlackTM, are packaged and managed by the Company. The Companys licensed brands include Stewarts® Fountain Classics.
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Other Business Overview Information | ||
Substantially all of the Companys operations, assets and employees are located in Canada. In the year ended February 29, 2012, net export sales were less than 10% of the Companys net revenues. | ||
3. |
Demand for the Companys beverage products is somewhat seasonal, with the warmer months producing more demand than the cooler months. | |
4. |
Sourcing and pricing of raw materials used in co-packing are generally the responsibility of the Companys co-pack customers. For the Companys branded and private label products this risk remains with the Company. | |
Raw materials used in the beverage packaging business consist primarily of sugar, bottles, closures, flavoring, cardboard and juice concentrate. The Company generally uses filtered municipal water to manufacture products. | ||
Sugar is commodity priced and is generally purchased under a one-year contract. There are several suppliers in both Canada and the United States. | ||
Bottles are generally purchased in the United States, but there is a PET bottle supplier in Canada. PET pricing is affected by changing oil prices. Clear glass supply can be limited due to market demand for this item. Pricing tends to remain stable during the year. | ||
Closures and flavorings are generally purchased in the United States, but Canadian suppliers are becoming available. | ||
Cardboard is widely available and, while pricing fluctuates from year to year, it is generally stable in the short term. | ||
Juice concentrates are commodity priced and generally purchased under volume contracts. Pricing varies with availability and demand and is impacted by crop performance in the respective growing regions. | ||
5. |
The Companys marketing and sales are handled by a combination of the Companys sales force and outside brokers and agents. In markets outside of Canada, principally in the United States, the Company uses third-party contractors for market development and sales. | |
6. |
No material portion of the Companys business is dependent on a single or connected group of patents or licenses, industrial, commercial or financial contracts or new manufacturing processes. |
17
7. |
The Company makes no statements concerning its competitive position. |
8. |
The Company is subject to regulations of the Canadian Food Inspection Agency, Health Canada and Natural Health Product Directorate, as well as the U.S. Food and Drug Administration, with regards to ingredients and labeling of the Companys products. |
The Company is also subject to compliance with the Canada Border Services Agency and the United States Department of Homeland Security, Customs and Border Protection, for border security and customs functions related to the cross-border movement of raw materials and finished goods. |
C. |
Organizational structure. |
Following is a list of the Companys significant subsidiaries as at February 29, 2012:
Leading Brands of Canada, Inc. (LBCI): | ||
incorporated provincially in Alberta, Canada; | ||
100% owned by Leading Brands, Inc.; | ||
is the Companys principal operating subsidiary in Canada; and | ||
also operates as North American Bottling (a division of LBCI). | ||
Blue Beverage Company, Inc. (BBCI) | ||
incorporated in Nevada, USA; | ||
100% owned by Leading Brands, Inc.; and | ||
is the Companys principal operating subsidiary in the United States. | ||
LBI Brands, Inc.: | ||
incorporated provincially in British Columbia, Canada; | ||
100% owned by Leading Brands, Inc.; and | ||
owns certain of the Companys proprietary brands, trademarks and other intellectual property. |
D. |
Property, plant and equipment. |
Leading Brands owns and operates a 50,000 square foot bottling plant in Edmonton, Alberta. The plant contains two lines for a combined 144 oz. equivalent case capacity of approximately 10,000,000 cases per annum.
The Company leases a property occupying 61,872 square feet in Edmonton, Alberta which serves as a regional warehouse and distribution centre. The Company also utilizes third party distribution centres in Ontario, Quebec, British Columbia, and Washington State.
The Companys head office is located at Suite 1800 1500 West Georgia Street, Vancouver BC. The space occupies 6,036 square feet and is leased until January 2013.
18
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
A. |
Operating results |
Introduction
Leading Brands and its subsidiaries are involved in the development, production, marketing and distribution of the Companys branded and licensed beverage brands as well as production services for certain other customers.
The Company sells branded and licensed beverage products through its Integrated Distribution System (IDS) of distributors, wholesalers, and grocery chains. Its principal product lines include juices and other premium beverages. The Companys bottling plant provides bottling services for the Companys own products and for external customers, as requested. The Company also uses the services of third party bottlers as required to meet its objectives.
Overall Performance
The major developments during the year ended February 29, 2012 included:
The Company improved its gross margin percentages from 38.2% in the fiscal year ended February 28, 2011 to 38.7% in the year ended February 29, 2012; and
The Company saw an increase in its net income from a net loss of ($82,028) for the year- ended February 28, 2011 on $20.0 million in gross sales to a net income of $1,550,858 in the year-ended February 29, 2012 on $19.5 million gross sales, principally due to a decrease in stock based compensation.
Sales
Revenue | Fiscal Year ended | Fiscal Year ended | Change | ||||||
February 29, 2012 | February 28, 2011 | ||||||||
(As Adjusted) | |||||||||
Manufactured Products | $ | 18,621,941 | $ | 18,468,208 | $ | 153,733 | |||
Purchased Products | $ | 834,564 | $ | 1,580,734 | ($ 746,170 | ) | |||
Total Gross Revenue | $ | 19,456,505 | $ | 20,048,942 | ($ 592,437 | ) | |||
Discounts, Allowances and Rebates | ($ 1,052,453 | ) | ($ 1,139,911 | ) | $ | 87,458 |
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Net Revenue | $ | 18,404,052 | $ | 18,909,031 | ($ 504,979 | ) |
Gross sales for the year ended February 29, 2012 were $19,456,505 compared to $20,048,942 for the previous fiscal year, representing a decrease of 3.0% . This decrease of $592,437 in gross sales for the year ended February 29, 2012 was the result of the following:
Discounts, rebates and slotting fees for the year ended February 29, 2012 decreased $87,458 compared to the prior fiscal year as a result of lower discounts for products that the Company purchases for resale in the amount of $106,696, offset by an increase of $19,238 in discounts for products that the Company manufactures.
Cost of Sales and Margin
Cost of Sales | Fiscal Year ended | Fiscal Year ended | Change | ||||||
February 29, 2012 | February 28, 2011 | ||||||||
(As Adjusted) | |||||||||
Manufactured Products | $ | 10,665,787 | $ | 10,542,650 | $ | 123,137 | |||
Purchased Products | $ | 621,292 | $ | 1,148,206 | ($ 526,914 | ) | |||
Total | $ | 11,287,079 | $ | 11,690,856 | ($ 403,777 | ) |
Cost of sales for the year ended February 29, 2012 was $11,287,079 compared to $11,690,856 for the previous fiscal year, representing a decrease of 3.5% . This decrease in cost of sales of $403,777 for the year ended February 29, 2012 was the result of the following:
Margin | Fiscal Year ended | Fiscal Year ended | Change | ||||||
February 29, 2012 | February 28, 2011 | ||||||||
(As Adjusted) | |||||||||
Manufactured Products | $ | 6,945,434 | $ | 6,934,075 | $ | 11,359 | |||
Purchased Products | $ | 171,539 | $ | 284,100 | ($ 112,561 | ) |
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Total | $ | 7,116,973 | $ | 7,218,175 | ($ 101,202 | ) | |||
Margin percentage | 38.7% | 38.2% | 0.5% |
Margin for the year ended February 29, 2012 was $7,116,973 compared to $7,218,175 for the previous fiscal year, representing an increase in margin as a percentage of net sales of 0.5% . The decrease in margin of $101,202 for the year ended February 29, 2012 was the result of decreased margin from products that the Company purchases for resale of $112,561. This decrease in purchased product sales volumes is attributable partly to the prior year termination of a distribution agreement.
Selling, General and Administrative Expenses
For the year ended February 29, 2012, selling, general and administrative expenses decreased $1,205,891 from $5,862,189 in the year ended February 28, 2011 to $4,656,298 in the year ended February 29, 2012 as a result of:
Other Expenses and Recovery
Interest on current and long-term debt was lower due to the Companys repayment of $1.7 million of outstanding debts in the year.
In the year ended February 29, 2012, the Company recorded interest income from bank balances of $8,216 compared to $15,997 in the prior fiscal year.
The Company recorded a non-cash income tax expense of $93,103 in the year ended February 29, 2012 relating to Canadian operations, as compared to a $680,879 expense in the prior fiscal year. Deferred tax assets in other operating entities are offset by a valuation allowance.
Depreciation expense continued to trend down in comparison to prior fiscal year with a decrease of $24,925 over the prior comparative year to $676,464.
Fiscal Year Ended February 28, 2011
Sales
Revenue | Fiscal Year ended | Fiscal Year ended | Change | ||||||
February 28, 2011 | February 28, 2010 | ||||||||
(As Adjusted) | (As Adjusted) | ||||||||
Manufactured Products | $ | 18,468,208 | $ | 19,796,053 | ($ 1,327,845 | ) |
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Purchased Products | $ | 1,580,734 | $ | 2,376,620 | ($ 795,886 | ) | |||
Total Gross Revenue | $ | 20,048,942 | $ | 22,172,673 | ($ 2,123,731 | ) | |||
Discounts, Allowances and Rebates | ($ 1,139,911 | ) | ($ 1,646,440 | ) | $ | 506,529 | |||
Net Revenue | $ | 18,909,031 | $ | 20,526,233 | ($ 1,617,202 | ) |
Gross sales for the year ended February 28, 2011 were $20,048,942 compared to $22,172,673 for the previous fiscal year, representing a decrease of 9.6% . This decrease of $2,123,731 in gross sales for the year ended February 28, 2011 was the result of the following:
Discounts, rebates and slotting fees for the year ended February 28, 2011 decreased $506,529 compared to the prior fiscal year as a result of lower discounts for products that the Company manufactures in the amount of $407,082 and lower discounts for products that the Company purchases for resale of $99,447.
Cost of Sales and Margin
Cost of Sales | Fiscal Year ended | Fiscal Year ended | Change | ||||||
February 28, 2011 | February 28, 2010 | ||||||||
(As Adjusted) | (As Adjusted) | ||||||||
Manufactured Products | $ | 10,542,650 | $ | 11,551,053 | ($ 1,008,403 | ) | |||
Purchased Products | $ | 1,148,206 | $ | 1,871,099 | ($ 722,893 | ) | |||
Total | $ | 11,690,856 | $ | 13,422,152 | ($ 1,731,296 | ) |
Cost of sales for the year ended February 28, 2011 was $11,690,856 compared to $13,422,152 for the previous fiscal year, representing a decrease of 12.9% . This decrease in cost of sales of $1,731,296 for the year ended February 28, 2011 was the result of the following:
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Margin | Fiscal Year ended | Fiscal Year ended | Change | ||||||
February 28, 2011 | February 28, 2010 | ||||||||
(As Adjusted) | (As Adjusted) | ||||||||
Manufactured Products | $ | 6,934,075 | $ | 6,846,435 | $ | 87,640 | |||
Purchased Products | $ | 284,100 | $ | 257,646 | $ | 26,454 | |||
Total | $ | 7,218,175 | $ | 7,104,081 | $ | 114,094 | |||
Margin percentage | 38.2% | 34.6% | 3.6% |
Margin for the year ended February 28, 2011 was $7,218,175 compared to $7,104,081 for the previous fiscal year, representing an increase in margin as a percentage of net sales of 3.6% . The increase in margin of $114,094 for the year ended February 28, 2011 was the net result of the following:
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1,645,181 from $4,217,008 in the year ended February 28, 2010 to $5,862,189 in the year ended February 28, 2011 as a result of:
Other Expenses and Recovery
Interest on long-term debt was lower due to lower interest rates and lower average borrowing levels. Interest on current debt was lower due to a declining trend in debt balance and lower interest rates.
In the year ended February 28, 2011, the Company recorded a gain of $158,960 relating to the termination of a distribution agreement and a long-standing liability settlement. No such contract settlements occurred during the year-ended February 28, 2010.
In the year ended February 28, 2011, the Company recorded interest income from bank balances of $15,997 compared to $5,066 in the prior fiscal year.
23
The Company recorded a non-cash income tax expense of $680,879 in the year ended February 28, 2011 relating to Canadian operations, as compared to a $735,133 expense in the prior fiscal year. Deferred tax assets in other operating entities are offset by a valuation allowance.
Depreciation expense decreased $27,604 over the prior comparative year to $701,389.
Fiscal Year Ended February 29, 2012
As of February 29, 2012, the Company had working capital of $1,352,067 compared to working capital of
B. | Liquidity and Capital Resources |
$1,651,104 at the prior fiscal year end. The Company held $1,189,539 in cash account balances at February 29, 2012 compared with $1,870,600 at the prior fiscal year end.
Considering the positive working capital position, including the cash on hand at February 29, 2012, available debt and other internal resources, the Company believes that it has sufficient working capital to continue operations for the next twelve months.
Cash provided by (used in): |
Fiscal Year ended February 29, 2012 |
Fiscal Year ended February 28, 2011 |
Change |
Operating activities | $ 2,632,410 | $ 3,292,062 | ($ 659,652) |
Investing Activities | ($ 401,148) | ($ 597,762) | $ 196,614 |
Financing activities | ($ 2,912,313) | ($ 2,723,133) | ($ 189,180) |
For the year ended February 29, 2012, the cash generated from operating activities was the result of positive operating results. The comparative period results for cash generated from operating activities exceeds the current year primarily as a result of reductions in inventory and accounts receivable not realized in the current year.
In the year ended February 29, 2012, less cash was used for bottling equipment in the Edmonton plant as compared to the prior fiscal year.
Cash used for financing activities in the year ended February 29, 2012 increased in comparison to the prior fiscal year and was used for the purposes of long-term debt repayment and the repurchase of 344,381shares.
The Company has a demand revolving operating bank loan with a credit limit of $3,500,000 (the Revolving Facility), subject to the availability of eligible collateral, with an interest rate of the Canadian prime rate of its lender plus 1.75 per annum. At February 29, 2012, the availability under the Revolving Facility, as determined by the amount of eligible collateral, was $440,000. The Companys requirement for operating capital increases in the summer months due to increased sales and decreases in winter months due to decreased sales. The unused portion of the Revolving Facility is expected to accommodate those requirements as inventory and accounts receivable levels increase with sales volumes.
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The Revolving Facility agreement contains four financial covenants: (i) a tangible net worth covenant; (ii) a current ratio covenant; (iii) a capital acquisition covenant; and (iv) a debt coverage covenant. The Company was in compliance with all covenants at February 29, 2012.
