Vertical Branding, Inc. Announces Second Quarter Financial Results

Thursday August 14, 4:01 pm ET

Q2 Revenues Increase 11.3% Year over Year to $9.6 Million
Adjusted EBITDA of Nearly $0.3 Million Reflects Significant Sequential Quarterly Improvement on Increased Revenues and Reduced Operating Expenses

LOS ANGELES--(BUSINESS WIRE)--Vertical Branding, Inc. (OTC BB: VBDG.OB) announced second quarter financial results today, including a return to year-over-year revenue growth and positive Adjusted EBITDA.

The Company reported revenues of approximately $9.6 million for the quarter ended June 30, 2008, an 11.3% increase over revenues for the second quarter of fiscal year 2007. The Company's second-quarter net loss totaled approximately $0.4 million, or $0.01 cent per share, compared to break-even, or $0.00 cents per share, for the same period of the prior year. Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") for Q2 2008 totaled approximately $0.3 million, versus adjusted EBITDA of roughly $0.9 million in the second quarter of 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.

On a sequential quarterly basis, Vertical Branding's revenues increased by $1.3 million, or 15.7%, over first quarter 2008 revenues of $8.3 million. Net loss narrowed by approximately $1.2 million in the second quarter, and Adjusted EBITDA improved by approximately $0.7 million over Q1 2008, as a result of increased revenues and effective control of operating expenses.

"In my first quarter as Chief Financial Officer of Vertical Branding, I am pleased to announce results that reflect significant improvement over the course of the first half of 2008 and that are more in line with the momentum achieved by the Company prior to the fourth quarter of 2007," said Dan McCleerey. "Second quarter results show improvement to our top and bottom line numbers, and we were able to deliver almost 50% of our $1.3 million increase in revenues over Q1 straight to the bottom line through cost-cutting initiatives and greatly improved operating efficiencies. We expect to continue such efforts going forward, which, combined with further increases in sales targeted in the second half of 2008, should produce continuing improvements to our financial and operating results."

Revenues for the six months ended June 30, 2008, were approximately $17.9 million, a 17% decrease compared to $21.4 million in the corresponding period of fiscal year 2007. The year-over-year decline in six-month revenues is partially attributable to a change in the Company's marketing strategies undertaken in mid-2007, resulting in lower direct-to-consumer sales in all subsequent quarters. In addition, the first quarter of fiscal 2007 included initial retail distribution shipments, also known as "store seeding," of the Company's popular Hercules Hook product, having the effect of a spike in revenues at the time of seeding with ongoing replenishment orders more evenly distributed over the product lifecycle.

For the six months ended June 30, 2008, the Company's net loss totaled $2.0 million, or $0.07 cents per share, compared with net income of $0.4 million, or $0.02 cents per share, in the corresponding prior-year period. Adjusted EBITDA for the first six months of 2008 totaled a negative $0.1 million, versus Adjusted EBITDA of $2.2 million in the corresponding period of 2007. Results for the six months ended June 30, 2008, were negatively impacted by nearly $0.3 million of costs in excess of normal business expenses arising out of the 2007 bankruptcy of a warehouse and fulfillment vendor, the write-down of an intangible infomercial asset, and executive severance, $0.1 million of which is included in non-cash stock-based compensation in the reconciliation table below.

"In addition to improving financial performance, our second quarter included important advances and developments in our business that we expect will be more fully realized in the time to come," commented Nancy Duitch, CEO of Vertical Branding, Inc. "In particular, our initiative to partner with our retailers by serving as category leader is producing strong results, with ongoing addition of premier retail accounts to this growing program that the Company has not previously sold. We have also made a good start with our new Econology Advantage Division and are excited to begin rolling out eco-friendly products with compelling value propositions at recession-resistant price points in the very near term. Finally, I believe that we will continue to derive great benefit from the addition of Dan McCleerey to our executive roster and from the particular skill set and contributions he and his team are bringing to our business."

Ms. Duitch concluded, "We are pleased with our product pipeline, greater internal efficiencies and our strategic shift to an 80% wholesale revenue mix as we move into the second half of 2008. However, in consideration of potential limitations on production capacity and timing as well as the potential effects of the macroeconomic environment, we are widening the range of our revenue forecast for fiscal 2008 to a revised range of $44 million to $50 million."

Table reconciling EBITDA to GAAP (dollars in thousands)



VERTICAL BRANDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
? ?
June 30, December 31,
2008 2007
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 475 $ 30
Accounts receivable, net 5,524 3,387
Inventories 2,384 3,182
Other current assets ? 999 ? 1,490
Total current assets 9,382 8,089
Office building, net 3,901 3,987
Other assets ? 4,769 ? 5,071
Total assets $ 18,052 $ 17,147
?
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit $ 4,037 $ 1,651
Current portion of long-term debt 2,858 1,540
Accounts payable, accrued expenses and other current liabilities ? 4,932 ? 4,654
Total current liabilities 11,827 7,845
Long-term debt ? 3,137 ? 4,451
Total liabilities ? 14,964 ? 12,296
Minority voting interest in subsidiary ? 487 ? 528
Stockholders' Equity ? 2,601 ? 4,323
Total Liabilities and Stockholders' Equity $ 18,052 $ 17,147








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