LEADING BRANDS INC (Form: 20-F, Received: 06/01/2018 17:19:22)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Emerging growth company

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

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 28, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	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 Registrant’s name into English]

British Columbia, Canada

[Jurisdiction of incorporation or organization]

Unit 101 – 33 West 8 ^th Avenue, Vancouver, BC, Canada V5Y 1M8

[Address of principal executive offices]

Ralph McRae, Chief Executive Officer

Phone Number: 604-685-5200

Facsimile: 604-685-5249

Unit 101 – 33 West 8 ^th Avenue

Vancouver, British Columbia Canada V5Y 1M8

(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)

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 issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

As of February 28, 2018, Leading Brands, Inc. had 2,802,412 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 ☒

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 ☒

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 ☒ 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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act. ☐

†	The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☒

International Financial Reporting Standards as issued

by the International Accounting Standards Board ☐

Other ☐

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 ☐

Index


PART I			5

I TEM 1. – I DENTITY OF D IRECTORS , S ENIOR M ANAGEMENT AND A DVISERS			5
I TEM 2. – O FFER S TATISTICS AND E XPECTED T IMETABLE			5
I TEM 3. – K EY I NFORMATION			5
I TEM 4. – I NFORMATION ON THE C OMPANY			15
I TEM 4A. – U NRESOLVED S TAFF C OMMENTS			20
I TEM 5. – O PERATING AND F INANCIAL R EVIEW AND P ROSPECTS			20
I TEM 6. – D IRECTORS , S ENIOR M ANAGEMENT AND E MPLOYEES			31
I TEM 7. – M AJOR S HAREHOLDERS AND R ELATED P ARTY T RANSACTIONS			44
I TEM 8. – F INANCIAL I NFORMATION			45
I TEM 9. – T HE O FFER AND L ISTING			46
I TEM 10. – A DDITIONAL I NFORMATION			47
I TEM 11. – Q UANTITATIVE AND Q UALITATIVE D ISCLOSURES A BOUT M ARKET R ISK			50
I TEM 12. – D ESCRIPTION OF S ECURITIES O THER THAN E QUITY S ECURITIES			50

PART II			51

I TEM 13. – D EFAULTS , D IVIDEND A RREARAGES AND D ELINQUENCIES			51
I TEM 14. – M ATERIAL M ODIFICATIONS TO THE R IGHTS OF S ECURITY H OLDERS AND U SE OF P ROCEEDS			51
I TEM 15. – C ONTROLS AND P ROCEDURES			52
I TEM 16A. – A UDIT C OMMITTEE F INANCIAL E XPERT			53
I TEM 16B. – C ODE OF E THICS			53
I TEM 16C. – P RINCIPAL A CCOUNTANT F EES AND S ERVICES			53
I TEM 16D. – E XEMPTIONS FROM THE L ISTING S TANDARDS FOR A UDIT C OMMITTEES			54
I TEM 16E. – P URCHASES OF E QUITY S ECURITIES BY THE I SSUER AND A FFILIATED P URCHASERS			54
I TEM 16F. – C HANGE IN R EGISTRANT ’ S C ERTIFYING A CCOUNTANT			54
I TEM 16G. – C ORPORATE G OVERNANCE			54
I TEM 16H. – M INE S AFETY D ISCLOSURE			54

PART III			55

I TEM 17. – F INANCIAL S TATEMENTS			55
I TEM 18. – F INANCIAL S TATEMENTS			55
I TEM 19. – E XHIBITS			56

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:

•

business objectives, goals and strategic plans;

•

operating strategies;

•

expected future revenues, earnings and margins;

•

reliance upon limited customers for a preponderance of our revenue;

•

anticipated operating, selling and general and administrative costs;

•

availability of raw materials, including water, sugar, cardboard , closures and flavoring;

•

effects of seasonality on demand for our products;

•

anticipated exchange rates, fluctuations in exchange rates and effects of exchange rates on our cost of goods sold;

•

our expectation that we will have adequate cash from operations and credit facility borrowings to meet all future debt service, capital expenditure and working capital requirements in fiscal year 2019;

•

anticipated capital expenditures; and

•

anticipated increased sales volumes with certain product lines.

Such forward-looking statements are estimates reflecting the Company’s 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 risks such as shareholder and regulatory approvals of the Company’s planned acquisition of Liquid Media Group Ltd. (“ Liquid ”) by way of plan of arrangement, general economic conditions, changing trends in the film and gaming media industries, pricing, 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 Company’s 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 included in this Annual Report.

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.

PART 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 Company’s consolidated financial statements listed in “Item 18 – Financial Statements” of this Annual Report. The following table is derived from, and is qualified by, the Company’s 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. 28, 2018			FISCAL YEAR ENDED Feb. 28, 2017			FISCAL YEAR ENDED Feb. 29, 2016			FISCAL YEAR ENDED Feb. 28, 2015			FISCAL YEAR ENDED Feb. 28, 2014
Net sales / revenue from continuing operations		NIL			NIL			NIL			NIL			NIL
Net income (loss) from continuing operations	($	830,115	)	($	713,945	)	($	1,192,226	)	($	1,009,400	)	($	1,132,028	)
Net income (loss) from discontinued operations	($	2,557,034	)	($	5,795,744	)	$	(111,058	)	$	1,344,982		$	2,295,323
Net income (loss)	($	3,387,149	)	($	6,509,689	)	($	1,303,284	)	$	335,582		$	1,163,295
Earnings (loss) per share, basic – continuing operations		(0.30	)	($	0.25	)	($	0.41	)	($	0.35	)	($	0.39	)
Earnings (loss) per share, basic – discontinued operations		(0.91	)	($	2.05	)	$	(0.04	)	$	0.46		$	0.78
Earnings (loss) per share, diluted - continuing operations		(0.30	)	($	0.25	)	($	0.41	)	($	0.32	)	($	0.35	)
Earnings (loss) per share, diluted - discontinued operations		(0.91	)	($	2.05	)	$	(0.04	)	$	0.42		$	0.72


Total assets	$	1,453,652	$	5,979,686	$	13,274,708	$	14,755,112	$	15,140,842
Net assets	$	1,063,223	$	5,028,288	$	11,677,766	$	13,073,486	$	12,820,201
Share Capital	$	31,305,247	$	31,305,247	$	31,946,732	$	32,401,440	$	32,713,370
Long-term debt		NIL		NIL		NIL		NIL		NIL
Cash dividends declared per common share		NIL		NIL		NIL		NIL		NIL
Weighted average common shares outstanding basic and diluted		Basic: 2,802,412 Diluted: 2,802,412		Basic: 2,820,647 Diluted: 2,820,647		Basic: 2,880,882 Diluted: 2,880,882		Basic: 2,922,684 Diluted: 3,192,963		Basic: 2,929,722 Diluted: 3,246,223

3.	Exchange Rates

Exchange Rate – May 1, 2018: 1.2867

Exchange rates for the previous six months: US$1 equivalent to the following in Canadian dollars:


	Apr. 1-30, 2018		Mar. 1-30, 2018		Feb. 1-28, 2018		Jan. 1-31, 2018		Dec. 1-29, 2017		Nov. 1-30, 2017
High		1.2908		1.3088		1.2809		1.2535		1.2886		1.2888
Low		1.2552		1.2830		1.2288		1.2293		1.2545		1.2683

Average exchange rates for each of the five most recent fiscal years: US$1equivalent to the following in Canadian dollars:


	Mar. 1, 2017 to Feb. 28, 2018		Mar. 1, 2016 to Feb. 28, 2017		Mar. 1, 2015 to Feb. 29, 2016		Mar. 1, 2014 to Feb. 28, 2015		Mar. 1, 2013 to Feb. 28, 2014
Average		1.2880		1.3109		1.3058		1.1255		1.0462

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 a “shell company” as defined in Rule 12b-2 of the Exchange Act.

Following the sale and disposition of the Company’s water brand and remaining beverage assets by virtue of the disposition of the shares of its subsidiaries, including Leading Brands of Canada, Inc. (“ LBCI ”) on September 15, 2017, the Company became a shell company. As a shell company, the Company’s common shares are not eligible to be sold pursuant to Rule 144 promulgated pursuant to the Securities Act. In addition, it is possible that Nasdaq (as defined below) may not determine that the Company has regained compliance with the Nasdaq rules due to the Company’s shell company status. See “The Company’s Plan to regain compliance with the Nasdaq’s minimum $2.5 million stockholders’ equity and other requirements for continued listing is contingent upon the Company successfully closing its planned acquisition of Liquid” below.

There can be no certainty that the Transaction will be completed.

As previously announced on September 18, 2017, the Company entered into a definitive arrangement agreement dated September 17, 2017 (the “ Arrangement Agreement ”) with Liquid to acquire Liquid by way of a plan of arrangement pursuant to the Business Corporations Act (British Columbia) (the “ Transaction ”) and is seeking to list the post-acquisition entity on The Nasdaq Capital Market (the “ Nasdaq ”). In accordance with the applicable Canadian securities laws, the Company plans to hold a special meeting of shareholders to consider resolutions to approve the issuance of the shares forming the consideration to be paid to Liquid shareholders pursuant to the Transaction, among other things. A special meeting of Company shareholders is expected to be held concurrently with a special meeting of Liquid shareholders, which will be called by Liquid to consider the Transaction. Closing of the Transaction is subject to Liquid receiving approval from its shareholders for the Transaction. The Transaction will also require the approval of Company shareholders and the Supreme Court of British Columbia (the “ Court ”), as well as certain regulatory approvals. If the requisite approvals of the Liquid shareholders, the Company shareholders, and the Court are not obtained and/or the regulatory approvals and other conditions of the Transaction are not satisfied, the Company may not be able to close the Transaction which may result in the Company being unable to maintain its public listing on the Nasdaq.

Completion of the Transaction is subject to certain conditions that may be outside the control of both the Company and Liquid, including, without limitation, the requisite approvals of the Company shareholders and the Liquid Shareholders and the receipt of the final order from the Court. There can be no assurance that these conditions will be satisfied or that the Transaction will be completed as currently contemplated or at all.

There is also no certainty, nor can either party provide any assurance, that the Amended and Restated Arrangement Agreement will not be terminated by either party before completion of the Transaction.

If the Transaction is not completed, the market price of the Company shares and the Liquid shares may decline and their respective businesses may suffer. In addition, the Company and Liquid will each remain liable for significant consulting, accounting and legal costs relating to the Transaction and will not realize anticipated synergies, growth opportunities and other benefits of the Transaction. Liquid and the Company may, if the Transaction is not consummated, be required to raise significant additional capital through the capital markets and/or incur significant borrowings to meet capital requirements. If the Transaction is delayed, the achievement of synergies and the realization of growth opportunities could be delayed and may not be available to the same extent.

The Company’s plan to regain compliance with the Nasdaq’s minimum $2.5 million stockholders’ equity and other requirements for continued listing is contingent upon the Company successfully closing its planned acquisition of Liquid.

On January 23, 2018, the Company received notice from the Nasdaq Listing Qualifications Staff (“ Nasdaq Staff ”) indicating that the Company no longer complied with Listing Rule 5550(b) (the “ Rule ”), based in part upon the Company’s non-compliance with the minimum $2.5 million stockholders’ equity requirement for continued listing on the Nasdaq as of November 30, 2017 and the Company was granted a 45-day period to submit a plan to regain compliance with the Rule. On March 23, 2018, the Nasdaq Staff granted the Company an extension of time to regain compliance with the Rule. The terms of the extension are as follows: on or before July 23, 2018, the Company will submit an application for the post Transaction entity to list on the Nasdaq, comply with all initial listing standards of the Nasdaq, and receive approval to trade the securities of the post Transaction entity on the Nasdaq. The Company believes that upon closing the Transaction, that the resulting combined entity will meet all applicable requirements for listing on the Nasdaq. If the Company is unable to complete the Transaction, or, if the Company is able to complete the Transaction but unable to satisfy the Rule and the other requirements of the Nasdaq, then the Company may be unable to maintain its listing on the Nasdaq and could be de-listed.

The Company depends on key management employees.

The Company’s 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 the Company since March 1996, and he has been responsible for the Company’s business planning, corporate and brand initiatives and financings. The loss of Mr. McRae, or any other key members of the Company’s existing management, could adversely affect the Company’s business and prospects. There may be a limited number of personnel with the requisite skills to serve in these positions and the Company may be unable to locate or employ such qualified personnel on acceptable terms.

Possible conflicts of interest may arise with the Company’s directors, officers, and other members of management.

Certain of the Company’s 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 the Company 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.

Litigation or legal proceedings could expose the Company to significant liabilities and thus negatively affect the Company’s financial results.

The Company is a party, from time to time, to litigation claims and legal proceedings. Defending such proceedings could result in significant ongoing expenditures and the continued diversion of Company management’s time and attention from the operation of the Company’s business, which could have a negative effect on the Company’s business operations. The Company’s failure to

successfully defend or settle any litigation or legal proceedings could result in liability that, to the extent not covered by the Company’s insurance, could have a material adverse effect on the Company’s financial condition, revenue and profitability, and could cause the market value of the Company’s common shares to decline. Following the disposition of LBCI’s Edmonton bottling plant (the “ Plant ”) during the fiscal year ended February 28, 2017, LBCI was involved in a legal dispute with former employees of the Plant. The Company assumed liability for any claims and LBCI posted a $600,000 deposit with its lawyers to secure payment of that and any other claims and associated professional fees. The parties have agreed to settle the matter and are in the process of finalizing the resulting releases and legal documentation. The settlement severance has been accrued in the Company’s consolidated financial statements.

Other risks related to the Company’s business may arise and affect the Company’s sales and earnings.

For example, such risks may include:

•

whether the Company is able to successfully close the Transaction; and

•

changes in general economic and business conditions.

Risks Related to the Transaction

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 .

The integration of the Company and Liquid may not occur as planned.

The ability to realize the benefits of the Transaction will depend in part on successfully consolidating functions and integrating operations, procedures and personnel in a timely and efficient manner, as well as on the combined company’s ability to realize the anticipated growth opportunities and synergies, efficiencies and cost savings from integrating the Company’s and Liquid’s businesses following completion of the Transaction. This integration will require the dedication of substantial management effort, time and resources which may divert management’s focus and resources from other strategic opportunities following completion of the Transaction and from operational matters during this process. The integration process may result in the loss of key employees and the disruption of ongoing business and employee relationships that may adversely affect the ability of the combined company to achieve the anticipated benefits of the Transaction.

The value of the Company shares that Liquid shareholders receive under the Transaction or of the Company shares that existing Company shareholders retain following the Transaction, may be less than the value of the Liquid shares or Company Shares, as applicable, as of the date of the Amended and Restated Arrangement Agreement (as defined herein) or the date of the shareholder meetings.

The consideration payable to Liquid shareholders pursuant to the Transaction is based on a fixed exchange ratio and there will be no adjustment for changes in the market price of Company shares or Liquid shares prior to the consummation of the Transaction. None of the parties are permitted to terminate the Amended and Restated Arrangement Agreement (as defined herein) and abandon the Transaction solely because of changes in the market price of the Company shares or Liquid shares.

There may be a significant amount of time between the date when Company shareholders and Liquid shareholders vote at their respective shareholder meetings and the date on which the Transaction is completed. As a result, the relative or absolute prices of the Company shares or the Liquid shares may fluctuate significantly between the dates of the Amended and Restated Arrangement Agreement, the shareholder meetings and completion of the Transaction.

These fluctuations may be caused by, among other factors, changes in the businesses, operations, results and prospects of the companies, market expectations of the likelihood that the Transaction will be completed and the timing of its completion, the prospects for the combined company’s post-combination operations, the effect of any conditions or restrictions imposed on or proposed with respect to the combined company by governmental authorities and general market and economic conditions.

As a result of such fluctuations, historical market prices are not indicative of future market prices or the market value of the Company shares that Liquid shareholders will receive on completion of the Transaction. There can be no assurance that the market value of the Company shares that Liquid shareholders will receive on completion of the Transaction will equal or exceed the market value of the Liquid shares held by such Liquid shareholders prior to such time. In addition, there can be no assurance that the trading price of the Company shares will not decline following completion of the Transaction.

Following the Transaction the trading price of the Company shares may be volatile.

The trading prices of the Company shares and the Liquid shares have been and may continue to be subject to and, following completion of the Transaction, the common shares of the combined company may be subject to, material fluctuations and may increase or decrease in response to a number of events and factors. Following the completion of the Transaction, a significant number of additional Company shares will be available for trading in the public market. The increase in the number of Company shares may lead to sales of such shares or the perception that such sales may occur, either of which may adversely affect the market for, and the market price of, Company shares. The potential that such a shareholder may sell its Company shares in the public market (commonly referred to as “market overhang”), as well as any actual sales of such Company shares in the public market, could adversely affect the market price of the Company shares.

The Company will be vulnerable to exchange rate fluctuations.

Liquid’s film and gaming content creation and distribution business is carried out primarily in Canada. However, Liquid purchases certain hardware, software, and digital content production equipment priced in U.S. dollars, for the use of its operations in Canada. Liquid also sells or is planning to sell certain developed media and entertainment content into the United States as well as into the People’s Republic of China (via Liquid’s 51% equity stake in Majesco Entertainment Company (“ Majesco ”) which is currently developing products for sale in the People’s Republic of China). As a result, after the Company’s planned acquisition of Liquid, the Company will be 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 (USD) or Chinese Renminbi (CNY) in relation to the Canadian dollar would negatively impact the Company’s earnings.

The Company will use a limited number of suppliers.

Liquid relies on a limited number of suppliers for hardware, software, and film and gaming production equipment. While other sources of supply do exist for this equipment, an unexpected disruption in supply or an increase in pricing could have a negative impact on the Company’s earnings after it acquires Liquid.

The Company is exposed to varying degrees of competition.

Increased consolidations of the Company’s competitors within the media and entertainment industry with and into larger companies, increased market place competition, and more competitive product and pricing pressures could impact the Company’s earnings, market share and volume growth. The competition in the media and entertainment industry is likely to continue, and the Company cannot make any assurance that this competition will not intensify in the future, which could materially and adversely affect the Company’s financial condition and results of operations.

Changes in the film and gaming entertainment industries could adversely affect the Company’s financial results.

The film and gaming media business environment is constantly evolving as a result of, among other things, changes in consumer preferences, evolving technology, shifting consumer tastes and needs, changes in consumer lifestyles and competitive product and pricing pressures. If the Company is unable to successfully adapt to this constantly changing environment, the Company’s earnings and sales could be negatively affected.

Changes in laws and regulations could negatively affect the Company’s operations .

After the completion of the Transaction, the Company will be subject to various laws and regulations, and changes in such laws and regulations could have a negative impact on the Company’s operations. For example:

•

the Company has significant tax loss carry-forwards available, and a change in its business from hot-fill beverage co-packing to film and gaming content creation and/or changes in legislation affecting these losses could negatively impact future earnings; and

•

changes in laws and regulations affecting film and television tax credits in the Province of British Columbia and other jurisdictions where Liquid and its subsidiaries conduct business could add costs to the Company’s operations and/or could decrease consumer demand for the Company’s products.

The Company depends on protections afforded by trademarks and copyrights.

Liquid and its subsidiaries hold a number of trademarks and copyrights relating to certain significant products. The Company will rely on trademark laws and contractual provisions to protect these trademarks and copyrights, and there can be no assurance that third parties will not infringe or misappropriate the Company’s trademarks and copyrights. If the Company loses some or all of its intellectual property rights, the Company’s business may be materially adversely affected.

The Company is vulnerable to operating losses.

Liquid’s film and gaming content creation operations are relatively capital intensive while revenue-generating opportunities depend on the availability of projects in the market. During periods of low project volumes, fixed costs can result in operating losses. Additionally, following Liquid’s acquisition of a 51% control interest in Majesco on January 15, 2018, Liquid will have exposure to additional financial risks resulting from the performance of Majesco’s business operations.

The Company’s failure to accurately estimate demand for Liquid’s media and entertainment products and services could adversely affect the Company’s business and financial results.

The Company may not correctly estimate demand for Liquid’s products and services. The Company’s ability to estimate demand for Liquid’s products and services is imprecise, particularly as Liquid enters new markets in Asia. If the Company materially underestimates or overestimates demand for Liquid’s products and services, the Company’s financial results may be adversely affected.

General Risks Related To The Film and Gaming Industry

Liquid competes with large companies with greater resources.

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. The Company cannot make any representation that such competition will not intensify in the future which could materially and adversely affect the Company’s financial condition and operations.

The Film and Gaming industry is subject to various regulations and the Company will need to be in compliance with current and changing rules and regulations.

The creation and distribution of film and gaming content is subject to the rules and regulations of various federal and provincial agencies. Any adverse publicity associated with any non-compliance may damage the Company’s reputation and its ability to successfully market its products and services.

Risks Related To The Company’s Capital Stock

The Company’s common shares have experienced significant price volatility.

The Company’s common share price has experienced significant price volatility, with closing trading prices on the Nasdaq ranging from a low of US$0.82 to a high of US$5.62 during the five-year period from March 1, 2013 to February 28, 2018. 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 the Company’s common shares. The Company has had periods where the bid price of the Company’s common shares closed below US$1.00 per share and on January 23, 2018, the Company received notice that it was non-compliant under the Rule. The Company was granted a 45-day period to submit a plan to regain compliance with the Rule. On March 23, 2018, the Nasdaq Staff granted the Company an extension of time until July 23, 2018 to regain compliance with the Rule. The terms of the extension are as follows: on or before July 23, 2018, the Company will submit an application for the post Transaction entity to list on the Nasdaq, comply with all initial listing standards of the Nasdaq, and receive approval to trade the securities of the post Transaction entity on the Nasdaq. The Company believes that upon closing the Transaction, that the resulting combined entity will meet all applicable requirements for listing on the Nasdaq. If the Company is unable to complete the Transaction, or, if the Company is able to complete the Transaction but unable to satisfy the Rule, then the Company may be unable to maintain its listing on the Nasdaq and could be de-listed. If the Company is de-listed, the price of the Company’s common shares may fall and there may be a limited trading market for the common shares on other trading markets such that investors may not be able to trade the desired number of shares.

Sales of a substantial number of the Company’s common shares into the public market could result in significant downward pressure on the price of the Company’s common shares.

The Company’s common shares are traded on the Nasdaq under the symbol “LBIX.” As of February 28, 2018, there were 2,802,412 common shares issued and outstanding. The concurrent sale of a substantial number of the Company’s common shares in the public market could cause a reduction in the market price of the Company’s common shares.

The Company may lose its foreign private issuer status in the future, which could result in significant additional costs and expenses to the Company.

In order to maintain the Company’s current status as a “foreign private issuer” (as such term is defined in Rule 405 under the Securities Act), where more than 50% of the Company’s outstanding voting securities are directly or indirectly owned by residents of the United States, the Company must not have any of the following: (i) a majority of the Company’s executive officers or directors being U.S. citizens or residents, (ii) more than 50% of the Company’s assets being located in the United States, or (iii) the Company’s business being principally administered in the United States. If the Company were to lose its “foreign private issuer” status, either as a result of the acquisition of Liquid or otherwise:

•

the Company would no longer be exempt from certain of the provisions of U.S. securities laws, such as Regulation FD and the Section 16 short swing profit rules;

•

the Company would be required to commence reporting on forms required of U.S. companies, such as Forms l0-K, 10-Q and 8-K, rather than the forms currently available to the Company, such as Forms 20-F and 6-K;

•

the Company would be subject to additional restrictions on offers and sales of securities outside the United States, including in Canada;

•

the Company may lose the ability to rely upon exemptions from the Nasdaq corporate governance requirements that are available to foreign private issuers; and

•

if the Company’s engages in capital raising activities after losing its foreign private issuer status, there is a higher likelihood that investors may require the Company to file resale registration statements with the Securities and Exchange Commission (the “SEC”) as a condition to any such financing.

The Company is incorporated in British Columbia, Canada, and all of the Company’s directors and officers live in Canada, and most of the Company’s assets are in Canada; therefore, investors may have difficulty initiating legal claims and enforcing judgments against the Company and its directors and officers.

The Company is a corporation existing under the laws of British Columbia, all of its directors and officers are citizens of Canada and the majority of the Company’s assets and operations are located outside of the United States. It may not be possible for shareholders to enforce, in Canada, judgments against the Company 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, the Company and its 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 the Company 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 the Company or such persons predicated upon the U.S. federal and state securities laws. Therefore, the Company’s 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.

The Company 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 the Company’s classes of shares or total value of the Company’s 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 the Company’s classes of shares (“10% U.S. Shareholders”), the Company 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 the Company’s “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 the Company believes that it is a controlled foreign corporation, the Company has not made a determination as to whether it is a controlled foreign corporation under the Code, and cannot give any assurance that it would not be determined to be a controlled foreign corporation under the Code now or in the future.

As the Company currently does not have active operations, even if the Company is not a controlled foreign corporation, it could be treated as a “passive foreign investment company” under the Code, depending upon the nature of the Company’s income and assets and those of its subsidiaries. Such a status would effect many complex results to the Company’s U.S. Shareholders, including those who own less than 10% of the total combined voting power of the Company’s outstanding shares.

These results might include imposition of higher rates of tax on certain dividends and on gains from sale of the Company’s shares than would otherwise apply. While the Company does not believe that it is a passive foreign investment company nor ever has been, the Company has not made a determination as to whether it is or ever has 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.”

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 Ac t (British Columbia). The head office of the Company is located at:

33 W. 8 ^th Avenue – Unit 101

Vancouver BC

Canada V5Y 1M8

Tel: 604-685-5200

4.	During the Company’s fiscal years ended February 28, 2017 and February 28, 2018, the Company realized several material changes to both its organizational structure as well as the nature of its business.

On September 22, 2016, the Company announced its intention to exit the co-pack business and wind down operations at its hot-fill bottling plant in Edmonton, Alberta.

On October 31, 2016, the Company announced that it had entered into a binding agreement to sell its Edmonton bottling plant, land, and buildings with a scheduled closing date of February 1, 2017.

On February 1, 2017, the Company sold its Edmonton bottling plant and adjusted its operations from a bottler/distributor to just that of a distributor.

On September 15, 2017, in preparation for the Company’s planned entry into the film and gaming content creation business, the Company disposed of its legacy beverage assets through the disposition of its subsidiaries to a company in which Mr. McRae, a director and officer of the Company, is an officer, director and indirect minority shareholder, for $325,000, which is net of assumed liabilities for certain employee obligations and other matters, all of which is subject to certain working capital adjustments. An additional $600,000 is held in escrow as security for payment of certain liabilities that remain the

responsibility of the Company. In addition, the Company is entitled to any excess amounts realized via a sublease of office and warehouse premises in Vancouver, Canada between LBCI and Richmond Holdings Ltd. (“ Richmond Holdings ”) after all costs and expenses arising in relation to that head lease (the “ Lease ”). The transaction was reviewed and approved by the disinterested directors of the Company.

On September 17, 2017, the Company entered into the Arrangement Agreement to acquire 100% of Liquid pursuant to the Transaction. Liquid’s primary business is aggregating mature production service studios and creating a vertically integrated studio system for producing film, television, and gaming content from inspiration to distribution. At the time of this announcement, the Company anticipated that its shareholders would hold 22.637% and Liquid shareholders would hold 77.363% of the post-transaction entity. The Company also announced its intention that at the time of the closing of the Transaction, that all of its Board members, with the exception of Mr. Tom Gaglardi, would resign and be replaced by Messrs. Jackson, Brezer and Cruz, and Ms. Katsoolis, who are directors and an officer of Liquid.

On January 15, 2018, the Company announced an amendment to the Arrangement Agreement by entering into the amended and restated definitive arrangement agreement dated January 14, 2018 (the “ Amended and Restated Arrangement Agreement ”) with Liquid relating to the Transaction whereby the original agreed valuation of existing Company shares was increased from USD$1.50 per share to USD$1.78 per share. As a result, the Company’s shareholders are anticipated to hold 25.8% and Liquid shareholders are anticipated to hold 74.2% of the post-transaction entity. At the same time, the Company announced that Liquid had acquired 51% of Majesco, a proven gaming publisher. The acquisition of Majesco by Liquid satisfied one of the key terms of the Amended and Restated Arrangement Agreement relating to the Transaction whereby Liquid shall acquire a gaming studio.

On January 23, 2018, the Company received notice from the Nasdaq Staff indicating that the Company no longer complied with the Rule, based in part upon the Company’s non-compliance with the minimum $2.5 million stockholders’ equity requirement for continued listing on the Nasdaq as of November 30, 2017 and the Company was granted a 45-day period to submit a plan to regain compliance with the Rule. On March 23, 2018, the Nasdaq Staff granted the Company an extension of time to regain compliance with the Rule. The terms of the extension are as follows: on or before July 23, 2018, the Company will submit an application for the post Transaction entity to list on the Nasdaq, comply with all initial listing standards of the Nasdaq, and receive approval to trade the securities of the post Transaction entity on the Nasdaq. The Company believes that upon closing the Transaction, that the resulting combined entity will meet all applicable requirements for listing on the Nasdaq. If the Company is unable to complete the Transaction, or, if the Company is able to complete the Transaction but unable to satisfy the Rule and the other requirements of the Nasdaq, then the Company may be unable to maintain its listing on the Nasdaq and could be de-listed.

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 Web Presence in China (“ WPIC ” ) to assist Majesco 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

5.	The Company expended $nil on the purchase of property, plant and equipment in the fiscal year ended February 28, 2018.

The Company expended $10,449 on the purchase of property, plant and equipment in the fiscal year ended February 28, 2017, of which $8,039 was for bottling equipment, and $2,410 was for office equipment, computers and software.

The Company expended $200,221 on the purchase of property, plant and equipment in the fiscal year ended February 29, 2016, of which $46,576 was for bottling equipment, $96,720 was for leasehold improvements, $40,426 was for coolers, and $16,499 was for office equipment, computers and software.

The Company expended $525,182 on the purchase of property, plant and equipment in the fiscal year ended February 28, 2015, of which $433,404 was for bottling equipment, and $91,778 was for office equipment, computers and software.

6.	There are no significant capital expenditures that are planned for the fiscal year ending February 28, 2019. However, this may change after the planned acquisition of Liquid is completed by way of plan of arrangement.

7.	There have been no indications of public takeover offers by third parties in respect of the Company’s shares or by the Company in respect of other companies’ shares during the last and current fiscal year.

B.	*Business overview.*

During the fiscal years ended February 28, 2017 and February 28, 2018, the Company exited the beverage bottling, distribution, sales, merchandising, and branding business in order to take advantage of perceived growth opportunities in the film and gaming content creation and distribution business. As set out elsewhere herein, the Company has entered into an Amended and Restated Arrangement Agreement to acquire a 100% interest in Liquid pursuant to the Transaction. Liquid’s primary business is aggregating mature production service studios and creating a vertically integrated studio system for producing film, television, and gaming content from inspiration to distribution. The acquisition of Liquid is subject to the Company obtaining various regulatory, exchange, and court approvals which are outside the Company’s direct control. As such, the Company is unable to make any representation that the acquisition will be successfully completed or approved.

2.	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 to a company in which Mr. McRae, a director and officer of the Company, is an officer, director and indirect minority shareholder, for $325,000, which is net of assumed liabilities for certain employee obligations and other matters, all of which is subject to certain working capital adjustments. An additional $600,000 is held in escrow as security for payment of certain liabilities that remain the responsibility of the Company. In addition, the Company is entitled to any excess amounts realized via a sublease of office and warehouse premises in Vancouver, Canada between LBIC and Richmond Holdings after all costs and expenses arising in relation to the Lease. The transaction was reviewed and approved by the disinterested directors of the Company.