In the fiscal year ended February 29, 2012, the Company repaid capital loans totaling $925,699 and had $353,226 outstanding at February 29, 2012.
Subsequent to year-end, the Company announced its intention to commence a modified Dutch Auction tender offer to repurchase up to US $800,000 in value of its common shares. This tender offer is to be funded through available cash.
Other sources of financing are more fully described in the consolidated financial statements appearing in Item 18 of this Annual Report.
The Company generally maintains cash or cash equivalents in Canadian and U.S. funds and does not use financial instruments for hedging purposes.
The Company had no material commitments for capital expenditures in the fiscal year ending February 28, 2013.
Fiscal Year Ended February 28, 2011
As of February 28, 2011, the Company had working capital of $1,651,104 compared to working capital of $1,299,531 at the prior fiscal year end. The Company held $1,870,600 in cash account balances at February 28, 2011 compared with $1,899,386 at February 28, 2010.
The Revolving Facility agreement in effect at February 28, 2011, contained four financial covenants: (i) a tangible net worth covenant; (ii) a current ratio covenant; and (iii) a capital acquisition covenant; and (iv) a debt coverage covenant. The Company was in compliance with all covenants at February 28, 2011.
Cash provided by (used in): |
Year ended February 28, 2011 |
Year ended February 28, 2010 |
Change |
Operating activities | $ 3,292,062 | $ 4,432,538 | ($ 1,140,476) |
Investing activities | ($ 597,762) | ($ 338,549) | ($ 259,213) |
Financing activities | ($ 2,723,133) | ($ 2,894,706) | $ 171,573 |
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For the year ended February 28, 2011, the cash generated from operating activities was primarily a result of the positive operating results, and, consistent with the prior year trend, reductions in inventory and accounts receivable as a result of lower sales volumes.
In the year ended February 28, 2011, greater cash was used for bottling equipment in the Edmonton plant as compared to the prior year.
Cash used for financing activities in the year ended February 28, 2011, decreased slightly in comparison to the prior fiscal year, and was used for the purposes of long-term debt repayment and the repurchase of 344,026 shares.
At February 28, 2011, the availability under the Revolving Facility, as determined by the amount of eligible collateral, was $661,000. The Companys requirement for operating capital increases in the summer months with increased sales and decreases in winter months. The unused portion of the Revolving Facility is expected to accommodate those requirements as inventory and accounts receivable levels increase with sales volumes. The Company also had a Term Loan in the amount of $837,100 with an interest rate at Canadian prime rate plus 1.25% per annum renewable in February 2012 (the Term Loan).
The bank facility agreement contains four financial covenants. They are a tangible net worth covenant, a current ratio covenant, a capital acquisition covenant, and a debt coverage covenant. The Company was in compliance with all covenants at February 28, 2011.
In the year-ended February 28, 2011, the Company repaid capital loans totaling $481,364, and had $1,278,925 outstanding at February 28, 2011.
The Company had no material commitments for capital expenditures in the fiscal year ending February 29, 2012.
C. |
Research and development, patents and licenses, etc. |
The Company does not have any deferred product costs at this time. The Company does not have a formal research and development program. It develops products as and when it sees fit by working with existing staff and outside consultants, where appropriate.
The Company has a large inventory of formulations for a wide variety of juices and new age beverages, as well as many U.S., Canadian and foreign trademarks.
D. |
Trend Information. |
Gross margins percentages continue to increase in comparison to the prior fiscal year through a focus on reduced cost of sales and limiting discounts and rebates.
26
E. |
Off-balance sheet arrangements. |
1. |
The Company is committed to operating leases for premises and equipment and other agreements as disclosed in Note 12 of the consolidated financial statements appearing in Item 18 of this Annual Report. |
2. |
The Company has no off balance sheet arrangements. |
F. |
Tabular disclosure of contractual obligations. |
The following table presents our contractual obligations as of February 29, 2012:
Payments due by period | |||||
Contractual Obligations |
Total |
less than 1 year |
1-3 years |
3-5 years |
more than 5 years |
Long-term Debt Obligations | - | - | - | - | - |
Capital (Finance) Lease Obligations | $353,226 | $134,852 | $218,374 | - | - |
Operating Lease Obligations (1) | $420,796 | $420,796 | - | - | |
Purchase Obligations | $177,501 | $47,981 | $129,520 | - | - |
Other Long-term Liabilities Reflected on the Companys Balance Sheet under the GAAP of the primary financial statements | - | - | - | - | - |
Interest | $ 28,723 | $17,981 | $10,742 | - | - |
Total | $980,246 | $621,610 | $358,636 | - | - |
(1) |
The Company is committed to operating leases for premises and equipment as disclosed in Note 12 of the consolidated financial statements appearing in Item 18 of this Annual Report. |
Critical Accounting Policies
The Companys annual financial statements have been prepared in accordance with U.S. GAAP. Some accounting policies have a significant impact on the amount reported in these financial statements. A summary of those significant accounting policies can be found in the Summary of Significant Accounting Policies in the annual financial statements. Note that the preparation of this Annual Report requires the Company to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. The Company believes, as explained below, that the most critical accounting policies cover the following areas: accounts receivable; inventory; revenue recognition; stock-based compensation, derivative liability and income taxes.
27
Change in Accounting Principle
Effective February 29, 2012, the Company changed its accounting for a component of inventory. The Company believes that to better reflect the Companys operations it is more appropriate to expense pallet inventory as purchased as a cost of sale. The change in accounting principle was adopted retroactively, with retrospective adjustment of prior years financial statements as below. The impact on 2012 was a $23,932 reduction in comprehensive income, and a $0.01 impact on basic earnings per share. There was no impact on diluted earnings per share. Prior year financial statements have also been adjusted to reflect the change from Canadian GAAP to U.S. GAAP.
Change in Reporting Currency
Effective for the year ended February 28, 2010, the Company changed its reporting currency from U.S. dollars to Canadian dollars. The Company believes that financial statements presented in Canadian dollars delivers more meaningful and relevant financial information to the shareholders as the majority of the Companys transactions are denominated in Canadian dollars.
Accordingly, the financial statements for all years presented are translated into the reporting currency using the current rate method. Under this method, the income statement and the cash flow statement items for each year are translated into the reporting currency using the exchange rates in effect at the date of the transactions, and assets and liabilities are translated using the exchange rate at the end of that year. All resulting exchange differences are reported as a separate component of other comprehensive income, which is included as part of shareholders equity. Results in the consolidated statements of loss and comprehensive loss of prior fiscal years were translated using the weighted average exchange rate in effect for the applicable periods, and the results of prior fiscal year consolidated balance sheets were translated using applicable period end exchange rate. The effect of the change in reporting currency substantially eliminated the translation currency adjustment created upon the conversion to a U.S. dollar reporting currency.
Goodwill
For the year ended February 28, 2009, following a detailed review of the fair value calculations, the Company decided to write off its goodwill asset as its market capitalization at February 28, 2010 no longer supported it. As a result, the goodwill asset was written down to zero for the year ended February 28, 2009. Goodwill was reduced by $3,353,543 with a corresponding expense for impairment write down of goodwill.
28
Accounts Receivable
Accounts receivable invoices are recorded when the products are delivered and title transfers to customers or when bottling services are performed and collection of related receivables is reasonably assured. Allowances for doubtful accounts are based primarily on historical write-off experience. Account balances that are deemed uncollectible are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Allowances for doubtful accounts of $43,353 are netted against accounts receivable as at February 29, 2012. A 10% change in the estimates for doubtful accounts would not result in a material change to the financial statements.
Inventory
Raw materials and finished goods purchased for resale are valued at the lower of cost, determined on a first-in, first-out basis, and market value. Finished goods, produced from manufacturing operations, are valued at the lower of standard cost which approximates average cost of raw materials, direct labour and overhead and market value. The provisions for obsolete or excess inventory are based on estimated forecasted usage of inventories. A significant change in demand for certain products as compared to forecasted amounts may result in recording additional provisions for obsolete inventory. Provisions for obsolete or excess inventory are recorded as cost of goods sold. At February 29, 2012, the inventory balance was presented net of a provision for obsolete inventory in the amount of $115,413. A 10% change in the estimates for provision of obsolete inventory would not result in a material change to the financial statements.
Revenue Recognition
Revenue on sales of products is recognized when the products are delivered and title transfers to customers. Revenues from the provision of manufacturing, bottling or other services are recognized when the services are performed and collection of related receivables is reasonably assured. The Company records shipping and handling revenue as a component of sales revenue, and shipping and handling costs are included in the cost of sales. Incentives offered to customers including rebates, cash discounts, volume discounts, and slotting fees are recorded as a reduction of net sales when the sales are recognized.
Stock-based Compensation
Under U.S. GAAP, the Company follows Accounting Standards Codification (ASC) 718 Share-Based Payment (ASC 718). ASC 718 requires the Company to recognize in the statement of operations the grant date fair value of share-based compensation awards granted to employees over the requisite service period. Compensation expense recognized reflects estimates of award forfeitures and any changes in estimates thereof are reflected in the period of change.
Compensation costs are charged to the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
29
Derivative Liability
Under ASC 815-40-15 Derivatives and Hedging, non-employee stock options granted during the year ended February 28, 2011 met the criteria of a derivative instrument liability because they were exercisable in a currency other than the functional currency of the Company and thus did not meet the fixed-for-fixed criteria of that guidance. As a result, the Company was required to separately account for the stock options as a derivative instrument liability recorded at fair value and marked-to-market each period with the changes in the fair value each period charged or credited to income.
Income Taxes
Deferred income tax assets and liabilities are computed based on differences between the carrying amount of assets and liabilities on the balance sheet and their corresponding tax values using the enacted income tax rates by tax jurisdiction at each balance sheet date. Deferred income tax assets also result from unused loss carry-forwards and other deductions. The valuation of deferred income tax assets is reviewed annually and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realizable amount. Significant management judgment is required in determining our provision for income taxes, our deferred income tax assets and liabilities and any valuation allowance recorded against our net deferred income tax assets. We evaluate all available evidence, such as recent and expected future operating results by tax jurisdiction, and current and enacted tax legislation and other temporary differences between book and tax accounting to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. There is a risk that management estimates for operating results could vary significantly from actual results, which could materially affect the valuation of the deferred income tax asset. Although the Company has tax loss carry-forwards and other deferred income tax assets, management has determined certain of these deferred income tax assets do not meet the more likely than not criteria, and accordingly, these deferred income tax asset amounts have been partially offset by a valuation allowance as disclosed in Note 11 of the consolidated financial statements appearing in Item 18 of this Annual Report.
If managements estimates of the cash flows or operating results do not materialize due to errors in estimates or unforeseen changes to the economic conditions affecting the Company, it could result in an impairment adjustment in future periods up to the carrying value of the deferred income tax balance of $2,714,627. A 10% change in revenue estimates without a corresponding reduction in overhead costs, gross margins or operating costs could materially change the valuation of the deferred income tax assets. The majority of the deferred income tax asset commences expiration at February 28, 2026.
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New Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) provided amendments to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (IFRS). The amendments provide clarification and / or additional requirements relating to the following: a) application of the highest and best use and valuation premise concepts, b) measurement of the fair value of instruments classified in an entitys shareholders equity, c) measurement of the fair value of financial instruments that are managed within a portfolio, d) application of premiums and discounts in a fair value measurement, and e) disclosures about fair value measurements. These amendments will be effective prospectively for interim and annual periods beginning after December 15, 2011. The cumulative effect of adopting this standard is not expected to have a material impact on the Companys financial position, results of operations or cash flows.
In June and December 2011, the FASB provided amendments requiring an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity. The Company early implemented the requirements and now presents net income and other comprehensive income in a single continuous statement in its consolidated financial statements in Item 18 of this Annual Report.
In April 2010, the FASB provided amendments to address the classification of an employee share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. Guidance was provided on the classification of a share-based payment award as either equity or a liability. These amendments were effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The early adoption of the provisions of this amendment for the year-ended February 28, 2011, allowed for the Company not to separately account for employee stock options as a liability measured at fair value and marked-to-market each period with the changes in the fair value each period charged or credited to income.
Item 6. Directors, Senior Management and Employees
A. |
Directors and senior management. |
The following is a list of the current directors and senior officers of the Company, their municipalities of residence, their current positions with the Company, areas of experience, and principal business activities performed outside the Company:
31
Name and Municipality of Residence |
Principal Occupation and Areas of
Experience |
James Corbett West Vancouver, BC Canada |
Mr. Corbett has been a director of Leading Brands, Inc. since June 2008. He trained as a Chartered Accountant, and is the founder and president of Canadian Outback Adventures. |
Mr. Corbett has served as a member of the Tourism Management Advisory Committee of Capilano University, and is also a guest lecturer at various colleges. | |
Darryl R. Eddy Vancouver, BC Canada |
Mr. Eddy has been a director of Leading Brands, Inc. since July 2009. He is also President of Radale Inc., a private investment holding company and a managing director of Genpar Capital Inc. |
Mr. Eddy is a recently retired partner of PricewaterhouseCoopers LLP and a past Managing Director of PricewaterhouseCoopers Corporate Finance Inc. | |
Stephen K. Fane, FCA Vancouver, BC Canada |
Mr. Fane has been a director of Leading Brands, Inc. since October 2007. He is also the CEO of Valcent Products Inc. and the President of New Century Holdings Ltd. Mr. Fane was President and CEO of Hot House Growers Income Fund, a publicly traded income trust, from December 2003 to October 2006. |
He is a former partner in a predecessor firm to PricewaterhouseCoopers. | |
A graduate of the University of British Columbia, he became a Chartered Accountant in 1972 and was elected a Fellow of the Institute of Chartered Accountants in 1997. | |
32
Name and Municipality of Residence |
Principal Occupation and Areas of
Experience |
R. Thomas Gaglardi Vancouver, BC Canada |
Mr. Gaglardi has been a director of Leading Brands, Inc. since October 1998. |
He is also the President of Northland Properties Corporation, a hotel, real estate and restaurant company, and Chairman and CEO of Sandman Hotels, Inns & Suites, and Moxies Restaurants LP, Shark Clubs of Canada, Inc. and Dennys Restaurants of Canada. | |
Ralph D. McRae West Vancouver, BC Canada |
Mr. McRae is a director and the Chairman, President and Chief Executive Officer of the Company and has been with Leading Brands, Inc. since March 1996. He is also a director and the Chairman, CEO and Secretary/Treasurer of Leading Brands of Canada, Inc. |
Mr. McRae is a director and the Chairman and CEO of McRae Management Ltd., a waste management and water company based in Surrey, British Columbia. | |
He is a member of the Bar of British Columbia and holds a Bachelor of Commerce (1980) and LLB (1981) from the University of British Columbia. | |
Mr. McRae is also a member of the Board of the Canadian Coast Guard Auxiliary Pacific Region. | |
Sinan ALZubaidi Edmonton, AB Canada |
Mr. ALZubaidi is the Vice-President of Bottling Operations for Leading Brands of Canada, Inc. |
Prior to joining Leading Brands in 1998, Mr. ALZubaidi worked for Sweet Ripe Drinks (Ontario & Nova Scotia) for 7.5 years as a Director of Operations. Prior to this he worked for 12 years as a senior Statistician for the federal government of UAE. | |
Mr. ALZubaidi has a BA degree in Statistics and post graduate courses in the same field. | |
33
Name and Municipality of Residence |
Principal Occupation and Areas of
Experience |
Dave Read Edmonton, AB Canada |
Mr. Read is the Executive Vice-President of Leading Brands of Canada, Inc. |
Prior to joining Leading Brands in 1999, Mr. Read owned and operated (with a partner) distribution and food production companies. Those companies were sold to the Company in 1999. | |
Dallyn Willis Vancouver, BC Canada |
Mr. Willis is the Chief Financial Officer for Leading Brands of Canada, Inc. |
Prior to joining Leading Brands in March 2011, Mr. Willis worked in the audit and advisory practices of PricewaterhouseCoopers. He is a member of the Institute of Chartered Accountants of British Columbia. | |
There are no arrangements or understandings pursuant to which any of the above was selected as a director or executive officer. There are no family relationships between any of the persons named above.
