LOS ANGELES, April 23, 2009 (GLOBE NEWSWIRE) -- Vertical Branding, Inc. (OTCBB:VBDGE), announced fourth quarter and fiscal year 2008 financial results today, and provided an update on other pending matters.
Revenues for the quarter and fiscal year ended December 31, 2008, were $7.4 million and $35 million, respectively, a 26.5% increase and 3.6% decrease over comparable prior year periods. The Company's net loss applicable to common stockholders for the quarter and fiscal year ended December 31, 2008, was, respectively, $3 million and $5.2 million, or a $0.10 and $0.18 loss per share. This compares to a prior year net loss of $3.8 million for fourth quarter 2007, or a $0.14 loss per share, and a net loss of $3.6 million for the fiscal year ended December 31, 2007, a $0.15 loss per share. Included in the fourth quarter 2008 loss figures are approximately $1.3 million of charges associated with the impairment of assets in the Company's real estate segment.
Adjusted earnings before interest, tax, depreciation and amortization expenses ("Adjusted EBITDA") for the quarter ended December 31, 2008, were a loss of approximately $1 million, compared to a loss of approximately $1.1 million for the fourth quarter of 2007. Adjusted EBITDA for fiscal 2008 was a loss of approximately $0.5 million compared to earnings of $1.8 million for the year ended December 31, 2007. Adjusted EBITDA, in addition to the items listed above, takes into account the effect of non-cash stock-based compensation and certain non-recurring charges, and is reconciled to net income in the table below.
"Our Q4 2008 sales represented a 27% increase over sales for the prior year period, but were significantly below expectations," stated Nancy Duitch, Vertical Branding's Chief Executive Officer. "This was principally due to cash flow and working capital constraints that negatively impacted our ability to purchase inventory and fulfill sales orders toward the end of the fiscal year."
The Company also announced preliminary sales figures for first quarter of fiscal year 2009, ended March 31, in the amount of $4.4 million, a 47% decrease from revenue of $8.3 million in Q1 2008.
"Our working capital situation continues to adversely impact our ability to achieve sales targets, to develop and roll-out planned new products and marketing campaigns, to fully service customers and meet demand for Company products, and to timely satisfy trade payables and other financial obligations," added Ms. Duitch. "We are continuing to evaluate and pursue strategic alternatives, including equity financing in concert with the restructuring of certain debt obligations, as well as a substantial scaling down and restructuring of our operations in the event we are not able to consummate financing expeditiously or should we conclude that any such alternative would ultimately be in the best interests of our stakeholders."
With regard to the pending filing of our annual report on Form 10-K, Victor Brodsky, the Company's Vice President of Financial Reporting and its Principal Financial Officer, stated, "We have made the decision at this time to divert all available cash resources to vital Company operations and therefore have not paid our independent auditors amounts necessary to secure completion of the audit."
Table reconciling EBITDA to GAAP (dollars in thousands)
Three months Years
ended ended
December 31, December 31,
----------------- -----------------
2008 2007 2008 2007
-------- -------- -------- --------
Net loss for the period $(2,977) $(3,781) $(5,038) $(3,447)
Interest expense, net 277 251 1,052 1,228
Provision for income taxes 28 1,021 37 1,047
Depreciation and amortization 310 319 1,265 1,249
Other charges -- 875 278 1,052
Non-cash stock based compensation 81 136 449 570
Impairment of office building 1,005 -- 1,005 --
Write down of mortgage receivable 321 -- 321 --
Legal settlement -- 120 -- 120
Executive severance -- -- 160 --
-------- -------- -------- --------
Adjusted EBITDA $ (955) $(1,059) $ (471) $ 1,819
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Use of Non-GAAP Financial Measures
Adjusted EBITDA and equivalent loss figures cited in this press release are non-GAAP measures that are defined as net income or loss excluding the effects of interest, income taxes, depreciation and amortization expenses, non-cash stock-based compensation, discontinued operations and certain other specified items that we believe to be non-recurring.