3.	Entering the Film and Gaming Content Creation and Distribution Business

Pending Acquisition of Liquid . On September 17, 2017, the Company entered into the Arrangement Agreement to acquire 100% of Liquid by way of a plan of arrangement. Liquid’s primary business is aggregating mature production service studios and creating a vertically integrated studio system for producing film, television, and gaming content from inspiration to distribution. Based on the agreed valuation of the Company’s shares at USD$1.78 per share pursuant to the Amended and Restated Arrangement Agreement, Company shareholders are anticipated to hold 25.8% and Liquid shareholders are anticipated to hold 74.2% of the post-transaction entity.

Acquisition of Majesco . On January 15, 2018, the Company announced that Liquid had successfully acquired 51% of Majesco, a proven gaming publisher. The acquisition of Majesco by Liquid satisfied one of the key terms of the Amended and Restated Arrangement Agreement whereby Liquid shall acquire a gaming studio. Majesco is the developer of mobile, console, and desktop downloadable games including such hits as “A Boy and his Blob” and “Gone Home.” 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.

4.	Other Business Overview Information

All of the Company’s operations and assets are located in Canada. As at February 28, 2018, the Company did not have any employees and consolidated its operations through its offices and independent contractors.

5.	The Company makes no statements concerning its competitive position.

C.	*Organizational structure.*

The Company had no subsidiaries as at February 28, 2018. On September 15, 2017, in preparation for the Company’s planned entry into the film and gaming content creation business, the Company disposed of its legacy beverage assets through the disposition of its subsidiaries to a company in which Mr. McRae, a director and officer of the Company, is an officer, director and indirect minority shareholder, for $325,000, which is net of assumed liabilities for certain employee obligations and other matters, all of which is subject to certain working capital adjustments. An additional $600,000 is held in escrow as security for payment of certain liabilities that remain the responsibility of the Company. In addition, the Company is entitled to any excess amounts realized via a sublease of office and warehouse premises in Vancouver, Canada between LBIC and Richmond Holdings after all costs and expenses arising in relation to the Lease. The transaction was reviewed and approved by the disinterested directors of the Company. For additional clarity, a list of the names of each of the Company’s subsidiaries that were disposed of during the fiscal year ended February 28, 2018 is included below:

•

Leading Brands of Canada, Inc.;

•

LBI Brands, Inc.;

•

Kert Technologies Inc.

•

Neurogenesis Inc. (Canada);

•

Neurogenesis Inc.: (Nevada);

•

Quick, Inc.;

•

Leading Brands USA, Inc.; and

•

Leading Brands of America, Inc.

D.	*Property, plant and equipment.*

On February 1, 2017, the Company sold its Edmonton bottling plant and exited its lease of its regional warehouse and distribution center in Edmonton.

On September 15, 2017 in connection with the Company’s sale of its subsidiaries, the purchase price was deposited in escrow as a security for the payment of certain liabilities that were to remain the responsibility of the Company, including certain obligations. Certain other amounts relating to sublease receipts will be added to the escrow relating to the Lease. . The Lease expires in February 2023.

Item 4A. – Unresolved Staff Comments

None.

Item 5. – Operating and Financial Review and Prospects

A.	*Operating results.*

Introduction

The Company is in the process of undergoing a fundamental change in business from beverage co-packing and distribution to film and gaming content production and distribution.

During the fiscal year ended February 28, 2018, the Company entered into the Amended and Restated Arrangement Agreement to acquire 100% of Liquid pursuant to the Transaction. Liquid’s primary business is aggregating mature production service studios and creating a vertically integrated studio system for producing film, television, and gaming content from inspiration to distribution. The acquisition of Liquid is subject to the Company obtaining various regulatory, exchange, and court approvals which are outside the Company’s direct control. As such, the Company is unable to make any representation that the acquisition will be successfully completed or approved.

Overall Performance – Continuing operations

The major developments during the year ended February 28, 2018 included:

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.

Selling, General and Administrative Expenses

For the fiscal year ended February 28, 2018, selling, general and administrative expenses increased by $149,558 from $726,530 in the fiscal year ended February 28, 2017 to $876,088 in the year ended February 28, 2018 primarily as a result of:

•

increased legal and public company expense of $219,474;

•

increased administrative costs of $122,497; and

•

decreased wages and outside service expense of $192,413.

Other Expenses

Depreciation expense was recorded at $1,053 for the fiscal year ended February 28, 2018, which was the same as $1,053 recorded in the prior fiscal year. The Company also recognized depreciation expense within discontinued operations.

In the fiscal year ended February 28, 2018, the Company recorded $19,703 in interest income from bank balances compared to $nil in the prior fiscal year.

The Company recorded $3,995 in other income in fiscal year ended February 28, 2018, compared to $nil in the prior fiscal year. This income represents the net proceeds on the sublease revenue derived from the office on 33 West 8 ^th Avenue in Vancouver, British Columbia.

Discontinued Operations

Net loss from discontinued operations decreased by $3,238,710 to $2,557,034 for the year ended February 28, 2018 from a net loss of $5,795,744 in the comparable period last year. During the fiscal year ended February 28, 2018, the Company disposed of its legacy beverage operations. The decrease in the loss from discontinued operations compared to the prior year is principally due to the write-off of a deferred tax asset of $2,480,257 recognized in the prior year as well as increased losses as a result from the discontinuation of co-packing operations. This decrease was offset by the loss recognized on the disposal of the legacy beverage operations of $1,071,946 in the fiscal year ended February 28, 2018.

Fiscal Year Ended February 28, 2017 – Continuing operations

Selling, General and Administrative Expenses

For the fiscal year ended February 28, 2017, selling, general and administrative expenses decreased $550,597 from $1,277,127 in the fiscal year ended February 29, 2016 to $726,530 in the year ended February 28, 2017 primarily as a result of:

•

decreased stock compensation cost of $104,850;

•

decreased legal and public company expense of $241,472;

•

decreased wages and outside service expense of $131,721; and

•

decreased administrative costs of $4,875.

Other Expenses

Depreciation expense decreased to $1,053 for the fiscal year ended February 28, 2017, as compared to $1,316 in the prior fiscal year.

In the fiscal year ended February 28, 2017, the Company recorded $nil interest income from bank balances compared to $4,900 in the prior fiscal year.

Discontinued Operations

Net loss from discontinued operations increased by $5,684,686 to $5,795,744 for the year ended February 28, 2018 from a net loss of $111,058 in the comparable period last year. The increase in the loss from discontinued operations compared to the prior year is principally the write-off of a deferred tax asset of $2,480,257 recognized in the fiscal year ended February 28, 2017, as well as increased losses as a result from the discontinuation of co-packing operations.

B.	*Liquidity and Capital Resources.*

Fiscal Year Ended February 28, 2018

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 at February 28, 2018, 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 28, 2018			Fiscal Year ended February 29, 2017			Change
Operating Activities	($	2,596,859	)	($	1,351,804	)	($	1,245,055	)
Investing Activities	$	(348,817	)	$	5,523,802		($	5,872,619	)
Financing Activities	$	nil		($	139,789	)	$	139,789

The increase in cash utilized in the fiscal year ended February 28, 2018 for operating activities is the result of the higher non-cash expenses (e.g. depreciation, loss on disposal, deferred income tax provisions) associated with the net loss recorded in the prior fiscal year.

The decrease in cash utilized in the fiscal year ended February 28, 2018 for investing activities is the result of the sale of the Edmonton bottling plant, land and building and sale of a long-unused internet domain in the prior fiscal year.

Cash used for financing activities in the fiscal year ended February 28, 2018 was $nil and changed from the prior fiscal year due to cash being used for the Company’s share repurchase program in the prior fiscal year.

Other sources of financing are more fully described in the consolidated financial statements appearing in “Item 18 – Financial Statements” 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 has no material commitments for capital expenditures in the fiscal year ending February 28, 2019.

Fiscal Year Ended February 28, 2017

As of February 28, 2017, the Company had working capital of $3,939,880 compared to working capital of $477,354 at the prior fiscal year end. The Company held $4,315,028 in cash account balances at February 28, 2017 compared with $282,819 at the prior fiscal year end.

Considering the positive working capital position, including the cash on hand at February 28, 2017, 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 28, 2017			Fiscal Year ended February 29, 2016			Change
Operating Activities	($	1,351,804	)	($	833,873	)	($	517,931	)
Investing Activities	$	5,523,802		($	409,914	)	$	5,933,716
Financing Activities	($	139,789	)	($	176,316	)	$	36,527

The decrease in cash utilized in the fiscal year ended February 28, 2017 for operating activities is the result of the lower net income this fiscal year.

The increase in cash utilized in the fiscal year ended February 28, 2017 for investing activities is the result of the sale of the Edmonton bottling plant, land and building and sale of a long-unused internet domain.

Cash used for financing activities in the fiscal year ended February 28, 2017 decreased in comparison to the prior fiscal year due to less cash being used for the Company’s share repurchase program.

Other sources of financing are more fully described in the consolidated financial statements appearing in “Item 18 – Financial Statements” 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 has no material commitments for capital expenditures in the fiscal year ending February 28, 2018.

C.	*Research and development, patents and licenses, etc.*

As a shell company, 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.

As part of the sale of the Company’s subsidiaries in the fiscal year ended February 28, 2018, the Company disposed of its 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.*

From 2009 until the last fiscal year ended February 28, 2018, the Company was focused on producing and selling beverage products that can generate superior margins. The Company now plans to enter the film and gaming content and distribution business via its planned acquisition of Liquid by way of plan of arrangement.

The Company believes that growing demand in the film and gaming content production and distribution business represent growth opportunities for the Company and its shareholders.

E.	*Off-balance sheet arrangements.*

1.	The Company is committed to operating leases for a premise as disclosed in Note 11 of the consolidated financial statements appearing in “Item 18 – Financial Statements” of this Annual Report.

2.	The Company had no off balance sheet arrangements during the fiscal year ended February 28, 2018.

F.	*Tabular disclosure of contractual obligations.*

The following table presents our contractual obligations as of February 28, 2018:


	Payments due by period
Contractual Obligations	Total		less than 1 year		1-3 years		4-5 years		more than 5 years
Long-term Debt Obligations		—		—		—		—		—
Capital (Finance) Lease Obligations		—		—		—		—		—
Operating Lease Obligations (1)	$	143,585	$	123,073	$	20,512		—		—
Purchase Obligations		—		—		—		—		—
Other Long-term Liabilities Reflected on the Company’s Balance Sheet under the GAAP of the primary financial statements		—		—		—		—		—
Interest on Capital Lease		—		—		—		—		—

Total	$	143,585	$	123,073	$	20,512	$	—	$	—

(1)	The Company is committed to operating leases for premises and equipment as disclosed in Note 11 of the consolidated financial statements appearing in “Item 18 – Financial Statements” of this Annual Report.

Critical Accounting Policies

The Company’s 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.

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 $nil are netted against accounts receivable as at February 28, 2018 (2017: $nil). 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 28, 2018, the inventory balance was presented net of a provision for obsolete inventory in the amount of $nil (2017: $15,638). A 10% change in the estimates of provision for 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 Comprehensive Loss.

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. Changes in fair value are recognized as stock compensation until fully vested, and after that time as change in fair value.

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 offset by a valuation allowance as disclosed in Note 10 of the consolidated financial statements appearing in “Item 18 – Financial Statements” of this Annual Report.

New Pronouncements

In May 2014, the Financial Accounting Standard Board, or FASB, issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09) to supersede existing revenue recognition guidance under generally accepted accounting principles in the United States, or GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services.

ASU 2014-09 defines a five steps process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the fiscal and interim reporting periods beginning after December 15, 2016 using either of two methods: (i) retrospective to each prior reporting period presented within the option to elect certain practical

expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. In August 2015, ASU 2015-14 was issued which delayed the effective date to reporting periods beginning after December 15, 2017. The Company will adopt ASU 2014-09, and its related clarifying ASUs, as of March 1, 2018. The Company is continuing to assess the potential effects of these ASUs on its consolidated financial statements, business processes, systems and controls. While the assessment process is ongoing, the Company anticipates adopting the standard using the modified retrospective transition approach. Under this approach, the new standard would apply to all new contracts initiated on or after March 1, 2018. For existing contracts that have remaining obligations as of March 1, 2018, any difference between the recognition criteria in these ASUs and the Company’s current revenue recognition practices would be recognized using a cumulative effect adjustment to the opening balance of retained earnings. The Company does not expect the adoption of these ASUs to have a material impact on the consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory” (“ASU 2015-11”). Under ASU 2015-11, inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. ASU 2015-11 defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. The Company adopted this standard, which did not have a material impact on the consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-2), Leases, which supersedes ASC Topic 840, Leases. ASU 2016-2 requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than twelve months to its balance sheets. ASU 2016-02 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, which will be our fiscal year beginning March 1, 2019 (fiscal 2020). Early adoption is permitted. The Company continues to evaluate the impact that the adoption will have on its consolidated financial statements and disclosures.

In March 2016, the FASB issued authoritative guidance under ASU 2016-09, Compensation-Stock Compensation (Topic 718) “Improvements to Employee Share-Based Payment Accounting”. ASU 2016-09 provides for simplification of several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016. The Company adopted this standard, which did not have a material impact on the consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). Financial Instruments—Credit Losses (Topic 326) amends guidelines on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to

present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company will adopt this guidance in the first quarter of fiscal 2019. The adoption of this amendment is not expected to have a material impact on our consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU do not provide a definition of restricted cash or restricted cash equivalents. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The adoption of this amendment was included in these consolidated financial statements within the consolidated Statements of Cash Flows.

In January 2017, the FASB issued Accounting Standards Update 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, which will be our fiscal year beginning March 1, 2018 (fiscal 2019). Early adoption is not permitted. The Company will adopt this guidance in the first quarter of fiscal 2019. The adoption of this amendment is not expected to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies how an entity is required to test goodwill for impairment. ASU 2017-04 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019, which will be our fiscal year beginning March 1, 2020 (fiscal 2021). Early adoption is permitted. The Company will adopt this guidance in the first quarter of fiscal 2021. The adoption of this amendment is not expected to have a material impact on our consolidated financial statements.

In May 2017, the FASB issued Accounting Standards Update 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). ASU 2017-09 clarifies the guidance on when to apply modification accounting for share-based payment awards. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, which will be our fiscal year beginning March 1, 2018 (fiscal 2019). Early adoption is permitted. The Company will adopt this guidance in the first quarter of fiscal 2019. The adoption of this amendment is not expected to have a material impact on our consolidated financial statements.

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:


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 a director of various other public and private corporations. Mr. Eddy is a retired partner of PricewaterhouseCoopers LLP and a past Managing Director of PricewaterhouseCoopers Corporate Finance Inc.

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, Moxie’s Restaurants LP, Shark Clubs of Canada, Inc. and Denny’s Restaurants of Canada.

Ralph D. McRae 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. Effective March 23, 2018, Mr. McRae assumed the role of Interim Principal Financial Officer of the Company. He is also a director and the Chairman, CEO and Secretary/Treasurer of LBIC. Mr. McRae is also a director and the Chairman and CEO of Revolution Resource Recovery, Inc. and its affiliates, engaged in waste management, farming, real estate development and water extraction, based in Surrey, British Columbia. He is a member of the Bar of British Columbia, and holds a Bachelor of Commerce (1980) and J.D. (1981) from the University of British Columbia.

As of March 23, 2018, Ms. Fei Xu is no longer Corporate Controller and Principal Financial Officer of the Company.

As of September 15, 2017, Mr. Thor Matson is no longer Vice President of Business Development.

The Company regrets to inform the passing of Mr. Stephen Fane, Director, on November 10, 2017. The Company is eternally grateful for Mr. Fane’s contributions over his many years with the Company.

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 Company’s strength and ability to sustain growth is based on an organization that perceives people as its single most important asset. The Company’s philosophy is to provide sufficient compensation opportunities in order to attract and retain key executive officers critical to the Company’s long-term success. The Company has developed an informal 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 management’s interests with those of the shareholders of the Company in the sustained growth of shareholder value.

The Company does not have a formal compensation committee. 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 Company’s executive compensation program includes base salary, annual cash or short-term incentives (bonuses) and long-term incentive compensation in the form of stock options.

The compensation program is designed to:

•

promote an ownership mentality among key leadership and the Board of Directors;

•

enhance the overall performance of the Company; and

•

recognize and reward individual performance and responsibility.

Base Compensation

The Company determines base salary based on a combination of factors, including comparable market data, experience, expertise and job responsibilities. The Company’s process for determining executive compensation is relatively simple and does not include formal targets, criteria or analysis. Salary levels are reviewed periodically and adjustments may be made, if warranted, after an evaluation of executive and Company performance, salary trends in the Company’s 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 Company’s 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 Company’s 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 Company’s compensation policies and practices. While the Board of Directors does not formally analyse risks associated with the Company’s compensation policies and practices, these policies and practices do not include structural inconsistencies that are likely to unduly encourage or cause an executive officer to expose the Company to inappropriate or excessive risks.

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 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 long-term operating performance of the Company. 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.

Compensation Governance

Please see the sections above titled “Base Compensation”, “Short-Term Incentives”, and “Long Term Incentives” for a discussion of the practices adopted by the Board to determine compensation for directors and executive officers. The Company does not have a formal compensation committee.

Summary Compensation Table

The following table (presented in accordance with Canada’s National Instrument Form 51-102F6 Statement of Executive Compensation ) sets forth all annual and long term compensation for services in all capacities to the Company for the three most recently completed financial years of the Company in respect of:

(a)	each individual who acted as the Chief Executive Officer (“ CEO ”) or the Chief Financial Officer (“ CFO ”) or acted in a similar capacity for all or any portion of the most recently completed financial year,

(b)

each of the three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the CEO and the CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than $150,000 for that financial year, and

(c)	each individual who would have satisfied the criteria under paragraph (b) but for the fact that the individual was neither an executive officer of the Company, nor acting in a similar capacity, at the end of the most recently completed financial year.

(collectively the “ Named Executive Officers ” or “ NEOs ”).

Name and

Principal

Position

Fiscal
Year
Ending

Salary
($)

Share-based
awards
($)

Option-Based
Awards ⁽¹⁾
($)

Non-Equity Annual
Incentive Plans
($)

All Other
Compensation
($)

Total
Compensation
($)

Annual
Incentive
Plans

Long-Term
Incentive
Plans

Ralph McRae

Chairman, President and CEO

2018

2017

2016

254,800

472,209

318,657

⁽²⁾

nil

85,313

nil

132,000

21,000

⁽³⁾⁽⁹⁾

⁽⁴⁾

⁽⁵⁾

337,300

472,209

471,657

Fei Xu

Corporate Controller and Principal Financial Officer

2018

2017

2016

91,596

90,891

91,596

⁽⁶⁾

nil

91,596

90,891

91,596

Thor Matson

Vice President of Business Development

2018

2017

2016

86,667

160,615

160,000

⁽⁷⁾

nil

5,904

15,906

11,546

nil

5,850

10,842

10,800

⁽⁸⁾

98,421

187,363

182,346

(1)

The value of option awards reflects the grant date fair value of option based awards in the 2016, 2017, and 2018 fiscal years. The estimated fair value of the stock options granted was determined using the Black-Scholes option pricing model. 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)	Mr. McRae was paid salary up until September 15, 2017. From September 16, 2017 until January 31, 2018, Mr. McRae (via McRae Ventures) was paid consulting fees of $15,000 per month. Beginning February 1, 2018, Mr. McRae elected to receive the monthly consulting fees of $15,000 in his personal name.

(3)

An aggregate of $85,313 was paid to Mr. McRae (via McRae Ventures) for consulting fees during the period from September 16, 2017 until January 31, 2018. During this period, Mr. McRae (via McRae Ventures) was paid consulting fees of $15,000 per month. Beginning February 1, 2018, Mr. McRae began receiving monthly consulting fees of $15,000 in his personal name.

(4)

Amounts paid to McRae Ventures, Inc., a company of which Mr. McRae is also a director, for consulting services provided by Mr. McRae. Effective June 1, 2015 the contractual arrangements between Mr. McRae, McRae Ventures, Inc., BBI Holdings Inc. and the Company ended and was replaced with one executive employment agreement between Mr. McRae, the Company and LBIC providing for an aggregate salary of $420,000 per annum, which represents a reduction of Mr. McRae’s salary of 31.4% over prior years.

(5)	Amounts paid to BBI Holdings Inc., a company of which Mr. McRae is also a director, for consulting services provided by Mr. McRae. This arrangement was terminated effective June 1, 2015.

(6)	Effective March 23, 2018, Ms. Xu is no longer with the Company.

(7)	Effective September 15, 2017, Mr. Matson is no longer with the Company. Mr. Matson’s total compensation was calculated up until September 15, 2017.

(8)	This amount represents an automobile allowance to Mr. Matson up until he left the Company on September 15, 2017.

(9)

As part of the sale of the Company’s legacy beverage assets on September 15, 2017, the Company disposed of its subsidiaries to a company in which Mr. McRae, a director and officer of the Company, is an officer, director and, together with members of his family, a majority shareholder, described herein as the “Legacy Transaction.” In connection with the Legacy Transaction, Mr. McRae waived his right to receive his $900,000 severance payment as provided for in his Executive Employment Agreement (as defined below).

The Company does not have formal employment or consulting agreements. The executive employment agreement with Chairman, President and CEO, Ralph McRae, effective June 1, 2015 (the “ Executive Employment Agreement ”), ended on September 15, 2017. Effective September 15, 2017, Mr. McRae invoices the Company for his consulting 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

nil

Fei Xu

2,000

6.20

2.45

April 4, 2018 ⁽²⁾

June 1, 2020 ⁽²⁾

nil

(1)

This amount is calculated based on the difference between the market value of the Shares underlying the options at the end of the most recently completed fiscal year, which was USD$1.27, and the exercise or base price of the option. The Shares are traded on the Nasdaq in U.S. dollars. The effective exchange rate to convert from U.S. dollars to Canadian dollars at the end of the fiscal year was US$1 = CDN$1.2809.

(2)	Ms. Xu departed the Company on March 23, 2018 and her stock options expired 30 days thereafter.

The terms of the Company’s stock options are discussed under the “Option-Based Awards” section above.

Option Exercises During the Most Recently Completed Fiscal Year

No stock options were exercised by the Named Executive Officers during the most recently completed fiscal year.

Option Repricing

The Company did not reprice any stock options during the most recent fiscal year.

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		nil
Fei Xu		nil
Thor Matson		nil

(1)

This amount is the dollar value that would have been realized as computed by obtaining the difference between the market price of the underlying Shares 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.

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.

Further details regarding stock options may be found in the sections above titled “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 Executive Employment Agreement between the Company, LBIC and Ralph D. McRae (the “ Executive ”), effective June 1, 2015 was terminated on September 15, 2017. In connection with the Legacy Transaction as described below under Item 7. B. 1. a) – “Major Shareholders and Related Property Transaction – Related party transactions,” the $900,000 severance obligation was fully satisfied on September 15, 2017.

The Company and its subsidiaries have no 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 Officer’s responsibilities.

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 Board meeting and committee meeting attended. Directors who are also executives of the Company do not receive director’s fees. 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 of the Company. 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 Company’s most recently completed fiscal year:

Director

Name

Fees Earned
($)

Share-based
Awards
($)

Option-Based
Awards
($)

Non-Equity
Incentive Plan
Compensation
($)

All Other
Compensation
($)

Total
($)

James Corbett

11,000

nil

20,000

⁽²⁾

31,000

Darryl Eddy

11,000

nil

40,000

⁽²⁾

51,000

Stephen Fane

6,000

⁽¹⁾

nil

50,000

⁽²⁾

56,000

R. Thomas Gaglardi

8,000

nil

8,000

(1)	The Company regrets to inform that Mr. Stephen Fane ended his tenure as Director upon his passing on November 10, 2017.

(2)	The other compensation received by Mr. James Corbett, Mr. Darryl Eddy and Mr. Stephen Fane pertained to a special independent committee to advise the Company on the plan of arrangement with Liquid and the following transition.

Outstanding Option-Based Awards for Directors

Options for the purchase of 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

nil

Darryl Eddy

10,000

50,000

20,000

3.50

2.45

3.69

Sept. 28, 2019

June 1, 2020

July 12, 2025

nil

Director Name

Number of Securities
Underlying Unexercised
Options
(#)

Option Exercise
Price
($USD)

Option Expiration
Date

Value of Unexercised
In-The-Money Options ⁽¹⁾
($USD)

Stephen Fane ⁽²⁾

20,000

10,000

50,000

⁽²⁾

3.00

3.50

2.45

June 26, 2018

Sept. 28, 2019

June 1, 2020

nil

R. Thomas Gaglardi

20,000

10,000

50,000

3.00

3.50

2.45

June 26, 2018

Sept. 28, 2019

June 1, 2020

nil

(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$1.27 and the exercise price of the option. The Company’s shares are traded on the Nasdaq in U.S. dollars. The effective exchange rate to convert from U.S. dollars to Canadian dollars at the end of the fiscal year was US$1 = CDN$1.2809.

(2)	The Company regrets to inform that Mr. Stephen Fane ended his tenure as Director upon his passing on November 10, 2017. Mr. Fane’s options will expire on November 10, 2018.

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		nil
Darryl Eddy		nil
Stephen Fane *⁽²⁾*		nil
R. Thomas Gaglardi		nil

(1)

(2)	The Company regrets to inform that Mr. Stephen Fane ended his tenure as Director upon his passing on November 10, 2017.

The Company does not have a formal stock option plan. Options granted 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 Shares on a selected exercise date. In the Company’s fiscal year ended February 28, 2018, no stock options were exercised by directors.

Further details regarding stock options may be found in the sections above titled “Option-Based Awards for Named Executive Officers” and “Outstanding Option-Based Awards for Directors”.

C.	*Board Practices.*

The Company’s 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. Due to Mr. Stephen Fane’s passing on November 10, 2017, the Board of Directors is currently comprised of four directors. 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:


Name	Class	Term of Office	Director Since
James Corbett	II	July 2014 to Annual General Meeting (“AGM”) 2017	June 2008
R. Thomas Gaglardi	III	June 2015 to AGM 2018	October 1998
Ralph D. McRae	I	June 2016 to AGM 2019	March 1996
Darryl R. Eddy	I	June 2016 to AGM 2019	July 2009

Two 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 Chief Executive Officer 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.	Other than the executive employment agreement for Mr. McRae, referenced earlier and which has been terminated, there are no directors’ service contracts with the Company or any of its subsidiaries providing for benefits upon termination of service.

3.	Audit Committee

The members of the Company’s Audit Committee are:

•

James Corbett

•

Darryl R. Eddy

•

Ralph D. McRae

Two out of the three members of the Audit Committee, being James Corbett and Darryl R. Eddy, are independent directors, are financially literate, and are considered “financial experts” as defined by the SEC. Ralph McRae, by virtue of acting as the Chairman, President and Chief Executive Officer of the Company, is not considered independent. For details on their professional careers, see “Item 6 - A. Directors, Senior Management and Employees”.

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 Company’s 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 Company’s external auditors, overseeing the audits of the Company’s 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 Board of Directors to make an informed decision.

Nomination of Directors

The Board has adopted a charter for the Nominating and Corporate Governance Committee. The committee is currently comprised of the two independent directors:

•

James Corbett

•

Darryl R. Eddy

Pursuant to its charter, the responsibilities, powers and operation of the committee include: identifying and recommending new candidates for Board nomination; evaluating the effectiveness of the Board, its committees and its directors; monitoring and reviewing the Company’s corporate governance practices and policies and making recommendations for changes when appropriate; and ensuring that a comprehensive orientation is received by new directors and that continuing education opportunities are available.

In connection with its responsibilities relating to Board nominations, the committee is responsible for identifying and recommending new candidates for nomination to the Board based upon: (i) the competencies and skills necessary for the Board as a whole to possess; (ii) the competencies and skills necessary for each individual director to possess; (iii) the competencies and skills which each new nominee to the Board is expected to bring; and (iv) whether the proposed nominee to the Board will be able to devote sufficient time and resources to the Company. Other members of the Board and representatives of the food and beverage industry are consulted for possible candidates.

The size of the Board is reviewed on a regular basis by the committee and the Board. The committee and the Board will take into account the number of directors required to carry out the Board’s duties effectively, and to maintain a diversity of view and experience.

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 Compensation section above for further information.

Assessments

The Board conducts informal assessments of the Board’s effectiveness, the individual directors and each of its committees on a regular basis. As part of the assessments, the Board reviews the mandates or charters and conducts reviews of applicable corporate policies.

As of May 1, 2018, the executive officers of Leading Brands, Inc. are:

Ralph D. McRae Chairman, President and Chief Executive 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 28, 2018		February 28, 2017		February 29, 2016
Canada		0		24		73
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 February 28, 2018, the Company had 669,000 issued and outstanding options, with a weighted average exercise price of US$2.675.

Of the total stock options granted, 669,000 have vested and are available for exercise as of May 1, 2018.

The following table provides share ownership information with respect to the directors and officers listed in “Item 6 – Directors, Senior Management and Employees” above, as at May 1, 2018.


Name	Common Shares Held ⁽¹⁾ (#)			# of Common Shares under Options Granted		Date of Grant	Exercise Price ($USD)		Expiration Date
Ralph McRae		176,126 (6.3	%)		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		89,834 (3.2	%)		10,000 50,000 20,000	Sept. 28, 2009 June 1, 2010 July 13, 2015	$ $ $	3.50 2.45 3.69	Sept. 28, 2019 June 1, 2020 July 12, 2025
R. Thomas Gaglardi		419,125 (15.0	⁽²⁾ %)		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

(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.

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 Shareho lders and Related Party Transactions

A.	*Major shareholders.*

As at May 1, 2018 the Company had 2,802,412 common shares without par value issued and outstanding.

1.	Following are the shareholders that are the beneficial owners of 5% or more of the Company’s voting securities, as of May 1, 2018:

(a)


Shareholder	Number of Shares		Percentage of Issued Capital
R. Thomas Gaglardi/ Northland Properties Corporation ⁽¹⁾		419,125		15.0	%
Salzhauer family		197,971		7.1	%
Ralph McRae		176,126		6.3	%

(1)	Northland Properties Corporation is an affiliate of R. Thomas Gaglardi, a director of Leading Brands, Inc. 404,125 of Mr. Gaglardi’s Shares are held by Northland Properties Corporation.

(b)

To the best of the Company’s knowledge, there has been no significant change in the percentage ownership held by any major shareholders during the past three fiscal years, other than that according to a Schedule 13 G/A filed by Global Value Investment Corp. on June 17, 2016, Global Value Investment Corp. no longer holds their 272,753 Shares in the Company.

(c)	The Company’s major shareholders do not have different voting rights than other shareholders.

The Company’s register of 259 members showed that as of May 1, 2018, 1,551,406 of the Company’s common shares, or 55.36%, were held by 219 registered shareholders residing in the United States. The register includes Cede and Co., an American depository holding shares on behalf of beneficial shareholders. However, since the Company meets the Business Contacts Test of the definition of a Foreign Private Issuer, the Company’s status as a Foreign Private Issuer has not changed.