B. |
Compensation. |
Compensation Principles
The Company is committed to the philosophy of sharing the benefits of success with those who help the Company grow and prosper. The Companys strength and ability to sustain growth is based on an organization that perceives people as its single most important asset. The Companys philosophy is to provide sufficient compensation opportunities in order to attract and retain key executive officers critical to the Companys long-term success. The Company has developed a profit participation plan for senior management and an employee share option plan to increase the risk/reward ratio of its executive compensation program, to focus management on long term strategic issues, and to align managements interests with those of the shareholders of the Company in the sustained growth of shareholder value.
The Company relies on the independent members of the Board for determining executive compensation. The Board may from time to time retain independent consultants to advise on compensation matters.
Compensation Program
The Companys executive compensation program includes base salary, annual cash or short-term incentives (bonuses) and long-term incentive compensation in the form of stock options.
34
The compensation program is designed to:
Base Compensation
The Company determines base salary based on a combination of factors, including comparable market data, experience, expertise, and job responsibilities. Salary levels are reviewed periodically and adjustments may be made, if warranted, after an evaluation of executive and company performance, salary trends in the Companys business sector, and any increase in responsibilities assumed by the executive.
Short-Term Incentives
Bonuses for senior management are, with limited exceptions, discretionary and are intended to reward senior managers for exceptional performance that positively impacts the profitability and growth of the Company. Depending on the Companys financial and operating performance, performance-based bonuses may be awarded.
Long-Term Incentives
The long-term incentives are intended to align executive and shareholder interests by creating a strong and direct link between executive compensation and shareholder return, and to enable executive officers to develop and maintain a significant, long-term stock ownership position in the Companys common shares. Long-term incentives may be granted in the form of stock options which generally vest over several years of service with the Company. Further discussion follows in the section titled Option-Based Awards.
Risk Considerations:
As the Company does not have a bonus program in place for its employees generally, and any significant bonuses for the Named Executive Officers (as defined below in the section Summary Compensation Table) must be approved by the Board, the Board has not considered the implications of risks associated with the Companys compensation policies and practices.
Financial Instruments
No Named Executive Officer or director is permitted to purchase financial instruments to hedge or offset a decrease in market value of equity securities granted as compensation or held, directly or indirectly, by the Named Executive Officer or Director.
Option-Based Awards
The Company does not have a formal stock option plan. Options for the purchase of common shares of the Company are granted from time to time to directors, officers, consultants and employees as an incentive. These options are long-term incentives that generally vest over several years of service with the Company. The options granted are exercisable at a price which is equal to or greater than the fair market value of the common shares at the date the options are granted. Options are granted in consideration of the level of responsibility of the employee as well as his or her impact or contribution to the longer-term operating performance of the Company.
35
In determining the amount and frequency of such grants, a variety of factors are evaluated, including job level, and past, current and prospective services rendered. The Board also takes into account the number of options, if any, previously granted, and the exercise price of any outstanding options to ensure that such grants are in accordance with all applicable regulatory policies.
Summary Compensation Table
The following tables set forth all remuneration paid by the Company and its subsidiaries during the three most recently completed fiscal years to its Chief Executive Officer (CEO), Chief Financial Officer (CFO) and other executive officers whose total compensation was, individually, more than $150,000 for the fiscal year (collectively, the Named Executive Officers or NEOs).
These tables are presented in accordance with National Instrument Form 51-102F6 (Canada).
Name and | Fiscal | Salary | Share- | Option- | Non-Equity Annual | All Other | Total | |
Principal Position | Year | ($) | based | Based | Incentive Plans | Compen- | Compen- | |
Ending | awards | Awards(1) | ($) | sation | sation | |||
($) | ($) | Annual | Long- | ($) | ($) | |||
Incentive | Term | |||||||
Plans | Incentive | |||||||
Plans | ||||||||
Ralph McRae | 2012 | Nil | nil | Nil | nil | nil | 528,000(2) | 612,000 |
Chairman, | 84,000(3) | |||||||
President and CEO | ||||||||
2011 | nil | nil | 556,603 | nil | nil | 528,000 | 1,168,603 | |
84,000 | ||||||||
2010 | nil | nil | Nil | nil | nil | 479,600 | 563,600 | |
84,000 | ||||||||
Dallyn Willis(4) | 2012 | 90,769 | nil | 34,704 | nil | nil | nil | 125,473 |
CFO | ||||||||
Dave Read | 2012 | Nil | nil | Nil | 15,000 | nil | 245,350(5) | 260,350 |
Executive Vice | ||||||||
President | 2011 | nil | nil | 227,185 | nil | nil | 239,118 | 466,303 |
2010 | nil | nil | nil | nil | nil | 192,218 | 192,218 |
36
Name and | Fiscal | Salary | Share- | Option- | Non-Equity Annual | All Other | Total | |
Principal Position | Year | ($) | based | Based | Incentive Plans | Compen- | Compen- | |
Ending | awards | Awards(1) | ($) | sation | sation | |||
($) | ($) | Annual | Long- | ($) | ($) | |||
Incentive | Term | |||||||
Plans | Incentive | |||||||
Plans | ||||||||
Sinan ALZubaidi | 2012 | 151,691 | nil | Nil | 28,500 | nil | nil | 180,191 |
Vice President of | ||||||||
Bottling | 2011 | 188,675 | nil | 113,592 | 10,000 | nil | nil | 312,267 |
Operations | ||||||||
2010 | 153,681 | nil | nil | 28,500 | nil | nil | 182,181 |
(1) |
The value of option awards reflects the grant date fair value of option based awards in the 2010, 2011 and 2012 fiscal years. The options are granted in U.S. dollars and are converted into Canadian dollars at the Bank of Canada closing rate as of the date of the options grant for accounting purposes. |
(2) |
McRae Ventures, Inc., a company with a director in common with the Company, received $528,000 for consulting services provided by Mr. McRae. |
(3) |
BBI Holdings Inc., a company with a director in common with the Company, receives $7,000 per month for consulting services provided by a member of the board of directors of BBI Holdings Inc. |
(4) |
Mr. Willis was the VP of Finance & Administration of the Company from March 1, 2011 to January 11, 2012 when he was promoted to CFO. |
(5) |
VE Services Ltd., a company owned by Mr. Read, received this amount for consulting services provided by Mr. Read. |
The Company does not have formal employment or consulting agreements. Some executives are paid as employees of the Company and others are paid as consultants, who invoice the Company for their services.
Outstanding Option-Based Awards for Named Executive Officers
The following table sets forth information concerning all stock option awards outstanding at the end of the most recently completed fiscal year, including awards granted before the most recently completed fiscal year, to each of the Named Executive Officers. The Company has not granted any share-based awards.
Name
|
Number of
Securities Underlying Unexercised Options (#) |
Option Exercise
Price (USD$ ) |
Option Expiration
Date |
Value of Unexercised
In- The-Money Options (1) (USD$ ) |
Ralph McRae |
20,000 245,000 |
3.00 2.45 |
June 26, 2018 June 1, 2020 |
16,000 330,750 |
Dallyn Willis | 10,000 | 3.00 | January 11, 2022 | 8,000 |
Dave Read | 20,000 | 7.10 | January 10, 2018 | nil |
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Name
|
Number of
Securities Underlying Unexercised Options (#) |
Option Exercise
Price (USD$ ) |
Option Expiration
Date |
Value of Unexercised
In- The-Money Options (1) (USD$ ) |
100,000 | 2.45 | June 1, 2020 | 135,000 | |
Sinan ALZubaidi |
4,833 1,367 5,000 7,000 50,000 |
4.05 5.35 6.20 3.00 2.45 |
February 9, 2015 January 11, 2016 April 4, 2018 June 26, 2018 June 1, 2020 |
nil nil nil 5,600 67,500 |
(1) |
This amount is calculated based on the difference between the market value of the securities underlying the options at the end of the most recently completed fiscal year, which was USD$3.80, and the exercise or base price of the option. |
The terms of the Companys stock options are discussed under the Option-Based Awards section above.
No stock options were exercised by the Named Executive Officers during the most recently completed fiscal year, nor did the Company re-price any stock options during that period.
Value Vested or Earned During the Year
The following table sets out the value vested or earned of all stock options that vested during the most recently completed fiscal year for each of the Named Executive Officers:
Name |
Option-Based Awards -
Value Vested During The Year (1) (USD$) |
Ralph McRae | 970 |
Dallyn Willis | Nil |
Dave Read | Nil |
Sinan ALZubaidi | 340 |
(1) |
This amount is the dollar value that would have been realized computed by obtaining the difference between the market price of the underlying securities at exercise and the exercise or base price of the options under the option-based award on the vesting date. The actual value of the options granted to the Named Executive Officers will be determined based on the market price of the Shares at the time of exercise of such options, which may be greater or less than the value at the date of vesting referred to in the table above. |
38
The Company does not have a formal stock option plan. Stock options generally vest over several years of service with the Company. The value vested during the year varies according to the vesting date and the market price of the underlying securities on a selected exercise date. In the Companys fiscal year ended February 29, 2012, no stock options were exercised by the Named Executive Officers.
Further details regarding stock options may be found in the sections above titled Option-Based Awards and Outstanding Option-Based Awards for Named Executive Officers and below titled Outstanding Option-Based Awards for Directors.
Pension Plan Benefits
The Company does not have a pension plan or defined contribution plan that provides for payments or benefits to the Named Executive Officers at, following, or in connection with retirement.
Termination of Employment, Change in Responsibilities and Employment Contracts
The Company and its subsidiaries have no contracts, agreements, plans or arrangements that provide for payments to a Named Executive Officer at, following or in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement, change in control of the company or change in a Named Executive Officers responsibilities. The local laws regarding termination and severance are assumed to apply.
Director Compensation
Directors who are not paid executives of the Company receive $1,500 per quarter (pro-rated for those serving less than a full quarter) and $500 for each directors meeting and committee meeting attended. Reference is made to the Summary Compensation Table above for details of compensation paid to directors who are also Named Executive Officers, in their capacity as executive officers. Directors are also compensated for their services in their capacity as directors by the granting from time to time of incentive stock options.
The following table sets forth all amounts of compensation provided to the directors, who are not Named Executive Officers, for the Companys most recently completed fiscal year:
39
Director Name |
Fees Earned ($) |
Share-based
Awards ($) |
Option-Based
Awards ($) |
Non-Equity
Incentive Plan Compensa- tion ($) |
All Other
Compensa- tion ($) |
Total ($) |
James Corbett | 11,000 | Nil | nil | nil | nil | 11000 |
Darryl Eddy | 11,000 | Nil | nil | nil | nil | 11,000 |
Stephen Fane | 11,000 | Nil | nil | nil | nil | 11,000 |
Thomas Gaglardi | 7,500 | Nil | nil | nil | nil | 7,500 |
Outstanding Option-Based Awards for Directors
Options for the purchase of common shares of the Company are granted from time to time to directors under the same terms as those granted to employees, and described above in Option-Based Awards.
The following table sets forth information concerning all stock option awards outstanding at the end of the most recently completed fiscal year, including awards granted before the most recently completed fiscal year, to each of the Directors. The Company has not granted any share-based awards.
Director Name
|
Number of
Securities Underlying Unexercised Options (#) |
Option Exercise
Price (USD$) |
Option Expiration
Date |
Value of
Unexercised In-The- Money Options (1) (USD$) |
James Corbett |
20,000 10,000 50,000 |
3.00 3.50 2.45 |
June 26, 2018 Sept. 28, 2019 June 1, 2020 |
16,000 3,000 67,500 |
Darryl Eddy |
20,000 10,000 50,000 |
5.20 3.50 2.45 |
July 15, 2014 Sept. 28, 2019 June 1, 2020 |
nil 3,000 67,500 |
Stephen Fane |
10,000 20,000 10,000 50,000 |
15.75 3.00 3.50 2.45 |
Oct. 4, 2017 June 26, 2018 Sept. 28, 2019 June 1, 2020 |
nil 16,000 3,000 67,500 |
Thomas Gaglardi |
20,000 10,000 50,000 |
3.00 3.50 2.45 |
June 26, 2018 Sept. 28, 2019 June 1, 2020 |
16,000 3,000 67,500 |
(1) |
This amount is calculated based on the difference between the market value of the securities underlying the options at the end of the most recently completed fiscal year, which was USD$3.80, and the exercise price of the option. |
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No stock options were exercised by the Directors during the most recently completed fiscal year, nor were any of the stock options repriced during that period.