Adjusted EBITDA as defined above may not be similar to non-GAAP income measures used by other companies. The Company believes that Adjusted EBITDA provides useful information to investors about the Company's performance because it eliminates the effects of period to period changes in costs associated with capital investments, impairment of assets related to those or other investments, interest on debt and capital lease obligations, non-cash compensation expense and other non-recurring items that management does not believe are reflective of the underlying performance of the Company's business operations. Management uses Adjusted EBITDA in evaluating the overall performance of the Company's business operations.
Although management finds Adjusted EBITDA useful for evaluating aspects of the Company's business, its reliance on this measure is limited because the excluded items often have a material effect on the Company's earnings and earnings per share calculated in accordance with GAAP. Therefore, management uses Adjusted EBITDA in conjunction with U.S. GAAP earnings measures. The Company believes that Adjusted EBITDA provides investors with an additional tool for evaluating the Company's core performance, which management uses in its own evaluation of performance, and a base line for assessing the future earnings potential of the Company. While the GAAP results are more complete, the Company provides investors with this supplemental metric since, with reconciliation to GAAP, they may allow for greater insight into the Company's financial results.
About Vertical Branding, Inc.
Vertical Branding is a consumer products company selling high-quality household, beauty and personal care products at affordable prices. The Company builds consumer awareness for its products and brands through direct response television, Internet and print advertising, with the goal of broader wholesale distribution to many of the country's largest retailers and drug chains as well as catalogs, home shopping channels and international distributors. Vertical Branding develops its own proprietary products and brands and licenses the rights to other select products that pass its rigorous screening process. The Company's hottest-selling products and brands currently include MyPlace, SteamBuddy, Hercules Hook, ZorbEEZ and Extreme Beam.
Information Regarding Forward-Looking Statements
The information in this news release includes forecasts and predictions about future results and events, or "forward-looking statements," often identifiable by use of words like "anticipate," "believe," "estimate," "expect," "future," "intend," "plan" and similar expressions. Such statements reflect the current view of Vertical Branding with respect to the matters discussed and are subject to and qualified by various risks, uncertainties, assumptions and other factors that could cause actual results or events to differ materially from those forecasted or predicted. A number of such risks and uncertainties are described in Vertical Branding's periodic reports filed with the Securities and Exchange Commission in the section of such reports entitled "Risk Factors." These include risks and uncertainties relating to the general industry in which the company operates, company operations, the company's ability to adequately finance the operation and growth of its business, the company's dependence upon third parties to supply products and fulfill customer orders, dependence upon major retail chains for sale of products, the company's ability to develop and market new products, its ability to protect intellectual property associated with its products and otherwise maintain competitive advantages, and volatility and uncertainty related to trading on the OTC Bulletin Board, penny stock rules and changes in government regulations. Other risk and uncertainties that are unknown or currently believed to be immaterial could also cause future results or events to differ materially from those forecasted or anticipated. Although Vertical Branding believes that the expectations reflected in the forward looking statements are reasonable, Vertical Branding cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, Vertical Branding does not intend to update any of the forward-looking statements to conform these statements to actual results. The foregoing discussion should be read in conjunction with Vertical Branding's reports filed with the Securities and Exchange Commission.