3.	To the Company’s 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 Company’s 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”.

B.	*Related party transactions.*

The Company has not at any time during the period since the beginning of the last fiscal year to May 1, 2018 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 follows:

As part of the sale of the Company’s Legacy Transaction, on September 15, 2017 the Company disposed of its subsidiaries to a company in which Mr. McRae, a director and officer of the Company, is an officer, director and together with members of his family, a majority shareholder, for $325,000, which is net of assumed liabilities for certain employee obligations and other matters, all of which is subject to certain working capital adjustments. In connection with the Legacy Transaction agreement, the severance obligation under the Executive Employment Agreement was satisfied. An additional $600,000 is held in escrow as security for payment of certain liabilities that remain the responsibility of the Company. In addition, the Company is entitled to any excess amounts realized via a sublease of office and warehouse premises in Vancouver, Canada between LBIC and Richmond Holdings after all costs and expenses arising in relation to the Lease. The transaction was reviewed and approved by the disinterested directors of the Company.

A company with a director in common with the Company provided consulting services in the amount of $2,813.

A company with an officer in common with the Company provided management services in the amount of $67,500.

A company with a director in common with the Company supplied bottling services in the amount of $160,642.

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.

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 Company’s financial position, profitability, or cash flows. The settlement severance related to the Company’s Edmonton bottling plant legal dispute has been accrued in the Company’s consolidated financial statements.

Dividend Distributions

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 closing price history of the Company’s common shares on the Nasdaq, in U.S. dollars.

(a) For the five most recent full fiscal years:


Period	High $		Low $
March 1, 2017 to Feb. 28, 2018		2.82		0.82
March 1, 2016 to Feb. 28, 2017		3.34		1.31
March 1, 2015 to Feb. 29, 2016		4.27		1.62
March 1, 2014 to Feb. 28, 2015		5.05		2.83
March 1, 2013 to Feb. 28, 2014		5.83		3.30

(b) For each full financial quarter of the two most recent full fiscal years:


Period	High $		Low $
4 ^th Quarter Dec. 1, 2017 – Feb. 28, 2018		1.85		1.27
3 ^rd Quarter Sept. 1, 2017 – Nov. 30, 2017		2.82		0.82
2 ^nd Quarter June 1, 2017 – Aug. 31, 2017		2.01		0.85
1 ^st Quarter Mar. 1, 2017 – May 31, 2017		2.14		1.66
4 ^th Quarter Dec. 1, 2016 – Feb. 28, 2017		2.92		1.47
3 ^rd Quarter Sept. 1, 2016 – Nov. 30, 2016		2.43		1.38
2 ^nd Quarter June 1, 2016 – Aug. 31, 2016		3.34		1.38
1 ^st Quarter Mar. 1, 2016 – May 31, 2016		2.65		1.31


Period	High $		Low $
April 1 – 30, 2018		1.22		1.04
March 1 – 30, 2018		1.38		1.19
February 1 – 28, 2018		1.46		1.27
January 1 – 31, 2018		1.85		1.53
December 1 – 29, 2017		1.74		1.41
November 1 – 30, 2017		2.03		1.60

C.	*Markets.*

The Company’s common shares have been quoted on the Nasdaq (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 Company’s 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 Company’s registration statement on Form F-3, filed on September 24, 2007, and is incorporated by reference.

C.	*Material contracts.*

On September 17, 2017, the Company entered into the Arrangement Agreement to complete the Transaction and is seeking to list the post-acquisition entity on The Nasdaq. In accordance with the applicable Canadian securities laws, the Company plans to hold a special meeting of shareholders to consider resolutions to approve the issuance of the shares forming the consideration to be paid to Liquid shareholders pursuant to the Transaction, among other things. A special meeting of Company shareholders is expected to be held concurrently with a special meeting of Liquid shareholders, which will be called by Liquid to consider the Transaction. Closing of the Transaction is subject to Liquid receiving approval from its shareholders for the Transaction. The Transaction will also require the approval of Company shareholders and the Supreme Court of British Columbia (the “ Court ”), as well as certain regulatory approvals. A copy of the contract was filed on SEDAR (Canada) and EDGAR (U.S.A.) on September 18, 2017.

On January 14, 2018, the Company entered into the Amended and Restated Arrangement Agreement whereby the original valuation of existing Company shares as part of the transaction was increased from USD$1.50 per share to USD$1.78 per share. As a result, Company shareholders are anticipated to hold 25.8% and Liquid shareholder are anticipated to hold 74.2% of the post-transaction entity. At the same time, the Company announced that Liquid had acquired 51% of Majesco, a proven gaming publisher. The acquisition of Majesco by Liquid satisfied one of the key terms of the Amended and Restated Arrangement Agreement whereby Liquid shall acquire a gaming studio.

On February 8, 2018, the Company announced that it had entered into a support agreement with Liquid’s subsidiary, 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 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.

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.

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 non-resident 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 arm’s 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.

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 Unit 101 - 33 W. 8 ^th Avenue, Vancouver BC Canada V5Y 1M8.

I.	*Subsidiary Information.*

This item is not applicable for an Annual Report. The Company sold all of its subsidiaries (as defined in Rule 1-02(w) of Regulation S-X) during the fiscal year ended February 28, 2018.

Item 11. – Quantitative and Qualitative Dis closures About Market Risk

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 28, 2018, the Company’s cash balances included $1,457 denominated in U.S. dollars (2017 - $88,825), accounts receivable balances included $nil denominated in U.S. dollars (2017 - $2,688), and the Company’s accounts payable and accrued liabilities balance included $4,095 denominated in U.S. dollars (2017 - $130,517).

As at February 28, 2018, all other factors being equal, a 5% U.S. dollar rise per Canadian dollar would have an unfavourable impact of approximately $100 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 Sec urities 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.

PART II

Item 13. – Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. – Material Modifications to the Rights of Security Holders and Use of Proceeds

On June 16, 2015, the Company’s shareholders approved a Further Amended and Restated Shareholder Rights Plan Agreement (the “Rights Plan”). A copy of the Rights Plan was filed with the SEC on Form 6-K on July 7, 2015 and is incorporated by reference. The Rights Plan will expire at the termination of the Company’s annual general meeting in 2020. The Company has had a shareholders rights plan in place since 1991.

On February 2, 2010, a 5:1 consolidation of the Company’s 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.

C.	There were no material modifications to any class of securities during the fiscal year ended February 28, 2018.

D.	There has been no material withdrawal or substitution of assets securing any class of registered securities of the Company.

E.	There has been no change of trustee or paying agent for any registered securities.

F.	This item is not applicable.

Item 15. – Controls and Procedures

Disclosure Controls and Procedures

Based on his evaluation as of February 28, 2018, the Company’s Chief Executive Officer/ Interim Principal Financial Officer has concluded that the Company’s 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 SEC’s rules and forms regarding required disclosure; and

•

accumulated and communicated to the Company’s management, including the Chief Executive Officer/Interim Principal Financial Officer, to allow timely decisions regarding required disclosure.

Management’s 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 Company’s 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 (1992). 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 Company’s internal control over financial reporting as of the fiscal year ended February 28, 2018. Due to the loss of accounting staff in the fiscal year ended February 28, 2018, as well as the resignation of Ms. Fei Xu in March 2018, management identified a material weakness related to segregation of duties and retained an external accounting firm to provide financial and accounting services to the Company pending the completion of the Transaction.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report.

Changes in internal control over financial reporting

Due to the resignation of Ms. Fei Xu in March 2018, management has identified a material weakness related to segregation of duties and hired an external accounting firm to provide financial and accounting services to the Company pending the completion of the Transaction.

Item 16 . – [Reserved]

Item 16A. – Audit Committee Financial Expert

The Company’s Board of Directors has determined that all three members of its Audit Committee, James Corbett, Darryl Eddy and Ralph McRae, satisfy the requirements of “audit committee financial expert”. James Corbett and Darryl Eddy are independent directors of the Audit Committee. Ralph McRae, by virtue of being the Chairman, President and Chief Executive Officer of the Company, is not considered independent. For details on their professional careers, and for further information regarding the Company’s 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 Company’s 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 Unit 101 - 33 W. 8 ^th Avenue, Vancouver BC Canada V5Y 1M8, 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 estimated and billed for the fiscal years ended February 28, 2018 and February 28, 2017 totaled $55,000 and $72,500 respectively.

b)	Audit-Related Fees – No audit-related fees were billed for the fiscal years ended February 28, 2018 and February 28, 2017.

c)	Tax Fees – Tax fees billed for the fiscal years ended February 28, 2018 and February 28, 2017 totaled $18,000 and $16,050 respectively for tax compliance, advice and planning.

d)	All Other Fees – No other fees were billed for the fiscal years ended February 28, 2018 and February 28, 2017.

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 16 D. – Exemptions from the Listing Standards for Audit Committees

None.

Item 16E. – Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Share Buyback

From the fiscal year ended February 28, 2010 through to February 28, 2018, the Company’s Board of Directors authorized a share repurchase program for the repurchase of up to US$3,500,000 of the Company’s outstanding common shares. No common shares were repurchased by the Company during the fiscal year ended February 28, 2018. All shares repurchased in prior fiscal years have been returned to treasury.

Item 16F. – Change in Registrant’s Certifying Accountant

None.

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 and Rule 5605(d) regarding Compensation Committees. The Company has notified Nasdaq that it has elected to follow British Columbia practice in lieu of these Nasdaq rules.

Item 16H. – Mine Safety Disclosure

Not applicable.

PA RT III

Item 17. – Financial Statements

Not applicable.

Item 18. – Financial Statements

Leading Brands, Inc.

Consolidated Financial Statements

February 28, 2018 and 2017

(Expressed in Canadian Dollars)


Independent Auditors’ Report

Consolidated Financial Statements

Balance Sheets		F-2

Statements of Comprehensive Loss		F-3

Statements of Cash Flows		F-4

Statements of Changes in Shareholders’ Equity		F-5

Notes to the Consolidated Financial Statements		F-6

Tel: 604 688 5421

Fax: 604 688 5132

www.bdo.ca

BDO Canada LLP

600 Cathedral Place

925 West Georgia Street

Vancouver BC V6C 3L2 Canada

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Leading Brands Inc.

Vancouver, Canada

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Leading Brands Inc. (the “Company”) and subsidiaries, which comprise the consolidated balance sheets as at February 28, 2018 and 2017 and the related consolidated statements of comprehensive loss, cash flows and changes in shareholders’ equity, for each of the three years in the period ended February 28, 2018 and related notes, including a summary of significant accounting policies and other explanatory information (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at February 28, 2018 and 2017, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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 accounting principles generally accepted in the United States of America, 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 the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. Further, we are required to be independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and to fulfill our other ethical responsibilities in accordance with these requirements.

We conducted our audits in accordance with the standards of the PCAOB and Canadian generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO CANADA LLP

Chartered Professional Accountants

Vancouver, Canada

May 29, 2018

We have served as the Company’s auditor since 2001.

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.

F-1

Leading Brands, Inc.

Consolidated Balance Sheets

(Expressed in Canadian Dollars)


As at	Feb. 28, 2018			Feb. 28, 2017
Assets
Current
Cash and cash equivalents	$	786,340		$	4,315,028
Restricted cash (note 2)		583,012			—
Accounts receivable		—			85,628
Inventory (Note 3)		—			361,102
Prepaid expenses and deposits (Note 5)		81,143			129,520

		1,450,495			4,891,278
Property, plant and equipment (Note 4)		3,157			765,024
Intangible assets (Note 6)		—			279,189
Assets attributable to discontinued operations (Note 16)		—			26,195

Total Assets	$	1,453,652		$	5,979,686

Liabilities and Shareholders’ Equity
Liabilities
Current
Accounts payable and accrued liabilities	$	117,405		$	605,046
Liabilities attributable to discontinued operations (Note 16)		250,000			300,000
Derivative Liability – non-employee stock options (Note 9)		23,024			46,352

		390,429			951,398

Shareholders’ Equity
Share Capital (Note 7(a))
Authorized 500,000,000 common shares without par value 20,000,000 preferred shares without par value
Issued 2,802,412 common shares (2017 – 2,802,412)		31,305,247			31,305,247
Additional paid-in capital		19,455,359			19,455,359
Accumulated other comprehensive income— currency translation adjustment		—			577,916
Accumulated deficit		(49,697,383	)		(46,310,234	)

		1,063,223			5,028,288

Total Liabilities and Shareholders’ Equity	$	1,453,652		$	5,979,686

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.

F-2

Leading Brands, Inc.

Consolidated Statements of Comprehensive Loss

(Expressed in Canadian Dollars)


For the year ended	Feb. 28, 2018			Feb. 28, 2017			Feb. 29, 2016
Expenses (income)
Selling, general and administrative	$	876,088		$	726,530		$	1,277,127
Depreciation of property, plant, equipment and intangible asset		1,053			1,053			1,316
Interest income		(19,703	)		—			(4,900	)
Other income		(3,995	)		—			—
Change in fair value of derivative liability		(23,328	)		(13,638	)		(81,317	)

		830,115			713,945			1,192,226

Loss before income tax		(830,115	)		(713.945	)		(1,192,226	)
Income tax provision (recovery) (Note 10)		—			—			—

Net loss from continuing operations	$	(830,115	)	$	(713,945	)	$	(1,192,226	)

Net loss from discontinued operations (Note 16)	$	(2,557,034	)	$	(5,795,744	)	$	(111,058	)
Net and Comprehensive loss	$	(3,387,149	)	$	(6,509,689	)	$	(1,303,284	)

Basic and diluted loss per common share
Continuing operations	$	(0.30	)	$	(0.25	)	$	(0.41	)
Discontinued operations		(0.91	)		(2.05	)		(0.04	)

Net basic loss per common share	$	(1.21	)	$	(2.31	)	$	(0.45	)
Weighted average common shares outstanding
Basic and diluted (Note 7(e))		2,802,412			2,820,647			2,880,882

The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.

F-3

Leading Brands, Inc.

Consolidated Statements of Cash Flows

(Expressed in Canadian Dollars)


For the year ended	Feb 28, 2018			Feb. 28, 2017			Feb. 29, 2016
Cash provided by (used in)
Operating activities
Net loss from continuing operations	$	(830,115	)	$	(713,945	)	$	(1,192,226	)
Net loss from discontinued operations		(2,557,034	)		(5,795,744	)		(111,058	)

Net loss for the year		(3,387,149	)		(6,509,689	)		(1,303,284	)
Items not involving cash
Depreciation of property, plant, equipment and intangible asset		74,398			634,692			705,024
Leasehold inducement		—			(22,234	)		22,234
Loss on disposal of assets		752			1,581,672			1,757
Loss on sale of legacy beverage operations		1,071,396			—			—
Stock based compensation (Note 8)		—			—			104,850
Change in derivative liability (Note 9)		(23,328	)		(13,638	)		(81,317	)
Deferred income tax provision (recovery)		—			2,480,257			(436,654	)
Changes in non-cash operating working capital
Accounts receivable, net		(53,809	)		238,949			(21,445	)
Inventory, net		102,137			606,928			348,596
Prepaid expenses and other assets		19,257			260,931			(127,063	)
Accounts payable and accruals		(400,513	)		(609,672	)		(46,571	)

		(2,596,859	)		(1,351,804	)		(833,873	)

Investing activities
Purchase of property, plant and equipment		—			(10,449	)		(200,221	)
Purchase of intangible asset		(20,053	)		(120,146	)		(210,892	)
Proceeds on disposal of assets		11,000			5,654,397			1,199
Cash outflow on business disposition		(339,764	)		—			—

		(348,817	)		5,523,802			(409,914	)

Financing activity
Repurchase of common shares		—			(139,789	)		(176,316	)

		—			(139,789	)		(176,316	)

Increase (Decrease) in cash and cash equivalents		(2,945,676	)		4,832,209			(1,420,104	)
Cash and cash equivalents, beginning of year		4,315,028			282,819			1,702,922

Cash and cash equivalents, including restricted cash , end of year	$	1,369,352		$	4,315,028		$	282,819

Supplementary disclosure of cash flow information
Cash paid (received) during the year
Interest received	$	(23,698	)	$	—		$	(4,900	)
Interest paid		—			—			85
Income taxes		—			—			—

The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.

F-4

Leading Brands, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

(Expressed in Canadian Dollars)


	Common Stock						Treasury Stock			Additional Paid-In Capital		AOCI			Accum. Deficit			Total Shareholders’ Equity
	Shares			Amount			Treasury Stock			Additional Paid-In Capital		AOCI			Accum. Deficit			Total Shareholders’ Equity
Balance at February 28, 2015		2,900,542		$	32,401,440		$	—		$	18,591,391	$	577,916		$	(38,497,261	)	$	13,073,486
Net loss		—			—			—			—		—			(1,303,284	)		(1,303,284	)
Shares repurchased under provisions of the share repurchase plan		—			—			(454,708	)		278,392		—			—			(176,316	)
Shares cancelled		(40,705	)		(454,708	)		454,708			—		—			—			—
Stock based compensation expense (Note 8)		—			—			—			83,880		—			—			83,880

Balance at February 29, 2016		2,859,837		$	31,946,732		$	—		$	18,953,663	$	577,916		$	(39,800,545	)	$	11,677,766
Net loss		—			—			—			—		—			(6,509,689	)		(6,509,689	)
Shares repurchased under provisions of the share repurchase plan		—			—			(641,485	)		501,696		—			—			(139,789	)
Shares cancelled		(57,425	)		(641,485	)		641,485			—		—			—			—

Balance at February 28, 2017		2,802,412		$	31,305,247		$	—		$	19,455,359	$	577,916		$	(46,310,234	)	$	5,028,288
Net loss		—			—			—			—		—			(3,387,149	)		(3,387,149	)
Foreign exchange translation adjustment		—			—			—			—		(577,916	)		—			(577,916	)

Balance at February 28, 2018		2,802,412		$	31,305,247		$	—		$	19,455,359	$	—		$	(49,697,383	)	$	1,063,223

The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.

F-5

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 former subsidiaries were previously involved in the development, marketing and distribution of the Company’s beverage brands. As of September 18, 2017, the Company decided to exit the beverage business and pursue the production of film, television and gaming content via the acquisition of Liquid Media Group (“ Liquid ”) pursuant to a plan of arrangement (“ Arrangement ”). To clear the way for this transaction, the Company concurrently disposed of its remaining legacy beverage assets. The transaction has not yet been finalized. The Company entered into the Arrangement to acquire 100% of Liquid pursuant to the transaction. The Company’s shareholders are anticipated to hold 25.8% and Liquid shareholders are anticipated to hold 74.2% of the post-transaction entity. The agreed valuation of existing Company shares was determined to be $1.78 USD per share. The Company also announced its intention, that at the time of the closing of the transaction, that all of its Board members, with the exception of Mr. Tom Gaglardi, would resign and be replaced by Messrs. Jackson, Brezer and Cruz, and Ms. Katsoolis, who are directors and an officer of Liquid.

		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 former subsidiaries until disposal. All intercompany transactions and balances have been eliminated in consolidation. The Company has experienced losses, negative operating cash flows and has discontinued its former operating businesses which raises substantial doubt about its ability to continue operating as a going concern within one year of the date of the financial statements. To alleviate this situation, the Company has plans in place to improve its financial position and liquidity by reducing costs that are not expected to have an adverse impact on the Company’s ability to transition to a new business segment. These include, among other cost reduction measures, the director’s fees as well as the CEO’s consulting fees being waived for a specified period if certain criteria are not met in relation to the Liquid transaction. As of the date of these financial statements, the Company has sufficient liquidity to meet its ongoing cash requirements for one year after the issuance date of the financial statements due to its planned cost management and reduction measures. Therefore, although substantial doubt has been raised, this has been alleviated by management’s plans.

		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, capitalization of intangible assets, the useful lives of intangible assets, income taxes, and stock-based compensation, among others. The reported amounts and note disclosure are determined using management’s 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.

F-6

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

1.	Operations and Summary of Significant Accounting Principles (continued)


		Foreign Currency Translation		The Company’s 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.

		Cash & 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.

		Restricted Cash		Restricted cash is comprised of cash held in a trust account pursuant to the terms of an escrow agreement arising from the disposition of the Company’s legacy beverage business.

		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 $nil and $nil as of February 28, 2018 and February 28, 2017, respectively, are netted against accounts receivable.


	2018		2017		2016
Allowances for Doubtful Accounts
Balance at beginning of year	$	—	$	—	$	36,329
Write-off of receivables		—		—		(36,329	)

Balance at end of year	$	—	$	—	$	—


		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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F-7

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

1.	Operations and Summary of Significant Accounting Principles (continued)

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. Management reviews 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 exists. 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.

		Intangible Assets		Licenses and patents are recorded at cost and are amortized over their expected useful life of ten years. Management reviews intangible assets 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 exists. 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.

		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.

		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. 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.

		Advertising Costs		Advertising costs, which also include samples, trade show, product demo, and media promotion costs are expensed as incurred. During the years ended February 28, 2018, February 28, 2017 and February 29, 2016, the Company incurred advertising costs of $171,075, $496,456 and $603,502, respectively.

F-8

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

1.	Operations and Summary of Significant Accounting Principles (continued)


		Earnings (loss) per common share		Basic Earnings (Loss) Per Share (“EPS”) is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted EPS gives effect to all dilutive potential common shares outstanding during the year including stock options and warrants using the treasury stock method. In computing diluted EPS, the average stock price for the year is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.

		Stock-Based Compensation		Compensation costs are charged to the Consolidated Statements of Comprehensive 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 over the vesting 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. 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. Changes in fair value of options granted to non-employees that are accounted for as liabilities are recognized as stock compensation until fully vested, and after that time as change in fair value.

		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 10). No reserves for an uncertain tax position have been recorded for the years ended February 28, 2018 and February 28, 2017.

F-9

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

1.	Operations and Summary of Significant Accounting Principles (continued)


		Comprehensive Income (loss)		Comprehensive income (loss) includes both net earnings and other comprehensive income which are presented in a single continuous statement.

		Fair Value Measurements		The book value of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued liabilities approximate their fair values due to the immediate or short-term maturity of those instruments. 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:

				Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2—observable inputs other than Level 1, 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 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. 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 28, 2018 and February 28, 2017, the derivative liability on non-employee stock options and warrants is a financial liability classified for Level 3 fair value measurement. See Note 14 for more information.

		Reclassification		Certain prior period amounts have been reclassified to conform to current year presentation. There was no change to previously reported shareholders’ equity or accumulated deficit.

		Recent Accounting Pronouncements		In May 2014, the Financial Accounting Standard Board, or FASB, issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09) to supersede existing revenue recognition guidance under generally accepted accounting principles in the United States, or GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services.

				ASU 2014-09 defines a five steps process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the fiscal and interim reporting periods beginning after December 15, 2016 using either of two methods: (i) retrospective to each prior reporting period presented within the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. In August 2015, ASU 2015-14 was issued which delayed the effective date to reporting periods beginning

F-10

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

1.	Operations and Summary of Significant Accounting Principles (continued)


		Recent Accounting Pronouncements (continued)		after December 15, 2017. The Company is continuing to assess the potential effects of these ASUs on its consolidated financial statements, business processes, systems and controls. While the assessment process is ongoing, the Company anticipates adopting the standard using the modified retrospective transition approach. Under this approach, the new standard would apply to all new contracts initiated on or after March 1, 2018. For existing contracts that have remaining obligations as of March 1, 2018, any difference between the recognition criteria in these ASUs and the Company’s current revenue recognition practices would be recognized using a cumulative effect adjustment to the opening balance of retained earnings. The Company continues to evaluate the impact that the adoption will have on its consolidated financial statements and disclosures.

				In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory” (“ASU 2015-11”). Under ASU 2015-11, inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. ASU 2015-11 defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. The Company adopted this standard, which did not have a material impact on the consolidated financial statements. In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-2), Leases, which supersedes ASC Topic 840, Leases. ASU 2016-2 requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than twelve months to its balance sheets. ASU 2016-02 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, which will be our fiscal year beginning March 1, 2019 (fiscal 2020). Early adoption is permitted. The Company continues to evaluate the impact that the adoption will have on its consolidated financial statements and disclosures.

				In March 2016, the FASB issued authoritative guidance under ASU 2016-09, Compensation-Stock Compensation (Topic 718) “Improvements to Employee Share-Based Payment Accounting”. ASU 2016-09 provides for simplification of several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016. The Company adopted this standard, which did not have a material impact on the consolidated financial statements.

				In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). Financial Instruments—Credit Losses (Topic 326) amends guidelines on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses

F-11

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

1.	Operations and Summary of Significant Accounting Principles (continued)


		Recent Accounting Pronouncements (continued)		should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.

				In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company will adopt this guidance in the first quarter of fiscal 2019. The adoption of this amendment is not expected to have a material impact on our consolidated financial statements.

				In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU do not provide a definition of restricted cash or restricted cash equivalents. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The adoption of this amendment was included in these consolidated financial statements within the consolidated Statements of Cash Flows.

F-12

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

1.	Operations and Summary of Significant Accounting Principles (continued)

Recent Accounting Pronouncements

(continued)

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F-13

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

2.	Restricted Cash

As at February 28, 2018, the Company held $583,012 in restricted cash (2017—$nil). Restricted cash is held by the Company’s legal counsel in a trust account pursuant to the terms of an escrow agreement arising from the disposition of the Company’s legacy beverage business. These funds are held aside for the purpose of existing claims, excluded liabilities and financial lease liabilities during the escrow period as specified in the terms of the sale agreement in relation to the Company’s legacy beverage business.

3.	Inventory


	2018		2017
Finished goods, net	$	—	$	279,666
Raw materials		—		81,436

	$	—	$	361,102

The ending balance above includes a total inventory obsolescence provision of $nil as at February 28, 2018 (2017—$15,638).


	2018			2017			2016
Inventory Obsolescence Provision
Balance at beginning of year	$	15,638		$	39,870		$	114,744
Obsolescence provision		278,646			404,767			75,000
Write-off of inventory		(294,284	)		(428,999	)		(149,874	)

Balance at end of year	$	—		$	15,638		$	39,870

4.	Property, Plant and Equipment


	2018
	Cost		Accumulated Depreciation		Net
Furniture and fixtures	$	59,190	$	58,812	$	378
Computer hardware and software		271,177		268,398		2,779

	$	330,367	$	327,210	$	3,157


	2017
	Cost		Accumulated Depreciation		Net
Plant and equipment	$	379,688	$	94,431	$	285,257
Automotive equipment		61,550		38,251		23,299
Leasehold improvements		500,724		220,510		280,214
Furniture and fixtures		212,652		187,768		24,884
Computer hardware and software		1,761,497		1,610,127		151,370

	$	2,916,111	$	2,151,087	$	765,024

Property, plant and equipment does not include any assets acquired under capital leases (2017—$nil). Accumulated amortization does not include any assets acquired under capital leases (2017—$nil).

As at February 28, 2018, $nil assets are attributable to discontinued operations (2017—$760,814). The 2017 property, plant and equipment assets that are attributable to discontinued operations pertains to the Company’s legacy beverage business.

F-14

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

5.	Prepaid Expenses and Deposits


	2018		2017
Slotting fees	$	—	$	3,792
Insurance premiums		43,347		52,561
Rental deposits and other		37,796		99,362

	$	81,143	$	155,715

Attributable to discontinued operations	$	—	$	26,195
Attributable to continuing operations	$	81,143	$	129,520

6.	Intangible Assets


	2018
	Cost		Amortization		Net
Brand Licence and Patent	$	—	$	—	$	—


	2017
	Cost		Amortization		Net
Brand Licence and Patent	$	331,037	$	33,848	$	297,189

The brand licence and patent were sold as part of the disposition of the legacy beverage operations. The loss on the disposition of these intangible assets was included in the loss on disposition of the legacy beverage operations (see Note 16).

7.	Shareholders’ Equity

a) Share capital


	Number of Authorized Shares
	2018
Common shares without par value		500,000,000

Preferred shares without par value		9,999,900
Series “A” preferred shares		1,000,000
Series “B” preferred shares		100
Series “C” preferred shares		1,000,000
Series “D” preferred shares		4,000,000
Series “E” preferred shares		4,000,000

		20,000,000

F-15

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

7.	Shareholders’ Equity (continued)

Share capital (continued)

There are no preferred shares outstanding as at February 28, 2018 (2017—Nil).

In the year ended February 28, 2017, the Company repurchased and cancelled 57,425 of its issued and outstanding shares in the amount of $139,789. Since the average issue price of cancelled common shares at the time of repurchase was $11.17, share capital has been reduced by $641,485 and additional paid-in capital has been increased by $501,696.

In the year ended February 29, 2016, the Company repurchased and cancelled 40,705 of its issued and outstanding shares in the amount of $176,316. Since the average issue price of cancelled common shares at the time of repurchase was $11.17, share capital has been reduced by $454,708 and additional paid-in capital has been increased by $278,392.

Shareholder protection rights plan

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. At the Annual General Meeting on June 30, 2010, shareholders approved the updating and five-year extension of the Company’s Shareholder Protection Rights Plan to 2015. At the Annual General Meeting in June 2015, shareholders approved an updated and five-year extension of the Company’s Shareholder Protection Rights Plan to 2020.

Stock options

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.

At February 28, 2018, stock options were outstanding and exercisable as follows:


Exercise Price	Number of Options Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price (USD)		Number of Options Exercisable		Weighted Average Exercise Price (USD)
$2.45		447,000		2.25	$	2.45		447,000	$	2.45
$2.45		50,000		0.70	$	2.45		50,000	$	2.45
$3.00		80,000		0.32	$	3.00		80,000	$	3.00
$3.50		10,000		0.70	$	3.50		10,000	$	3.50
$3.50		55,000		1.50	$	3.50		55,000	$	3.50
$3.69		25,000		7.37	$	3.69		25,000	$	3.69
$6.20		2,000		0.10	$	6.20		2,000	$	6.20

		669,000						669,000

F-16

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

7.	Shareholders’ Equity (continued)

Stock options (continued)

A summary of the Company’s stock option activity is as follows:


	Outstanding Options			Weighted Average Exercise Price (USD)
Options outstanding as at February 28, 2015		856,767			2.98
Granted		25,000			3.69
Expired		(1,767	)		5.35

Options outstanding as at February 29, 2016		880,000			2.99
Cancelled		(12,000	)		6.91

Options exercisable, February 28, 2017		868,000			2.94
Expired		(10,000	)		15.75
Cancelled		(189,000	)		3.20

Options exercisable, February 28, 2018		669,000			2.68
Options vested and expected to vest		669,000			2.68

The aggregate intrinsic value of stock options exercised during the year ended February 28, 2018 was $nil USD (2017—$nil, 2016—$nil).

The aggregate intrinsic value of stock options outstanding as at February 28, 2018 was $nil USD (2017—$nil, 2016—$nil).

The aggregate intrinsic value of stock options exercisable as at February 28, 2018 was $nil USD (2017—$nil, 2016—$nil).

As of February 28, 2018, the Company has Nil (2017 – nil) non-vested stock options.

As of February 28, 2018, there was $nil of total unrecognized compensation cost related to non-vested stock options (2017 – $nil).