Value Vested or Earned During the Year
The following table sets out the value vested or earned of all stock options that vested during the most recently completed fiscal year for each of the Directors who are not Named Executive Officers:
Director Name |
Option-Based Awards -
Value Vested During The Year (1) (USD$) |
James Corbett | 455 |
Darryl Eddy | nil |
Stephen Fane | 455 |
Thomas Gaglardi | 455 |
(1) |
This amount is the dollar value that would have been realized computed by obtaining the difference between the market price of the underlying securities at exercise and the exercise or base price of the options under the option-based award on the vesting date. |
The Company does not have a formal stock option plan. Stock options generally vest over several years of service with the Company. The value vested during the year varies according to the vesting date and the market price of the underlying securities on a selected exercise date. In the Companys fiscal year ended February 29, 2012, no stock options were exercised by Directors.
Further details regarding stock options may be found in the sections above titled Option-Based Awards and Outstanding Option-Based Awards for Named Executive Officers and Outstanding Option-Based Awards for Directors.
C. |
Board Practices. |
1. |
The Companys Board of Directors has been set at five directors and is divided into three classes designated as Class I, Class II and Class III, to provide for a rotation of three year terms of office. Any director whose term has expired is eligible for re-election subject to Board approval. |
The following table lists the current terms of office for the directors and the period during which the directors have served: |
41
Name | Class | Term of Office | Director Since | |
Ralph D. McRae | I | July 2010 to July 2013 | March 1996 | |
Darryl R. Eddy | I | July 2010 to July 2013 | July 2009 | |
James Corbett | II | June 2008 to June 2014 | June 2008 | |
Stephen K. Fane | III | June 2009 to June 2012 | October 2007 | |
R. Thomas Gaglardi | III | June 2009 to June 2012 | October 1998 |
Three of the five current directors are independent based upon the tests for independence set forth in applicable Canadian and U.S. securities legislation. Ralph McRae is not independent as he is the Chairman, President and CEO of the Company. R. Thomas Gaglardi is not independent as he has beneficial ownership of more than 10% of the common shares of the Company. | ||
2. |
There are no directors service contracts with the Company or any of its subsidiaries providing for benefits upon termination of employment. | |
3. |
Audit Committee | |
The members of the Companys Audit Committee are: | ||
James Corbett | ||
Darryl Eddy | ||
Stephen Fane | ||
All members of the audit committee are independent directors, are financially literate, and are considered financial experts as defined by the SEC. For details on their professional careers, see Item 6.-A. Directors and senior management. | ||
The audit committee has a written charter which specifies
the scope of its authority and responsibility. A copy of the Audit
Committee Charter was previously filed as an exhibit to the Companys
Annual Report on Form 20-F, filed on May 30, 2008, and is incorporated by
reference. The audit committee reviews and re-assesses the adequacy of its
written charter on an annual basis. The function of the audit committee is
one of review and oversight. The committee also is responsible for
monitoring the independence, qualifications and performance of the
Companys external auditors, overseeing the audits of the Companys
financial statements and approving any non-audit services. The committee
reports to the Board of Directors from time to time with respect to its
activities and its recommendations and provides background and
supporting information as may be necessary for the |
42
Nomination of Directors
The Board periodically reviews its size to ensure that an appropriate number of directors, representing a diversity of views and business experience, are elected to the Board.
The independent directors have responsibility for identifying potential Board candidates. Potential candidates are assessed to fill perceived needs on the Board for required skills, expertise, independence and other factors. Members of the Board and representatives of the food and beverage industry are consulted for possible candidates. The Board has adopted a written charter that sets forth the responsibilities, powers and operations of a Nominating and Corporate Governance Committee.
Compensation of Directors and the CEO
The independent directors have the responsibility for determining and reviewing compensation for the directors and senior management of the Company.
Reference is made to the Executive Compensation section above for further information.
As of May 15, 2012 the executive officers of Leading Brands, Inc. are:
Ralph D. McRae | Chairman, President and Chief Executive Officer | |
Dallyn Willis | Chief Financial Officer |
D. |
Employees. |
Following are the number of employees of the Company for the past three fiscal years as at the end of each fiscal year:
February 29, 2012 | February 28, 2011 | February 28, 2010 | |
Canada | 86 | 90 | 87 |
United States | 0 | 0 | 0 |
E. |
Share ownership. |
Options to purchase common shares from the Company are granted from time to time to directors, officers and employees of the Company on terms and conditions acceptable to the Board of Directors.
As of May 15, 2012, the Company had 976,433 issued and outstanding options, with a weighted average exercise price of US$3.05.
Of the total stock options granted, 911,396 have vested and are available for exercise as at May 15, 2012.
43
The following table provides share ownership information with respect to the directors and officers listed in Item 6 above, as at May 15, 2012.
Name |
Common Shares Held (1) (#) |
# of Common Shares under Options Granted |
Date of Grant |
Exercise Price (USD$) |
Expiration Date
|
Ralph McRae |
176,616 (5.5%) |
20,000 245,000 |
June 26, 2008 June 1, 2010 |
$3.00 $2.45 |
June 26, 2018 June 1, 2020 |
James Corbett |
<1% |
20,000 10,000 50,000 |
June 26, 2008 Sept. 28, 2009 June 1, 2010 |
$3.00 $3.50 $2.45 |
June 26, 2018 Sept. 28, 2019 June 1, 2020 |
Darryl R. Eddy |
110,571 (3.4%) |
20,000 10,000 50,000 |
July 15, 2004 Sept. 28, 2009 June 1, 2010 |
$5.20 $3.50 $2.45 |
July 15, 2014 Sept. 28, 2019 June 1, 2020 |
Stephen K. Fane |
<1% |
10,000 20,000 10,000 50,000 |
October 4, 2007 June 26, 2008 Sept. 28, 2009 June 1, 2010 |
$15.75 $3.00 $3.50 $2.45 |
October 4, 2017 June 26, 2018 Sept. 28, 2019 June 1, 2020 |
R. Thomas Gaglardi |
419,125(2) (12.9%) |
20,000 10,000 50,000 |
June 26, 2008 Sept. 28, 2009 June 1, 2010 |
$3.00 $3.50 $2.45 |
June 26, 2018 Sept. 28, 2019 June 1, 2020 |
Dave Read |
< 1% |
20,000 100,000 |
Jan. 10, 2008 June 1, 2010 |
$7.10 $2.45 |
Jan. 10, 2018 June 1, 2020 |
Sinan ALZubaidi |
< 1% |
4,833 1,367 5,000 7,000 50,000 |
Feb. 9, 2005 Jan. 11, 2006 Apr. 4, 2008 June 26, 2008 June 1, 2010 |
$4.05 $5.35 $6.20 $3.00 $2.45 |
Feb. 9, 2015 Jan. 11, 2016 Apr. 4, 2018 June 26, 2018 June 1, 2020 |
Dallyn Willis | < 1% | 10,000 | Jan. 11, 2012 | $3.00 | Jan. 11, 2022 |
(1) |
The information as to number of shares beneficially owned (directly or indirectly or over which control or direction is exercised) is not within the direct knowledge of the management of the Company and has been furnished by the respective director or officer. |
(2) |
404,125 of these shares are held by Northland Properties Corporation, a company affiliated with Mr. Gaglardi. |
44
Further information regarding stock options with respect to the directors and officers may be found in the sections above, titled Outstanding Option-Based Awards for Named Executive Officers and Outstanding Awards for Directors.
There are no other arrangements involving the employees in the capital of the Company.
Item 7. Major Shareholders and Related Party Transactions
A. |
Major shareholders. |
As at May 15, 2012, the Company had 3,236,668 common shares without par value issued and outstanding.
1.
(a) |
Following are the shareholders that are the beneficial owners of 5% or more of the Companys voting securities, as of May 15, 2012:
|
Shareholder |
Number of Shares |
Percentage of Issued
Capital |
R. Thomas Gaglardi/ Northland Properties Corporation(1) |
419,125 |
12.95% |
Ralph McRae | 176,616 | 5.5% |
(1) |
Northland Properties Corporation is an affiliate of R. Thomas Gaglardi, a director of Leading Brands, Inc. 404,125 of Mr. Gaglardis shares are held by Northland Properties Corporation. |
(b) |
There has been no significant change in the percentage ownership held by any major shareholders during the past three years. |
(c) |
The Companys major shareholders do not have different voting rights than other shareholders. |
2. |
The Companys register of 262 members showed that as of May 9, 2012, 2,054,962 of the Companys common shares, or 63.5%, were held by 222 registered shareholders residing in the United States. The register includes Cede and Co., an American depository holding shares on behalf of beneficial shareholders. |
3. |
To the Companys knowledge, the Company is not owned or controlled, directly or indirectly, by another corporation, any foreign government, or by any other natural or legal persons. |
4. |
To the Companys knowledge, there are no arrangements the operation of which at a subsequent date may result in a change in control of the Company. A substantial number of common shares of the Company are held by depositories, brokerage firms and financial institutions in street form. |
45
B. |
Related party transactions. |
1. |
The Company has not at any time during the period since the beginning of the last fiscal year to May 15, 2012 been a party to any material transactions in which any director or officer of the Company, or any relative or spouse, or any relative of any such spouse, has any direct or indirect material interest except as discussed in the compensation section and as follows: | |
a) |
Companies with a director in common with the Company supplied hotel and restaurant services in the amount of $7,217. | |
b) |
A company with a director and officer in common with the Company supplied sales, marketing, and other services in the amount of $77,274. | |
The Company believes that the services described above were provided to the Company on a basis not less favorable than would be provided to an unrelated third party. | ||
2. |
There are no outstanding loans or guarantees made by the Company or any of its subsidiaries to or for the benefit of any of the persons listed above. |
C. |
Interest of experts and counsel. |
This Item is not applicable for an Annual Report.
Item 8. Financial Information
A. |
Consolidated Statements and Other Financial Information. |
Please see Item 18. Financial Statements for a list of the financial statements filed as part of this annual report. |
A-7.
Legal Proceedings
The Company is subject to certain legal proceedings and claims that arise in the ordinary course of its business, none of which are expected to have significant effects on the Companys financial position or profitability.
A-8.
Dividend Distributions
46
The Company intends to consider dividend distributions when it determines that it cannot realize better returns to investors by investing internally.
B. |
Significant Changes. |
There have been no significant changes since the date of the annual financial statements.
Item 9. The Offer and Listing.
A. |
Offer and listing details. |
Following is information regarding the price history of the Companys common shares on the NASDAQ Capital Market, in U.S. dollars. These amounts have been adjusted to reflect the 5:1 share consolidation that became effective on February 2, 2010.
(a) |
For the five most recent full fiscal years: |
Period | High $ | Low $ |
March 1, 2011 to Feb. 29, 2012 | 4.50 | 2.04 |
March 1, 2010 to Feb. 28, 2011 | 4.10 | 1.25 |
March 1, 2009 to Feb. 28, 2010 | 4.25 | 0.28 |
March 1, 2008 to Feb. 28, 2009 | 7.35 | 0.25 |
March 1, 2007 to Feb. 29, 2008 | 23.35 | 5.95 |
(b) |
For each full financial quarter of the two most recent full fiscal years: |
Period | High $ | Low $ |
4th Quarter Dec. 1, 2011 Feb. 29, 2012 |
3.81 |
2.35 |
3rd Quarter Sept. 1, 2011 Nov. 30, 2011 |
3.95 |
2.65 |
2nd Quarter June 1, 2011 Aug. 31, 2011 |
4.50 |
2.38 |
1st Quarter Mar. 1, 2011 May 31, 2011 |
3.85 |
2.04 |
4th Quarter Dec. 1, 2010 Feb. 28, 2011 |
4.10 |
1.95 |
3rd Quarter Sept. 1, 2010 Nov. 30, 2010 |
2.80 |
1.86 |
2nd Quarter June 1, 2010 Aug. 31, 2010 |
2.68 |
2.11 |
1st Quarter Mar. 1, 2010 May 31, 2010 |
3.49 |
1.25 |
47
(c) |
for the most recent six months: |
Period | High $ | Low $ |
April 1 - 30, 2012 | 4.50 | 3.40 |
March 1 31, 2012 | 3.95 | 3.33 |
February 1 29, 2012 | 3.81 | 3.22 |
January 1 31, 2012 | 3.75 | 2.74 |
December 1 31, 2011 | 3.26 | 2.35 |
November 1 30, 2011 | 3.35 | 2.80 |
C. |
Markets. |
The Companys common shares have been quoted on the NASDAQ Capital Market (formerly called the NASDAQ Small-cap Market) since August 3, 1993. The ticker symbol is LBIX. |
Item 10. Additional Information.
A. |
Share capital |
This item is not applicable for an Annual Report. | |
B. |
Memorandum and articles of association. |
The Notice of Articles relating to the consolidation of the Companys common shares and the increase in authorized share capital that were filed with the British Columbia Registry Services on February 1, 2010 were filed on a Form 6-K on February 3, 2010. | |
All other information required by this Item 10.B was previously reported to the SEC in the Companys registration statement on Form F-3, filed on September 24, 2007, and is incorporated by reference. | |
C. |
Material contracts. |
There are no additional material contracts. | |
D. |
Exchange controls. |
Canada has no system of exchange controls. There are no exchange restrictions on borrowing from foreign countries or on the remittance of dividends, interest, royalties and similar payments, management fees, loan repayments, settlement of trade debts, or the repatriation of capital. Any such remittances to U.S. residents, however, may be subject to withholding tax. |
48
E. |
Taxation. |
A brief and general description is included below of certain taxes, including withholding taxes, to which U.S. security holders may be subject under the existing tax laws and regulations of Canada. The consequences, if any, of provincial taxes are not considered.
Please note that the following information is a brief summary only and security holders should seek the advice of their own tax advisors with respect to the applicability or effect on their own individual circumstances of the matters referred to herein and of any U.S. federal, state or local taxes.
Taxation on Dividends
Generally, cash dividends paid or deemed to be paid by a Canadian-corporation to nonresident shareholders are subject to a withholding tax of 25% (unless an income tax convention applies to reduce the withholding tax rate to some other amount). Dividends paid to U.S. residents are subject to a withholding tax of 15%, and dividends paid to a U.S. resident company which owns 10% or more of the voting shares of the Canadian corporation are subject to a withholding tax of 5%. Dividends paid by a Canadian corporation to shareholders residing in Canada are not subject to withholding tax.
