Leading Brands, Inc. (NASDAQ: LBIX) was founded on February 4, 1986, and is headquartered in Vancouver, Canada. On May 30th, the company announced results for its 2017 fiscal year, which ended February 28, 2018. During the year the company’ overall liquidity and financial flexibility improved supported by a reduction in net loss by $3,122,540 to $3,387,149 for the year ended February 28, 2018, from a net loss of $6,509,689 in the comparable period last year.
From an operational perspective, in order to take advantage of significant growth opportunities in the film and gaming content creation and distribution business, the Company exited the beverage bottling, distribution, sales, merchandising, and branding business.
Key operational highlights:
Exiting the Beverage Co-Pack and Distribution Business: Sale of Legacy Beverage Assets. In the fiscal year ended February 28, 2017, the Company sold its 50,000-square foot bottling plant in Edmonton, Alberta. As part of the sale of its legacy beverage assets, on September 15, 2017, the Company disposed of its subsidiaries. The transaction was reviewed and approved by the disinterested directors of the Company.
Entering the Film and Gaming Content Creation and Distribution Business: On Sep 2017, the company announced that it has entered into a Definitive Arrangement Agreement with Liquid Media Group, Inc. (“Liquid”) of Vancouver, Canada, whereby LBIX will acquire 100% of Liquid pursuant to a plan of arrangement. Existing LBIX shareholders will hold 22.637%, and Liquid Shareholders will hold 77.363% of the post-transaction entity. For these purposes, existing LBIX shares were valued at $1.50 US. Liquid is aggregating mature production service studios and creating a vertically integrated studio system for producing film, television and gaming content from inspiration to distribution. Liquid is headquartered in Vancouver, Canada where it is establishing its studio footprint and production hub. Liquid also has satellite offices in both New York and Los Angeles.
Acquisition of Majesco: On January 15, 2018, the Company announced that Liquid had successfully acquired 51% of Majesco, a proven gaming publisher. In order to advance Majesco’s development of its gaming business in the growing Asian market, in Q1 of 2018, the Company announced that it had entered into a support agreement with Majesco, whereby the Company will invest in the exploitation of Majesco’s gaming properties in Asia. In order to assist Liquid with the development of its gaming business (and in advance of the closing of the preferred share financing investment), the Company agreed to advance funds to Majesco so that Majesco can retain WPIC to assist Majesco to develop its intellectual properties and gaming content in the People’s Republic of China.
Under the terms of the support agreement, the Company agreed to invest USD$50,000 to Majesco as consideration for receiving 5% of Majesco’s net profits from its sales of gaming assets in Asia for a period of 5 years. On February 5, 2018, the Company advanced an initial tranche of USD$25,000 of its planned USD$50,000 investment to Majesco. This amount is refundable from Majesco if the Transaction is not completed by June 1, 2018.
Analysts tracking the stock believes that the demand for content is unprecedented and the opportunity to change the landscape in the media business is exciting. Also, Vancouver has long been an industry hub, with world-class talent and production services at every level and the company is presently at a critical inflection point to harness all of that ability to produce world-class content. The market is now looking forward to the completion of this fundamental shift in business from beverage co-packing and distribution to film and gaming content production and distribution.
About Liquid Media Group: Liquid is a vertically integrated global studio producing content for all platforms including film, TV, gaming, and VR through its network of shared services. With an extensive network of industry executives and financial partners, the company is well poised to innovate and deliver creative content from inspiration through to distribution.
Latest Quarter Financial position:
- Net loss decreased by $3,122,540 to $3,387,149 for the year ended February 28, 2018, from a net loss of $6,509,689 in the comparable period last year. This change principally occurred due to the Company’s loss on the discontinued co-packing and legacy beverage operations.
- The discontinued operations in the fiscal year ended February 28, 2018, included the Company’s legacy beverage operations. The Company’s continuing operations that are presented for the current year and prior years represent the results of the parent company, Leading Brands Inc.
Liquidity and financial flexibility:
- As of February 28, 2018, the Company had working capital of $1,060,066 compared to working capital of $3,939,880 at the prior fiscal year-end. The Company held $1,369,352 in cash account balances (including restricted cash) at February 28, 2018, compared with $4,315,028 at the prior fiscal year-end.
- Considering the positive working capital position, including the cash on hand on February 28, 2018, the Company believes that it has sufficient working capital to continue operations for the next twelve months.
Key risk factors and potential stock drivers:
- Company’ ability to successfully close the transactions. The Transaction, if completed, will fundamentally change the Company’s primary business from beverage co-packing and distribution to film and gaming content creation and distribution.
- Changes in general economic and business conditions. Also, the Company is exposed to varying degrees of competition.
- Liquid competes, to some degree, with other larger companies in the film and gaming industry. Some of these competitors have substantially greater marketing, cash, distribution, production, technical and other resources than Liquid.
- Changes in the film and gaming entertainment industries could adversely affect the Company’s financial results
- The company’ expected operations are still at a stage and its ability to maintain its liquidity and financial flexibility to fund its incremental capital requirements.
- On Friday, July 6th, 2018, LBIX closed at $1.56, on an average volume of 80,515 shares exchanging hands. Market capitalization is $4.37 million. The current RSI is 65.10
- In the past 52 weeks, shares of LBIX have traded as low as $0.74 and as high as $3.75
- At $1.56, shares of LBIX are trading above its 50-day moving average (MA) at $1.21 and above its 200-day moving average (MA) at $1.41
- The present support and resistance levels for the stock are at $1.35 & $1.85 respectively.