F-17

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

7.	Shareholders’ Equity (continued)

Warrants

A summary of the Company’s warrant activity and related information for the year ended February 28, 2018 is as follows:


	Outstanding Warrants			Weighted Average Exercise Price (USD)
Warrants outstanding at February 28, 2015 February 29, 2016 and February 27, 2017		25,000			3.40
Granted		—			—
Exercised		—			—
Expired ₍₁₎		(25,000	)		3.40

Warrants outstanding at February 28, 2018		—			—

(1) The warrants expired on January 26, 2018

Earnings (loss) per common share

For the years ended February 28, 2018, February 28, 2017, and February 29, 2016, common equivalent shares (consisting of shares issuable on exercise of stock options and warrants) totaling nil, nil and 905,000 respectively, were not included in the computation of diluted earnings per share because the effect was anti-dilutive.


	2018			2017			2016
Weighted average shares – Basic EPS		2,802,412			2,820,647			2,880,882
Plus: incremental shares from assumed exercise of stock options		—			—			—

Weighted average shares – diluted EPS		2,802,412			2,820,647			2,880,882


	2018			2017			2016
Net loss from continuing operations	$	(830,115	)	$	(713,945	)	$	(1,192,226	)
Net loss from discontinued operations		(2,557,034	)		(5,795,744	)		(111,058	)

Net loss	$	(3,387,149	)	$	(6,509,689	)	$	(1,303,284	)

Change in fair value of dilutive stock options		—			—			—

Adjusted net loss	$	(3,387,149	)	$	(6,509,689	)	$	(1,303,284	)

F-18

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

7.	Shareholders’ Equity (continued)

Basic and diluted loss per common share


	2018			2017			2016
Continuing operations		(0.30	)	$	(0.25	)	$	(0.41	)
Discontinued operations		(0.91	)		(2.05	)		(0.04	)

Net basic earnings (loss) per common share		(1.21	)	$	(2.31	)	$	(0.45	)

8.	Stock-Based Compensation

The weighted average date-of-grant fair value of the options granted during the year ended February 28, 2018 was $nil (2017: $nil) per option. The estimated fair value of the stock options granted was determined using the Black-Scholes option pricing model with the following weighted-average assumptions:


	2018			2017			2016
Risk-free rate		—			—			1.45	%
Dividend yield		Nil	%		Nil	%		Nil	%
Volatility factor of the expected market price of the Company’s common shares		—			—			99	%
Weighted average expected life of the options (months)		—			—			120

On January 26, 2015 the Company entered into a consulting agreement where the Company is committed to issue 25,000 warrants, with an exercise price of US$3.40 and an expiry date of January 26, 2018. The warrants had a grant date fair value of $32,570 (Note 9). As at February 28, 2015, the warrants had been earned, and are included in the outstanding warrants table in Note 7(d). There were no options granted during the year ended February 28, 2018 (2017: nil).

In connection with the vesting of certain employees’, officers’ and directors’ stock options, and warrants for the year ended February 28, 2018, the Company has recorded stock option compensation of $nil (2017—$nil; 2016—$83,880) which was credited to additional paid-in capital and expensed in selling, general and administrative expenses in the year.

9.	Derivative Liability

In accordance with ASC 815-40-15, stock options and warrants 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 Company’s stock due to their exercise price being denominated in a currency other than the Company’s functional currency.

The non-employee options and warrants 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 Company’s Consolidated Statements of Comprehensive 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.

F-19

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

9.	Derivative Liability (continued)

The non-employee share purchase option and warrant liabilities are accounted for at their respective fair values and are summarized as follows:


	2018			2017			2016
Derivative liability, opening balance	$	46,352		$	59,990		$	120,337
Warrants issued during the year		—			—			—
Options issued during the year		—			—			20,970
Change in fair value of options and warrants		(23,328	)		(13,638	)		(81,317	)

Derivative liability, closing balance	$	23,024		$	46,352		$	59,990

An estimate for the fair value of non-employee stock options and warrants is determined through use of the Black-Scholes Model. Assumptions applied by management as at February 28, 2018 were as follows: (1) weighted average risk-free rate of 1.90% (2017 – 0.67%; 2016 – 0.69%); (2) weighted average dividend yield of nil (2017 – nil; 2016 – nil); (3) a weighted average expected volatility of 105.99% (2017 – 91.47%; 2016 – 59.9%); (4) a weighted average expected life of 33 months (2017 – 27 months; 2016 – 38 months); and (5) a weighted average exercise price of $4.11 USD. These options have been included in the stock options data presented in Note 7(c).

As at February 28, 2018 the warrants granted to consultants expired unexercised.

The exercise of non-employee options and warrants will result in a reduction of the derivative liability.

10.

Income Tax

Earnings before income taxes and the provision for income taxes consisted of the following for the years ended February 28, 2018, February 28, 2017, and February 29, 2016:


	2018			2017			2016
(Loss) from continuing operations	$	(830,115	)	$	(713,945	)	$	(1,192,226	)
(Loss) from discontinued operations		(2,557,034	)		(3,315,217	)		(547,712	)
(Loss) before income taxes:
Canada	$	(3,387,149	)	$	(4,029,162	)	$	(1,739,938	)
United States		—			—			—

Total	$	(3,387,149	)	$	(4,029,162	)	$	(1,739,938	)

Provision (recovery) for income taxes:
Current	$	—		$	—		$	—
Deferred, Canada		—			2,480,257			(436,654	)
Deferred, United States		—			—			—

Total	$	—		$	2,480,257		$	(436,654	)

F-20

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

10.

Income Tax (continued)

Income tax computed at statutory tax rates reconciles to the income tax provision, using a 26% (2017 – 26%, 2016 – 26%) statutory tax rate, as follows:


	2018			2017			2016
Tax at statutory rates at CDN rates	$	(880,659	)	$	(1,047,652	)	$	(452,384	)
Foreign loss taxed at US rates		—			—			—
Effect of foreign exchange on loss carry-forwards		—			—			(704,281	)
Non-deductible expenses (revenue)		8,122			(55,681	)		7,352
Deferred tax assets transferred upon disposition of subsidiaries		8,614,637			—			—
Change in estimates and other items, net		(141,625	)		—			—
Change in valuation allowance		(7,600,475	)		3,583,590			712,659

Income tax provision (recovery) for year	$	—		$	2,480,257		$	(436,654	)

As at February 28, 2018, the Company has accumulated net operating losses in the amount of approximately $2.1 million which can be applied against future earnings in Canada and $nil in the United States. The net operating loss carry forward amounts commence to expire in 2036 through 2038.

Significant components of the Company’s deferred tax assets and liabilities are as follows:


	2018			2017
Operating and other losses carried forward	$	552,145		$	6,589,096
Property, plant and equipment		(210	)		1,451,069
Trademark and deferred costs		—			112,245

Total deferred tax assets		551,935			8,152,410
Valuation allowance		(551,935	)		(8,152,410	)

Net deferred tax assets	$	—		$	—

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 2013-2018. 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 28, 2018 and 2017.

F-21

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

11.

Commitments

The Company is committed to an operating lease pertaining to an office space. On September 15, 2017 in connection with the Company’s sale of its former subsidiaries, the Company entered into a series of share purchase and escrow agreements whereby the Company deposited $600,000 in escrow as security for potential financial lease liabilities (as well as excluded liabilities and existing claims) relating to the office lease between Leading Brands of Canada, Inc. and the landlord. The office lease is currently being subleased and has not resulted in additional payments from the Company since the sale of the Company’s subsidiaries. The Company expects that the remaining exposure of the office lease commitment is until April 2019. The minimum amounts due over the remaining terms of that agreement is as follows:


2019	$	123,073
2020		20,512

Total future minimum payments	$	143,585

During the years ended February 28, 2018, February 28, 2017 and February 29, 2016, the Company incurred rental expenses of $101,542, $553,763, and $705,765 respectively.

12.

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.

13.

Related Party Transactions

Related party transactions not disclosed elsewhere are as follows:


		2018		2017		2016
i)	Incurred consulting fees with a company related by a director in common	$	2,813	$	—	$	21,000
ii)	Incurred management service fees with a company related by an officer in common	$	67,500	$	—	$	—
iii)	Incurred professional service fees with a company related by a director in common	$	—	$	—	$	132,000
iv)	Incurred marketing consulting services with a company related by a director in common	$	—	$	3,113	$	5,619
v)	Incurred bottling services from a company related by a director in common	$	160,642	$	305,289	$	218,812
vi)	Incurred consulting fees with a company related by an officer in common	$	—	$	213,311	$	150,000
vii)	Incurred services from a company related by a director in common	$	—	$	1,775	$	1,055
viii)	Purchased supplies from a company related by a director in common	$	—	$	1,728	$	1,273

F-22

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

13.

Related Party Transactions (continued)

On September 15, 2017, the Company entered into an agreement with a company that has certain officers and directors in common with the Company, to dispose of its legacy beverage assets for $325,000 (see Note 16). Further, the executive employment agreement between the Company, Leading Brands of Canada Inc. and Ralph McRae, effective June 1, 2015 was terminated on September 15, 2017. Upon termination of the agreement, and pursuant to the severance payment clause, the $900,000 severance obligation was fully satisfied.

14.

Fair Value of Financial Instruments

The Company’s financial assets and financial liabilities as at February 28, 2018, measured at fair value on a recurring basis are summarized below:


	Quoted Prices in Active Market (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Balance, February 28, 2018
Cash and restricted cash	$	1,369,352	$	—	$	—		$	1,369,352
Derivative liability		—		—		(23,024	)		(23,024	)

	$	1,369,352	$	—	$	(23,024	)	$	1,346,328

The Company’s financial assets and financial liabilities as at February 28, 2017, measured at

fair value on a recurring basis are summarized below:


	Quoted Prices in Active Market (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Balance, February 28, 2017
Cash	$	4,315,028	$	—	$	—		$	4,315,028
Derivative liability		—		—		(46,352	)		(46,352	)

	$	4,315,028	$	—	$	(46,352	)	$	4,268,676

The fair value of cash and cash equivalents and restricted cash 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 9).

15.

Segmented Information

The Company previously operated in one industry segment being the production and distribution of beverages. The Company’s principal operations were comprised of an integrated bottling and distribution system for beverages. Substantially, all of the Company’s operations, assets and employees are located in Canada and net revenue from export sales during all the years reported are less than 10%.

During the year ended February 28, 2018, the Company’s ten largest customers comprised approximately 75% (2017—93%; 2016—96%) of revenue and no one customer comprised more than 26% (2017—74%; 2016—84%) of revenue.

F-23

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

16.

Discontinued Operations

On December 15, 2016 the Company approved the discontinuation of all activities relating to the Company’s co-packing operations. As a result, the co-packing operations have ceased and all assets have been liquidated and all liabilities will be settled. All costs associated with the discontinuation were recorded as of February 28, 2017.

On September 15, 2017 the Company disposed of its legacy beverage assets to a company that has certain officers and directors in common with the Company for $325,000, which amount is net of assumed liabilities for certain employee obligations and other matters, all of which is subject to certain working capital adjustments. All costs associated with the discontinuation were recorded as of February 28, 2018.

In conjunction with the discontinuance of the co-packing operations and legacy beverage sales the Company has presented the assets and liabilities under the captions “assets of discontinued operations” and “liabilities of discontinued operations” respectively in the accompanying balance sheets as at February 28, 2018 and February 28, 2017, and consist of the following:


Assets of discontinued operation:	2018		2017
Accounts Receivable	$	—	$	—
Prepaid expenses and deposits		—		26,195

Total current assets		—		26,195
Property, plant and equipment		—		—
Deferred tax assets		—		—

Total assets	$	—	$	26,195

Liabilities of discontinued operation
Accounts payable and accrued liabilities	$	250,000	$	300,000
Lease inducement		—		—

Total liabilities	$	250,000	$	300,000

Amounts presented for the years ended February 28, 2018, February 28, 2017, and February 29, 2016 have been reclassified to conform to the current presentation. The following table provides the amounts reclassified for the years then ended:


Amounts reclassified	2018			2017			2016
Gross Revenue	$	1,114,877		$	9,625,481		$	11,513,289
Less: Discounts, rebates slotting fees		(291,689	)		(696,659	)		(502,085	)

Net Revenue		823,188			8,928,822			11,011,204
Cost of sales		902,087			6,699,947			7,856,351
Selling, general, and administrative		1,337,951			3,331,967			2,987,235
Depreciation		73,345			633,639			703,708
Foreign exchange (gain) loss		(5,859	)		(3,186	)		9,865
Loss on disposition of legacy beverage operations		1,071,946
Loss on disposal of assets		752			1,581,672			1,757

		3,380,222			12,244,039			11,558,916

Net Income (loss) before taxes		(2,557,034	)		(3,315,217	)		(547,712	)
Income tax provision (recovery)		—			2,480,527			(436,654	)

Total amount reclassified as discontinued operations	$	(2,557,034	)	$	(5,795,744	)	$	(111,058	)

F-24

Leading Brands, Inc.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

17.

Subsequent Events

On March 23, 2018, the Nasdaq Listing Qualifications Staff (“ Nasdaq Staff ”) granted the Company an extension of time until July 23, 2018 to regain compliance with Listing Rule 5550(b) (the “ Listing Rule ”). The Company had previously received notice from Nasdaq Staff on January 23, 2018 of non-compliance with the Listing Rule and submitted a plan of compliance. The plan was based on the expectation that the combined company will meet all applicable requirements for initial listing on The Nasdaq Capital Market. It is expected that the combined entity will be required to meet all applicable requirements for initial listing on The Nasdaq Capital Market. Notwithstanding the foregoing, there can be no assurances that the Company will be able to complete the Transaction or that the combined entity will meet all applicable requirements for initial listing on The Nasdaq Capital Market.

F-25

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.

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.

4.1		Further 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 7, 2015.

4.2*		Share Purchase Agreement dated September 15, 2017 between the Company and 1133438 B.C. Ltd. relating to the disposition of the Company’s subsidiaries

4.3*		Amended and Restated Arrangement Agreement dated January 14, 2018 between the Company and Liquid Media Group Ltd.

8.1*		Subsidiaries of the Registrant

12.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 .

12.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

13.1*		Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

15.1*		Consent of Independent Registered Public Accounting Firm

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

* Filed herewith.

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 29, 2018

Exhibit 4.2

LEADING BRANDS, INC.

- and -

1133438 B.C. LTD.

SHARE PURCHASE AGREEMENT

September 15, 2017

TABLE OF CONTENTS


ARTICLE 1 INTERPRETATION		1
1.1	Defined Terms	1
1.2	Interpretation	7
1.3	Entire Agreement	8
1.4	Severability	8
1.5	Amendments, Waivers, Investigations	8
1.6	Knowledge	9
1.7	Governing Law	9
1.8	Choice of Forum	9

ARTICLE 2 PURCHASE AND SALE OF PURCHASED SECURITIES		9
2.1	Purchase and Sale of Purchased Securities	9
2.2	Purchase Price	9
2.3	Payment of Purchase Price	10
2.4	Preliminary Closing Statement	10
2.5	Final Closing Statement	10
2.6	Accounts Receivable	11
2.7	Lease Profit	11

ARTICLE 3 REPRESENTATIONS AND WARRANTIES		11
3.1	Representations and Warranties of the Vendor	11
3.2	Representations and Warranties of the Purchaser	20
3.3	Survival of Representations and Warranties	21

ARTICLE 4 COVENANTS		22
4.1	Vendor’s Covenants	22
4.2	Notice of Untrue Representation or Warranty	23

ARTICLE 5 CLOSING		24
5.1	Cash Payment at Closing	24
5.2	Place of Closing	24
5.3	Conditions for the Benefit of the Purchaser	24
5.4	Conditions for the Benefit of the Vendor	26

ARTICLE 6 EMPLOYEE MATTERS		27
6.1	Notice of Termination	27
6.2	Purchaser or Affiliate Offer of Employment	27
6.3	Purchaser Indemnification for Employees	27
6.4	Vendor Indemnification for Employees	28
6.5	No Third Party Rights	28

ARTICLE 7 POST-CLOSING COVENANTS		28
7.1	Vendor Confidentiality	28
7.2	Purchaser Confidentiality	29
7.3	Change of Name	30
7.4	Further Assurances	30



ARTICLE 8 INDEMNIFICATION		30
8.1	Indemnification by the Vendor	30
8.2	Indemnification by the Purchaser	31
8.3	Notice of Claim	32
8.4	Procedure for Indemnification by the Vendor	32
8.5	Procedure for Indemnification by the Purchaser	33
8.6	Additional Rules and Procedures	33
8.7	Settlement of Existing Claims and Additional Excluded Liabilities	34
8.8	No Release for Fraud	35

ARTICLE 9 MISCELLANEOUS		35
9.1	Notices	35
9.2	Time of Essence	36
9.3	Public Announcements	36
9.4	Expenses	36
9.5	Counterparts	36
9.6	Enurement	36
9.7	Brokers	36
9.8	Non-Merger	37
9.9	Assignment, etc.	37
9.10	Remedies	37

SHARE PURCHASE AGREEMENT

THIS AGREEMENT dated as of the day of , 2017.

BETWEEN:

LEADING BRANDS, INC. , a corporation existing under the laws of the Province of British Columbia

(the “ Vendor ”)

- and -

1133438 B.C. LTD. , a corporation existing under the laws of the Province of British Columbia

(the “ Purchaser ”)

A.The Vendor is the legal and beneficial owner of all of the Purchased Securities in the capital of the Corporations; and

B.The Parties have agreed to enter into this Agreement for the purchase and sale of the Purchased Securities on the terms and conditions contained herein.

NOW THEREFORE THIS AGREEMENT WITNESSES that for good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by each of the Parties) the Parties covenant and agree as follows:

ARTICLE 1

INTERPRETATION

1.1

Defined Terms

Wherever used in this Agreement, including in the Disclosure Letter, the following terms shall have the following meanings and grammatical variations of such terms shall have the corresponding meanings:

1.1.1

“ Accounting Firm ” has the meaning set out in Section 2.5.3;

1.1.2

“ Act ” means the Business Corporations Act (British Columbia);

1.1.3

“ Affiliate ” has the meaning set out in the Act;

1.1.4

“ Agreement ” means this agreement and all annexes attached to this agreement, in each case as they may be amended or supplemented from time to time, and the expressions “ hereof ”, “ herein ”, “ hereto ”, “ hereunder ”, “ hereby ” and similar expressions refer to this agreement and unless otherwise indicated, references to Articles and Sections are to articles and sections in this agreement;

1.1.5

“ Annual Financial Statements ” means the audited annual financial statements of LBCI, including the notes thereto, as at and for the fiscal year ended February 28, 2017.

1.1.6

“ arm’s length ” has the meaning set out in the Tax Act ;

1.1.7

“ Brands ” means LBI Brands, Inc., a corporation incorporated pursuant to the laws of British Columbia;

1.1.8

“ Brands USA ” means Leading Brands USA, Inc., a corporation incorporated pursuant to the laws of the State of Washington;

1.1.9

“ Business ” means the business carried on by the Corporations which consists of beverage bottling, distribution, sales, merchandising, brand development and brand management of beverage products and related products and services;

1.1.10

“ Business Day ” means any day, other than Saturday, Sunday or a statutory holiday in Vancouver, British Columbia;

1.1.11

“ Claim ” means a claim for indemnification by the Purchaser or the Vendor pursuant to Section 8.1 or 8.2, respectively;

1.1.12

“ Client ” means any Person for whom LBCI has provided services relating to the Business since January 1, 2013, involving annual payments, commissions and fees payable to LBCI of at least $50,000;

1.1.13

“ Closing ” means the completion of the Contemplated Transactions pursuant to this Agreement at the Closing Time;

1.1.14

“ Closing Date ” means such date as may be agreed upon in writing by the Parties;

1.1.15

“ Closing Cash Payment ” has the meaning set out in Section 2.3;

1.1.16

“ Closing Time ” means 11:00 a.m. (Vancouver time) on the Closing Date, or such other time as may be agreed upon in writing by the Parties;

1.1.17

“ Confidential Information ” means all confidential and proprietary information relating to the Corporations and the Business, in the possession or control of the relevant Person, regardless of the form of such information;

1.1.18

“ Contemplated Transactions ” means the purchase and sale of the Purchased Securities contemplated by this Agreement;

1.1.19

“ Contract ” means any oral or written agreement, contract, license, undertaking, engagement or commitment of any nature;

1.1.20

“ Corporations ” means LBCI, Brands, Kert, Neurogenesis Canada, Neurogenesis US, Quick, Brands USA and LBAI and “ Corporation ” means any one of them;

1.1.21

“ Current Assets ” means the cash and deposits (and for greater certainty excluding accounts receivable, inventory and prepaid expenses) of the Corporations as at the Closing Date all as determined under U.S. GAAP;

1.1.22

“ Current Liabilities ” means trade accounts payable, wages payable, accrued liabilities and taxes payable of the Corporations (excluding any severance liability) as at the Closing Date all as determined under U.S. GAAP;

1.1.23

“ Direct Claim ” means a Claim which originates pursuant to this Agreement and does not involve a Third Party Claim;

1.1.24

“ Disclosure Letter ” means the letter dated as of the date of this Agreement from the Vendor to the Purchaser in connection with this Agreement, and acknowledged by the Purchaser;

1.1.25

“ Employee Plans ” means all material plans, arrangements, agreements, programs, policies, practices or undertakings, formal or informal, funded or not, with respect to Employees or former Employees of LBCI which are maintained, contributed to or required to be contributed to by LBCI and which provide for:

(a)

bonus, profit sharing or deferred profit sharing, retention bonus, change of control, performance compensation, deferred or incentive compensation, share compensation, share purchase or share option purchase, share appreciation rights, phantom stock, vacation or vacation pay, sick pay, employee loans, or any other compensation in addition to salary;

(b)

pensions, retirement or retirement savings, including registered or unregistered pension plans, supplemental pension plans, registered retirement savings plans and retirement compensation arrangements; or

(c)

insured or self-insured benefits for or relating to income continuation or other benefits during absence from work (including sick leave, short or long term disability and maternity or parental leave supplements), hospitalization, health, welfare, legal costs or expenses, medical or dental or similar expenses, life or dependent life insurance, accident, death or survivor benefits, supplementary unemployment benefit, day care, tuition or professional reimbursements or expenses or any other similar benefits other than the Canada Pension Plan, the Employment Insurance Act , any health insurance plans established or administered by a Governmental Authority in any jurisdiction where the Employees work and any workers’ compensation insurance provided pursuant to legislation, and excluding any Multi-Employer Plan;

1.1.26

“ Employees ” means all of the persons employed by LBCI, whether salaried, hourly or otherwise;

1.1.27

“ Encumbrance ” means any security interest, lien, charge, pledge, encumbrance, mortgage, hypothec, adverse claim or title retention agreement of any nature or kind whatsoever;

1.1.28

“ Environmental Laws ” means all Laws relating to pollution and protection of the environment, health and safety and the manufacture, processing, distribution, use, treatment, storage, discharge and handling of Hazardous Substances in other jurisdictions applicable to the Business, as amended from time to time;

1.1.29

“ Environmental Permits ” means the material licences, permits, approvals, consents, operating authorities, certificates, registrations or authorizations issued by any Governmental Authority under Environmental Laws to LBCI in connection with the Business;

1.1.30

“ Escrow Agreement ” has the meaning set out in Section 8.7;

1.1.31

“ Escrow Amount ” has the meaning set out in Section 8.7;

1.1.32

“ Escrow Period ” has the meaning set out in Section 8.7;

1.1.33

“ Excluded Liabilities ” means the excluded liabilities described as such in the Disclosure Letter;

1.1.34

“Existing Claims ” means the existing claims described as such in the Disclosure Letter;

1.1.35

“ Final Statement ” has the meaning set out in Section 2.5.1;

1.1.36

“ Financial Lease Liabilities ” means any financial liabilities of LBCI under the Lease and any liabilities for data service, electrical and other utilities incurred in connection with the Leased Premises;

1.1.37

“ Governmental Authority ” means any: (a) federal, provincial, state, regional, municipal, local or other government, domestic or foreign; (b) governmental or quasi-governmental authority of any nature (including any agency, branch, department, commission, board, court or tribunal); (c) body exercising any administrative, executive, judicial, legislative, police, regulatory, expropriation or taxing authority, domestic or foreign; or (d) self-regulatory organization or stock exchange having jurisdiction in the relevant circumstances;

1.1.38

“ Happy Water Finished Goods ” means all good saleable, undamaged, non-obsolete and non-stale dated inventories of finished goods relating to the Happy Water business of LBCI as set forth in the Preliminary Statement and Final Statement, as applicable;

1.1.39

“ Happy Water Raw Material ” means all good and undamaged, non-obsolete and non-stale dated inventories of work-in-process and raw materials relating to the Happy Water business of LBCI as set forth in the Preliminary Statement and Final Statement, as applicable;

1.1.40

“ Hazardous Substance ” means any substance which is regulated under Environmental Laws , including any hazardous product, contaminant, toxic substance, deleterious substance, waste, hazardous waste, dangerous goods or reportable substance;

1.1.41

“ Intellectual Property ” means all intellectual property used in connection with the Business including: (a) all trade-marks, trade dress, logos, trade names, business names, corporate names and domain names; all translations, adaptations, derivations and combinations thereof; (b) all copyright; and (c) all computer software and source code and related source code documentation.

1.1.42

“ Kert ” means Kert Technologies, Inc., a corporation incorporated pursuant to the laws of Canada;

1.1.43

“ Laws ” means, in respect of any Person, property, transaction, event or course of conduct, all applicable laws, statutes, regulations, rules, by-laws, ordinances, protocols, regulatory policies, codes, guidelines, official directives, orders, rulings, judgments and decrees of any Governmental Authority, having the force of law;

1.1.44

“ LBAI ” means Leading Brands of America, Inc., a corporation incorporated pursuant to the laws of the State of Delaware;

1.1.45

“ LBCI ” means Leading Brands of Canada, Inc., a corporation incorporated pursuant to the laws of the Province of Alberta;

1.1.46

“ Lease ” means the lease agreement dated December 13, 2012 between Richmond Holdings Ltd. as landlord and LBCI as tenant in respect of the Leased Premises;

1.1.47

“ Lease Profit ” means (i) any amounts received by LBCI, as sublandlord, from any subtenant in respect of the Lease which exceeds the gross rent and other amounts payable by LBCI, as tenant, to the landlord under the Lease; and (ii) any net cash compensation received by LBCI from the landlord in respect of the early termination of the Lease;

1.1.48

“ Leased Premises ” means the premises located at Unit 101 – 33 West 8 ^th Avenue, Vancouver, British Columbia;

1.1.49

“ Loss ” means any loss, injury, liability, damage, cost, expense (including reasonable legal expenses) or deficiency of any kind or nature, whether direct, indirect or consequential, but excluding punitive damages and indirect loss of profit, suffered or incurred by an indemnified party, if any, hereunder, in connection with any Claim made by it hereunder, including in respect of any proceeding, assessment, judgment, settlement or compromise relating thereto;

1.1.50

“ Material Adverse Change ” or “ Material Adverse Effect ” means any change, effect, event, occurrence, circumstance or state of facts that, individually or in the aggregate, is, or could reasonably be expected to be, material and adverse to the Business, management, operations or financial condition, property, assets or liabilities (contingent or otherwise) or prospects of LBCI or that would prevent or impede the completion of the Contemplated Transactions, other than any change, effect, event, occurrence, circumstance or state of facts relating to:

(a)

LBCI’s decision to exit from the co-packing business and the sale of its Edmonton bottling plant land and building;

(b)

any change in general economic conditions in Canada or any other country or region in the world, or any change in conditions in the global economy generally, provided that any such change does not affect the Business disproportionately;

(c)

any change in conditions in the industries in which LBCI conducts business, provided that any such change does not affect the Business disproportionately to other comparable participants in such industries;

(d)

any change in political conditions in Canada or any other country or region in the world, provided that any such change does not affect the Business disproportionately;

(e)

any act of war, sabotage or terrorism (including any escalation or general worsening of any such act of war, sabotage or terrorism), or natural disaster, in Canada or any other country or region in the world, provided that any such act does not affect the Business disproportionately;

(f)

the entry into or announcement of this Agreement or the pendency or consummation of the Contemplated Transactions;

(g)

any change in Law or the interpretation thereof, provided that any such change does not affect the Business disproportionately; and

(h)

any change in U.S. GAAP or other accounting standards (or the interpretation thereof).

1.1.51

“ Material Contracts ” means those subsisting commitments, contracts, instruments, leases and other agreements, oral or written, entered into by any Corporation, by which it is bound or to which it or its assets are subject which have total payment obligations on the part of a Corporation which exceed $25,000 or are for a term in excess of one year;

1.1.52

“ Minimum Cash Balance ” means the amount of $900,000;

1.1.53

“ Multi-Employer Plan ” means any pension or other employee benefit plan required to be contributed to by LBCI;

1.1.54

“ Neurogenesis Canada ” means Neurogenesis Inc., a corporation incorporated pursuant to the laws of Canada;

1.1.55

“ Neurogenesis US ” means Neurogenesis Inc., a corporation incorporated pursuant to the laws of the State of Nevada;

1.1.56

“ Parties ” means the Vendor and the Purchaser, and “ Party ” means any one of them;

1.1.57

“ Permitted Encumbrances ” means any of the following: (a) liens for Taxes not yet due; (b) other assessments and governmental charges not yet due; (c) liens that can be (but have not yet been) filed by builders, mechanics, repairers or similar Persons in respect of services performed or goods provided in the ordinary course of business, consistent with past practice, provided that such liens are related to obligations not due or delinquent, are not registered against title to any assets and in respect of which adequate holdbacks are being maintained as required by applicable Laws; and (d) easements, covenants, rights of way and other restrictions that are registered as of the date of this Agreement;

1.1.58

“ Person ” means any individual, sole proprietorship, partnership, limited partnership, joint venture, syndicate, body corporate with or without share capital, unincorporated association, trust or Governmental Authority and, where the context requires, any of the foregoing when acting as trustee, executor, administrator or other legal representative;

1.1.59

“ Preliminary Statement ” has the meaning set out in Section 2.4;

1.1.60

“ Prepaid Expenses ” means all prepaid expenses of LBCI relating to the Business as set forth in the Preliminary Statement and Final Statement, as applicable;

1.1.61

“ Purchase Price ” has the meaning set out in Section 2.2;

1.1.62

“ Quick ” means Quick, Inc., a corporation incorporated pursuant to the laws of the State of Florida;

1.1.63

“ Purchased Securities ” means all of the securities in the capital of each of the Corporations owned by the Vendor as described in the Disclosure Letter;

1.1.64

“ Purchaser’s Counsel ” means Farris, Vaughan, Wills & Murphy LLP;

1.1.65

“Release ” means any release, spill, leak, emission, discharge, leach, dumping, escape or other disposal which is or has been made in contravention of any Environmental Laws;

1.1.66

“ Representatives ” means, in respect of any Person, its Affiliates, directors, officers, employees, agents, consultants, advisors or other representatives, including legal counsel, accountants and financial advisors;

1.1.67

“ Tax Act ” means the Income Tax Act (Canada);

1.1.68

“ Taxes ” means all taxes, duties, fees, imposts, levies or premiums of any kind lawfully levied, assessed or imposed by any Governmental Authority including capital taxes, excise taxes, income taxes, withholding taxes, sales taxes, goods and services taxes, employer health taxes, Canada Pension Plan premiums, employment insurance premiums, payroll taxes and property taxes, together with all interest and penalties in respect thereof;

1.1.69

“ Third Party ” has the meaning set out in Section 8.4.2(c);

1.1.70

“ Third Party Claim ” means a Claim by the Purchaser which originates by reason of a Person (other than the Purchaser) making a claim against a Corporation;

1.1.71

“ U.S. GAAP ” means generally accepted accounting principles in the United States of America as recommended by the US Financial Accounting Standards Board (FASB) at the relevant time;

1.1.72

“ Vendor’s Consents and Approvals ” has the meaning set out in Section 3.1.10;

1.1.73

“ Working Capital ” means the amount by which Current Assets exceeds Current Liabilities; and

1.1.74

“ Working Capital Shortfall ” means the amount, if any, by which Working Capital is less than the Minimum Cash Balance.