Taxation on Capital Gains
Generally, the disposition by a non-resident of shares of a Canadian public corporation is not subject to Canadian income tax, unless such shares are taxable Canadian property within the meaning of the Income Tax Act (Canada) and no relief is afforded under any applicable tax treaty. The shares of the Company would be taxable Canadian property of a non-resident purchaser if the non-resident purchaser used the shares in carrying on a business in Canada, or if the non-resident, together with persons with whom he does not deal at arms length, owned 25% or more of the issued shares of any class of the capital stock of the Canadian corporation at any time during the five-year period immediately preceding the disposition.
In addition, Canada may tax capital gains realized by an individual resident in the United States on the disposition of shares of a Canadian corporation if the following conditions are met:
the individual was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition of shares; and
the individual owned the shares when he ceased to be resident in Canada.
Holders of common shares of the Company should seek independent advice from their own professional tax advisers with respect to the income tax consequences arising from the holding of common shares of the Company.
49
F. |
Dividends and paying agents. |
This item is not applicable for an Annual Report. | |
G. |
Statement by experts. |
This item is not applicable for an Annual Report. | |
H. |
Documents on display. |
Copies of documents concerning the Company, which are referred to in this Annual Report, are available for inspection at the head office of the Company located at Suite 1800 1500 W. Georgia Street, Vancouver BC Canada V6G 2Z6. | |
I. |
Subsidiary Information. |
This item is not applicable for an Annual Report. |
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
The Companys primary market risk exposure is risk related to interest rates from changes in the Canadian prime rate of its lenders under its Revolving Facility.
The table below shows the long-term debt whose fair value is subject to market risk as interest rates change.
FIXED INTEREST RATE
LONG TERM DEBT | Lease |
Interest Rate | 6.125% |
Principal at February 29, 2012 | $353,226 |
Principal payments by year: | |
2013 | 134,852 |
2014 | 143,347 |
2015 | 75,027 |
2016 | - |
2017 | - |
2018 and thereafter | - |
TOTAL | $353,226 |
The fair value of this debt decreases as market interest rates increase. The fair value of this debt approximates book value as at February 29, 2012.
50
Currency risk
The Company concludes sales in U.S. dollars to customers in the U.S. and other foreign countries. 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.
At February 29, 2012, the Companys cash balances included $999,000 denominated in U.S. dollars (2011 - $147,000), accounts receivable balances included $14,000 denominated in U.S. dollars (2011 - $50,000), and the Companys accounts payable and accrued liabilities balance included $160,000 denominated in U.S. dollars (2011 - $136,000).
As at February 29, 2012, all other factors being equal, a 5% U.S. dollar rise per Canadian dollar would have an unfavourable impact of approximately $43,000 on net earnings for the year. A 5% U.S.-to-Canadian dollar decrease would have a positive impact of similar magnitude.
Item 12. Description of Securities Other than Equity Securities.
This item is not applicable for an Annual Report, except for Item 12.D.3. and Item 12.D.4. The Company does not have securities represented by American Depositary Receipts.
P A R T II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.
A. |
On June 30, 2010, the Companys shareholders approved an amended and restated shareholder rights plan agreement. A copy of this agreement was filed with the SEC on a Form 6-K on July 2, 2010 and is incorporated by reference. The Company has had a shareholders rights plan in place since 1991. |
On February 1, 2010, a 5:1 consolidation of the Companys common shares, also known as a reverse stock split, became effective. Fractional shares were rounded to the nearest whole number. In connection with the share consolidation, the Company increased its authorized number of common shares to 500,000,000 common shares. | |
The documents relating to the share consolidation were filed with the SEC on a Form 6-K on February 3, 2010 and are incorporated by reference. | |
B. |
There were no material modifications to any class of securities during the fiscal year ended February 29, 2012. |
51
C. |
There has been no material withdrawal or substitution of assets securing any class of registered securities of the Company. |
D. |
There has been no change of trustee or paying agent for any registered securities. |
E. |
This item is not applicable. |
Item 15. Controls and Procedures.
Disclosure Controls and Procedures
Based on their evaluation as of February 29, 2012, the Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is:
recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms regarding required disclosure; and
accumulated and communicated to the Companys management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Managements Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Companys system of internal controls is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
Management recognizes that effective internal control over financial reporting may nonetheless not prevent or detect all possible misstatements or frauds. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
As part of its evaluation of the effectiveness of its internal control over financial reporting as required by paragraph (c) of Rules13a-15 or 5d-15 of the Exchange Act, the Company utilized the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Integrated Framework. The Company annually reviews the final documentation to ensure that controls are still functioning as described and serving the purposes for which they were designed.
Management has assessed the effectiveness of the Companys internal control over financial reporting as of the fiscal year ended February 29, 2012. Based on this evaluation, management concluded that the Companys internal control over financial reporting is effective as of the fiscal year ended February 29, 2012.
52
This Annual Report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only managements report in this Annual Report.
Changes in internal control over financial reporting
There has been no change in the Companys internal control over financial reporting that occurred during the Companys fiscal year ended February 29, 2012 that has materially affected or is reasonably likely to materially affect, the Companys internal control over financial reporting.
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert.
The Companys Board of Directors has determined that all three members of its Audit Committee; James Corbett, Darryl Eddy and Stephen Fane, satisfy the requirements of audit committee financial expert. All members of the Audit Committee are independent directors. For details on their professional careers, and for further information regarding the Companys Audit Committee, see Item 6.A and Item 6.C above.
Item 16B. Code of Ethics.
The Company has adopted a Code of Business Conduct and Ethics (the Code of Ethics) that applies to the Companys directors, officers and employees. A copy of this Code of Ethics was filed with the SEC on June 1, 2005 and is incorporated by reference. Copies will be provided at no charge upon request to the Company at Suite 1800 1500 W. Georgia Street, Vancouver BC Canada V6G 2Z6, or electronically to info@Lbix.com.
There were no amendments or waivers to the Code of Ethics during the most recently completed fiscal year.
Item 16C. Principal Accountant Fees and Services.
a) |
Audit Fees Audit fees billed for the fiscal years ended February 29, 2012 and February 28, 2011 totaled $100,320 and $130,154 respectively. |
b) |
Audit-Related Fees No audit-related fees were billed for the fiscal years ended February 29, 2012 and February 28, 2011. |
c) |
Tax Fees - Tax fees billed for the fiscal years ended February 29, 2012 and February 28, 2011 totaled $18,840 and $18,000 respectively for tax compliance, advice and planning. |
53
d) |
All Other Fees No other fees were billed for the fiscal years ended February 29, 2012 and February 28, 2011. |
e) |
The Audit Committee approves all audit, audit-related services, tax services and other services provided by BDO Canada LLP. Any services provided by BDO Canada LLP that are not specifically included within the scope of the audit must be pre-approved by the Audit Committee in advance of any engagement. Under the Sarbanes-Oxley Act of 2002, audit committees are permitted to approve certain fees for audit-related services, tax services and other services pursuant to a de minimus exception prior to the completion of an audit engagement. None of the fees paid to BDO Canada LLP were approved pursuant to the de minimus exception. |
Item 16D. Exemptions from the Listing Standards for Audit Committees.
None.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
Tender Offer
On May 9, 2012, the Company announced its intention to commence a modified Dutch Auction tender offer to repurchase up to US-$800,000 in value of its common shares at a cash purchase price of not less than US$4.10 per share. The tender offer will commence on or about May 18, 2012, and the tender offer is to be funded through available cash.
Share Buyback
In the fiscal years ended February 28, 2010, February 28, 2011 and February 29, 2012, the Companys Board of Directors authorized a share repurchase program for the repurchase of up to US$3,000,000 of the Companys outstanding common shares. A total of 344,381 common shares were purchased during the fiscal year ended February 29, 2012 for a total cost of US$1,199,500. All shares repurchased in the fiscal year have been returned to treasury.
The following table provides details of the Companys share repurchases during the fiscal year ended February 29, 2012.
54
Period |
Total Number of Shares Purchased |
Average Price Paid per Share (CAD) |
Total Number of Shares Purchased as Part of Publicly Announced Plan or Program |
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plan or Program |
Month #1 March 1 31, 2011 |
26,583 |
$ 3.34 |
26,583 |
- |
Month #2 April 1 30, 2011 |
nil |
n/a |
nil |
- |
Month #3 May 1 31, 2011 |
72,230 |
$ 3.22 |
72,230 |
- |
Month #4 June 1 30, 2011 |
11,200 |
$ 2.54 |
11,200 |
- |
Month #5 July 1 31, 2011 |
111,368 |
$ 3.54 |
111,368 |
- |
Month #6 August 1 31, 2011 |
58,200 |
$ 3.49 |
58,200 |
- |
Month #7 Sept. 1 30, 2011 |
4,500 |
$ 3.76 |
4,500 |
- |
Month #8 Oct. 1 31, 2011 |
19,400 |
$ 3.09 |
19,400 |
- |
Month #9 Nov. 1 30, 2011 |
14,900 |
$ 3.10 |
14,900 |
- |
Month #10 Dec. 1 31, 2011 |
nil |
n/a |
nil |
- |
Month #11 January 1 31, 2012 |
14,100 |
$ 3.45 |
14,100 |
- |
Month #12 February 1 29, 2012 |
11,900 |
$ 3.57 |
11,900 |
- |
Total | 344,381 | $ 2.93 | 344,381 | US$ 588,990 |
(a) |
The share repurchase program was originally announced in a news release on September 9, 2009, followed by additional news releases on November 19, 2010, February 15, 2011, April 29, 2011, September 29, 2011 and January 12, 2012. |
(b) |
The total dollar amount approved for the share repurchase program in the years ended February 28, 2010, February 28, 2011 and February 29, 2012 was US$3,000,000. |
(c) |
The share repurchase plan does not have an expiry date. |
Item 16F. Change in Registrants Certifying Accountant
None.
55
Item 16G. Corporate Governance
The NASDAQ Rules provide that foreign private issuers may follow home country practice in lieu of the NASDAQ corporate governance requirements, subject to certain exceptions and requirements and except to the extent that such exemptions would be contrary to U.S. federal securities laws and regulations. The Company has chosen to comply with the NASDAQ corporate governance rules as though it was a U.S. company, except for Rule 5635(c), requiring shareholder approval of equity compensation arrangements. In May 2010, the Company notified NASDAQ that it has elected to follow British Columbia practice, which does not require such approvals.
Item 16H. Mine Safety Disclosure
Not applicable.
P A R T III
Item 17. Financial Statements.
Not applicable.
Item 18. Financial Statements.
The following financial statements for the year ended February 29, 2012 are included in this report:
(a) |
Balance sheets |
(b) |
Statements of Income (Loss) and Comprehensive Income (Loss) |
(c) |
Statements of Cash Flows |
(d) |
Statements of Changes in Shareholders Equity |
(e) |
Notes to the Consolidated Financial Statements |
56
Leading Brands,
Inc.
Consolidated Financial Statements
February 29, 2012 and
February 28, 2011
(Expressed in Canadian Dollars)
Independent Auditors Report |
Consolidated Financial Statements |
Balance Sheets |
Statements of Income (Loss) and Comprehensive Income (Loss) |
Statements of Cash Flows |
Statements of Changes in Shareholders Equity |
Notes to the Consolidated Financial Statements |
Tel: 604 688 5421 | BDO Canada LLP | |
Fax: 604 688 5132 | 600 Cathedral Place | |
www.bdo.ca | 925 West Georgia Street | |
Vancouver BC V6C 3L2 Canada | ||
Independent Auditors Report |
To the Shareholders of |
Leading Brands, Inc. |
We have audited the accompanying consolidated financial statements of Leading Brands, Inc. which comprise the consolidated balance sheets as at February 29, 2012 and February 28, 2011 and the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss), Cash Flows and Changes in Shareholders Equity for each of the years in the three-year period ended February 29, 2012, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with United States Generally Accepted Accounting Principles, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Leading Brands, Inc. as at February 29, 2012 and February 28, 2011 and the results of its operations and its cash flows for each of the years in the three-year period ended February 29, 2012, in accordance with United States Generally Accepted Accounting Principles.
As discussed in Notes 1 and 17 to the consolidated financial statements, effective February 29, 2012, the Company changed its method of accounting for certain shipping supplies.
/s/ BDO CANADA LLP
Chartered Accountants
Vancouver, Canada
May 10,
2012
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
Leading Brands, Inc. |
Consolidated Balance Sheets |
(Expressed in Canadian Dollars) |
As at | Feb. 29, 2012 | Feb. 28, 2011 | ||||
Assets | ||||||
Current | ||||||
Cash and cash equivalents | $ | 1,189,539 | $ | 1,870,600 | ||
Accounts receivable | 722,387 | 730,884 | ||||
Inventory (Note 2) | 1,281,653 | 974,739 | ||||
Prepaid expenses and deposits (Note 4) | 173,650 | 177,915 | ||||
3,367,229 | 3,754,138 | |||||
Property, plant and equipment (Note 3) | 8,821,967 | 9,108,285 | ||||
Other assets | 77,256 | - | ||||
Deferred tax assets (Note 11) | 2,714,627 | 2,807,730 | ||||
Total Assets | $ | 14,981,079 | $ | 15,670,153 | ||
Liabilities and Shareholders Equity | ||||||
Liabilities | ||||||
Current | ||||||
Accounts payable and accrued liabilities | $ | 1,855,819 | $ | 1,589,861 | ||
Current portion of long-term debt | 134,852 | 487,613 | ||||
Current portion of lease inducement | 24,491 | 25,560 | ||||
2,015,162 | 2,103,034 | |||||
Long-term debt (Note 5) | 218,374 | 1,628,412 | ||||
Lease Inducement (Note 6) | - | 24,491 | ||||
Derivative Liability non-employee stock options (Note 10) | 263,143 | 245,983 | ||||
2,496,679 | 4,001,920 | |||||
Shareholders Equity | ||||||
Share Capital | ||||||
Authorized (Note
8(a)) 500,000,000 common shares without par value 20,000,000 preferred shares without par value |
||||||
Issued 3,236,668 common shares (2011 3,579,249) |
36,678,050 | 40,607,350 | ||||
Treasury stock | - | (19,536 | ) | |||
Additional paid-in capital | 15,815,876 | 12,640,803 | ||||
Accumulated
other comprehensive income
- currency translation adjustment |
577,916 | 577,916 | ||||
Accumulated deficit | (40,587,442 | ) | (42,138,300 | ) | ||
12,484,400 | 11,668,233 | |||||
Total Liabilities and Shareholders Equity | $ | 14,981,079 | $ | 15,670,153 |
Approved on behalf of the Board:
/s/Ralph
McRae________________________
Director
/s/Darryl
Eddy_________________________ Director
The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.