VERTICAL BRANDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Years
Ended Ended
December 31, December 31,
-------------------- -------------------
2008 2007 2008 2007
-------- -------- -------- --------
(unaudited) (unaudited)
Revenues
Consumer products $ 7,208 $ 5,668 $34,277 $35,658
Real estate activities 185 177 766 683
-------- -------- -------- --------
Total revenues 7,393 5,845 35,043 36,341
Cost of sales 5,037 2,515 19,340 12,210
-------- -------- -------- --------
Gross profit 2,356 3,330 15,703 24,131
-------- -------- -------- --------
Operating expenses
Selling 2,747 2,664 11,177 16,272
General and
administrative 1,440 2,007 6,763 6,864
Depreciation and
amortization 310 319 1,265 1,249
Impairment of
office building 1,005 -- 1,005 --
Other charges -- 875 -- 1,052
-------- -------- -------- --------
Total operating
expenses 5,502 5,865 20,210 25,437
-------- -------- -------- --------
Loss from operations (3,146) (2,535) (4,507) (1,306)
Other income (expense):
Interest expense, net (277) (251) (1,052) (1,228)
Minority
interest 474 26 558 134
-------- -------- -------- --------
Loss from
operations before
provision for income
taxes (2,949) (2,760) (5,001) (2,400)
Provision for income
taxes 28 1,021 37 1,047
-------- -------- -------- --------
Net loss (2,977) (3,781) (5,038) (3,447)
Preferred stock dividends 45 47 181 198
======== ======== ======== ========
Net loss applicable
to common stockholders $(3,022) $(3,828) $(5,219) $(3,645)
======== ======== ======== ========
Basic and diluted
loss per common share $ (0.10) $ (0.14) $ (0.18) $ (0.15)
======== ======== ======== ========
Number of weighted
average shares
used in computation
of basic and diluted
loss per common share 30,044 26,884 29,686 23,689
======== ======== ======== ========
During 2008, the Company changed the classification of certain operating expenses. Historically, these expenses were reported in cost of sales and in 2008 are now being reported as selling expenses. This direction was initiated as it more accurately reports expense classification activity resulting from a greater portion of our revenues coming from the wholesale channel of distribution. The reclassification resulted in a decrease to cost of sales, and a corresponding increase to selling costs, of approximately $4,300,000 for the year ended December 31, 2007. These reclassifications had no impact on the Company's previously reported net loss or basic and diluted loss per share amounts. As a result of this consolidation, prior periods have been reclassified to conform to the current year's presentation.
VERTICAL BRANDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
-------------------------
2008 2007
------------ ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 221 $ 30
Accounts receivable, net 4,141 3,387
Inventories 1,497 3,182
Other current assets 574 1,490
------------ ------------
Total current assets 6,433 8,089
Office building, net 2,800 3,987
Other assets 4,099 5,071
------------ ------------
Total assets $ 13,332 $ 17,147
============ ============
Liabilities and Stockholders'
(Deficiency) Equity
Current liabilities:
Line of credit $ 3,981 $ 1,651
Current portion of long-term debt 3,886 1,540
Accounts payable, accrued expenses and
other current liabilities 3,956 4,654
------------ ------------
Total current liabilities 11,823 7,845
Long-term debt 1,700 4,451
------------ ------------
Total liabilities 13,523 12,296
Minority voting interest in subsidiary 26 528
Stockholders' (deficiency) equity (217) 4,323
------------ ------------
Total liabilities and stockholders'
(deficiency) equity $ 13,332 $ 17,147
============ ============
VERTICAL BRANDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended
December 31,
------------------------
2008 2007
(unaudited)
----------- ------------
Cash flows from operating activities:
Net loss $ (5,038) $ (3,447)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,265 1,240
Bad debts 669 259
Impairment loss 1,005 --
Minority voting interest in net loss
of subsidiary (558) (134)
Equity based compensation 449 570
Other non-cash charges related to post
closing acquisition adjustments -- 465
Deferred income taxes -- 1,017
Changes in operating assets and
liabilities:
Accounts receivable (1,102) (1,594)
Inventories 1,685 (898)
Infomercial production costs 511 (369)
Prepaid expenses and other assets 419 521
Accounts payable and accrued expenses (591) 144
Other current liabilities (67) (47)
----------- -----------
Net cash used in operating activities (1,353) (2,273)
----------- -----------
Cash flows from investing activities:
Capital expenditures and intangible assets (60) (255)
----------- -----------
Net cash used in investing activities (60) (255)
----------- -----------
Cash flows from financing activities:
Proceeds from notes and loans payable 30,177 12,465
Principal payments on notes
and loans payable (28,481) (14,300)
Due from factor -- 573
Additions to deferred finance costs (87) (189)
Issuance of common stock -- 4,000
Costs incurred for the issuance of
common stock (59) (171)
Other financing activities 54 75
----------- -----------
Net cash provided by financing activities 1,604 2,453
----------- -----------
Net increase (decrease) in cash and cash
equivalents $ 191 $ (75)
Cash and cash equivalents, beginning of
year 30 105
----------- -----------
Cash and cash equivalents, end of year $ 221 $ 30
=========== ===========
Additional cash flow information:
Interest paid $ 1,045 $ 1,216
=========== ===========
Income taxes paid $ 9 $ 22
=========== ===========