1.2

Interpretation

In this Agreement:

1.2.1

Headings and Table of Contents . The inclusion of headings and a table of contents is for convenience of reference only and shall not affect the construction or interpretation hereof.

1.2.2

Gender and Number . Except where the context requires otherwise, words in this Agreement importing the singular include the plural and vice versa and words importing gender include all genders.

1.2.3

Including . Where the word “including” or “includes” is used in this Agreement, it means including or includes “without limitation”.

1.2.4

No Strict Construction . The language used in this Agreement is the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any party proposing any such language.

1.2.5

Statutory References . A reference in this Agreement to a statute includes all rules and regulations made pursuant to such statute and, unless expressly provided otherwise, the provisions of any statute, rule or regulation which amends, supplements or supersedes any such statute, rule or regulation.

1.2.6

Currency . Except where expressly provided otherwise herein, all amounts are stated and shall be paid in Canadian dollars.

1.2.7

Time Periods . Except where expressly provided otherwise herein, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends and by extending the period to the following Business Day if the last day of the period is not a Business Day.

1.2.8

Accounting Principles . Except to the extent expressly provided otherwise herein, all accounting terms used herein shall have the respective meanings attributed thereto under U.S. GAAP and all determinations of an accounting nature in respect of LBCI required to be made herein shall be made in a manner consistent with U.S. GAAP.

1.3

Entire Agreement

This Agreement, together with the documents delivered hereunder, constitutes the entire agreement between the Parties pertaining to the Contemplated Transactions. There are no representations, warranties, covenants, agreements, conditions, indemnities or other provisions, whether oral or written, express or implied, collateral, statutory or otherwise, relating to the Contemplated Transactions, except as expressly contained in this Agreement, together with the documents delivered hereunder.

1.4

Severability

Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof. To the extent permitted by applicable Laws, the Parties waive any provision of applicable Laws which renders any provision of this Agreement invalid or unenforceable in any respect. The Parties shall engage in good faith negotiations to replace any provision which is declared invalid or unenforceable with a valid and enforceable provision, the economic effect of which comes as near as possible to that of the invalid or unenforceable provision which it replaces.

1.5

Amendments, Waivers, Investigations

Except as expressly provided otherwise herein, no amendment or waiver of this Agreement shall be binding unless executed in writing by the Party to be bound thereby. No waiver of any provision of this Agreement shall constitute a waiver of any other provision nor shall any waiver of any provision of this Agreement constitute a continuing waiver unless expressly provided otherwise herein or therein. No investigation or waiver made by or on behalf of any Party shall have the effect of waiving, diminishing the scope of or otherwise affecting any representation or warranty made by any other Party pursuant to this Agreement.

1.6

Knowledge

Where any representation or warranty of this Agreement is expressly qualified to the knowledge of the Vendor, it shall mean to the actual knowledge of Ralph McRae (without any personal liability therefor) at the time such representation or warranty is being made after having made due inquiry with respect to the subject matter of such representation or warranty.

1.7

Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein.

1.8

Choice of Forum

Any suit, action or proceeding arising out of or relating to this Agreement shall be brought in any court in the City of Vancouver having jurisdiction over the subject matter thereof and the Parties irrevocably and unconditionally attorn and submit to the jurisdiction of such court. The Parties irrevocably waive and agree not to raise any objection that they either might now or hereafter have to the bringing of any such suit, action or proceeding in any such court, including any objection on the basis that the place where such court is located is an inconvenient forum or that there is another suit, action or proceeding in another place relating in whole or in part to the same subject matter. Each Party agrees that any final judgment or order against it in any such suit, action or proceeding brought in such a court shall be conclusive and binding upon it and consents to any such judgment or order being recognized and enforced in the courts of its jurisdiction of incorporation or any other jurisdiction where it carries on business or has assets.

ARTICLE 2

PURCHASE AND SALE OF PURCHASED SECURITIES

2.1

Purchase and Sale of Purchased Securities

Subject to the provisions of this Agreement, the Vendor hereby agrees to sell, assign and transfer to the Purchaser, and the Purchaser agrees to purchase from the Vendor, the Purchased Securities, free and clear of all Encumbrances, on the Closing Date.

2.2

Purchase Price

The purchase price payable to the Vendor for the Purchased Securities (the “ Purchase Price ”) shall be equal to $325,000 (the “ Closing Cash Payment ”) subject to the following adjustments:

2.2.1

The Purchase Price shall be increased by 30% of the amount of the Happy Water Raw Materials on the Closing Date.

2.2.2

The Purchase Price shall be increased by 50% of the amount of the Happy Water Finished Goods on the Closing Date.

2.2.3

The Purchase Price shall be increased by 100% of the amount of the Prepaid Expenses on the Closing Date.

2.2.4

The Purchase Price shall be decreased by the amount of any Working Capital Shortfall.

2.2.5

The Purchase Price shall be adjusted in accordance with Section 2.5.

2.2.6

The Purchase Price shall be increased by any amounts paid under Sections 2.6 and 2.7.

2.2.7

The Purchase Price shall be decreased by the amount of the Excluded Liabilities.

2.3

Payment of Purchase Price

The Purchaser shall pay to the Vendor the Closing Cash Payment less the Escrow Amount, as adjusted by Section 2.4, on the Closing Date by way of cheque, wire, bank draft or solicitor’s trust cheque. The Purchaser shall pay to the escrow agent under the Escrow Agreement the Escrow Amount on the Closing Date by way of cheque, wire, bank draft or solicitor’s trust cheque.

2.4

Preliminary Closing Statement

At least two business days prior to the Closing Date, the Vendor will deliver to the Purchaser a statement (the “ Preliminary Statement ”), certified as being accurate and complete by the Vendor, setting out the amount of the Happy Water Raw Materials, the Happy Water Finished Goods, the Prepaid Expenses, the Working Capital, the Excluded Liabilities, and the cash on hand as at the most recent available date. The Closing Cash Payment will be increased by 30% of the amount of the Happy Water Raw Materials, by 50% of the amount of the Happy Water Finished Goods, by 100% of the amount of the Prepaid Expenses and reduced by the amount of any Working Capital Shortfall.

2.5

Final Closing Statement

2.5.1

For purposes of finally determining the Purchase Price, the amounts of the Happy Water Raw Materials, the Happy Water Finished Goods, the Prepaid Expenses, the Working Capital and the Excluded Liabilities on the Closing Date shall be determined by an actual inventory count and internal audit completed on or about the Closing Date under the supervision of the Purchaser and attended by representatives of the Vendor at its sole discretion. Upon completion of such audit, the Purchaser will deliver to the Vendor a statement (the “ Final Statement ”) setting out the final calculation of Purchase Price as at the Closing Date. The Final Statement will also set out the calculation for the corresponding adjustment to the Purchase Price. The Parties acknowledge that all Excluded Liabilities may not be known for a period of time after the Closing Date. Accordingly, any additional Excluded Liabilities that are not accounted for under Section 2.2.7 and are not included in the Final Statement (the “ Additional Excluded Liabilities “) shall be accounted for under Article 8.

2.5.2

If the Vendor does not in good faith dispute the contents of the Final Statement within 5 business days of receiving the Final Statement from the Purchaser, the contents thereof will be binding on the Purchaser and the Vendor.

2.5.3

If the Vendor disputes the contents of the Final Statement within such 5 business day period, the items in dispute will, in the absence of a negotiated agreement between the Vendor and the Purchaser, be referred to a mutually agreed upon nationally recognized firm of chartered accountants (the “ Accounting Firm ”) for determination. The Vendor will deliver its notice of such dispute in writing to the Purchaser within such 5 day period and such notice will detail the items on the Final Statement which the Vendor dispute.

2.5.4

The Accounting Firm will be permitted to review the Final Statement together with all working papers, books of account and other documents relating to the Corporations relevant to the preparation of the Final Statement including any written submission made

by the Vendor and/or the Purchaser within five business days of the referral to the Accounting Firm, and will determine the item or items in dispute within 15 days following the referral thereof to the Accounting Firm. For greater certainty, the Accounting Firm will determine whether the treatment of any items in dispute in the Final Statement is consistent with the treatment of such items in the Annual Financial Statements.

2.5.5

Upon completion by the Accounting Firm of their review, the Accounting Firm will deliver to the Vendor and to the Purchaser their report setting out their determination of the items in dispute. The determination of the Accounting Firm will be final and binding on the Purchaser and the Vendor.

2.5.6

The costs of the Accounting Firm will be allocated between the Vendor and the Purchaser as determined by the Accounting Firm proportionately and based on the relative success of the parties in such dispute as determined by the Accounting Firm.

2.5.7

Upon the Purchase Price being finally determined in accordance with the provisions of this Section 2.5, the Purchase Price will be adjusted accordingly.

2.6

Accounts Receivable

The Purchaser covenants to pay to the Vendor 75% of all cash collected after the Closing Date from accounts receivable of the Corporations existing prior to the Closing Date, any such amounts to be transferred and remitted to the Vendor promptly after receipt by the Purchaser, but provided that any such amounts shall be reduced by the amount of any payments made by the Purchaser to pay outstanding accounts payable of the Corporations existing prior to the Closing Date.

2.7

Lease Profit

During the Escrow Period, the Purchaser covenants to pay to the escrow agent appointed under Section 8.7, promptly after receipt by LBCI, the amount of any Lease Profit received by LBCI, which amounts shall increase the Escrow Amount. Following the Escrow Period, the Purchaser covenants to pay to the Vendor, promptly after receipt by LBCI, the amount of any Lease Profit received by LBCI.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

3.1

Representations and Warranties of the Vendor

The Vendor hereby represents and warrants as follows to and in favour of the Purchaser and acknowledges that the Purchaser is relying on such representations and warranties in connection with its purchase of the Purchased Securities:

3.1.1

Incorporation of Vendor . The Vendor is incorporated and validly existing under the laws of the Province of British Columbia.

3.1.2

Incorporation of Corporations . Each Corporation is a corporation duly formed and validly existing under the laws of its jurisdiction of incorporation, and to the Vendor’s knowledge, is duly registered, licensed or qualified to carry on business and is in good standing in each other jurisdiction in which the character of its properties and assets owned or leased or the nature of its business makes such registration, licensing or qualification necessary. Each Corporation has the power and capacity to carry on its Business and own and lease its property and assets.

3.1.3

Capacity of the Vendor . The Vendor has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement. The Vendor has the corporate power and capacity to enter into and perform its obligations under this Agreement. This Agreement has been duly executed and delivered by the Vendor.

3.1.4

Enforceability against the Vendor . This Agreement is a legal, valid and binding obligation of the Vendor, enforceable against it in accordance with its terms, subject to the usual exceptions as to creditors’ rights and the availability of equitable remedies.

3.1.5

Ownership of Purchased Securities . The Vendor is the legal and beneficial owner of the Purchased Securities as more particularly described in the Disclosure Letter. The Vendor has good and marketable title to the Purchased Securities, free and clear of all Encumbrances. Except as disclosed in the Disclosure Letter, there are no agreements or restrictions which in any way limit or restrict the transfer to the Purchaser of the Purchased Securities.

3.1.6

Capitalization of Corporations . The authorized share capital of each Corporation and the outstanding shares in the capital of each Corporation are as set out in the Disclosure Letter. All Purchased Securities have been validly issued and are outstanding as fully paid and non-assessable shares. There are no options, warrants, purchase rights, subscription rights, conversion privileges, exchange rights or pre-emptive rights or other rights, agreements, arrangements or commitments of a similar nature to which a Corporation is bound relating to the outstanding or unissued share capital of a Corporation or obligating a Corporation to issue any shares of, or other equity interest in, a Corporation or securities or obligations of any kind convertible into or exchangeable for any shares of a Corporation, nor are there outstanding any stock appreciation rights, phantom equity or similar rights, agreements, arrangements or commitments based upon the book value, income or any other attribute of a Corporation. There are no outstanding bonds, debentures or other evidences of indebtedness of any subsidiary having the right to vote (or that are convertible for, exercisable into or exchangeable for securities having the right to vote) on any matter on which the holders of shares may vote. There are no outstanding contractual obligations of a Corporation to repurchase, redeem (except in accordance with special rights and restrictions) or otherwise acquire any outstanding shares of a Corporation or any agreements or other arrangements regarding the voting or disposition of any outstanding shares of a Corporation. Each Corporation is a “private issuer” as defined in section 2.4 of National Instrument 45-106.

3.1.7

Subsidiaries . Each Corporation has no subsidiaries and holds no other ownership, equity or proprietary interests in any other Person except that Quick owns all of the shares of Quick Home Delivery (Canada), Inc.

3.1.8

No Other Agreement to Purchase . No Person other than the Purchaser has any written or oral agreement, option or right to acquire any of the Purchased Securities or any shares or equity interests of a Corporation.

3.1.9

No Contravention . The execution, delivery and performance of this Agreement by the Vendor and (subject to receipt of any required Vendor’s Consents and Approvals) completion of the Contemplated Transactions do not and will not:

(a)

result in the breach or violation of any of the provisions of, or constitute a default under, conflict with, or cause any incremental obligation or the acceleration of any obligation (whether at the option of a counterparty or otherwise) of the Vendor or a Corporation or provide any right to terminate to a counterparty under:

(i)

the articles or by-laws of a Corporation, or any resolutions of the board of directors (or any committee thereof) or shareholders of a Corporation;

(ii)

any Material Contract; or

(iii)

any applicable Law in any material respect.

(b)

result in the creation or imposition of any Encumbrance on any of the Purchased Securities, or any of the property, securities or assets of a Corporation.

3.1.10

Consents and Approvals . Except as disclosed in the Disclosure Letter (“ Vendor ’ s Consents and Approvals ”), no authorization, consent or approval of, or filing with or notice to, any Governmental Authority or other Person is required by the Vendor or a Corporation in connection with its execution, delivery or performance of this Agreement or the completion of the Contemplated Transactions.

3.1.11

Compliance with Laws . To the Vendor’s knowledge, each Corporation has conducted the Business in compliance with all applicable Laws, except where such non-compliance would not have a Material Adverse Effect.

3.1.12

Financial Statements . The Annual Financial Statements have been prepared in accordance with U.S. GAAP applied on a consistent basis and fairly present in all material respects the non-consolidated assets, liabilities and financial position of LBCI and the results of its operations as of the dates and throughout the periods indicated.

3.1.13

Accounts Receivable . The accounts receivable reflected on the balance sheets forming part of the Annual Financial Statements and all accounts receivable arising after February 28, 2017 (a) arose from transactions in the ordinary course of business and are valid and enforceable; and (b) other than those accounts receivable which are doubtful accounts and in respect of which a reasonable allowance has been made, consistent with past practice, are collectible to the knowledge of the Vendor.

3.1.14

Inventory . To the Vendor’s knowledge, any quantities of the Happy Water Raw Materials as set forth in the Preliminary Statement and the Final Statement are materially accurate. To the Vendor’s knowledge, any quantities of the Happy Water Finished Goods as set forth in the Preliminary Statement and the Final Statement are materially accurate.

3.1.15

Liabilities . Each Corporation does not have any outstanding liabilities (whether absolute, contingent, accrued or otherwise and including any guarantees, indemnities or indirect obligations with respect to the debts, liabilities or obligations of any other Person), except:

(a)

as reflected or reserved for in the balance sheets included in the Annual Financial Statements (or as disclosed in the notes to such financial statements);

(b)

as reflected in the Final Statement; or

(c)

as disclosed in this Agreement or the Disclosure Letter.

3.1.16

No Changes . Since February 28, 2017, the Business has been carried on in the ordinary course of business, consistent with past practice, and there has not been:

(a)

any Material Adverse Change;

(b)

any material damage, destruction or loss (whether or not covered by insurance) affecting any material assets of a Corporation;

(c)

any payment, satisfaction or incurrence of any liability or obligation other than: (a) current liabilities and obligations disclosed in the Annual Financial Statements; and (b) current liabilities and obligations incurred since February 28, 2017 in the ordinary course of business, consistent with past practice;

(d)

any licence, sale, lease, assignment, transfer, disposition, pledge, mortgage of or granting of a security interest or other Encumbrance on or over any of the material assets of a Corporation other than the sublease in favour of Arius Technology Inc.;

(e)

any general increase in the compensation of Employees or any bonus paid to any Employee (other than increases, bonuses and retention payments in the normal course or in accordance with existing agreements), or the making of any loan to, or engagement in any transaction with, any Employee, independent or dependent contractor, or any officer or director of a Corporation;

(f)

any change in the accounting or tax practices followed by a Corporation;

(g)

any payment or declaration of any dividend or other distribution by a Corporation; or

(h)

any Material Contract to which a Corporation is or was a party terminated, cancelled, amended, modified, altered or varied other than the sublease in favour of Arius Technology Inc.

3.1.17

Tax Matters

(a)

Each Corporation has duly filed on a timely basis all Tax returns, elections and other tax filings required to be filed by it and has paid all Taxes that are due and payable, and all assessments, reassessments, governmental charges, penalties, interest and fines due and payable by it, whether accrued, contingent or otherwise. All such Tax returns, elections and other Tax filings are correct and complete. Except for the acquisition of control tax return to be filed by each Corporation after the Closing Date with respect to the completion of the Contemplated Transactions, all Tax returns, elections and other tax filings filed or to be filed on or before the Closing Date by each Corporation in respect of a filing period ending on or before the Closing Date have been prepared and filed in accordance with the provisions of applicable Laws.

(b)

There are no actions, suits or proceedings, at law or in equity, and no administrative proceedings by or before any Governmental Authority, which have arisen or, to the Vendor’s knowledge, are pending or , threatened against any Corporation in respect of Taxes, governmental charges or assessments, nor are any matters under discussion with any Governmental Authority with respect to Taxes, governmental charges or assessments asserted by any such Governmental Authority.

(c)

Each Corporation has withheld from each payment made to its Employees or former employees, and to any non-residents of Canada, the amount of all Taxes and other deductions required to be withheld therefrom, and has paid the same to the proper Governmental Authority within the time required under applicable Laws.

(d)

Except as disclosed in the Disclosure Letter, no Corporation has:

(i)

made any election under s. 85 of the Tax Act with respect to the acquisition or disposition of any assets;

(ii)

made any election under s. 83 of the Tax Act with respect to the payment out of the capital dividend account of such Corporation;

(iii)

acquired or had the use of any assets from a person with whom it was not dealing at arm’s length other than at fair market value;

(iv)

disposed of any assets to a person with whom it was not dealing at arm’s length for proceeds less than the fair market value thereof; or

(v)

discontinued carrying on any business in respect of which non-capital losses were incurred, and any non-capital losses which such Corporation has are not losses from property or business investment losses.

(e)

Each Corporation has made all elections required to be made under Part III of the Tax Act in connection with any distributions by such Corporation and all such elections were true and correct and in the prescribed form and were made within the prescribed time periods.

(f)

There are no contingent tax liabilities nor any grounds which could prompt a reassessment.

(g)

The financial statements and schedules filed with the income tax returns as filed by each Corporation for each of its taxation years reflect and disclose all transactions to which such Corporation was party as required by the Tax Act or other applicable revenue laws and all of the transactions to which the Corporation was or is a party are reflected or disclosed in such financial statements and schedules and the income tax returns and schedules have been duly and accurately completed as required by such acts.

3.1.18

Residency . The Vendor is not a non-resident of Canada for purposes of the Tax Act .

3.1.19

Clients . LBCI has not received any written notice that any Client, and to the Vendor’s knowledge, no Client: (a) intends to terminate, cancel or not renew any agreement relating to the Business; or (b) intends to terminate or otherwise materially adversely change its business relationship with LBCI, other than in respect of the wind-down of LBCI’s co-pack business and sale of its Edmonton plant and in respect of the discontinuation of the LBCI juice lines relating specifically to such juice lines only.

3.1.20

Non-Arm ’ s Length Transactions . Other than as disclosed in the Annual Financial Statements, each Corporation has not made any payment or loan to, or borrowed any money from or otherwise incurred indebtedness to, any Person not dealing with it at arm’s length, except for usual employee reimbursements and compensation paid in the ordinary course of business, consistent with past practice.

3.1.21

Material Contracts

(a)

A complete and accurate copy of each Material Contract has been provided or made available to the Purchaser.

(b)

To the Vendor’s knowledge, each Corporation has performed in all material respects all of the obligations required to be performed by it and is entitled in all material respects to all benefits under the Material Contracts. Each Corporation is not to the Vendor’s knowledge in default or alleged to be in default in any material respect of any Material Contract. To the Vendor’s knowledge, all the covenants to be performed by any other party to such Material Contracts have been fully performed in all material respects. Each of the Material Contracts is in full force and effect, unamended, and no notice of termination or cancellation has been given or received by a Corporation.

3.1.22

Leased Real Property . Except for the Leased Premises, each Corporation does not own or lease any real property. LBCI has a valid and existing leasehold interest in, and the right to quiet enjoyment of, the Leased Premises and the lessor will not be entitled to terminate the lease in respect of the Leased Premise solely as a result of the completion of the Contemplated Transactions. There are no contracts, agreements or commitments granting to any third party the right of use or occupancy of any portion of the Leased Premises other than the sublease in favour of Arius Technology Inc.

3.1.23

Personal Property . All material tangible personal property used or held for use in the operation or conduct of the Business has been reasonably maintained in accordance with good business practice, is in good operating condition (giving due account to the age and length of use of same and expected, ordinary wear and tear) and is substantially suitable for its present uses. LBCI owns or has a leasehold interest in the fixed assets reflected in the Annual Financial Statements on a material basis.

3.1.24

Title to Assets . Each Corporation has good and marketable title to all of the material assets and properties owned by it, free and clear of all Encumbrances other than Permitted Encumbrances. No Person has any written or oral agreement, option, understanding or commitment or any right or privilege capable of becoming such for the purchase or other acquisition from a Corporation of any material assets of a Corporation.

3.1.25

Licences . To the Vendor’s knowledge, each Corporation holds all material permits, licences, approvals, consents, authorizations or registrations which are required to own its property and assets and to carry on business as presently conducted by it (collectively, the “ Licences ”). All material Licences are in full force and effect; each Corporation is in compliance in all material respects with all the terms and conditions relating to the Licences; and there are no proceedings in progress, or, to the Vendor’s knowledge, pending or threatened which may result in revocation, cancellation, suspension, rescission or any adverse modification of any of the Licences.

3.1.26

Litigation and Other Proceedings . Except as disclosed in the Disclosure Letter, there is no existing: (a) action, suit or proceeding by any Person (b) grievance, arbitration or alternative dispute resolution process; or (c) administrative or other proceeding (other than the renewal or amendment of Licences in the ordinary course) or, to the Vendor’s knowledge, any investigation by any Governmental Entity, pending, or, to the Vendor’s knowledge, threatened against a Corporation which, if determined adversely to a Corporation, would result in a liability or would prevent or impede the sale of the Purchased Securities or the completion of the Contemplated Transactions. Each Corporation is not subject to any final judgment or order of any court for damages, specific performance or a declaration entered in any lawsuit or proceeding, nor in the three years prior to the date hereof has a Corporation settled any material claim for payment of damages prior to being prosecuted in respect of such claim. Each Corporation is not the plaintiff or complainant in any material action, suit or proceeding, grievance, arbitration or alternative dispute resolution process.

3.1.27

Intellectual Property .

(a)

To the Vendor’s knowledge, each Corporation owns all right, title and interest in and to, or is licensed or otherwise possesses rights to use, all Intellectual Property free and clear of all Encumbrances. The Disclosure Letter contains a complete list of all registrations and applications of the Corporations for registration of trade-marks, patents, copyrights and industrial designs.

(b)

To the Vendor’s knowledge, the conduct of the Business and the use of the Intellectual Property does not infringe, misappropriate or otherwise violate any Intellectual Property of any third party. To the Vendor’s knowledge, there are no actions pending or threatened alleging that the conduct of the Business or the use of the Intellectual Property infringes, misappropriates or otherwise violates the Intellectual Property of any third party or challenging the ownership or use of any Intellectual Property. To the Vendor’s knowledge, no third party has infringed, misappropriated or otherwise violated any Intellectual Property.

3.1.28

Environmental Matters . To the Vendor’s knowledge, the operation of the Business has been and is in compliance in all material respects with all Environmental Laws, and each Corporation has not received any notice of any non-compliance with any Environmental Laws, and each Corporation has not been convicted of an offence for non-compliance with any Environmental Laws or been fined or otherwise sentenced or settled such prosecution short of conviction. To the Vendor’s knowledge, except as permitted by and in compliance, in all material respects, with all Environmental Laws, each Corporation has not caused or permitted the Release of any Hazardous Substances from the Leased Premises, previous premises and assets of the Business, and to Vendor’s knowledge, other than in compliance in material respects with Environmental Laws, there are no Hazardous Substances located on or in any of the Leased Premises, previous premises or assets owned or used by each Corporation. Except as permitted by and in compliance, in all material respects, with Environmental Laws, each Corporation has not used any of their Leased Premises, previous premises or assets to produce, generate, store, handle, transport or dispose of any Hazardous Substances. Except as permitted by and in compliance in all material respects, with Environmental Laws, to the Vendor’s knowledge there are no underground or surface

storage tanks or urea formaldehyde foam insulation, asbestos, polychlorinated biphenyls (PCBs) or radioactive substances located on or in any of the Leased Premises, previous premises or assets owned or used by a Corporation. Each Corporation has not conducted or caused to be conducted an environmental audit or assessment of any of the Leased Premises, previous premises or assets of a Corporation, the results of which disclose any material breach or non-compliance with Environmental Laws and the Vendor has provided the Purchaser with complete copies of all such environmental audits and assessments.

3.1.29

Employees . The Corporations have no Employees other than Employees that will be issued a termination notice by LBCI on the Closing Date, except as may be agreed to by the Purchaser and except for one employee of LBCI on long-term disability.

3.1.30

Employment Matters . To the Vendor’s knowledge, except as disclosed in the Disclosure Letter, each Corporation is in compliance in all material respects with all terms and conditions of employment of each Employee and there are no outstanding material claims, complaints, investigations or orders brought by or on behalf of any Employees or arising under applicable Laws. Except as disclosed to the Purchaser, no Corporation:

(a)

is a party to or bound by any written contract, commitment or policy for the employment or retainer of any individual, including any contract or commitment with directors, officers, Employees, independent or dependent contractors;

(b)

is a party to or bound by any written contract, commitment or policy providing for severance, termination, retention, change of control or similar payments upon termination of employment of any Employee or the retainer of any independent or dependent contractor;

(c)

is a party to or bound by any Employee Plans with respect to any of its Employees or others;

(d)

is a party to or bound by any contract with or commitment to any trade union, council of trade unions, employee bargaining agent or affiliated bargaining agent (collectively, “ labour representatives ”) and no Corporation has conducted negotiations with respect to any such future contracts or commitments; no labour representatives hold bargaining rights with respect to any Employees; no labour representatives have applied to have a Corporation declared a related employer pursuant to any labour relations legislation in any other jurisdiction; and there are no current or, to the Vendor’s knowledge, threatened attempts to organize or establish any trade union or employee association with respect to a Corporation;

(e)

has any current, pending or, to the Vendor’s knowledge, threatened strikes (including official or unofficial strikes or other labour relations difficulties), work stoppage or other concerted action, slowdowns or lockouts, trade union representation or organizing activities or unlawful labour practices or actions; and

(f)

is subject to any material claim for wrongful dismissal, constructive dismissal or any other material tort claim, actual or to the Vendor’s knowledge threatened, or any litigation, actual or to the Vendor’s knowledge threatened, relating to employment or termination of employment of Employees or independent or dependent contractors.

Complete and accurate copies of all of the material written employment contracts, commitments, agreements and Employee Plans and all material related documents have been made available to the Purchaser.

3.1.31

Employee Plans .

(a)

Where and to the extent required by applicable Laws, all Employee Plans have been, in all material respects, established, registered under, maintained and administered in accordance with applicable Laws relating to such Employee Plans and all filings, reports and disclosures with respect thereto required by applicable Laws have been filed or distributed.

(b)

To the Vendor’s knowledge, there is no investigation by any Governmental Authority nor any claim (other than routine claims for benefits) pending or, to the Vendor’s knowledge, threatened with respect to any Employee Plan or its assets, nor do facts or circumstances exist that could reasonably be expected to give rise to such an investigation or claim.

(c)

There have been no improper withdrawals or transfers by a Corporation from any Employee Plan or the funding media related thereto.

(d)

None of the Employee Plans provide for benefit increases or, except as a consequence of the nature of the insurance or funding arrangements applicable to such Employee Plans, the acceleration of or an increase in securing or funding obligations that are contingent upon or will be triggered by the entering into of this Agreement or the completion of the Contemplated Transactions.

(e)

All obligations of each Corporation that are due under any Employee Plan have been paid or provided for or, if unpaid, are accrued and reflected in the books and records of each Corporation, as applicable.

(f)

Except as disclosed to the Purchaser, each Corporation does not sponsor, contribute and is not required to contribute to any registered pension plan as defined in the Tax Act .

(g)

None of the Employee Plans provides for post-retirement benefits.

3.1.32

Insurance . The Disclosure Letter sets forth a complete list of, and the Vendor heretofore has made available to the Purchaser complete and accurate copies of, all insurance policies and fidelity bonds covering the Business and the assets and properties of each Corporation. All such policies and bonds are in full force and effect, and are sufficient to insure against material risks and liabilities customary for the Business. Each Corporation has complied in all material respects with the provisions of such policies and bonds (including the timely payment of all premiums due thereunder). There are no existing claims under any such insurance policies and, to the Vendor’s knowledge, no pending claims or any Person who is seeking to make a claim pursuant to such insurance policies. There has not been any material adverse change in the relationship of a Corporation with its insurers, the availability of coverage, or in the premiums payable pursuant to such insurance policies. The Disclosure Letter lists any and all actual claims, with reasonable particulars, made under any policies of insurance maintained by or for the benefit of each Corporation over the past three years.

3.1.33

Records .

(a)

The minute books of each Corporation contain complete and accurate copies of its articles, by-laws and all resolutions of its directors (including all committees thereof) and shareholders, and the share certificate books and register of shareholders are complete and accurate.

(b)

The books and records of each Corporation accurately record all material financial transactions of each Corporation, and all accounting and financial books and records of each Corporation have been fully, properly and accurately kept and completed in all material respects.

3.1.34

Bank Accounts, etc . The Disclosure Letter contains a complete and accurate list showing the name and address of each banking institution, mutual fund or brokerage firm in which each Corporation has accounts or safe deposit boxes, the account numbers or box numbers relating thereto and the name of each Person authorized to draw thereon or to have access thereto and each Person holding a general or special power of attorney from each Corporation and a summary of the terms thereof.

3.2

Representations and Warranties of the Purchaser

The Purchaser hereby represents and warrants as follows to and in favour of the Vendor and acknowledges that the Vendor is relying on such representations and warranties in connection with its sale of the Purchased Securities:

3.2.1

Incorporation . It is incorporated and validly existing under the laws of the Province of British Columbia.