Leading Brands, Inc. |
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) |
(Expressed in Canadian Dollars) |
For the year ended | Feb. 29, 2012 | Feb. 28, 2011 | Feb. 28, 2010 | ||||||
Gross Sales | $ | 19,456,505 | $ | 20,048,942 | $ | 22,172,673 | |||
Less: Discounts, rebates and slotting fees | (1,052,453 | ) | (1,139,911 | ) | (1,646,440 | ) | |||
Net Sales | 18,404,052 | 18,909,031 | 20,526,233 | ||||||
Expenses (income) | |||||||||
Cost of sales | 11,287,079 | 11,690,856 | 13,422,152 | ||||||
Selling, general and administrative | 4,656,298 | 5,862,189 | 4,217,008 | ||||||
Depreciation of property, plant and equipment | 676,464 | 701,389 | 728,993 | ||||||
Interest on long-term debt | 114,902 | 166,450 | 221,795 | ||||||
Interest on current debt | 725 | 958 | 7,762 | ||||||
Gain on contract settlement (Note 7) | - | (158,960 | ) | - | |||||
Foreign exchange loss (gain) | 4,666 | (6,619 | ) | (21,330 | ) | ||||
Interest income | (8,216 | ) | (15,997 | ) | (5,066 | ) | |||
Change in fair value of derivative liability | 17,160 | 65,676 | - | ||||||
Loss on disposal of assets | 11,013 | 4,238 | 8,515 | ||||||
16,760,091 | 18,310,180 | 18,579,829 | |||||||
Income before income tax | 1,643,961 | 598,851 | 1,946,404 | ||||||
Income tax provision (Note 11) | 93,103 | 680,879 | 735,133 | ||||||
Net income (loss) | 1,550,858 | (82,028 | ) | 1,211,271 | |||||
Comprehensive income (loss) | $ | 1,550,858 | $ | (82,028 | ) | $ | 1,211,271 | ||
Earnings per share | |||||||||
Basic | $ | 0.46 | $ | (0.02 | ) | $ | 0.30 | ||
Diluted | $ | 0.44 | $ | (0.02 | ) | $ | 0.30 | ||
Weighted average common shares outstanding | |||||||||
Basic (Note 8(e)) | 3,368,751 | 3,853,866 | 3,980,202 | ||||||
Diluted | 3,541,859 | 3,853,866 | 3,980,202 |
The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.
Leading Brands, Inc. |
Consolidated Statements of Cash Flows |
(Expressed in Canadian Dollars) |
For the year ended | Feb 29, 2012 | Feb 28, 2011 | Feb 28, 2010 | ||||||
Cash provided by (used in) | |||||||||
Operating activities | |||||||||
Net income (loss) | $ | 1,550,858 | $ | (82,028 | ) | $ | 1,211,271 | ||
Items not involving cash | |||||||||
Depreciation of property, plant and equipment | 676,464 | 701,389 | 728,993 | ||||||
Amortization of leasehold inducement (Note 6) | (25,560 | ) | (25,560 | ) | (25,560 | ) | |||
Loss on disposal of assets | 11,013 | 4,238 | 8,515 | ||||||
Non-cash component of gain on contract settlement | - | (108,960 | ) | - | |||||
Stock based compensation (Note 9, 10) | 414,822 | 1,674,875 | 249,442 | ||||||
Change in derivative liability (Note 10) | 17,160 | 65,677 | - | ||||||
Deferred income tax provision | 93,103 | 680,879 | 735,133 | ||||||
Changes in non-cash operating working capital | |||||||||
Accounts receivable, net | 8,497 | 400,105 | 347,444 | ||||||
Inventory, net | (306,914 | ) | 643,786 | 1,274,261 | |||||
Prepaid expenses and other assets | (72,991 | ) | (47,936 | ) | 47,659 | ||||
Accounts payable | 265,958 | (614,403 | ) | (144,620 | ) | ||||
2,632,410 | 3,292,062 | 4,432,538 | |||||||
Investing activities | |||||||||
Purchase of property, plant and equipment | (401,709 | ) | (597,762 | ) | (349,068 | ) | |||
Proceeds on disposal of assets | 561 | - | 10,519 | ||||||
(401,148 | ) | (597,762 | ) | (338,549 | ) | ||||
Financing activities | |||||||||
Decrease in bank indebtedness | - | - | (1,512,915 | ) | |||||
Repurchase of common shares | (1,168,764 | ) | (1,032,525 | ) | (187,417 | ) | |||
Proceeds from issuance of common shares | 19,251 | - | - | ||||||
Repayment of long-term debt | (1,762,800 | ) | (1,690,608 | ) | (1,194,374 | ) | |||
(2,912,313 | ) | (2,723,133 | ) | (2,894,706 | ) | ||||
Decrease (increase) in cash and cash equivalents | (681,051 | ) | (28,833 | ) | 1,199,283 | ||||
Effect of exchange rates on cash | (10 | ) | 47 | 172 | |||||
Cash and cash equivalents, beginning of year | 1,870,600 | 1,899,386 | 699,931 | ||||||
Cash and cash equivalents, end of year | $ | 1,189,539 | $ | 1,870,600 | $ | 1,899,386 | |||
Supplementary disclosure of cash flow Information | |||||||||
Cash paid (received) during the year | |||||||||
Interest received | $ | (8,216 | ) | $ | (15,997 | ) | $ | (5,066 | ) |
Interest paid | 79,061 | 169,783 | 233,668 | ||||||
Income taxes | - | - | - |
The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.
Leading Brands, Inc. |
Consolidated Statements of Changes in Shareholders Equity |
(Expressed in Canadian Dollars) |
Additional | Total | ||||||||||||||||||||
Common Stock | Treasury | Paid-In | Accum. | Shareholders | |||||||||||||||||
Shares | Amount | Stock | Capital | AOCI | Deficit | Equity | |||||||||||||||
Balance at March 1, 2009 | 3,991,625 | $ | 45,283,762 | $ | - | $ | 7,420,785 | $ | 577,916 | $ | (43,267,543 | ) | $ | 10,014,920 | |||||||
Net income | 1,211,271 | 1,211,271 | |||||||||||||||||||
Shares repurchased under provisions of the share repurchase plan |
(775,089 | ) | 587,672 | (187,417 | ) | ||||||||||||||||
Shares cancelled | (68,350 | ) | (775,089 | ) | 775,089 | - | |||||||||||||||
Stock based compensation expense (Note 9) | 249,442 | 249,442 | |||||||||||||||||||
Balance at February 28, 2010 | 3,923,275 | 44,508,673 | - | 8,257,899 | 577,916 | (42,056,272 | ) | 11,288,216 | |||||||||||||
Net loss | (82,028 | ) | (82,028 | ) | |||||||||||||||||
Shares repurchased under provisions of the share repurchase plan |
(3,920,859 | ) | 2,888,335 | (1,032,524 | ) | ||||||||||||||||
Shares cancelled | (344,026 | ) | (3,901,323 | ) | 3,901,323 | - | |||||||||||||||
Stock based compensation expense (Note 9) | 1,494,569 | 1,494,569 | |||||||||||||||||||
Balance at February 28, 2011 | 3,579,249 | 40,607,350 | (19,536 | ) | 12,640,803 | 577,916 | (42,138,300 | ) | 11,668,233 | ||||||||||||
Net income | 1,550,858 | 1,550,858 | |||||||||||||||||||
Exercise of stock options | 7,400 | 39,192 | (19,941 | ) | 19,251 | ||||||||||||||||
Shares repurchased under provisions of the share repurchase plan |
(3,948,956 | ) | 2,780,192 | (1,168,764 | ) | ||||||||||||||||
Shares cancelled | (349,981 | ) | (3,968,492 | ) | 3,968,492 | - | |||||||||||||||
Stock based compensation expense (Note 9) | 414,822 | 414,822 | |||||||||||||||||||
Balance at February 29, 2012 | 3,236,668 | $ | 36,678,050 | $ | - | $ | 15,815,876 | $ | 577,916 | $ | (40,587,442 | ) | $ | 12,484,400 |
The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
1. | Operations and Summary of Significant Accounting Principles |
Nature of Operations |
Leading Brands Inc. (the Company) and its subsidiaries are involved in the development, production, marketing and distribution of the Companys branded and licensed beverage brands. The Company sells branded and licensed beverage products through its Integrated Distribution System (IDS) of distributors, wholesalers, and grocery chains. Its principal product lines include juices and other premium beverages. The bottling plant provides bottling services for the Companys own products and for an external customer. The Company also uses the services of third party bottlers as required to meet its objectives. |
|
Basis of Presentation |
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. |
|
Change in Generally Accepted Accounting Principles |
The Company historically prepared its consolidated financial statements in conformity with Canadian generally accepted accounting principles and provided a supplemental reconciliation to U.S. GAAP. Effective March 1, 2011, the Company adopted U.S. GAAP as the comprehensive basis of financial reporting for its consolidated financial statements. All comparative financial information contained herein has been recast to reflect the Companys results as if the Company had historically reported in accordance with U.S. GAAP. |
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Change in Accounting Principle |
Effective February 29, 2012, Management determined that to better reflect the Companys operations it would be more appropriate to expense the pallets when purchased as a cost of sale as incurred. The change in accounting principle was adopted retroactively, with restatement of prior years financial statements. Refer to Note 17 for more information. |
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Use of Estimates |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. On an ongoing basis, the Company evaluates its estimates, including those related to inventories, trade receivables, useful lives of property, plant and equipment, income taxes, and stock-based compensation, among others. The reported amounts and note disclosure are determined using managements best estimates based on assumptions that reflect the most probable set of economic conditions and planned course of action. Actual results could differ from those estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. |
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Foreign Currency Translation |
The Companys functional and reporting currency is the Canadian dollar. Foreign-currency denominated transactions are translated at the rate of exchange prevailing at the time of the transaction. Monetary assets and liabilities have been translated into Canadian dollars at the year-end exchange rate. All such exchange gains and losses are included in the determination of income. |
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
Cash and Cash Equivalents |
Amounts recognized as cash and cash equivalents include investments of surplus cash in highly liquid securities with maturities at date of purchase of three months or less. |
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Accounts Receivable |
Accounts receivable invoices are recorded when the products are delivered and title transfers to customers or when bottling services are performed and collection of related receivables is reasonably assured. Allowances for doubtful accounts are based primarily on historical write-off experience. Account balances that are deemed uncollectible are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Allowances for doubtful accounts of $43,353 and $24,227 as of February 29, 2012 and February 28, 2011, respectively, are netted against accounts receivable. |
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Inventory | Raw materials and finished goods purchased for resale are valued at the lower of cost, determined on a first-in, first-out basis, and market value. Finished goods, produced from manufacturing operations, are valued at the lower of standard cost which approximates average cost of raw materials, direct labour and overhead and market value. The provisions for obsolete or excess inventory are based on estimated forecasted usage of inventories. A significant change in demand for certain products as compared to forecasted amounts may result in recording additional provisions for obsolete inventory. Provisions for obsolete or excess inventory are recorded as cost of goods sold. |
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Property, plant and equipment |
Property, plant and equipment are recorded at cost and are amortized using the declining-balance method at annual rates as follows: |
Plant and equipment | 7% - 20% | |
Buildings | 5% | |
Automotive equipment | 20% | |
Land improvements | 8% | |
Furniture, fixtures, computer hardware and software | 20% |
Leasehold improvements are amortized over the lesser of their expected life or the lease term. |
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Management review property, plant and equipment for impairment when conditions exist that indicate the carrying amount of the assets may not be fully recoverable. If required an undiscounted operating cash flow analysis is completed to determine if impairment exits. When testing for impairment of assets held for use, assets and liabilities are grouped at the lowest level for which cash flows are separately identifiable. If impairment is determined to exist, the loss is calculated based on estimated fair value. |
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Leases | Leases are classified as either capital or operating in nature. Capital leases are those which substantially transfer the benefits and risks of ownership to the lessee. Obligations recorded under capital leases are reduced by the principal portion of lease payments. The imputed interest portion of the lease payment is charged to expense. |
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
Revenue Recognition |
Revenue on sales of products is recognized when the products are delivered and title transfers to customers. Revenues from the provision of manufacturing, packaging or other services are recognized when the services are performed and collection of related receivables is reasonably assured. The Company records shipping and handling revenue as a component of sales revenue, and shipping and handling costs are included in the cost of sales. |
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Incentives offered to customers including rebates, cash discounts, volume discounts, and slotting fees are recorded as a reduction of net sales when sales are recognized. |
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Stock-Based Compensation |
Compensation costs are charged to the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). Compensation costs for employees are amortized over the period from the grant date to the date the options vest. Compensation expense for non-employees is recognized immediately for past services and pro-rata for future services over the service provision period. Compensation for non-employees is re-measured at each balance sheet date until the earlier of the vesting date or the date of completion of the service. Upon exercise of stock options, the consideration paid by the option holder, together with the amount previously recognized in additional paid-in capital, is recorded as an increase to share capital. |
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The Company uses the Black-Scholes option valuation model to calculate the fair value of stock options at the date of grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate. |
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Income Tax | Deferred income tax assets and liabilities are computed based on differences between the carrying amount of assets and liabilities on the balance sheet and their corresponding tax values using the enacted income tax rates by tax jurisdiction when these differences are expected to be realized. Deferred income tax assets also result from unused loss carry-forwards and other deductions. The valuation of deferred income tax assets is reviewed annually and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realizable amount. Significant management judgement is required in determining the provision for income taxes, the deferred income tax assets and liabilities and any valuation allowance recorded against the net future income tax assets. Management evaluates all available evidence, such as recent and expected future operating results by tax jurisdiction, and current and enacted tax legislation and other temporary differences between book and tax accounting to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Management has determined certain of these deferred tax assets do not meet the more likely than not criteria, and accordingly, these deferred income tax asset amounts have been partially offset by a valuation allowance (Note 11). No reserves for an uncertain tax position have been recorded for the years ended February 29, 2012 or February 28, 2011. |
