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Leading Brands Inc. Message Board

  • EquityMaestro EquityMaestro Nov 2, 2007 9:59 PM Flag

    Reviewed Statement of Cash Flows in SEDAR Filing


    The key viability question for LBIX is how long cash will last. I reviewed the Q2 numbers again:

    1) Operating cash flow was -1,968,763; Investing activities cash flow was -687,770; Finance activities cash flow was 6,881,600; In aggregate, cash increased to a total balance of 4,225,067.

    What This Means:
    Investing and Financing activities can be controlled by the Company and should essentially be ignored for this analysis. In my opinion, LBIX in aggregate will have less than plus or minus 500,000 in cash flow as it relates to Investing and Financing activities for the next few quarters. It's very difficult to estimate cash flows from these activities, so for brevity let's just assume that they wash to 0. This is a big assumption, but lack of knowledge make it necessary.

    The most important item from LBIX's viability perspective going forward is Operating Cash Flow. The components of operating cash flow are Net Income/Loss plus or minus items not involving cash. During Q2, items not involving cash resulted in approximately -600,000 in negative cash flow due to a large paydown in Accounts Payable of -1,258,768. Going forward, my guess is that LBIX will manipulate it's working capital to result in a positive number for cash flow purposes. That said, let's assume that LBIX generates +100,000 in cash flow from items not involving cash. That leaves the big wild card and x-factor: Net Income. The question is, how much money will LBIX lose over the next few quarters? Their viability rides on this number and shareholders need to pay close attention. My guess is that they will lose 2,000,000 in Q3 and Q4 and 1,000,000 in Q1 of FY2008.

    In summary, I project a cumulative Net Loss of 5,000,000 over the next 3 quarters (and yes, for the skeptics, I pulled this number out of my ass....where else is it going to come from?). If they lose 5,000,000 over the next 3 quarters and have cumulative positive cash flow from Working Capital of 300,000 the negative operating cash flow will be -4,700,000. Since they have a multimillion dollar line of credit with a bank (let's assume it's 2,000,000), this leaves cash available of:

    4,225,067 (current cash) less 4,700,000 (operating cash burn over next 3 quarters) plus 2,000,000 (bank line of credit that will be drawn upon) = 1,525,067.

    I know that this analysis is extremely high-level and has multiple guesstimates, but this is my opinion at this time. Given the above, I think LBIX has approximately 4 or 5 quarters to turn this thing around and become operating cash flow positive. If they don't achieve this goal, they will be in the unenviable position of tapping the capital markets while in a desperate position. The keys to avoiding this predicament are:

    1) Lower price of TrueBlue 64oz. by $1 and create a new label for all TrueBlue products.
    2) Belt tightening...cut SG&A (Selling, General, and Administrative expenses....i.e., corporate fat) by 20-25%. This needs to be done immediately and it is unacceptable that revenues have declined by 45% but SG&A has increased.
    3) Get Kroger, Albertson's, and 7-11 fixed in the next 30 days. Set a goal and make your management team accountable to a target date and associated success metrics. If the dolts and dimwits on your senior management do not achieve this goal, give investors some confidence and fire Pat Wilson and a couple of other executive flunkies who have failed to manage the Kroger and Albertson's accounts.
    4) New placements and marketing efforts.

    Ralph, are you listening????? It's really so fricking simple. Man-up and do the above if you want LBIX to survive.

    This topic is deleted.
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    • We know that there is nothing for 711 in the Q2 numbers. If they can sell 5 bottles per day in 2000 stores, the annual revenue at 1.00 a bottle would be $3.65M in more revenue. These numbers could be way off and we won't really know for a while. How many 711 franchised stores take the product, how well it sells, remain to be seen. My only point is that your analysis, which I commend you for doing, was done at a low point. No 711, no major Stoked push in the Pacific Northwest, certainly nothing from the new convenience store broker efforts, and Kroger well below reasonable expectations going forward. So your somewhat scary numbers could look a lot better in 6 months without pie in the sky things happening like getting Wal Mart in the U.S. I see Q2 as a definite bottom and bought more at 1.81 yesterday. A smart colleague who is very knowledgeable about the beverage business for decades was also a buyer yesterday.

    • You also leave out the assumption of the additional warrants at 3.95 that would result in a cash infusion of another 6 million not to mention we could be cash flow breakeven at that point.

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