3.2.2

Corporate Power and Authorization . It has the corporate power and capacity to enter into and perform its obligations under this Agreement. It has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement. This Agreement has been duly executed and delivered.

3.2.3

Enforceability . This Agreement is a valid and binding obligation, enforceable against it in accordance with its terms, subject to the usual exceptions as to creditors’ rights and the availability of equitable remedies.

3.2.4

Non-Contravention . Its execution, delivery or performance of this Agreement does not and will not contravene any provision of its constating documents or contravene in any material respect any applicable Laws that would prevent or impede the completion of the Contemplated Transactions.

3.2.5

Consents and Approvals . No authorization, consent or approval of, or filing with or notice to, any Governmental Authority or other Person pursuant to any Contract to which it is a party is required in connection with the execution, delivery or performance of this Agreement or the completion of the Contemplated Transactions by the Purchaser other than filings required under applicable securities laws and under the policies of applicable stock exchanges.

3.2.6

Litigation and Other Proceedings . There is no court, administrative, regulatory or similar proceeding (whether civil, quasi-criminal or criminal); arbitration or other dispute settlement procedure; investigation or inquiry by any Governmental Authority; or any similar matter or proceeding against or involving it (whether in progress or, to its knowledge, threatened) which, if determined adversely to it, would prevent or impede the completion of the Contemplated Transactions.

3.2.7

Residency . It is “resident in Canada” within the meaning of section 102 of the Tax Act and it is not a “non-Canadian” under the Investment Canada Act .

3.2.8

No Additional Facts or Circumstances. The Purchaser is not aware of any information, fact or circumstance which would make any of the Vendor’s representations, warranties, covenants, or agreements contained in this Agreement incorrect, inaccurate or otherwise misleading.

3.3

Survival of Representations and Warranties

The representations and warranties and, to the extent that they have not been fully performed at or prior to the Closing Time or are set out in Article 7, covenants and agreements, contained in this Agreement and in all certificates and documents delivered pursuant to or contemplated by this Agreement shall survive Closing as follows:

3.3.1

the representations and warranties contained in Section 3.1 (and the corresponding representations and warranties contained in the certificate to be delivered pursuant to Section 5.3.1(a)), other than those contained in 3.1.1 (Incorporation of Vendor), 3.1.3 (Capacity of the Vendor), 3.1.4 (Enforceability against the Vendor), 3.1.5 (Ownership of the Purchased Securities), 3.1.6 (Capitalization of Corporations) and 3.1.24 (Title to Assets), shall terminate at the expiration of 12 months following the Closing Date;

3.3.2

the representations and warranties contained in Section 3.1.17 (Tax Matters) (and the corresponding representations and warranties set out in the certificate to be delivered pursuant to Section 5.3.1(a)), will survive and continue in full force and effect until 30 days following the expiration of the period (the “ tax assessment period ”) during which any tax assessment may be issued by a Governmental Authority in respect of any taxation year to which such representations and warranties extend. A tax assessment includes any assessment, reassessment or other form of recognized document assessing liability for Taxes under applicable Laws;

3.3.3

the representations and warranties contained in Sections 3.1.1 (Incorporation of Vendor), 3.1.3 (Capacity of the Vendor), 3.1.4 (Enforceability against the Vendor), 3.1.5 (Ownership of the Purchased Securities), 3.1.6 (Capitalization of Corporations) and 3.1.24 (Title to Assets) (and the corresponding representations and warranties contained in the certificate to be delivered pursuant to Section 5.3.1(a)) shall terminate at the expiration of 24 months following the Closing Date;

3.3.4

the representations and warranties contained in Section 3.2.8 (No Additional Facts or Circumstances) and the corresponding representations and warranties contained in the certificate to be delivered pursuant to Section 5.4.1(a)), shall each survive Closing; and

3.3.5

no claim for breach of any representation or warranty shall be valid unless the Party against whom such claim is made has been given notice thereof before the date on which the applicable representation or warranty shall have terminated in accordance with this Section 3.3.

ARTICLE 4

COVENANTS

4.1

Vendor’s Covenants

4.1.1

Access to Information . Until the Closing Time, the Vendor shall cause each Corporation to give to the Purchaser and its representatives, accountants, legal counsel and advisors upon reasonable advanced notice and during normal business hours reasonable access to its premises, and the books and records relating thereto and to the Purchased Securities, and to the personnel of each Corporation and shall furnish them with all such information relating to the Business and their affairs and assets as the Purchaser may reasonably request. No investigations made by or on behalf of the Purchaser, whether under this Section 4.1.1 or any other provision of this Agreement, shall have the effect of waiving, diminishing the scope of, or otherwise affecting any representation or warranty made in this Agreement.

4.1.2

Conduct of Business . Except as expressly provided in this Agreement or except with the prior written consent of the Purchaser, prior to the Closing Time the Vendor shall cause each Corporation to:

(a)

operate the Business only in the ordinary course, consistent with past practice, and, to the extent consistent with such operation, use commercially reasonable efforts to preserve its business organization, including the services of its officers, Employees, independent contractors and consultants, and its business relationships with customers, suppliers and others having business dealings with it;

(b)

maintain all its properties and assets, whether owned or leased, in good condition and repair, and maintain insurance upon its assets comparable in amount, scope and coverage to that in effect on the date of this Agreement;

(c)

maintain its books, records and accounts in the ordinary course on a basis consistent with past practice;

(d)

do or refrain from doing all commercially reasonable acts and things in order to ensure that the representations and warranties in Section 3.1 remain true and correct at the Closing Time as if such representations and warranties were made at and as of such date and to satisfy or cause to be satisfied the conditions in Section 5.3 which are within its control;

(e)

not become a party to or bound by or subject to any new agreement or arrangement with respect to Employees (other than an employment or personal services agreement or arrangement which is terminable by the Vendor without liability on no more than 30 days’ notice) or to amend or concur in the amendment of any existing agreement or Contract with respect to Employee Plans that would result in an increase in any material payment or obligation thereunder other than such as is required or contemplated by an existing policy or practice as to periodic review of, or in the normal course of operation of, the Employee Plans; and

(f)

not commit to any capital expenditure in excess of that reflected in the three-year plan previously disclosed to the Purchaser without the consent of the Purchaser.

4.1.3

Restricted Activities . Except as expressly provided in this Agreement or except with the prior written consent of the Purchaser (which consent will not be unreasonably withheld), prior to the Closing Time the Vendor shall ensure that no Corporation shall:

(a)

amend its constating documents;

(b)

amalgamate, merge or consolidate with, or acquire all or substantially all the shares or assets of, any Person;

(c)

encumber, transfers, lease, licence, sell or otherwise dispose of its properties or assets, other than in the ordinary course of business consistent with past practice or in respect of the wind-down of LBCI’s co-pack business and sale of its Edmonton plant;

(d)

issue any shares or other securities, including the rights to purchase shares or securities;

(e)

declare, set aside or pay any dividend or make any other distribution with respect to any of its securities or redeem, repurchase or otherwise acquire, directly or indirectly any such securities;

(f)

makes or files any election, designation or similar filing relating to Taxes, or enters into any agreement or other arrangement in respect of Taxes, that has effect for any period ending after the Closing Date; or

(g)

does any act or thing of the kind described in Section 3.1.16 or enters into any contract, agreement or commitment of the kind described in Section 3.1.21.

4.1.4

Obtaining Consents and Approvals . The Vendor shall use commercially reasonable efforts to deliver, at or prior to the Closing Time, the Vendor’s Consents and Approvals referred to in Section 5.3.1(d). The Purchaser shall, at the Vendor’s request, promptly furnish the Vendor with copies of such documents and information with respect to the Purchaser, including financial information, as any of the Vendor may reasonably request in connection with obtaining any consent or approval contemplated by this Agreement.

4.1.5

Non-Arm’s Length Debt . The Vendor shall, prior to the Closing Time, cause all debt owing by any Corporation to the Vendor or any Affiliate of the Vendor to be contributed to the capital of such Corporation.

4.1.6

Cash Balance . The Vendor shall, prior to the Closing Time, cause all cash balances held by the Corporations to be transferred to the Vendor, subject to cash balances remaining for Minimum Cash Balance, Working Capital and Escrow Amount purposes. Any intercompany payments to transfer cash balances shall be made in a tax efficient manner determined by the Parties acting reasonably.

4.2

Notice of Untrue Representation or Warranty

The Vendor shall promptly notify the Purchaser, and the Purchaser shall promptly notify the Vendor, in the event of any representation or warranty made by it contained in this Agreement would become untrue or incorrect as at the Closing Date. Any such notification shall set out particulars of the untrue or incorrect representation or warranty and details of any actions being taken by the Vendor or the Purchaser, as the case may be, to rectify that state of affairs.

ARTICLE 5

CLOSING

5.1

Cash Payment at Closing

Subject to this Article 5, at the Closing the Purchaser shall pay the Closing Cash Payment as provided in Section 2.4.

5.2

Place of Closing

Closing shall take place at the Closing Time, at the offices of the Purchaser or by mutual exchange of documents or in such other manner as the Parties may determine.

5.3

Conditions for the Benefit of the Purchaser

5.3.1

The obligation of the Purchaser to complete the Contemplated Transactions is subject to satisfaction, at or prior to the Closing Time, of each of the following conditions:

(a)

Accuracy of Representations and Warranties and Compliance with Covenants . The representations and warranties of the Vendor made in or pursuant to this Agreement shall be true and correct (i) in all material respects, to the extent not already qualified by “material”, “materially” or “Material Adverse Effect”, and (ii) in all respects, to the extent already qualified by “material”, “materially” or “Material Adverse Effect”, in each case at the Closing Time as if made at and as of the Closing Time (except to the extent such representations and warranties expressly speak of an earlier date in which case such representations and warranties shall be true and correct as of such earlier date); the covenants and agreements contained in this Agreement to be performed by the Vendor at or prior to the Closing Time shall have been performed in all material respects; and the Purchaser shall have received a certificate confirming the foregoing, signed by the Vendor or other persons acceptable to the Purchaser, in form and substance satisfactory to the Purchaser and the Purchaser’s Counsel, acting reasonably.

(b)

Share Certificates . The Vendor shall have delivered to the Purchaser the share certificates representing the Purchased Securities duly endorsed in blank for transfer or accompanied by duly signed powers of attorney for transfer in blank and assignments of the shareholder loans comprising the Purchased Securities.

(c)

Release . The Vendor shall have received releases of the security and any guarantee of the Corporations in respect of any other Encumbrances, other than Permitted Encumbrances.

(d)

Consents and Approvals . The Vendor shall have delivered to the Purchaser, in form and substance satisfactory to the Purchaser and the Purchaser’s Counsel, acting reasonably:

(i)

a resolution of the board of directors of each of the Corporations approving the transfer of the Purchased Securities to the Purchaser;

(ii)

those Vendor’s Consents and Approvals set forth in the Disclosure Letter.

(e)

Closing Documents and Proceedings . All documents relating to the due authorization and completion of the Contemplated Transactions and all actions and proceedings taken at or prior to the Closing Time in connection with the performance by the Vendor of its obligations under this Agreement, shall be satisfactory to the Purchaser and to the Purchaser’s Counsel, acting reasonably, and the Purchaser shall have received copies of all such documents and evidence that all such actions and proceedings have been taken as it may reasonably request in form and substance satisfactory to the Purchaser and the Purchaser’s Counsel, acting reasonably.

(f)

Additional Deliveries . The Vendor shall have delivered or cause to be delivered to the Purchaser the following in form and substance satisfactory to the Purchaser, acting reasonably:

(i)

certified copies of (i) the charter documents and by-laws of each Corporation, and (ii) the director resolutions of the Vendor approving the entering into and completion of the transaction contemplated by this Agreement;

(ii)

a duly executed resignation effective as at the Closing of each director and officer of each of the Corporations other than Ralph McRae;

(iii)

releases in favour of the Purchaser and each Corporation from the Vendor and each of directors and officers referred to Section (ii) in form acceptable to the Purchaser, acting reasonably; and

(iv)

one or more bank statements confirming that the Corporations have cash of not less than the Minimum Cash Balance.

(g)

No Legal Action . No action or proceeding shall be in effect, pending or threatened by any Person (other than the Purchaser) in any jurisdiction, to enjoin or materially restrict or prohibit any of the Contemplated Transactions or the right of the Purchaser to conduct the Business after Closing on substantially the same basis as heretofore operated.

(h)

Outside Date . The Closing shall have occurred on or prior to October 31, 2017 or such later date as the Parties may agree.

(i)

Material Adverse Change . There shall have been no Material Adverse Change since September 30, 2016.

(j)

No Bankruptcy . There shall have been no action or proceeding before any court relating to the bankruptcy, insolvency, liquidation, receivership, dissolution or winding up of any of the Corporations or the Vendor and none of the Corporations nor the Vendor shall have made any general assignment for the benefit of creditors.

5.3.2

The conditions contained in this Section 5.3 are for the exclusive benefit of the Purchaser and may be waived in whole or in part by the Purchaser in writing at any time. If any of such conditions shall not be satisfied or waived by the Purchaser at the Closing Time to the satisfaction of the Purchaser (acting reasonably), then the Purchaser may, by notice to the Vendor, terminate this Agreement. Upon termination of this Agreement by the Purchaser pursuant to this Section 5.3.2, the obligations of the Parties under this Agreement, other than the obligations contained in Section 7.2 (Purchaser Confidentiality), Section 9.3 (Public Announcements), Section 9.4 (Expenses) and Section 9.7 (Brokers), shall terminate. In either case, the Purchaser may promptly submit a claim against the Vendor for damages suffered by the Purchaser where the non-satisfaction of a condition is as a result of a breach of representation, warranty, covenant or agreement by the Vendor. Any condition may be waived in whole or in part by the Purchaser without prejudice to any claims the Purchaser may have for breach of any other representation, warranty, covenant or agreement.

5.4

Conditions for the Benefit of the Vendor

5.4.1

The obligation of the Vendor to complete the sale of the Purchased Securities pursuant to this Agreement is subject to the fulfillment or performance, at or before the Closing Time, of each of the following conditions:

(a)

Accuracy of Representations and Warranties and Compliance with Covenants . The representations and warranties of the Purchaser made in or pursuant to this Agreement shall be true and correct (i) in all material respects, to the extent not already qualified by “material” or “materially”, and (ii) in all respects, to the extent already qualified by “material” or “materially”, in each case, at the Closing Time as if made at and as of the Closing Time; the covenants and agreements contained in this Agreement to be performed by the Purchaser at or prior to the Closing Time shall have been performed in all material respects; and the Vendor shall have received a certificate confirming the foregoing, signed by the Purchaser, and in form and substance satisfactory to, the Vendor and its legal counsel.

(b)

Closing Documents and Proceedings . All documents relating to the due authorization and completion of the Contemplated Transactions and all actions and proceedings taken at or prior to the Closing Time in connection with the performance by the Purchaser of its obligations under this Agreement shall be satisfactory to the Vendor and its legal counsel, acting reasonably, and the Vendor shall have received copies of all such documents and evidence that all such actions and proceedings have been taken as it may reasonably request in form and substance satisfactory to the Vendor and its legal counsel.

(c)

Additional Deliveries . The Purchaser shall deliver or cause to be delivered to the Vendor in form and substance satisfactory to the Vendor, acting reasonably certified copies of all resolutions of its board of directors approving the entering into and completion of the transactions contemplated by this Agreement.

(d)

No Legal Action . No action or proceeding shall be in effect, pending or threatened by any Person in any jurisdiction, to enjoin, restrict or prohibit any of the Contemplated Transactions.

(e)

Outside Date . The Closing shall have occurred on or prior to October 31, 2017 or such later date as the Parties may agree.

5.4.2

The conditions contained in this Section 5.4 are for the exclusive benefit of the Vendor and the Vendor may waive in whole or in part the application of any such conditions to the Vendor in writing at any time. If any of such conditions shall not be satisfied or waived by the Vendor at the Closing Time to the satisfaction of the Vendor, acting reasonably, then the Vendor in respect of which a condition has not been satisfied or waived may, by notice to the Purchaser, terminate its rights and obligations under this Agreement. Upon termination of this Agreement pursuant to this Section 5.4.2, the obligations of the Parties under this Agreement, other than the obligations contained in Section 7.2 (Purchaser Confidentiality), Section 9.3 (Public Announcements), Section 9.4 (Expenses) and Section 9.7 (Brokers), shall terminate. In either case, the Vendor may promptly submit a claim against the Purchaser for damages suffered by the Vendor where the non-satisfaction of a condition is as a result of a breach of representation, warranty, covenant or agreement by the Purchaser. Any condition may be waived in whole or in part by the Vendor without prejudice to any claims it may have for breach of any other representation, warranty, covenant or agreement.

ARTICLE 6

EMPLOYEE MATTERS

6.1

Notice of Termination

The Vendor agrees that it shall cause LBCI, on or before the Closing Date, give notice of termination to all Employees, effective as of the Closing Date, except for any Employees that may be specified by the Purchaser.

6.2

Purchaser or Affiliate Offer of Employment

The Purchaser agrees that it shall offer or cause an Affiliate of the Purchaser to offer employment to certain of the Employees located at the Leased Premises of LBCI, effective as at the Closing Date (except effective as at the time of return to active duty in the case of Employees on leave), on terms and conditions of employment as may be determined by the Purchaser or such Affiliate.

6.3

Purchaser Indemnification for Employees

The Purchaser shall be responsible for, and shall indemnify and hold harmless the Vendor from and against all losses suffered or incurred by the Vendor in respect of all periods after the Time of Closing (or time of return to active duty in the case of Employees on leave) as a result of or arising out of, in connection with or pursuant to:

(a)

all liabilities for salary, wages, bonuses, commissions, vacation pay, and other compensation relating to the employment of the Employees that accept the Purchaser’s (or its Affiliate’s) offer of employment; and

(b)

all payments, damages and other awards on account of severance, termination or wrongful dismissal and all related costs in respect of the termination of the employment of any Employee who: (i) accepts the Purchaser’s (or its Affiliate’s) offer of employment and who is subsequently terminated by the Purchaser (or its Affiliate); or (ii) is offered employment with the Purchaser (or its Affiliate) on terms less favourable in the aggregate to the Employee than such Employee’s prior employment with the Vendor or the relevant Corporation and who does not accept such offer of employment with the Purchaser (or its Affiliate).

6.4

Vendor Indemnification for Employees

The Vendor shall be responsible for, and shall indemnify and hold harmless the Purchaser from and against all losses suffered or incurred by the Purchaser or its Affiliate as a result of or arising out of, in connection with or pursuant to:

(a)

all liabilities for salary, wages, bonuses, commissions, vacation pay and other compensation relating to the Employees in respect of all periods prior to the Closing Date and in respect of all periods prior to the time of return to active duty in respect of the Employees on leave; and

(b)

all payments, damages and other awards on account of severance, termination or wrongful dismissal and all related costs in respect of the termination of the employment of any Employee who: (i) is not offered employment with the Purchaser (or its Affiliate); or (ii) is offered such employment on terms no less favourable in the aggregate to the Employee than such Employee’s prior employment with the Vendor or the relevant Corporation and does not accept such offer of employment with the Purchaser (or its Affiliate).

6.5

No Third Party Rights

Nothing in this Article 6 or in any of the other provisions of this Agreement shall confer any rights upon any of the Employees.

ARTICLE 7

POST-CLOSING COVENANTS

7.1

Vendor Confidentiality

After the Closing, the Vendor will and will cause its Representatives to keep confidential all Confidential Information unless such Confidential Information is or becomes generally available to the public other than as a result of a disclosure by the Vendor or its Representatives in violation of this Agreement or except where disclosure is required to be made pursuant to applicable Laws or to any Governmental Authority or in connection with any Claim or in connection with any action, claim, dispute or proceeding involving the Vendor or its Affiliates; provided that they shall not be liable for use or disclosure of any such Confidential Information if it can be shown that such Confidential Information was:

7.1.1

received on a non-confidential basis from a third party;

7.1.2

independently developed without use of Confidential Information;

7.1.3

disclosed without similar restrictions to a third party by the Purchaser;

7.1.4

approved in writing for disclosure by the Purchaser;

7.1.5

if required to be disclosed pursuant to a requirement of a Governmental Authority or under applicable Laws, so long as they, where permitted by applicable Laws:

(a)

where reasonably possible give the Purchaser prompt notice of the requirement so that the Purchaser may have the opportunity to seek an appropriate protective order or pursue such legal action, remedy or assurance as the Purchaser deems necessary to preserve the confidentiality of the Confidential Information;

(b)

refrain from opposing any action by the Purchaser to obtain a protective order or other remedy or assurance;

(c)

take all commercially reasonable steps (after consultation with the Purchaser and at the request and expense of the Purchaser) to preserve the confidential nature of the Confidential Information, including, without limitation, requesting that the Confidential Information not be released to third parties or the public and disclosing only that portion of the Confidential Information that it is, in the opinion of its counsel, acting reasonably, legally compelled to disclose; and

(d)

provide the Purchaser with as much prior notice as is reasonably possible of the fact and proposed content of any disclosure and co-operate in ensuring consistency in disclosure and communications.

7.2

Purchaser Confidentiality

The Purchaser covenants and agrees that, unless and until Closing, it will (a) keep confidential, and will cause its respective Representatives to keep confidential, all Confidential Information unless such Confidential Information is or becomes generally available to the public other than as a result of a disclosure by the Purchaser or its Representatives in violation of this Agreement or except where disclosure is required to be made pursuant to applicable Laws or to any Governmental Authority; and (b) not use, directly or indirectly, the Confidential Information, other than in connection with the evaluation and/or completion of the contemplated transactions; provided that it shall not be liable for use or disclosure of any such Confidential Information if it can be shown that such Confidential Information was:

7.2.1

already known to it without an obligation of confidentiality;

7.2.2

received on a non-confidential basis from a third party;

7.2.3

independently developed without use of Confidential Information;

7.2.4

disclosed without similar restrictions to a third party by the Vendor or a Corporation;

7.2.5

approved in writing for disclosure by the Vendor or a Corporation;

7.2.6

if required to be disclosed pursuant to a requirement of a Governmental Authority or under applicable Laws, so long as they, where permitted by applicable Laws:

(a)

where reasonably possible give the Vendor prompt notice of the requirement so that the Vendor may have the opportunity to seek an appropriate protective order or pursue such legal action, remedy or assurance as the Vendor deems necessary to preserve the confidentiality of the Confidential Information;

(b)

refrain from opposing any action by the Vendor to obtain a protective order or other remedy or assurance;

(c)

take all commercially reasonable steps (after consultation with the Vendor and at the request and expense thereof) to preserve the confidential nature of the Confidential Information, including, without limitation, requesting that the Confidential Information not be released to third parties or the public and disclosing only that portion of the Confidential Information that it is, in the opinion of its counsel, acting reasonably, legally compelled to disclose; and

(d)

provide the Vendor with as much prior notice as is reasonably possible of the fact and proposed content of any disclosure and co-operate in ensuring consistency in disclosure and communications.

7.3

Change of Name

On Closing, notwithstanding anything to the contrary in this Agreement, the Purchaser grants to the Vendor a non-exclusive, royalty-free licence to use the words “Leading Brands” in its corporate name. Should the Vendor, in its sole discretion, elect to change its corporate name and otherwise not wish to use the name “Leading Brands, Inc.”, the Vendor shall, at the Purchaser’s cost, offer reasonable assistance and consent to the change of name of the Purchaser, its Affiliate or any of the Corporations to “Leading Brands, Inc.” or a similar name.

7.4

Further Assurances

From time to time after the Closing Date, each Party shall, at the request of any other Party, execute and deliver such additional conveyances, transfers and other assurances as may be reasonably required to effectively transfer the Purchased Securities to the Purchaser and carry out the intent of this Agreement.

ARTICLE 8

INDEMNIFICATION

8.1

Indemnification by the Vendor

Subject to the provisions of this Article 8, the Vendor will indemnify and save the Purchaser harmless for and from:

8.1.1

any Loss as a result of, in respect of, connected with, or arising out of, under, or pursuant to:

(a)

any breach or inaccuracy of any representation or warranty given by the Vendor contained in this Agreement or the certificate to be delivered pursuant to Section 5.3.1(a);

(b)

any failure of the Vendor to perform or fulfill any of its covenants or obligations under this Agreement;

(c)

any failure of the Vendor to transfer good and valid title to the Purchased Securities to the Purchaser, free and clear of all Encumbrances; and

(d)

any breach of Environmental Laws which relates to the property or operations of any of the Corporations in respect of any periods prior to the Closing Date;

(e)

any Release, presence, use, creation, transportation, storage or disposal of Hazardous Substances which relate to the property or assets of any of the Corporations in respect of any periods prior to the Closing Date;

(f)

any Taxes, including any penalty and interest thereon, relating to periods ended on or before the Closing Date including losses arising from any reassessment of Taxes;

(g)

any claim or order for any clean-up, restoration, transportation, storage or disposal of Hazardous Substances which relate to the property or operations of any the Corporations in respect of any periods prior to the Closing Date;

(h)

the Existing Claims;

(i)

any liabilities of the Corporation relating to periods prior to the Closing Date that were not (i) reflected or reserved for in the balance sheets included in the Annual Financial Statements (or as disclosed in the notes to such financial statements); (ii) reflected in the Final Statement; or (iii) disclosed in this Agreement or the Disclosure Letter;

(j)

any Financial Lease Liabilities during the Escrow Period; and

(k)

all claims, demands, costs and expenses, including reasonable legal expenses and the costs or expenses of preparing any necessary environmental assessment report or similar reports, in respect of the foregoing.

8.1.2

the Purchaser agrees and acknowledges that under no circumstances shall the collective, aggregate liability of the Vendor or its Affiliates pursuant to this Article 8 (except for the Existing Claims, Additional Excluded Liabilities and any Financial Lease Liabilities during the Escrow Period) exceed $300,000, (the “ Indemnity Cap ”), and the Purchaser further agrees that the Purchaser shall be solely responsible for any amounts that exceed such Indemnity Cap, however incurred and regardless of fault.

8.2

Indemnification by the Purchaser

Subject to the provisions of this Article 8, the Purchaser will indemnify and save the Vendor harmless for and from:

8.2.1

any Loss as a result of, in respect of, connected with, or arising out of, under or pursuant to:

(a)

any breach or inaccuracy of any representation or warranty given by it contained in this Agreement or the certificate to be delivered pursuant to Section 5.4.1(a);

(b)

any failure of it to perform or fulfill any of its covenants or obligations under this Agreement; and

(c)

all claims, demands, costs and expenses, including reasonable legal expenses, in respect of the foregoing.

8.3

Notice of Claim

If the Purchaser or the Vendor wishes to make a Claim, such Party shall promptly, and in any event within 30 days of the matter coming to the Party’s attention, give notice to the other of the Claim. In the case of a Claim by the Purchaser, such notice shall be made to the Vendor and shall specify whether the Claim is a Direct Claim or a Third Party Claim. Notice of any Claim shall specify with reasonable particularity (to the extent that the information is available):

8.3.1

the factual basis for the Claim, and any provisions of the Agreement, or of any applicable Laws, relied upon; and

8.3.2

the amount of the Claim or, if an amount is not then determinable, an approximate and reasonable estimate of the potential amount of the Claim.

8.4

Procedure for Indemnification by the Vendor

8.4.1

Direct Claims . Following receipt of notice of a Direct Claim, the Vendor shall have 30 days to make such investigation of the Direct Claim as the Vendor considers necessary or desirable. For the purpose of such investigation, the Purchaser shall make available to the Vendor and its representatives the information relied upon by the Purchaser to substantiate the Direct Claim. If the Vendor disputes the validity or amount of the Direct Claim, the Vendor shall provide written notice of the dispute to the Purchaser within such 30-day period specified (or any extension thereof agreed upon by the Parties). The dispute notice must describe in reasonable detail the nature of its dispute. During the 30-day period immediately following receipt of a dispute notice by the Purchaser, the Vendor and the Purchaser shall attempt in good faith to resolve the dispute. If the Vendor and the Purchaser fail to resolve the dispute within that 30-day time period, the Purchaser is free to pursue all rights and remedies available to it, subject only to this Agreement.

8.4.2

Third Party Claims

(a)

With respect to any Third Party Claim, the Vendor shall have the right, exercisable by giving notice to the Purchaser not later than 30 days after receipt of the notice described in subsection 8.3, to participate in or assume control of the negotiation, settlement or defence of the Third Party Claim at its own expense and, in such event, the Vendor shall reimburse the Purchaser for all of the Purchaser’s reasonable out-of-pocket expenses as a result of such participation or assumption. If the Vendor elects to assume such control, the Purchaser shall have the right to participate in the negotiation, settlement or defence of such Third Party Claim at its own expense and shall have the right to disagree on reasonable grounds with the selection and retention of legal counsel, in which case legal counsel satisfactory to both Parties shall be retained by the Vendor. The Vendor may not compromise and settle or remedy, or cause a compromise and settlement or remedy, of a Third Party Claim without the prior written consent of the Purchaser, which consent may not be unreasonably withheld or delayed.

(b)

If the Vendor, having elected to assume control as contemplated in Section 8.4.2(a), thereafter fails to defend any such Third Party Claim within a reasonable time, the Purchaser shall be entitled to assume such control at the Vendor’s expense and the Vendor shall be bound by the results obtained by the Purchaser with respect to such Third Party Claim.

(c)

In the event that any Third Party Claim is of a nature such that the Purchaser is required by applicable Laws to make a payment to any Person (a “ Third Party ”) with respect to such Third Party Claim before the completion of settlement negotiations or related legal proceedings, the Purchaser may make such payment and the Vendor shall, forthwith after demand by the Purchaser, reimburse the Purchaser in an amount equal to any such payment, subject always to the Indemnity Cap. If the amount of any liability under the Third Party Claim in respect of which such a payment was made, as finally determined, is less than the amount which was paid by the Vendor to the Purchaser, the Purchaser shall, forthwith after receipt of the difference from the Third Party, pay such difference to the Vendor.

(d)

Except in the circumstances contemplated by Sections 8.4.2(b) and 8.4.2(c), whether or not the Vendor assumes control of the negotiation, settlement or defence of any Third Party Claim, the Purchaser shall not negotiate, settle, compromise or pay any Third Party Claim except with the prior written consent of the Vendor (which consent shall not be unreasonably delayed or withheld).

(e)

The Purchaser shall not permit any right of appeal in respect of any Third Party Claim to terminate without giving the Vendor notice thereof and an opportunity to contest such Third Party Claim. The Vendor shall notify the Purchaser of its intention to contest such Third Party Claim.

(f)

The Parties shall cooperate fully with each other with respect to Third Party Claims, shall keep each other fully advised with respect thereto (including supplying copies of all relevant documentation promptly as it becomes available) and shall each designate a senior officer or other individual who will keep himself or herself informed about and be prepared to discuss the Third Party Claim with his or her counterpart and with legal counsel at all reasonable times.