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Comprehensive Income |
Comprehensive income includes both net earnings and other comprehensive income. Net income and other comprehensive income are presented in a single continuous statement. |
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
Fair Value Measurements |
The book value of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities approximate their fair values due to the immediate or short-term maturity of those instruments. Based on borrowing rates currently available to the Company under similar terms, the book value of long term debt and capital lease obligations approximate their fair values. The fair value hierarchy under US GAAP is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following: |
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Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities; |
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Level 2 - observable inputs other than Level I, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and |
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Level 3 - assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities. |
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The Company had certain financial liabilities required to be recorded at fair value on a recurring basis in accordance with US GAAP. As at February 29, 2012 and February 28, 2011, the derivative liability on non-employee stock options is a financial liability classified for Level 3 fair value measurement. See Note 15 for more information. |
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Recent Accounting Pronouncements |
Fair Value Measurements In May 2011, the FASB provided amendments to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (IFRS). The amendments provide clarification and / or additional requirements relating to the following: a) application of the highest and best use and valuation premise concepts, b) measurement of the fair value of instruments classified in an entitys shareholders equity, c) measurement of the fair value of financial instruments that are managed within a portfolio, d) application of premiums and discounts in a fair value measurement, and e) disclosures about fair value measurements. These amendments will be effective prospectively for interim and annual periods beginning after December 15, 2011. We do not expect the adoption of the amendments to have a material impact on the Companys financial position, results of operations or cash flows. |
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
Recent Accounting Pronouncements (continued) |
Comprehensive Income In June and December 2011, the FASB provided amendments requiring an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity. The Company has early implemented the requirements and presents net income and other comprehensive income in a single continuous statement. |
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Embedded Derivatives |
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In April 2010, the FASB provided amendments to address the classification of an employee share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. Guidance was provided on the classification of a share-based payment award as either equity or a liability. These amendments were effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The early adoption of the provisions of this amendment for the year-ended February 28, 2011, allowed for the Company not to separately account for employee stock options as a liability measured at fair value and marked-to- market each period with the changes in the fair value each period charged or credited to income. |
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
2. | Inventory |
2012 | 2011 | ||||||
Finished goods, net | $ | 610,421 | $ | 524,967 | |||
Raw materials | 671,232 | 449,772 | |||||
$ | 1,281,653 | $ | 974,739 |
The ending balance above includes a total inventory obsolescence provision of $115,413 as at February 29, 2012 (2011 - $117,320). |
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3. | Property, Plant and Equipment |
2012 | ||||||||||
Accumulated | ||||||||||
Cost | Depreciation | Net | ||||||||
Plant and equipment | $ | 14,851,617 | $ | 7,689,018 | $ | 7,162,599 | ||||
Buildings | 1,931,944 | 1,163,572 | 768,372 | |||||||
Automotive equipment | 9,567 | 8,934 | 633 | |||||||
Land | 433,613 | - | 433,613 | |||||||
Land improvements | 1,861 | 1,171 | 690 | |||||||
Leasehold improvements | 229,482 | 170,409 | 59,073 | |||||||
Furniture and fixtures | 603,049 | 544,013 | 59,036 | |||||||
Computer hardware and software | 2,604,200 | 2,266,249 | 337,951 | |||||||
$ | 20,665,333 | $ | 11,843,366 | $ | 8,821,967 |
2011 | ||||||||||
Accumulated | ||||||||||
Cost | Depreciation | Net | ||||||||
Plant and equipment | $ | 14,480,584 | $ | 7,156,979 | $ | 7,323,605 | ||||
Buildings | 1,931,944 | 1,123,131 | 808,813 | |||||||
Automotive equipment | 39,476 | 36,937 | 2,539 | |||||||
Land | 433,613 | - | 433,613 | |||||||
Land improvements | 1,861 | 1,111 | 750 | |||||||
Leasehold improvements | 229,482 | 155,641 | 73,841 | |||||||
Furniture and fixtures | 601,544 | 535,996 | 65,548 | |||||||
Computer hardware and software | 2,628,763 | 2,229,187 | 399,576 | |||||||
$ | 20,347,267 | $ | 11,238,982 | $ | 9,108,285 |
Property, plant and equipment includes equipment acquired under capital leases with an initial cost of $2,687,820 (2011 - $2,687,820). Accumulated amortization of assets acquired under capital leases is $767,919 (2011 - $623,410). No impairment of property, plant, and equipment was recognized in the year ended February 29, 2012 (2011 - nil). |
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4. | Prepaid Expenses and Deposits |
2012 | 2011 | ||||||
Slotting fees | $ | 29,354 | $ | 22,470 | |||
Insurance premiums | 61,459 | 73,563 | |||||
Rental deposits and other | 82,837 | 81,882 | |||||
$ | 173,650 | $ | 177,915 |
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
5. | Long-term Debt |
2012 | 2011 | ||||||||
a) | Bank loan, principal and interest repayable at $8,408 per month including interest at a rate of bank prime plus 1.25%. |
$ | - | $ | 837,100 | ||||
b) | Capital lease, principal and interest repayable at $6,907 per month including interest at a five-year fixed rate of 6.53% per annum, collateralized by certain pieces of manufacturing equipment. |
- | 150,912 | ||||||
c) | Capital lease, principal and interest repayable at $15,024 per month including interest at a seven-year fixed rate of 6.575% per annum, collateralized by certain pieces of manufacturing equipment |
- | 647,928 | ||||||
d) | Capital lease, principal and interest repayable at $12,729 per month including interest at a seven-year fixed rate of 6.125% per annum, collateralized by certain pieces of manufacturing equipment until September, 2014. |
353,226 | 480,085 | ||||||
353,226 | 2,116,025 | ||||||||
Less: current portion | 134,852 | 487,613 | |||||||
$ | 218,374 | $ | 1,628,412 |
Minimum payments due over the remaining terms of the capital lease are as follows:
Principle | Interest | ||||||
2013 | $ | 134,852 | $ | 17,981 | |||
2014 | 143,347 | 9,396 | |||||
2015 | 75,027 | 1,346 | |||||
2016 and thereafter | - | - | |||||
$ | 353,226 | $ | 28,723 |
The Company has a demand revolving operating bank loan with a credit limit of $3,500,000 (2011 - $3,500,000) subject to the availability of eligible collateral. As at February 29, 2012, $440,000 (2011 - $661,000) of the facility was available. Interest is charged on the drawn-down amounts at the bank prime rate plus 1.75% to 2.25% (2011- 1.75% to 2.25%). The operating loan is collateralized by a charge on all assets of the Company and an assignment of all risk insurance on land, buildings, equipment and inventory owned by the Company. The credit facility contains four financial covenants, all of which the Company was in Compliance with at February 29, 2012 and February 28, 2011. |
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6. | Lease Inducement |
In the 2009 fiscal year, the Company received a lease inducement of $115,016 worth of leasehold improvements as an incentive to enter into a 5-year lease term for the Vancouver offices. This amount is being amortized over the remainder of the lease term. The amortization for the fiscal year ended February 29, 2012 was $25,560 (2011 - $25,560; 2010 - $25,560) with a corresponding credit to rental expense under the category of selling, general and administrative expenses. |
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7. | Gain/Loss on Contract Settlements |
In the fiscal year ended February 28, 2011, the Company recorded a gain of $158,960 relating to the termination of a distribution agreement and a long-standing liability settlement. |
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No contract settlements occurred in the years ended February 29, 2012 and February 28, 2010. |
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
8. | Shareholders Equity |
a) | Share capital | Number of Authorized Shares | ||||||||||
2012 | 2011 | 2010 | ||||||||||
Common shares without par value | 500,000,000 | 500,000,000 | 500,000,000 | |||||||||
Preferred shares without par value | 9,999,900 | 9,999,900 | 9,999,900 | |||||||||
Series A preferred shares | 1,000,000 | 1,000,000 | 1,000,000 | |||||||||
Series B preferred shares | 100 | 100 | 100 | |||||||||
Series C preferred shares | 1,000,000 | 1,000,000 | 1,000,000 | |||||||||
Series D preferred shares | 4,000,000 | 4,000,000 | 4,000,000 | |||||||||
Series E preferred shares | 4,000,000 | 4,000,000 | 4,000,000 | |||||||||
20,000,000 | 20,000,000 | 20,000,000 |
There are no preferred shares outstanding as at February 29, 2012 (2011 - nil; 2010 - nil). |
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In the year ended February 29, 2012, the Company repurchased and cancelled 344,381 of its issued and outstanding shares in the amount of $1,149,228, and cancelled an additional 5,600 shares held in treasury at prior year-end in the amount of $19,536. Since the average issue price of cancelled common shares at the time of repurchase was $11.34, share capital has been reduced by $3,968,492 and additional paid-in capital has been increased by $2,780,192. |
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In the year ended February 28, 2011, the Company repurchased 349,626 of its issued and outstanding shares in the amount of $1,032,524, of which 5,600 shares were held in treasury at year-end in the amount of $19,536. For those shares repurchased and cancelled, share capital was reduced by $3,901,323 and additional paid-in capital increased by $2,888,335. |
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In the year ended February 28, 2010, the Company repurchased 68,350 of its issued and outstanding shares in the amount of $187,417. On cancellation of these shares, share capital was reduced by $775,089 and additional paid-in capital increased by $587,672. |
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b) | Shareholder protection rights plan |
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On August 26, 2003, a Shareholder Protection Rights Plan was adopted whereby one share purchase right is attached to each outstanding common share, exercisable only in the case of a specific event, such as the acquisition by an acquirer of 20% or more of the issued common shares of the Company, and at a predetermined calculated price. |
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At the Annual General Meeting on June 30, 2010, shareholders approved the updating and five-year extension of the Companys Shareholder Protection Rights Plan. |
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c) | Stock options |
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The Company occasionally grants stock options to its employees, officers, directors and consultants to purchase common shares of the Company. The options granted are exercisable at a price which is equal to or greater than the fair market value of the common shares at the date the options are granted. The options are granted with varied vesting periods including immediately, one and five years. Options granted generally have a life of 10 years. The Company does not have a formal stock option plan. |
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
8. | Shareholders Equity (continued) |
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c) | Stock options (continued) |
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At February 29, 2012, stock options were outstanding and exercisable as follows: |
Weighted | ||||||||||||||||
Average | Weighted | Weighted | ||||||||||||||
Number of | Remaining | Average | Number of | Average | ||||||||||||
Range of | Options | Contractual | Exercise | Options | Exercise | |||||||||||
Exercise Prices | Outstanding | Life (Years) | Price (USD) | Exercisable | Price (USD) | |||||||||||
$2.45 to $2.99 | 692,000 | 8.25 | 2.45 | 692,000 | 2.45 | |||||||||||
$3.00 to $3.99 | 194,000 | 7.11 | 3.17 | 131,370 | 3.12 | |||||||||||
$4.00 to $5.99 | 40,433 | 2.54 | 5.07 | 40,433 | 5.07 | |||||||||||
$6.00 to $24.65 | 50,000 | 5.64 | 9.21 | 40,756 | 9.50 | |||||||||||
976,433 | 904,559 |
A summary of the Companys stock option activity is as follows:
Weighted Average | |||||||
Outstanding | Exercise Price | ||||||
Options | (USD) | ||||||
Options outstanding as at March 1, 2009 | 418,166 | $ | 5.10 | ||||
Granted | 65,000 | 3.50 | |||||
Forfeited | (25,333 | ) | 5.84 | ||||
Expired | (22,033 | ) | 6,43 | ||||
Options outstanding as at February 28, 2010 | 435,800 | 4.74 | |||||
Granted | 747,000 | 2.45 | |||||
Forfeited | (64,166 | ) | 3.16 | ||||
Expired | (149,634 | ) | 4.82 | ||||
Options outstanding as at February 28, 2011 | 969,000 | 3.07 | |||||
Granted | 20,000 | 3.00 | |||||
Expired | (5,167 | ) | 7.22 | ||||
Exercised | (7,400 | ) | 2.63 | ||||
Options outstanding as at February 29, 2012 | 976,433 | $ | 3.05 | ||||
Options exercisable, February 29, 2012 | 904,559 | 2.98 | |||||
Options vested and expected to vest | 976,433 | $ | 3.05 |
The aggregate intrinsic value of stock options exercised during the year ended February 29, 2012 was $8,060 USD (2011 - $nil, 2010 - $nil).
The aggregate intrinsic value of stock options outstanding as at February 29, 2012 was $1,059,900 USD (2011 - $667,950, 2010 - $nil).
The aggregate intrinsic value of stock options exercisable as at February 29, 2012 was $1,023,571 USD (2011 - $560,052, 2010 - $nil).