8.5

Procedure for Indemnification by the Purchaser

Following receipt of notice of a Claim, the Purchaser shall have 30 days to make such investigation of the Claim as the Purchaser considers necessary or desirable. For the purpose of such investigation, the Vendor making such Claim shall make available to the Purchaser and its representatives the information relied upon by the Vendor to substantiate the Claim. If the Purchaser disputes the validity or amount of the Claim, the Purchaser shall provide written notice of the dispute to the Vendor making the Claim within such 30-day period specified (or any extension thereof agreed upon by the Parties). The dispute notice must describe in reasonable detail the nature of the Purchaser’s dispute. During the 30-day period immediately following receipt of a dispute notice by the Vendor making the Claim, the Purchaser and the Vendor shall attempt in good faith to resolve the dispute. If the Purchaser and the Vendor fail to resolve the dispute within that 30-day time period, the Vendor is free to pursue all rights and remedies available to it, subject only to this Agreement.

8.6

Additional Rules and Procedures

The obligation of the Vendor to indemnify the Purchaser, and the Purchaser to indemnify the Vendor, pursuant to this Article 8 shall also be subject to the following:

8.6.1

Notice of any Claim arising as a result of a breach of a representation or warranty referred to in Section 8.1 or 8.2 shall be given not later than the date on which, pursuant to Section 3.3, such representation or warranty terminates;

8.6.2

In no event shall the Vendor be liable for aggregate losses (except for the Existing Claims, Additional Excluded Liabilities and any Financial Lease Liabilities during the Escrow Period) in excess of the amount of the Indemnity Cap.

8.7

Settlement of Existing Claims and Additional Excluded Liabilities

The Parties agree to enter into an escrow agreement (the “ Escrow Agreement ”) concurrent with the Closing on terms and conditions satisfactory to the Parties, acting reasonably, whereby the escrow agent (which may be Purchaser’s Counsel) shall agree to hold the amount of $600,000, (the “ Escrow Amount ”), such Escrow Amount to be held back from the Purchase Price and, in the event the Purchase Price is less than the Escrow Amount, as otherwise provided by the Vendor to the escrow agent, in respect of the Existing Claims, Additional Excluded Liabilities, and the Financial Lease Liabilities for a minimum period of 90 days following the Closing Date and up to a maximum period running to the earlier of (i) the date of expiry of the latest applicable limitation period in relation to any of the Existing Claims, as such date is determined by counsel of the Vendor, acting reasonably, unless an action is commenced in respect of an Existing Claim prior thereto or (ii) the date upon which all Existing Claims have been settled (the earlier of which shall be referred to as the “ Escrow Period ”), after which such Escrow Period the escrow agent shall promptly return any balance to the Vendor, or as otherwise directed by the Vendor, without deduction. The Escrow Amount shall be increased in accordance with Section 2.7. The Parties agree that the aggregate liability of the Vendor and its Affiliates and the recourse of the Purchaser in relation to the Existing Claims, Additional Excluded Liabilities, and the Financial Lease Liabilities, including reasonable legal fees duly incurred in connection therewith, shall be limited to the Escrow Amount. The Parties further agree that the Escrow Amount shall be available during the Escrow Period for settlement of the Existing Claims, Additional Excluded Liabilities, and Financial Lease Liabilities, and reasonable legal fees duly incurred in connection therewith, under the Escrow Agreement as follows:

8.7.1

the escrow agent shall pay promptly to Purchaser upon receipt of a written request (subject to a ten day objection period) such amount that constitutes an Excluded Liability that has not previously been deducted from the Purchase Price;

8.7.2

the escrow agent shall pay promptly to Purchaser upon receipt of a written request (subject to a ten day objection period) such amount that the Purchaser shall certify have been agreed to by the claimant of an Existing Claim as full and final settlement of such Existing Claim, provided that such amount does not exceed 60% of the original amount of such Existing Claim;

8.7.3

the escrow agent shall pay promptly to Purchaser such amount requested by the claimant of an Existing Claim in settlement of such Existing Claim, provided that both the Vendor and Purchaser have approved such amount and the terms of such settlement, both acting reasonably; and

8.7.4

the escrow agent shall pay promptly to Purchaser upon receipt of a written request (subject to a ten day objection period) such amount that constitutes a Financial Lease Liability during the Escrow Period.

The Parties further agree that, following the Escrow Period, the Vendor and its Affiliates shall have no liability whatsoever in relation to the Existing Claims, Additional Excluded Liabilities, or the Financial Lease Liabilities, and the Purchaser shall be solely responsible therefor.

8.8

No Release for Fraud

Nothing contained in this Agreement shall relieve or limit the Vendor from any liability arising or resulting from fraud or intentional misrepresentation in connection with the Contemplated Transactions. The Purchaser shall have a right to indemnification from the Vendor for any Loss incurred as the result of any fraud or intentional misrepresentation by the Vendor without regard to any period of limitation.

ARTICLE 9

MISCELLANEOUS

9.1

Notices

Any notice, consent, waiver, direction or other communication required or permitted to be given under this Agreement by a Party shall be in writing and may be given by sending same by facsimile, or by delivery by hand/courier addressed to the Party to which the notice is to be given at the applicable address noted below. Any such notice, consent, waiver, direction or other communication, if sent by facsimile, shall be deemed to have been given and received at the time of receipt (if a Business Day or, if not, the next succeeding Business Day) unless actually received after 4:00 p.m. (local time) at the point of receipt in which case it shall be deemed to have been received on the next succeeding Business Day; or, if delivered by hand/courier, shall be deemed to have been received on the day on which it is delivered (if a Business Day, if not, the next succeeding Business Day). Notice of change of address shall also be governed by this Section 9.1.

9.1.1

if to the Vendor:

Suite 101 - 33 West 8th Avenue

Vancouver BC Canada V5Y 1M8

Attention: Chief Executive Officer

with a copy (which shall not constitute notice) to:

DuMoulin Black LLP

10-595 Howe Street

Vancouver, British Columbia V6C 2T5

Attention: Doug Seppala

Fax No.: (604) 687-8772

9.1.2

if to the Purchaser:

1133438 B.C. Ltd.

19500 – 56 ^th Avenue

Surrey, British Columbia V3S 6K4

Attention: Ralph McRae

with a copy (which shall not constitute notice) to:

Farris, Vaughan, Wills & Murphy LLP

25 ^th Floor, 700 W Georgia Street

Vancouver, British Columbia V7Y 1B3

Attention: David J. Selley

Fax No.: (604) 661- 9349

The failure to send or deliver to any Party’s counsel a copy of any notice, consent, waiver, direction or other communication given under this Section 9.1 shall not invalidate any such notice, consent, waiver, direction or other communication.

9.2

Time of Essence

Time is of the essence of this Agreement.

9.3

Public Announcements

No public announcement or statement concerning the transactions contemplated by this Agreement shall be made by the Vendor or its Affiliates without the prior written consent of the Purchaser nor by the Purchaser or its respective Affiliates without the prior written consent of the Vendor (such consent in each case not to be unreasonably withheld or delayed), unless such disclosure is required by applicable Laws. If such disclosure is required by applicable Laws (the Purchaser hereby acknowledges that the Vendor is a reporting issuer and, as such, subject to certain public disclosure obligations), the applicable Party shall use commercially reasonable efforts to enable the other Party to review and comment on such disclosure prior to the release thereof and, if such prior review and consultation is not possible, to give oral and written notice of such disclosure immediately following the making of such disclosure.

9.4

Expenses

Except as otherwise expressly provided herein, each of the Vendor and the Purchaser shall bear all of its respective costs and expenses (including the fees and expenses of counsel, accountants and other advisors) incurred in connection with this Agreement and completion of the Contemplated Transactions.

9.5

Counterparts

This Agreement may be executed in any number of original, facsimile or “pdf” counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

9.6

Enurement

This Agreement shall enure to the benefit of and be binding upon the Parties hereto and their respective successors.

9.7

Brokers

Each Party shall indemnify and save harmless the other Parties from and against any and all losses whatsoever for any commission or other remuneration payable or alleged to be payable to any broker, agent or other intermediary who purports to act or have acted for such Party in connection with the Contemplated Transactions.

9.8

Non-Merger

The covenants, representations and warranties shall not merge on, but shall survive, the Closing. Notwithstanding the Closing or any investigation made by or on behalf of any Party, the covenants, representations and warranties shall continue in full force and effect subject as herein provided. Closing shall not prejudice any right of one Party against any other Party in respect of anything done or omitted under this Agreement or in respect of any remedies herein provided.

9.9

Assignment, etc.

9.9.1

Except as provided in this Section 9.9, neither this Agreement nor any of the rights or obligations under this Agreement are assignable or transferable by any Party without the prior written consent of the other Party.

9.9.2

Upon giving prior written notice to the Vendor, the Purchaser may assign prior to the Closing Time all (but not less than all) of its rights and obligations under this Agreement to any Affiliate.

9.9.3

After the Closing Time, either Party (an “ Assigning Party ”) may assign all (but not less than all) of its rights and obligations under this Agreement to any Person that acquires all or substantially all of the property and assets of the Assigning Party or acquires a majority of the Assigning Party’s issued and outstanding voting securities or, whether by way of take-over bid, amalgamation, arrangement, merger or otherwise,

provided that:

(a)

the assignee will become jointly and severally liable with the Assigning Party, as a principal and not as a surety, with respect to all of the obligations of the Assigning Party, including the representations, warranties, covenants, agreements and indemnities of the Assigning Party, and any reference in this Agreement to the Assigning Party shall be deemed to also include the assignee;

(b)

the assignee must execute an agreement confirming the assignment and the assumption by the assignee of all obligations of the Assigning Party under this Agreement;

(c)

no assignment shall (a) relieve the Assigning Party of its obligations under this Agreement; (b) require any authorization, consent or approval of, or filing with or notice to, any Governmental Authority or other Person; or (c) result in any delay in the completion of the Contemplated Transactions.

9.10

Remedies

The Parties acknowledge that the failure to comply with a covenant or obligation contained in this Agreement may give rise to irreparable injury to a Party inadequately compensable in damages. Accordingly, a Party may seek to enforce the performance of this Agreement by injunction or specific performance upon application to a court of competent jurisdiction without proof of actual damage (and without the requirement of posting a bond or other security).

IN WITNESS WHEREOF this Agreement has been executed by the Parties as of the date first above written.


LEADING BRANDS, INC.

Per:		“Stephen Fane”
		Name: Title:

Per:		“Ralph McRae”
		Name:
		Title:

1133438 B.C. LTD.

Per:		“Ralph McRae”
		Name: Title:

Exhibit 4.3

Executed Version

AMENDED AND RESTATED DEFINITIVE

ARRANGEMENT AGREEMENT

THIS ARRANGEMENT AGREEMENT, which amends and restates an arrangement agreement dated as of the 17 ^th day of September, 2017, is made as of January 14, 2018.

BETWEEN:

LEADING BRANDS, INC. , a company existing under the British Columbia Business Corporations Act

(“ LBIX ”)

AND:

LIQUID MEDIA GROUP LTD. , a company existing under the British Columbia Business Corporations Act

(“ Liquid ”)

WHEREAS:

A.	LBIX and Liquid entered into an arrangement agreement dated as of September 17, 2017 (the “ Original Arrangement Agreement ”);

B.	LBIX and Liquid wish to amend and restate the Original Arrangement Agreement;

C.	LBIX and Liquid have agreed to proceed with a proposed transaction by way of the Plan of Arrangement (as hereinafter defined) whereby, among other things, LBIX will acquire all of the issued and outstanding Liquid Shares;

D.	Liquid proposes to have its shareholders consider the Arrangement on the terms set forth in the Plan of Arrangement; and

LBIX has entered into a Liquid Voting Agreement (as hereinafter defined) with certain of the Liquid Supporting Shareholders (as hereinafter defined), and Liquid has agreed to cause any such remaining Liquid Supporting Shareholders to enter into a Liquid Voting Agreement within thirty (30) days of the date of this Agreement, pursuant to which, among other things, such Liquid Supporting Shareholders agree subject to the terms and conditions thereof, to vote, or use best efforts to cause to be voted, the Liquid Shares held by them and their associates and affiliates in favour of the Arrangement.

NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the premises and the respective covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the Parties hereto, the Parties hereto hereby covenant and agree as follows:

ARTICLE 1 DEFINITIONS AND INTERPRETATION

1.1

DEFINITIONS

In this Agreement, including the recitals and the schedules hereto, unless there is something in the subject matter or context inconsistent therewith, the following capitalized words and terms shall have the following meanings:

(a)	“ Agreement ” means this amended and restated arrangement agreement, including the appendices attached hereto, as supplemented or amended from time to time;

(b)

“ Arrangement ” means the arrangement pursuant to the provisions of Section 288 of the BCBCA to be undertaken on the terms set forth in the Plan of Arrangement, subject to any amendment or supplement thereto made in accordance with this Agreement, the Plan of Arrangement or at the direction of the Court;

(c)	“ Arrangement Resolution ” means the Special Resolution approving the Arrangement and the transactions contemplated thereunder, to be approved at the Liquid Meeting by the Liquid Shareholders;

(d)

“ affiliate ” means, if used to indicate a relationship with a specified person, a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified person, and a person shall be deemed to be controlled by another person if controlled in any manner whatsoever that results in control in fact by that other person (or that other person and any person or persons with whom that other person is acting jointly or in concert), whether directly or indirectly. For the purposes of this definition, “control”, when used with respect to any specified person, means the power to direct the management and policies of that person directly or indirectly, whether through ownership of securities, by trust, by contract or otherwise; and the term “controlled” has a corresponding meaning; provided that, in any event, any person that owns directly, indirectly or beneficially 50% or more of the securities having voting power for the election of directors or other governing body of a corporation or 50% or more of the partnership interests or other ownership interests of any other person will be deemed to control that person.

(e)

“ associate ” means, if used to indicate a relationship with any person, (a) a partner, other than a limited partner, of that person, (b) a trust or estate in which that person has a substantial beneficial interest or for which that person serves as trustee or in a similar capacity, (c) an entity in respect of which that person beneficially owns or controls, directly or indirectly, voting securities carrying more than 10% of the voting rights attached to all outstanding voting securities of the entity, or (d) a relative, including the spouse, of that person or a relative of that person’s spouse;

(f)	“ BCBCA ” means the British Columbia Business Corporations Act and the regulations made under that enactment, as amended;

(g)	“ Business Day ” means any day other than a Saturday, Sunday, a federal holiday in Canada or a day other than a day on which banks are not open for business in Vancouver, British Columbia;

(h)	“ Canadian GAAP ” means generally accepted accounting principles in effect in Canada, including the accounting recommendations published in the Handbook of the Canadian Institute of Chartered Accountants, including, as applicable, International Financial Reporting Standards

(i)	“ Charter Documents ” means the notice of articles, the articles, the by-laws or other constating documents of a corporation;

(j)	“ Consideration ” means the consideration to be received by the Liquid Shareholders pursuant to the Plan of Arrangement as consideration for their Liquid Shares, consisting of 0.5741 of one LBIX Share for each Liquid Share;

(k)	“ Consideration Shares ” means the LBIX Shares to be issued as the Consideration pursuant to the Arrangement;

(l)	“ Court ” means the Supreme Court of British Columbia;

(m)	“ Depositary ” means any trust company, bank or other financial institution agreed to in writing by Liquid and LBIX for the purposes of, among other things, exchanging certificates representing Liquid Shares for the Consideration in connection with the Arrangement;

(n)	“ EDGAR ” means Electronic Data Gathering, Analysis, and Retrieval system, established by the SEC;

(o)	“ Effective Date ” has the meeting ascribed thereof in Section 2.8(a);

(p)	“ Effective Time ” has the meaning ascribed thereto in the Plan of Arrangement;

(q)

“ Encumbrance ” means any pledges, liens, charges, security interests, leases, title retention agreements, mortgages, hypothecs, title defects, options or adverse claims or encumbrances of any kind or character whatsoever, whether contingent or absolute, and any agreement, option, right or privilege (whether by law, contract or otherwise) capable of becoming any of the foregoing;

(r)

“ Final Order ” means the final order of the Court pursuant to Section 291 of the BCBCA, in a form acceptable to Liquid and LBIX, each acting reasonably, approving the Arrangement, as such order may be amended by the Court (with the consent of both Liquid and LBIX, each acting reasonably) at any time prior to the Effective Date or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed or as amended (provided that any such amendment is acceptable to both Liquid and LBIX, each acting reasonably) on appeal;

(s)	“ Foreign Private Issuer ” is as defined by Rule 405 promulgated under the U.S. Securities Act;

(t)

“ Governmental Entity “ means (a) any multinational, federal, provincial, state, regional, municipal, local or other government, governmental or public department, ministry, central bank, court, tribunal, arbitral body, commission, commissioner, board, bureau or agency, domestic or foreign, (b) any subdivision, agent or authority of any of the foregoing or (c) any quasigovernmental or private body, including any tribunal, commission, stock exchange, regulatory agency or self-regulatory organization, exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing;

(u)

“ Interim Order ” means the interim order of the Court in a form acceptable to Liquid and LBIX, each acting reasonably, providing for, among other things, the calling and holding of the Liquid Meeting, as the same may be amended by the Court with the consent of Liquid and LBIX, each acting reasonably;

(v)

“ law ” or “ laws ” means all laws, statutes, codes, ordinances, decrees, rules, regulations, bylaws, statutory rules, judicial or arbitral or administrative or ministerial or departmental or regulatory judgments, orders, decisions, rulings or awards, including general principles of common and civil law, and terms and conditions of any grant of approval, permission, authority or licence of any Governmental Entity, statutory body or self-regulatory authority, and the term “ applicable ” with respect to such laws and in the context that refers to one or more Persons, means that such laws apply to such Person or Persons or its or their business, undertaking, property or securities and emanate from a Governmental Entity having jurisdiction over the Person or Persons or its or their business, undertaking or securities;

(w)	“ LBIX ” means Leading Brands, Inc., a corporation existing under the BCBCA;

(x)	“ LBIX Disclosure Documents ” means all documents filed by LBIX on SEDAR and EDGAR up to the date of this Agreement;

(y)

“ LBIX Circular ” means the notice of the LBIX Meeting and accompanying management information circular, including all schedules, appendices and exhibits thereto and enclosures therewith, to be sent to the LBIX Shareholders in connection with the LBIX Meeting, as amended, supplemented or otherwise modified from time to time;

(z)	“ LBIX Financial Statements ” means the audited financial statements of LBIX for the fiscal years ended February 28, 2015, February 29, 2016 and February 28, 2017 and the unaudited financial statements of LBIX for the six months ended August 31, 2017 ;

(aa)	“ LBIX Management Options ” means 347,000 stock incentive options in LBIX with an exercise price of $2.45 held by officers or directors of LBIX;

(bb)	“ LBIX Meeting ” means the special meeting of the LBIX Shareholders to be held to consider, among other matters, the LBIX Resolution, and any adjournments or postponement thereof;

(cc)	“ LBIX Resolution ” means the ordinary resolution approving the issuance of the Consideration Shares in accordance with the requirements of NASDAQ;

(dd)	“ LBIX Shareholders ” means the holders of LBIX Shares at the applicable time;

(ee)	“ LBIX Shareholder Rights Plan ” means the amended and restated shareholder rights plan agreement dated May 31, 2010 between LBX and Computershare Trust Company of Canada, as rights agent, as amended from time to time;

(ff)	“ LBIX Shares ” means the common shares in the capital of LBIX;

(gg)	“ Liquid ” means Liquid Media Group Ltd., a corporation existing under the BCBCA;

(hh)

“ Liquid Circular ” means the notice of the Liquid Meeting and accompanying management information circular, including all schedules, appendices and exhibits thereto and enclosures therewith, to be sent to the Liquid Shareholders in connection with the Liquid Meeting, as amended, supplemented or otherwise modified from time to time;

(ii)	“ Liquid Disclosure Documents ” means all documents filed by Liquid on SEDAR up to the date of this Agreement;

(jj)	“ Liquid Financial Statements” means the audited financial statements of Liquid for the fiscal years ended November 30, 2015 and November 30, 2016 and the unaudited financial statements of Liquid for the nine months ended August 31, 2017;

(kk)

“ Liquid Financing ” means the offering of 3,913,894 Liquid Class B Series 1 Preferred Shares at an issue price of $1.022 per Liquid Class B Series 1 Preferred Share for total proceeds of $3,999,999.67, or, if so agreed in writing by Liquid and LBIX, additional offering(s) of Liquid Shares and/or Liquid Preferred Shares under terms mutually agreeable to Liquid and LBIX;

(ll)	“ Liquid Meeting ” means the special meeting of the Liquid Shareholders to be held to consider, among other matters, the Arrangement Resolution, and any adjournment or postponement thereof;

(mm)	“ Liquid Options ” means the outstanding options to purchase Liquid Shares granted under the Liquid Stock Option Plan;

(nn)	“ Liquid Preferred Shares ” has the meaning given to it in section 3.2(i).

(oo)	“ Liquid Securityholders ” means the Liquid Shareholders and holders of Liquid Options and Liquid Warrants at the applicable time;

(pp)	“ Liquid Shareholders ” means the holders of Liquid Shares at the applicable time;

(qq)	“ Liquid Shares ” means the common shares in the capital of Liquid;

(rr)	“ Liquid Stock Option Plan ” means the stock option plan of Liquid, approved most recently by the Liquid Shareholders on July 28, 2017;

(ss)

“ Liquid Supporting Shareholders ” means Krysanne Katsoolis, Charles Brezer, Daniel Cruz and Joshua Jackson, all the other directors and officers of Liquid, and Majesco, [REDACTED: CONFIDENTIAL PERSONAL INFORMATION] , and any affiliate or associate of any such persons who is eligible to vote at the Liquid Meeting, as well as any person who beneficially owns, directly or indirectly, 5% or more of the outstanding Liquid Shares as of the date of this Agreement;

(tt)

“ Liquid Voting Agreements ” means the voting agreements (including all amendments thereto) between LBIX and the Liquid Supporting Shareholders setting forth the terms and conditions upon which the Liquid Supporting Shareholders have agreed, among other things, to vote their Liquid Shares in favour of the Arrangement and all other matters to be considered at the Liquid Meeting;

(uu)	“ Liquid Warrants ” means the outstanding common share purchase warrants to acquire Liquid Shares;

(vv)

“ Mailing Deadline ” means (i) with respect to Liquid, the later of (a) February 19, 2018 and (b) the date that is three (3) days following receipt by Liquid from LBIX of all of LBIX’s information required to be included in the Liquid Circular; and (ii) with respect to LBIX, the later of (a) February 19, 2018 and (b) the date that is three (3) days following receipt by LBIX from Liquid of all of Liquid’s information required to be included in the LBIX Circular;

(ww)	“ Majesco ” means Majesco Entertainment Company, a company incorporated under the laws of Nevada;

(xx)

“ Majesco Acquisition ” means the acquisition by Liquid pursuant to an amended and restated share purchase agreement dated December 12, 2017 among Majesco, Liquid and Zift Interactive, LLC (the “ Majesco Share Purchase Agreement ”) of the number of shares in the capital of Majesco resulting in Liquid holding 51% of the total share capital of Majesco, including receipt of all related documentation, including with regard to the ongoing control of Majesco by Liquid pursuant to a shareholders agreement or other similar arrangement, each in form and substance acceptable to LBIX, which closing was effected January 9, 2018;

(yy)

“ Material Adverse Change ” or “ Material Adverse Effect ” means an effect that is, or would reasonably be expected to be, materially adverse to the affairs, business, operations, prospects, cash flows, results of operations, assets, capitalization, condition (financial or otherwise), licenses, permits, properties, concessions, rights, liabilities (contingent or otherwise), privileges (whether contractual or otherwise) of a Party and its subsidiaries considered on a consolidated basis, provided that a Material Adverse Effect shall not include an effect that arises or results from: (i) the announcement of the transactions contemplated by the Arrangement or this Agreement; (ii) any change in U.S. GAAP or Canadian GAAP, as applicable, or the application of, or conversion to, International Financial Reporting Standards; (iii) any change in the market prices or trading volume of any securities of such Party; (iv) conditions affecting the film production and media industry generally, in jurisdictions in which such Party carries on business, provided that such conditions or changes do not have a materially disproportionate effect on such Party relative to other comparable companies; (v) general economic, financial, currency exchange, securities or market conditions in Canada or elsewhere provided that such conditions or changes do not have a materially disproportionate effect on such Party relative to other comparable companies; or (vi) any action or inaction taken by such Party to which the other Party consented in writing ;

(zz)	“ Material Fact ” has the meaning ascribed to it in the British Columbia Securities Act ;

(aaa)

“ Meeting Deadline ” means thirty (30) days following the Mailing Deadline;

(bbb)

“ Outside Date ” means April 30, 2018, or such later date as may be agreed in writing by the Parties;

(ccc)

“ Parties ” means Liquid and LBIX, and “ Party ” means either of Liquid or LBIX;

(ddd)

“ Person ” means a natural person, partnership, limited partnership, limited liability partnership, estate, body corporate, limited liability company, unlimited liability company, joint stock company, trust, estate, unincorporated association, joint venture or other entity or Governmental Entity, and pronouns have a similarly extended meaning;

(eee)

“ Plan of Arrangement ” means the plan of arrangement attached as Appendix I hereto as amended, modified or supplemented from time to time in accordance with the provisions of this Agreement, the Plan of Arrangement or at the direction of the Court;

(fff)

“ Registrar ” means the Registrar of Companies appointed pursuant to Section 400 of the BCBCA;

(ggg)

“ Runway ” means Runway Finance Group Inc.;

(hhh)

“ Runway Credit Facility ” means the credit facility from Runway to Liquid for up to CDN$2,500,000 pursuant to a credit agreement dated November 9, 2016;

(iii)

“ SEC ” means the United States Securities and Exchange Commission;

(jjj)

“ SEDAR ” means the System for Electronic Document Analysis and Retrieval, established by the Canadian Securities Administrators;

(kkk)

“ Special Resolution ” means a resolution passed by a majority of not less than (i) two-thirds of the votes cast by the Liquid Shareholders at the Liquid Meeting in respect of such resolution or (ii) three-quarters of the votes cast by the LBIX Shareholders at the LBIX Meeting in respect of such resolution;

(lll)

“ subsidiary ” or “ subsidiaries ” means, with respect to a specified body corporate, a body corporate of which more than 50% of the outstanding shares ordinarily entitled to elect a majority of directors thereof, whether or not shares of any other class or classes shall or might be entitled to vote upon the happening of any event or contingency, are at the time owned, directly or indirectly, by such specified body corporate, and includes a body corporate in like relation to a subsidiary;

(mmm)

“ U.S. Exchange Act ” means the United States Securities Exchange Act of 1934, as amended;

(nnn)

“ U.S. GAAP ” means generally accepted accounting principles in effect in the United States, including, as applicable, International Financial Reporting Standards;

(ooo)

“ U.S. Securities Act ” means the United States Securities Act of 1933, as amended;

(ppp)

“ Tax Act ” means the Income Tax Act (Canada) and the regulations made thereunder, as now in effect and as they may be promulgated or amended from time to time;

(qqq)

“ Tax Returns ” means all returns, reports, declarations, elections statements, bills, schedules, forms or written information of, or in respect of, Taxes that are, or are required to be, filed with or supplied to any Governmental Entity;

(rrr)

“ Taxes ” means any and all domestic and foreign federal, state, provincial, municipal, school and local taxes, assessments and other governmental charges, duties, imposition and liabilities imposed by any Governmental Entity, including Canada Pension Plan and provincial pension plan contributions, instalments, employment insurance premium and contributions, worker’s compensation and deductions at source, including taxes based on or measured by gross receipts, income, profits, sales, capital, use, and occupation, and including goods and services, value added, ad valorem, transfer, franchise, withholding, customs, payroll, recapture, employment, excise and property duties and taxes, together with all interest, penalties, fines and additions imposed with respect to such amounts;

(sss)

“ VWAP ” means the volume weighted average trading price of the LBIX Shares on NASDAQ (or such other stock exchange upon which the LBIX Shares are then listed) for five consecutive trading days, calculated by dividing the total value of all trades by the total volume of all trades for such five day period; and

(ttt)

“ Waterproof ” means Waterproof Studios Inc., a company incorporated under the laws of British Columbia.

1.2

HEADINGS

The division of this Agreement into articles, sections, paragraphs and other portions and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms “this Agreement”, “hereof”, “hereunder” and similar expressions refer to this Agreement (including the appendices hereto) as a whole and not to any particular article, section, paragraph or other portion hereof and include any agreement, document or instrument supplementary or ancillary hereto. Unless something in the subject matter or context is inconsistent therewith, all references herein to articles, sections, paragraphs and other portions are to articles, sections, paragraphs and other portions of this Agreement.

1.3

CONSTRUCTION

In this Agreement, unless something in the context is inconsistent therewith:

(a)

the words “include” or “including” when following any general term or statement are not to be construed as limiting the general term or statement to the specific items or matters set forth or to similar items or matters, but rather as permitting it to refer to all other items or matters that could reasonably fall within its broadest possible scope;

(b)

a reference to time or date is to the time or date in Vancouver, British Columbia, unless specifically indicated otherwise;

(c)

a word importing the masculine gender includes the feminine gender or neuter and a word importing the singular includes the plural and vice versa; and

(d)

a reference to “approval”, “authorization”, “consent”, “designation” or “notice” means written approval, authorization, consent, designation or notice unless specifically indicated otherwise.

1.4

DATE FOR ANY ACTION

In the event that any date on which any action is required to be taken hereunder by either of the Parties is not a Business Day in the place where the action is required to be taken, such action shall be required to be taken on the next succeeding day which is a Business Day at such place, unless otherwise agreed to by the Parties.

1.5

CURRENCY

Unless otherwise stated, all references herein to amounts of money are expressed in lawful currency of the United States of America and “$” refers to U.S. dollars.

1.6

ACCOUNTING PRINCIPLES

Whenever in this Agreement reference is made to U.S. GAAP or Canadian GAAP, such reference shall be deemed to be to the U.S. GAAP or Canadian GAAP applicable as at the date on which a calculation is made or required to be made.

1.7

APPENDIX

The attached Appendix I, titled “Plan of Arrangement”, shall be deemed to be incorporated into, and form part of, this Agreement.

1.8

ENTIRE AGREEMENT

This Agreement (including appendices, exhibits and schedules) constitute the entire agreement between the Parties pertaining to the subject manner hereof and supersedes all prior agreements, including the Original Arrangement Agreement, understandings, negotiations and discussions, whether oral or written, between the Parties with respect to the subject matter hereof.

ARTICLE 2 THE ARRANGEMENT

2.1

ARRANGEMENT

LBIX and Liquid agree that the Arrangement will be implemented in accordance with and subject to the terms and conditions contained in this Agreement and the Plan of Arrangement.