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
8. | Shareholders Equity (continued) |
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c) | Stock options (continued) |
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A summary of the Companys non-vested stock option activity and related information for the year ended February 29, 2012 is as follows: |
Weighted Average | |||||||
Outstanding | Exercise | ||||||
Options | Price (USD) | ||||||
Non-vested at March 1, 2011 | 213,225 | 3.36 | |||||
Granted | 20,000 | 3.00 | |||||
Vested | (159,755 | ) | 3.11 | ||||
Forfeited | (1,596 | ) | 3.00 | ||||
Non-vested at February 29, 2012 | 71,874 | 7.93 |
As of February 29, 2012, there was $217,622 of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted average period of 1.0 years. |
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d) | Share purchase warrants |
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The Companys issued and outstanding share purchase warrants as at February 29, 2012, February 28, 2011 and February 28, 2010 are as follows: |
Number of | USD Average | ||||||
Warrants | Exercise Price | ||||||
Share purchase warrants issued and outstanding | 363,400 | $ | 19.75 |
The Company issued 330,000 common share purchase warrants related to the private placement and 33,400 common share purchase warrants to the placement agent pursuant to the terms of an agreement related to the issuance of common shares on August 9, 2007. Each common share purchase warrant is exercisable for the purchase of one common share and all of the warrants expire on February 9, 2013. Subject to certain exclusions, the exercise price of the warrants is adjustable downwards to a minimum of $16.45 USD per share in the event that the Company issues new shares at a price lower than the exercise price. |
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e) | Earnings (loss) per common share |
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The Company uses the Treasury Stock Method to calculate earnings (loss) per common share. Under this method basic earnings (loss) per share is based on the weighted average aggregate number of common and non-voting shares outstanding during each period. The diluted earnings per share calculation assumes that the outstanding stock options and share purchase warrants had been exercised at the beginning of the period. |
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For the years ended February 29, 2012, February 28, 2011, and February 28, 2010, common equivalent shares (consisting of shares issuable on exercise of stock options and warrants) totaling 511,400, 1,332,400 and 799,200, respectively, were not included in the computation of diluted earnings per share because the effect was anti-dilutive. |
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
8. | Shareholders Equity (continued) |
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e) | Earnings (loss) per common share (continued) |
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Reconciliations of weighted average shares used in the earnings (loss) per common share calculations are set out below: |
2012 | 2011 | 2010 | ||||||||
Weighted average shares - basic EPS | 3,368,751 | 3,853,866 | 3,980,202 | |||||||
Plus: incremental shares from assumed exercise of stock options | 173,108 | - | - | |||||||
Weighted average shares - diluted EPS | 3,541,859 | 3,853,866 | 3,980,202 |
9. | Stock-Based Compensation |
The weighted average date-of-grant fair value of the options granted during the year ended February 29, 2012 was $2.65 USD per option (2011- $2.17 USD; 2010 - $3.24 USD). The estimated fair value of the stock options granted was determined using the Black-Scholes options pricing model with the following weighted-average assumptions:
2012 | 2011 | 2010 | ||||||||
Risk-free rate | 1.11% | 3.29% | 3.51% | |||||||
Dividend yield | Nil% | Nil% | Nil% | |||||||
Volatility factor of the expected market price of the Companys common shares | 97% | 94% | 108% | |||||||
Weighted average expected life of the options (months) | 120 | 120 | 120 |
In connection with the vesting of certain employees, officers and directors stock options for the year ended February 29, 2012, the Company has recorded stock option compensation of $414,822 (2011 - $1,494,569; 2010 - $249,442) which was credited to additional paid-in capital and expensed in selling, general and administrative expenses in the year. |
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10. | Derivative Liability |
In accordance with the guidance of ASC 815-40-15, stock options granted to non-employees that are exercisable in US dollars 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. |
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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 of 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 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. |
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
10. | Derivative Liability (continued) |
The non-employee share purchase option liabilities are accounted for at their respective fair values and are summarized as follows: |
2012 | 2011 | ||||||
Derivative liability, opening balance | $ | 245,983 | $ | - | |||
Fair value of non-employee options granted | - | 180,306 | |||||
Fair value of non-employee options exercised | - | - | |||||
Change in fair value of options | 17,160 | 65,677 | |||||
Derivative liability, closing balance | $ | 263,143 | $ | 245,983 |
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 February 29, 2012 were as follows: (1) risk-free rate of 1.78% (2011 - 3.48%); (2) dividend yield of nil (2011 - nil); (3) an expected volatility of 113.4% (2011 106.1%); (4) an expected life of 99 months (2011 - 111 months); and (5) an exercise price of $2.45 USD. These options have been included in the stock options data presented in in Note 8c. |
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Non-employee option holders exercise will result in a reduction of the option derivative liability. |
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11. | Income Tax |
Earnings before income taxes and the provision for income taxes consisted of the following for the years ended February 29, 2012, February 28, 2011, and February 28, 2010: |
2012 | 2011 | 2010 | ||||||||
Earnings before income taxes: | ||||||||||
Canada | $ | 1,797,445 | $ | 762,748 | $ | 2,106,138 | ||||
United States | (153,484 | ) | (164,167 | ) | (159,734 | ) | ||||
Total | $ | 1,643,961 | $ | 598,851 | $ | 1,946,404 | ||||
Provision for income taxes: | ||||||||||
Current | $ | - | - | - | ||||||
Deferred, Canada | 93,103 | 680,879 | 735,133 | |||||||
Deferred, United States | - | - | - | |||||||
Total | $ | 93,103 | $ | 680,879 | $ | 735,133 |
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
11. | Income Tax (continued) |
Income tax computed at statutory tax rates reconciles to the income tax provision, using a 26.25% (2011 - 28.17%, 2010 - 29.75%) statutory tax rate, as follows: |
2012 | 2011 | 2010 | ||||||||
Tax at statutory rates at CDN rates | $ | 431,540 | $ | 168,696 | $ | 579,055 | ||||
Foreign loss taxed at US rates | (17,894 | ) | (14,356 | ) | (9,571 | ) | ||||
Effect of change in statutory rate | 14,400 | 19,500 | (29,569 | ) | ||||||
Effect of foreign exchange on loss carry-forwards | (100,346 | ) | 204,076 | 343,189 | ||||||
Stock-based compensation | 108,776 | 471,812 | 72,199 | |||||||
Expiry of loss carry-forwards | 104,076 | 16,742 | 13,089 | |||||||
Other items, net | (23,278 | ) | (4,420 | ) | (14,358 | ) | ||||
Change in valuation allowance | (424,171 | ) | (181,171 | ) | (218,901 | ) | ||||
Income tax provision for year | $ | 93,103 | $ | 680,879 | $ | 735,133 |
As at February 29, 2012, the Company and its subsidiaries have accumulated net operating losses in the amount of approximately $6.4 million which can be applied against future earnings in Canada and $8.3 million in the United States. The net operating loss carry forward amounts commence to expire in 2025 through 2032.
Significant components of the Companys deferred tax assets and liabilities are as follows:
2012 | 2011 | ||||||
Operating and other losses carried forward | $ | 4,684,015 | $ | 4,284,223 | |||
Property, plant and equipment | 1,141,065 | 2,000,392 | |||||
Trademark and deferred costs | 104,529 | 107,529 | |||||
Un-realized foreign exchange loss | 39,171 | 37,829 | |||||
Financing costs | - | 56,081 | |||||
Total deferred tax assets | 5,968,780 | 6,486,054 | |||||
Valuation allowance | (3,254,153 | ) | (3,678,324 | ) | |||
Net deferred tax assets | $ | 2,714,627 | $ | 2,807,730 |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of tax assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has recognized a valuation allowance for those deferred tax assets for which realization is not more likely than not to occur.
The tax years that remain open to examination by the tax authorities are generally 2007-2012. The net operating losses from prior years are subject to adjustment under examination to the extent they remain unutilized in an open year.
There are no uncertain tax positions to recognize at February 29, 2012 and February 28, 2011.
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
12. | Commitments |
The Company is committed to a sponsorship agreement and annual operating leases for premises and equipment. The minimum amounts due over the remaining terms of those agreements are as follows: |
2013 | $ | 468,777 | |
2014 | 64,760 | ||
2015 | 64,760 | ||
2016 | - | ||
2017 and thereafter | - | ||
Total future minimum payments | $ | 598,297 |
The Company has commitments with various suppliers to purchase certain volumes of materials. It is not anticipated that losses will be incurred on these contracts. |
|
13. | Contingencies |
The Company is a party to various 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, results of operations, or cash flows of the Company. |
|
14. | Related Party Transactions |
Related party transactions not disclosed elsewhere are as follows: |
2012 | 2011 | 2010 | ||||||||||
i) | Incurred consulting fees with a company related by a director in common | $ | 84,000 | $ | 84,000 | $ | 84,000 | |||||
ii) | Incurred professional service fees with a company related by a director in common | $ | 528,000 | $ | 528,000 | $ | 479,600 | |||||
iii) | Incurred marketing consulting services with a company related by a director in common | $ | 76,700 | $ | 74,200 | $ | 64,800 | |||||
iv) | Incurred services from a company related by a director in common | $ | 574 | $ | 748 | $ | 750 | |||||
v) | Incurred consulting fees with a company related by an officer in common | $ | 260,350 | $ | 239,118 | $ | 192,218 | |||||
vi) | Incurred services from a company related by a director in common | $ | 7,217 | $ | 4,070 | $ | 2,525 | |||||
vii) | Incurred brokerage and placement agent fees and expenses from a company related by a director in common | $ | - | $ | - | $ | 4,929 |
The above-noted transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
15. | Fair Value of Financial Instruments |
The Companys financial assets and financial liabilities as at February 29, 2012, measured at fair value on a recurring basis are summarized below: |
Quoted | Significant | Significant | |||||||||||
Prices in | Observable | Unobservable | Balance, | ||||||||||
Active Market | Inputs | Inputs | February 29, | ||||||||||
(Level 1) | (Level 2) | (Level 3) | 2012 | ||||||||||
Cash and cash equivalents | $ | 1,189,539 | $ | - | $ | - | $ | 1,189,539 | |||||
Derivative liability | - | - | (263,143 | ) | (263,143 | ) | |||||||
$ | 1,189,539 | $ | - | $ | (263,143 | ) | $ | 926,396 |
The Companys financial assets and financial liabilities as at February 28, 2011, measured at fair value on a recurring basis are summarized below:
Quoted | Significant | Significant | |||||||||||
Prices in | Observable | Unobservable | Balance, | ||||||||||
Active Market | Inputs | Inputs | February 28, | ||||||||||
(Level 1) | (Level 2) | (Level 3) | 2011 | ||||||||||
Cash and cash equivalents | $ | 1,870,600 | $ | - | $ | - | $ | 1,870,600 | |||||
Derivative liability | - | - | (245,983 | ) | (245,983 | ) | |||||||
$ | 1,870,600 | $ | - | $ | (245,983 | ) | $ | 1,624,617 |
The fair value of cash and cash equivalents approximates its carrying value. |
|
The fair value of the derivative liability for non-employee stock options is determined through use of the Black-Scholes model (Note 10). |
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16. | Segmented Information |
The Company operates in one industry segment being the production and distribution of beverages. The Companys principal operations are comprised of an integrated bottling and 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 the years reported are less than 10%. |
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During the year ended February 29, 2012, the Companys ten largest customers comprised approximately 87% (2011 - 86%; 2010 - 84%) and no one customer comprised more than 78% (2011 - 73%; 2010 - 67%). As at February 29, 2012 and February 28, 2011, one customer comprised more than 10% of trade receivables. |
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
17. | Change in Generally Accepted Accounting Principle |
Effective February 29, 2012, Management determined that to better reflect the Companys operations it would be more appropriate to expense the pallets when purchased as a cost of sale as incurred. The change in accounting principle was adopted retroactively, with retrospective adjustment of prior years financial statements as below. The impact on 2012 was a $23,932 reduction in comprehensive income, and a $0.01 impact on basic earnings per share. There was no impact on diluted earnings per share. Note that prior year comparatives are US GAAP adjusted. |
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Adjustments to Consolidated Statements of Income (Loss): |
2011 | 2010 | ||||||
Net income (loss) for the year, unadjusted | $ | (65,121 | ) | $ | 1,177,856 | ||
Adjustment to cost of sales | (16,907 | ) | 33,415 | ||||
Net income (loss) for the year, adjusted | $ | (82,028 | ) | $ | 1,211,271 | ||
Comprehensive income (loss) for the year, adjusted | $ | (82,028 | ) | $ | 1,211,271 | ||
Basic income (loss) per share, unadjusted | $ | (0.02 | ) | $ | 0.30 | ||
Adjustment to income (loss) per share | (0.00 | ) | 0.00 | ||||
Basic income (loss) per share, adjusted | $ | (0.02 | ) | $ | 0.30 | ||
Diluted income (loss) per share, unadjusted | $ | (0.02 | ) | $ | 0.30 | ||
Adjustment to income (loss) per share | (0.00 | ) | 0.00 | ||||
Diluted income (loss) per share, adjusted | $ | (0.02 | ) | $ | 0.30 |
Adjustments to Assets, Liabilities and Shareholders Equity:
2011 | 2010 | ||||||
Total assets, pre-adjustment | $ | 15,857,262 | $ | 17,653,886 | |||
Adjustment to inventory, opening adjustment | (170,202 | ) | (203,617 | ) | |||
Adjustment to inventory, current year | (16,907 | ) | 33,415 | ||||
Total assets, as adjusted | $ | 15,670,153 | $ | 17,483,684 | |||
Total liabilities | $ | 4,001,920 | $ | 6,195,468 | |||
Total shareholders equity, pre-adjustment | $ | 11,855,342 | $ | 11,458,418 | |||
(170,202 | ) | ||||||
Adjustment to deficit, opening adjustment | (203,617 | ) | |||||
Change in deficit relating to cost of sales | (16,907 | ) | 33,415 | ||||
Total shareholders equity, as adjusted | $ | 11,668,233 | $ | 11,288,216 | |||
Total liabilities and shareholders equity as adjusted | $ | 15,670,153 | $ | 17,483,684 |
Leading Brands, Inc. |
Notes to the Consolidated Financial Statements |
(Expressed in Canadian Dollars) |
18. | Subsequent Events |
On May 9, 2012, the Company announced its intention to commence a modified Dutch Auction tender offer to repurchase up to US $800,000 of its common shares. The tender offer will commence on or about May 18, 2012, and the tender offer will be funded through available cash. |
Item 19. Exhibits.
Exhibit No. | Description |
1.1 | Certificate of Incorporation and Articles and amendments to the Articles and Memorandum of the Company, incorporated by reference from prior filing as Exhibit 3.1 to the Form F-3, filed with the Securities and Exchange Commission on September 24, 2007. |
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1.2 | Notice of Articles, incorporated by reference from prior filing as Exhibits 99.1 and 99.2 to the Form 6-K filed with the Securities |
Exchange Commission on February 3, 2010. | |
2.1 |
Form of Warrant, incorporated by reference from prior filing as Exhibit 99.5 to the Form 6-K filed with the Securities and Exchange Commission on August 10, 2007. |
2.2 |
Amended and Restated Shareholder Rights Plan Agreement, incorporated by reference from prior filing on Form 6-K filed with the Securities and Exchange Commission on July 2, 2010. |
8.1 | |
12.1 | |
12.2 | |
13.1 |
57
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
LEADING BRANDS, INC.
/s/ Ralph McRae
Ralph D. McRae
Chairman and Chief Executive Officer
Dated: May 15, 2012
INDEX TO EXHIBITS
Exhibit No. | Description |
1.1 |
Certificate of Incorporation and Articles and amendments to the Articles and Memorandum of the Company, incorporated by reference from prior filing as Exhibit 3.1 to the Form F-3, filed with the Securities and Exchange Commission on September 24, 2007. |
1.2 |
Notice of Articles, incorporated by reference from prior filing as Exhibits 99.1 and 99.2 to the Form 6-K filed with the Securities Exchange Commission on February 3, 2010. |
2.1 |
Form of Warrant, incorporated by reference from prior filing as Exhibit 99.5 to the Form 6-K filed with the Securities and Exchange Commission on August 10, 2007. |
2.2 |
Amended and Restated Shareholder Rights Plan Agreement, incorporated by reference from prior filing on Form 6-K filed with the Securities and Exchange Commission on July 2, 2010. |
8.1 | |
12.1 | |
12.2 | |
13.1 |