2.2

INTERIM ORDER

As soon as reasonably practicable following the execution of this Agreement, and in any event in sufficient time to hold the Liquid Meeting in accordance with Section 2.3, Liquid shall apply to the Court in a manner acceptable to LBIX, acting reasonably, pursuant to Section 291 of the BCBCA and prepare, file and diligently pursue an application for the Interim Order, which shall provide, among other things:

(a)

for the class of Persons to whom notice is to be provided in respect of the Arrangement and the Liquid Meeting and for the manner in which such notice is to be provided;

(b)

that the requisite approval for the Arrangement Resolution shall be the affirmative vote of (i) at least two-thirds of the votes cast at the Liquid Meeting in person or by proxy by the Liquid Shareholders voting together as one class on the basis of one vote per Liquid Share and (ii) to the extent required by Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions , the majority of the votes cast at the Liquid Meeting in person or by proxy by the Liquid Shareholders on the basis of one vote per Liquid Share, excluding the votes cast in respect of Liquid Shares held by certain interested or related parties or joint actors of Liquid in accordance with the minority approval requirements of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (the “ Liquid Shareholder Approval ”);

(c)

that, in all other respects, the terms, conditions and restrictions of the Charter Documents of Liquid, including quorum requirements and other matters, shall apply in respect of the Liquid Meeting;

(d)

for the grant of Dissent Rights only to the Liquid Shareholders who are registered Liquid Shareholders;

(e)

for the notice requirements with respect to the presentation of the application to the Court for the Final Order;

(f)

that the Liquid Meeting may be adjourned from time to time by the management of Liquid with the consent of LBIX without the need for additional approval of the Court;

(g)

that the record date for Liquid Shareholders entitled to notice of and to vote at the Liquid Meeting will not change in respect of any adjournment(s) of the Liquid Meeting;

(h)

that it is LBIX’s intention to rely upon the exemption from registration provided by Section 3(a)(10) of the U.S. Securities Act with respect to the issuance of the Consideration Shares to be issued pursuant to the Arrangement, based on the Court’s approval of the Arrangement; and

(i)

for such other matters as LBIX may reasonably require, subject to obtaining the prior consent of Liquid, such consent not to be unnecessarily withheld.

2.3

LIQUID MEETING

Subject to the terms of this Agreement:

(a)

Liquid agrees to convene and conduct the Liquid Meeting in accordance with the Interim Order, the Charter Documents of Liquid and applicable law as soon as reasonably practicable, and in any event on or before the Meeting Deadline. Liquid and LBIX agree to use their commercially reasonable efforts to schedule the Liquid Meeting and LBIX Meeting on the same day.

(b)

Except as required for quorum purposes or otherwise permitted under this Agreement, Liquid shall not adjourn (except as required by law or by valid Liquid Shareholder action), postpone or cancel (or propose or permit the adjournment (except as required by law or by valid Liquid Shareholder action), postponement or cancellation of) the Liquid Meeting without LBIX’s prior consent.

(c)

Liquid will advise LBIX as LBIX may reasonably request, and at least on a daily basis on each of the last five (5) business days prior to the date of the Liquid Meeting, as to the aggregate tally of the proxies received by Liquid in respect of the Liquid Meeting.

(d)

Liquid will promptly advise LBIX of any written notice of dissent or purported exercise by any Liquid Shareholder of Dissent Rights received by Liquid in relation to the Arrangement and any withdrawal of Dissent Rights received by Liquid and, subject to applicable law, any written communications sent by or on behalf of Liquid to any Liquid Shareholder exercising or purporting to exercise Dissent Rights in relation to the Arrangement.

(e)

At the reasonable request of LBIX from time to time, Liquid shall provide LBIX with lists (in written and/or electronic form), which lists shall include names, addresses and holdings, of (i) the registered Liquid Shareholders, (ii) all Persons holding securities issued by Liquid that are convertible into, or exercisable or exchangeable for, Liquid Shares (including holders of Liquid Options and Liquid Warrants) and (iii) all non-objecting beneficial owners of Liquid Shares. LBIX may from time to time request Liquid to require, and Liquid shall require when so requested, that the registrar and transfer agent for the Liquid Shares furnish LBIX with such additional information and other assistance as LBIX may reasonably request.

2.4

LIQUID CIRCULAR

(a)

As promptly as reasonably practicable following execution of this Agreement, and in any event prior to the close of business on the Mailing Deadline, Liquid shall (i) prepare the Liquid Circular together with any other documents required by applicable laws, (ii) file the Liquid Circular in all jurisdictions where the same is required to be filed, and (iii) mail the Liquid Circular as required under applicable laws and by the Interim Order. On the date of mailing thereof, the Liquid Circular shall comply in all material respects with all applicable laws and the Interim Order and shall contain sufficient detail to permit the Liquid Shareholders to form a reasoned judgment concerning the matters to be placed before them at the Liquid Meeting.

(b)

Liquid shall ensure that the Liquid Circular complies in all material respects with all applicable laws, and, without limiting the generality of the foregoing, that the Liquid Circular will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading in light of the circumstances in which they are made (other than in each case with respect to any information relating solely to LBIX and its affiliates, which information shall be the sole responsibility of LBIX).

(c)

Liquid shall (i) solicit proxies in favour of the Arrangement Resolution and against any contrary resolution submitted by any other Liquid Shareholder, (ii) recommend to Liquid Shareholders that they vote in favour of the Arrangement Resolution, (iii) not make a change in such recommendation and (iv) include in the Liquid Circular a statement that each director and executive officer of Liquid has agreed to vote all of such Person’s Liquid Shares (including any Liquid Shares issued upon the exercise of any Liquid Options) in favour of the Arrangement Resolution, subject to the other terms of this Agreement and in accordance with the Liquid Voting Agreements.

(d)

LBIX will furnish to Liquid all such information regarding LBIX and its respective affiliates as may be required by the Interim Order or applicable laws for inclusion in the Liquid Circular and in any amendments or supplements thereto or other documents related thereto.

(e)

LBIX and its legal counsel shall be given a reasonable opportunity to review and comment on the Liquid Circular prior to the Liquid Circular being printed, mailed to Liquid Shareholders and filed with the applicable securities authorities, and reasonable consideration shall be given to any comments made by LBIX and its legal counsel; provided that all information included in the Liquid Circular relating solely to LBIX and its affiliates shall be in form and substance satisfactory to LBIX, acting reasonably. Liquid shall provide LBIX with a final copy of the Liquid Circular prior to the mailing to the Liquid Shareholders.

(f)

Each Party shall promptly notify the other Party if at any time before the Effective Date it becomes aware that the Liquid Circular contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading in light of the circumstances in which they are made, or that otherwise requires an amendment or supplement to the Liquid Circular, and the Parties shall co-operate in the preparation of any amendment or supplement to the

Liquid Circular, as required or appropriate, and Liquid shall promptly mail or otherwise publicly disseminate any amendment or supplement to the Liquid Circular to Liquid Shareholders and, if required by the Court or applicable laws, file the same with the securities authorities and as otherwise required.

2.5

PREPARATION OF FILINGS

LBIX and Liquid shall co-operate and use their reasonable commercial efforts in good faith to take, or cause to be taken, all reasonable actions, including the preparation of any applications for orders, registrations, consents, filings, rulings, exemptions, no-action letters, circulars and approvals required in connection with this Agreement and the Arrangement and the preparation of any required documents, in each case as reasonably necessary to discharge their respective obligations under this Agreement, the Arrangement and the Plan of Arrangement, and to complete any of transactions contemplated by this Agreement, including their obligations under applicable laws.

2.6

FINAL ORDER

Subject to the terms of this Agreement, if the Interim Order is obtained and the Arrangement Resolution is passed at the Liquid Meeting, Liquid shall, as soon as reasonably practicable thereafter and, in any event, within three (3) business days thereafter, take all steps necessary or desirable to submit the Arrangement to the Court and diligently pursue an application for the Final Order pursuant to section 291 of the BCBCA.

2.7

COURT PROCEEDINGS

Subject to the terms of this Agreement, LBIX will cooperate with and assist Liquid in seeking the Interim Order and the Final Order, including by providing Liquid on a timely basis any information reasonably required to be supplied by LBIX in connection therewith. The material to be filed with the Court in connection with the Arrangement shall not be inconsistent with the provisions of this Agreement. Liquid will provide LBIX and its legal counsel with reasonable opportunity to review and comment upon drafts of all material to be filed with the Court in connection with the Arrangement, and will give reasonable consideration to all such comments; provided that Liquid shall include all comments of LBIX and its legal counsel as are required, in the reasonable judgment of LBIX and its legal counsel, to allow LBIX to rely upon the exemption from registration provided by Section 3(a)(10) of the U.S. Securities Act with respect to the issuance of the Consideration Shares to be issued pursuant to the Arrangement, based on the Court’s approval of the Arrangement. Subject to applicable law, Liquid will not file any material with the Court in connection with the Arrangement or serve any such material, and will not agree to modify or amend materials so filed or served, except as contemplated by this Section 2.7 or with LBIX’s prior written consent, such consent not to be unreasonably withheld, conditioned or delayed; provided that nothing herein shall require LBIX to agree or consent to any increase in Consideration or other modification or amendment to such filed or served materials that potentially or actually expands or increases LBIX’ obligations set forth in any such filed or served materials or under this Agreement or the Arrangement.

2.8

EFFECT OF THE ARRANGEMENT

(a)

The Arrangement shall be effective at the Effective Time on the date that is the earlier of: (i) the date that is two (2) Business Days after the satisfaction or waiver (subject to applicable laws) of the conditions set forth in Article 5 (other than the delivery of items to be delivered on the Effective Date and the satisfaction of those conditions that, by their terms, cannot be satisfied until the Effective Date) and (ii) such date as is mutually agreed in writing by the Parties (the “ Effective Date ”).

(b)

From and after the Effective Time, the Plan of Arrangement will have all of the effects provided by applicable law, including the BCBCA. Liquid agrees to amend the Plan of Arrangement at any time prior to the Effective Time in accordance with Section 6.2 to include such other terms determined to be necessary or desirable by LBIX, provided that the Plan of Arrangement shall not be amended in any manner which has the effect of reducing the Consideration or which is otherwise prejudicial to the Liquid Shareholders or other parties to be bound by the Plan of Arrangement or is inconsistent with the provisions of this Agreement.

(c)

The closing of the Arrangement will take place at the offices of DuMoulin Black LLP, 10 ^th Floor, 595 Howe Street, Vancouver, British Columbia at 8:00 a.m. on the Effective Date, or at such other time and place as may be agreed to by the Parties.

2.9

PAYMENT OF CONSIDERATION

LBIX will, following receipt by Liquid of the Final Order and prior to the Effective Time, deposit with the Depositary in escrow sufficient LBIX Shares to satisfy the Consideration payable to the Liquid Shareholders.

2.10

ANNOUNCEMENT AND SHAREHOLDER COMMUNICATIONS

LBIX and Liquid shall jointly publicly announce the transactions contemplated hereby promptly following the execution of this Agreement, the text and timing of the joint announcement to be approved by each Party in advance, acting reasonably. LBIX and Liquid agree to co-operate in the preparation of presentations, if any, to the Liquid Shareholders or the LBIX Shareholders regarding the transactions contemplated by this Agreement, and no Party shall (a) issue any press release or otherwise make public announcements with respect to this Agreement or the Plan of Arrangement without the consent of the other Party (which consent shall not be unreasonably withheld or delayed) or (b) make any filing with any Governmental Entity with respect thereto without prior consultation with the other Party; provided, however, that the foregoing shall be subject to each Party’s overriding obligation to make any disclosure or filing required under applicable laws or stock exchange rules, and the Party making such disclosure shall use all commercially reasonable efforts to give prior written notice to the other Party and reasonable opportunity to review or comment on the disclosure or filing, and if such prior notice is not possible, to give such notice immediately following the making of such disclosure or filing.

2.11

WITHHOLDING TAXES

LBIX, Liquid and the Depositary shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable to any Person hereunder and from all dividends, interest or other distributions otherwise payable to any former Liquid Securityholder such amounts as LBIX, Liquid or the Depositary may be required to deduct and withhold therefrom under any provision of applicable laws in respect of Taxes. To the extent that such amounts are so deducted, withheld and remitted, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

2.12

TAX MATTERS

Notwithstanding any representations and covenants set forth in this Agreement, it is understood and agreed that neither LBIX nor Liquid provide any assurances to any Liquid Securityholders regarding the income tax consequences of the Arrangement to any Liquid Securityholders.

ARTICLE 3 REPRESENTATIONS AND WARRANTIES

3.1

REPRESENTATIONS AND WARRANTIES OF LBIX

LBIX hereby represents and warrants to and in favour of Liquid that:

(a)

LBIX is a valid and subsisting corporation under the BCBCA. LBIX has all the requisite corporate power and authority to carry on its business as now being carried on by it and to own or lease and operate its properties and assets and is duly licensed or otherwise qualified to carry on business in each jurisdiction in which a material amount of its business is conducted or wherein the character of the properties and assets now owned by it makes such qualification necessary, except where such failure to be duly licensed or otherwise qualified would not have a Material Adverse Effect;

(b)

LBIX has the requisite corporate power and authority to enter into this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement and the agreements, documents and transactions contemplated herein are within the corporate power and authority of LBIX and have been duly authorized by all necessary corporate action, and this Agreement constitutes a valid and binding obligation of LBIX, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws affecting the rights of creditors generally and subject to the general principles of equity;

(c)

Except as otherwise disclosed in the LBIX Disclosure Documents or to Liquid in writing, there are no actions, suits, proceedings, investigations or outstanding claims or demands, whether or not purportedly on behalf of LBIX or any subsidiaries, instituted, pending, or to the knowledge of LBIX, threatened against or affecting LBIX or any subsidiaries at law or in equity or before or by any governmental department, commission, board, bureau, agency or institution, domestic or foreign, or before any arbitrator, nor is there any judgment, order, decree or award of any court or other governmental authority having jurisdiction, obtained, pending, or to the knowledge of LBIX, threatened against LBIX or any subsidiaries which could prevent or materially hinder the consummation of the Arrangement or the other transactions contemplated by this Agreement, or which could result in a Material Adverse Change in respect of LBIX;

(d)

The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfilment of or compliance with the terms and provisions hereof do not or will not, nor will they with the giving of notice or the lapse of time or both:

(i)

violate any provision of any law or provisions of the Charter Documents of LBIX;

(ii)

conflict with, result in a breach of, constitute default under, or accelerate or permit the acceleration of the performance required by any material agreement, covenant, undertaking, commitment, instrument, judgment, order, decree or award to which LBIX or any subsidiary of LBIX is a Party or by which any of them is bound or to which the property of any of them is subject, all as of the Effective Date; or

(iii)

result in the cancellation, suspension or material alteration in the terms of any material licence, permit or authority held by LBIX or any subsidiary of LBIX, or in the creation of any Encumbrance upon any of the material assets of LBIX or any subsidiary of LBIX under such material agreement, covenant, undertaking, commitment, instrument, judgment, order, decree or award, or give to any other Person any material interest or rights, including rights of purchase, termination, cancellation or acceleration under any such material agreement, covenant, undertaking, commitment, instrument, judgment, order, decree or award;

(e)

LBIX is a Foreign Private Issuer;

(f)

LBIX’s common shares are registered as a class under Section 12(b) of the U.S. Exchange Act, and LBIX has not been subject to any proceeding under Section 12(j) of the U.S. Exchange Act;

(g)

LBIX is listed on NASDAQ under the symbol “LBIX” and is in good standing with NASDAQ;

(h)

LBIX’s board of directors, after consultation with its financial and legal advisors, has determined unanimously to recommend to the LBIX Shareholders that they vote their shares in favour of the LBIX Resolution, and has approved the execution and performance of this Agreement;

(i)

The authorized share capital of LBIX consists of up to 520,000,000 shares divided into 500,000,000 LBIX Shares and 20,000,000 preferred shares without part value of which 1,000,000 are designated as Series “A” Preferred Shares, 100 are designated as Series “B” Preferred Shares, 1,000,000 are designated as Series “C” Preferred Shares, 4,000,000 are designated as Series “D” Preferred Shares, and 4,000,000 are designated as Series “E” Preferred Shares (the “ LBIX Preferred Shares ”). As at the date hereof, there were 2,802,412 LBIX Shares outstanding and no LBIX Preferred Shares outstanding. All outstanding LBIX Shares have been duly authorized and validly issued, are fully paid and non-assessable. All securities of LBIX have been issued in compliance with all applicable laws. Except as previously disclosed to Liquid, as at the date hereof, there are no options, warrants, conversion privileges or other rights (whether pre-emptive or contractual), agreements, arrangements or commitments obligating LBIX to issue or sell any shares of the capital of LBIX or securities or obligations of any kind convertible into or exchangeable for any shares of the capital of LBIX;

(j)

Except as disclosed in the LBIX Disclosure Documents, neither LBIX nor any subsidiaries has any ownership interest in any Person (other than securities in such subsidiary and any marketable securities of publicly-listed issuers or Governmental Entities). LBIX beneficially owns, directly or indirectly, all of the issued and outstanding securities of any subsidiaries free and clear of all Encumbrances (except for restrictions on transfer contained in the constating documents of any subsidiaries). All of the issued and outstanding shares in the capital of any subsidiaries are validly issued, fully paid and non-assessable; there are no outstanding options,

warrants or rights to purchase or acquire, or securities convertible into or exchangeable for, any shares in the share capital of such subsidiaries; and there are no contracts which require such subsidiaries to issue, sell or deliver any shares in its share capital or any securities or obligations convertible into or exchangeable for, any shares of its share capital;

(k)

There are no shareholders agreements, registration rights agreements, voting trusts, proxies or similar agreements, arrangements or commitments to which LBIX or any subsidiaries is a Party, or, to the knowledge of LBIX, with respect to the LBIX Shares or any other equity interests of LBIX or any subsidiaries, or any other contract relating to disposition, voting or dividends with respect to any equity securities of LBIX or any subsidiaries;

(l)

LBIX has conducted and is conducting its business in compliance with all applicable laws, in all material respects;

(m)

The LBIX Financial Statements have been prepared in accordance with U.S. GAAP, applied on a basis consistent with that of prior periods. The LBIX Financial Statements fairly present in all material respects the consolidated financial position of LBIX as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. All indebtedness and liabilities have been reflected therein or in the notes thereto. LBIX has not engaged in any “off-balance sheet” or similar financing;

(n)

The minute books of LBIX have been maintained in accordance with all applicable laws and are, in all material respects, complete and accurate. The financial books and records and accounts of LBIX and those of any subsidiaries have been maintained in accordance with industry practices on a basis consistent with prior years and accurately and fairly reflect, in all material respects, the basis for the LBIX Financial Statements;

(o)

There are no suits, claims, actions or proceedings pending or, to LBIX’s knowledge, threatened against LBIX or any subsidiaries before any Governmental Entity or arbitral panel or tribunal or which involve or affect the LBIX Shares, LBIX or any subsidiaries, their respective assets (including the title to or ownership of material assets), and, to LBIX’s knowledge, there are no grounds upon which such actions, suits or proceedings may be commenced with a reasonable likelihood of success. Neither LBIX nor any subsidiaries is subject to any judgment, order or decree entered in any lawsuit or proceeding;

(p)

No contract to which LBIX or any subsidiaries is a Party or by which either are bound contains any non-competition obligation or otherwise restricts in any material way the business of LBIX, taken as a whole, except to the extent that such restrictions would not in the aggregate have a Material Adverse Effect;

(q)

Neither LBIX nor any subsidiaries own any real property;

(r)

All accounts receivable of LBIX and any subsidiaries were created in the ordinary course of business, are reflected property in their respective books and records and are valid and outstanding, except as provided therein;

(s)

LBIX and any subsidiaries have no material obligations or liabilities, direct or indirect, vested or contingent, in respect of any rate swap transactions, basis swaps, forward rate transactions, commodity swaps, commodity options, equity or equity index swaps, equity or equity index

options, bond options, interest rate options, foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, transactions having terms greater than 90 days, or any similar transactions (including any option with respect to any of such transactions) or any combination of such transactions;

(t)

Except as otherwise disclosed to Liquid in writing or as set out in the LBIX Disclosure Documents:

(i)

LBIX and any subsidiaries have filed all Tax Returns required to be filed by it on or before the date of this Agreement, and those Tax Returns were complete and correct;

(ii)

LBIX and any subsidiaries have duly and timely paid all Taxes (including installments on account of Taxes for the current year) which are due and payable by it on or before the date hereof and have provided adequate accruals in the LBIX Financial Statements for any Taxes for the period covered by such LBIX Financial Statements that have not been paid whether or not shown as being due on any Tax Returns;

(iii)

Since the date of the LBIX Financial Statements, no liability in respect of Taxes not reflected in such LBIX Financial Statements or otherwise provided for has been assessed, proposed to be assessed, incurred or accrued;

(iv)

LBIX and any subsidiaries have duly and timely withheld, deducted and collected, the amount of all Taxes and other amounts required under any applicable laws to be withheld, deducted or collected and has duly and timely remitted such amounts to the appropriate Governmental Entity;

(v)

To LBIX’s knowledge, there are no actions, suits, proceedings, investigations or claims threatened against LBIX or any subsidiaries in respect of Taxes, or any matters under discussion, audit or appeal with any Governmental Entity relating to Taxes asserted by any such Governmental Entity;

(vi)

The income Tax liability of LBIX and any subsidiaries have been assessed by the relevant tax authority in respect of the taxation years of LBIX and any subsidiaries ending before the date hereof;

(vii)

LBIX and any subsidiaries have never been required to file any Tax Return with, and have never been liable to pay any Taxes to, any taxation authority outside Canada or any jurisdiction in which LBIX’s subsidiary resides. No claim has ever been made by any taxation authority in a jurisdiction where LBIX or any subsidiaries does not file Tax Returns that it is or may be subject to the imposition of any Tax by that jurisdiction;

(viii)

LBIX and any subsidiaries have not requested, offered to enter into or entered into any agreement or other arrangement, or executed any waiver providing for any extension of time within which any Governmental Authority may assess or collect Taxes for which LBIX or any subsidiaries is or may be liable;

(ix)

the LBIX Disclosure Documents contain, at the time of their filing, full, true, and plain disclosure of all facts required to be disclosed at the time of such disclosure; and

(x)

Neither LBIX nor any subsidiaries has ever made an “excessive eligible dividend designation” within the meaning of the Tax Act;

(u)

Except as publicly disclosed, since February 28, 2017, LBIX and any subsidiaries have:

(i)

not amended their respective articles, by-laws or other governing documents;

(ii)

except for the transactions contemplated herein, conducted their respective businesses in the usual, ordinary and regular course and consistent with past practice;

(iii)

not suffered any change that would have a Material Adverse Effect;

(iv)

not made any change in their respective accounting principles and practices which are not required by U.S. GAAP as theretofore applied including, without limitation, the basis upon which its assets and liabilities are recorded on its books and its earnings and profits and losses are ascertained;

(v)

not settled any material litigation;

(vi)

not sold, leased, transferred or assigned, in one or more transactions, any assets, tangible or intangible, except inventory, other than in the ordinary course of business;

(vii)

not made any loan to, or any other investment in, any other Person;

(viii)

not issued, sold or otherwise disposed of any of its share capital, or granted any options, warrants or other rights to purchase or obtain (including upon conversion, exchange or exercise) any of its share capital;

(ix)

not declared, set aside or paid any dividend or made any distribution with respect to its share capital (whether in cash or in kind) or redeemed, purchased or otherwise acquired any of its capital; and

(x)

not adopted, amended, modified or terminated any bonus, profit-sharing, incentive, severance, pension or other plan, contract or commitment (or taken any such action with respect to any other such plan) for the benefit of: (A) any of its or any subsidiaries’ officers or directors; or (B) any of its or any subsidiaries’ other employees; and

(v)

Under the Original Arrangement Agreement, it was contemplated that at the Effective Date, LBIX would have [REDACTED: COMMERCIALLY SENSITIVE DOLLAR AMOUNTS] in cash, net of liabilities. As at the date of this Agreement, LBIX has approximately the following assets and liabilities:

(i) Cash on hand: [REDACTED: COMMERCIALLY SENSITIVE DOLLAR AMOUNTS] ;

(ii) Plus prepaid expenses: [REDACTED: COMMERCIALLY SENSITIVE DOLLAR AMOUNTS] ;

(iii) (Less) liabilities: [REDACTED: COMMERCIALLY SENSITIVE DOLLAR AMOUNTS] ;

(iv) Plus contingent liability trust account: [REDACTED: COMMERCIALLY SENSITIVE DOLLAR AMOUNTS] (against which LBIX has been applied a [REDACTED: COMMERCIALLY SENSITIVE DOLLAR AMOUNTS] accrual); and

(v) Plus excess value of tenancy at LBIX’s former head office located at W 8 ^th Ave, Vancouver tenancy ending February 2023, estimated at: [REDACTED: COMMERCIALLY SENSITIVE DOLLAR AMOUNTS] .

(w)

No representation or warranty in this Agreement contains any untrue statement of a Material Fact and the representations and warranties contained in this Agreement do not omit to state any Material Fact necessary to make any of representations or warranties contained herein not misleading to a prospective purchaser of LBIX.

3.2

REPRESENTATIONS AND WARRANTIES OF LIQUID

Liquid hereby represents and warrants to and in favour of LBIX that:

(a)

Liquid is a valid and subsisting corporation under the BCBCA. Liquid has all the requisite corporate power and authority to carry on its business as now being carried on by it and to own or lease and operate its properties and assets and is duly licensed or otherwise qualified to carry on business in each jurisdiction in which a material amount of its business is conducted or wherein the character of the properties and assets now owned by it makes such qualification necessary, except where such failure to be duly licensed or otherwise qualified would not have a Material Adverse Effect;

(b)

Liquid has the requisite corporate power and authority to enter into this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement and the agreements, documents and transactions contemplated herein are within the corporate power and authority of Liquid and have been duly authorized by all necessary corporate action, and this Agreement constitutes a valid and binding obligation of Liquid, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws affecting the rights of creditors generally and subject to the general principles of equity;

(c)

Except as otherwise disclosed in the Liquid Disclosure Documents or to LBIX, there are no actions, suits, proceedings, investigations or outstanding claims or demands, whether or not purportedly on behalf of Liquid or any of its subsidiaries, instituted, pending, or to the knowledge of Liquid, threatened against or affecting Liquid or any of its subsidiaries at law or in equity or before or by any governmental department, commission, board, bureau, agency or institution, domestic or foreign, or before any arbitrator, nor is there any judgment, order, decree or award of any court or other governmental authority having jurisdiction, obtained, pending, or to the knowledge of Liquid, threatened against Liquid or any of its subsidiaries which could prevent or materially hinder the consummation of the Arrangement or the other transactions contemplated by this Agreement, or which could result in a Material Adverse Change in respect of Liquid;

(d)

(i)

violate any provision of any law or provisions of the Charter Documents of Liquid;

(ii)

conflict with, result in a breach of, constitute default under, or accelerate or permit the acceleration of the performance required by any material agreement, covenant, undertaking, commitment, instrument, judgment, order, decree or award to which Liquid or any subsidiary of Liquid is a Party or by which any of them is bound or to which the property of any of them is subject, all as of the Effective Date; or

(iii)

result in the cancellation, suspension or material alteration in the terms of any material licence, permit or authority held by Liquid or any subsidiary of Liquid, or in the creation of any Encumbrance upon any of the material assets of Liquid or any subsidiary of Liquid under such material agreement, covenant, undertaking, commitment, instrument, judgment, order, decree or award, or give to any other Person any material interest or rights, including rights of purchase, termination, cancellation or acceleration under any such material agreement, covenant, undertaking, commitment, instrument, judgment, order, decree or award;

(e)

Liquid is a Foreign Private Issuer;

(f)

Liquid does not and is not required to have a class of securities registered pursuant to Section 12 of the U.S. Exchange Act, and is not subject to a reporting obligation pursuant to Section 15(d) of the U.S. Exchange Act;

(g)

Liquid has not been subject to any proceeding under Section 12(j) of the U.S. Exchange Act;

(h)

Liquid’s board of directors, after consultation with its financial and legal advisors, has determined unanimously that the Arrangement is fair to the Liquid Shareholders and is in the best interests of Liquid, and has resolved unanimously to recommend to the Liquid Shareholders that they vote their shares in favour of the Arrangement Resolution, and has unanimously approved the Arrangement pursuant to the Plan of Arrangement and the execution and performance of this Agreement, and the performance of the Plan of Arrangement;

(i)

The authorized share capital of Liquid consists of an unlimited number of Liquid Shares and an unlimited number of Class “B” and Class “C” Preferred Shares without par value (together, the “ Liquid Preferred Shares ”). As at the date hereof, there were 11,198,155 Liquid Shares outstanding and no Liquid Preferred Shares outstanding. All outstanding Liquid Shares have been duly authorized and validly issued, are fully paid and non-assessable. All securities of Liquid have been issued in compliance with all applicable laws. Except as previously disclosed to LBIX in writing, as at the date hereof, there are no options, warrants, conversion privileges or other rights (whether pre-emptive or contractual), agreements, arrangements or commitments obligating Liquid to issue or sell any shares of the capital of Liquid or securities or obligations of any kind convertible into or exchangeable for any shares of the capital of Liquid;

(j)

Except as disclosed in the Liquid Disclosure Documents, neither Liquid nor any of its subsidiaries, nor Waterproof, has any ownership interest in any Person (other than securities in such subsidiary and any marketable securities of publicly-listed issuers or Governmental Entities). Liquid beneficially owns, directly or indirectly, (i) 49% of the common shares in Waterproof, (ii) 51% of the common shares in Majesco, (iii) 50% of Household Pests Holdings, Inc., a company incorporated under the laws of Delaware and (iv) all of the issued and outstanding securities of Reservoir Media Ltd., a company incorporated under the laws of British Columbia , free and clear of all Encumbrances (except for restrictions on transfer contained in the constating documents of its subsidiary). All of the issued and outstanding shares in the capital of its subsidiary are validly issued, fully paid and non-assessable; there are no outstanding options, warrants or rights to purchase or acquire, or securities convertible into or exchangeable for, any shares in the share capital of such subsidiary; and there are no contracts which require such subsidiary to issue, sell or deliver any shares in its share capital or any securities or obligations convertible into or exchangeable for, any shares of its share capital. Liquid’s only subsidiaries are Majesco, Reservoir Media Ltd. and Household Pests Holdings, Inc.;

(k)

Other than a Voting Agreement dated December 12, 2017 by and among Majesco, Liquid and Zift Interactive, LLC, there are no shareholders, registration rights agreements, voting trusts, proxies or similar agreements, arrangements or commitments to which Liquid or its subsidiary is a Party or, to the knowledge of Liquid, with respect to the Liquid Shares or any other equity interests of Liquid or its subsidiary, or any other contract relating to disposition, voting or dividends with respect to any equity securities of Liquid or its subsidiary;

(l)

Liquid and its subsidiaries have conducted and are conducting their business in compliance with all applicable laws, in all material respects;

(m)

The Liquid Financial Statements have been prepared in accordance with Canadian GAAP, applied on a basis consistent with that of prior periods. The Liquid Financial Statements fairly present in all material respects the consolidated financial position of Liquid as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. All indebtedness and liabilities have been reflected therein or in the notes thereto. Liquid has not engaged in any “off-balance sheet” or similar financing;

(n)

The minute books of Liquid and the minute books of its subsidiary, since the date of creation or acquisition of such subsidiary, have been maintained in accordance with all applicable laws and are, in all material respects, complete and accurate. The financial books and records and accounts of Liquid and those of its subsidiary have been maintained in accordance with industry practices on a basis consistent with prior years and accurately and fairly reflect, in all material respects, the basis for the Liquid Financial Statements;

(o)

There are no suits, claims, actions or proceedings pending or, to Liquid’s knowledge, threatened against Liquid or its subsidiary before any Governmental Entity or arbitral panel or tribunal or which involve or affect the Liquid Shares, Liquid or its subsidiary, their respective assets (including the title to or ownership of material assets), and, to the Liquid’s knowledge, there are no grounds upon which such actions, suits or proceedings may be commenced with a reasonable likelihood of success. Neither Liquid nor its subsidiary is subject to any judgment, order or decree entered in any lawsuit or proceeding;

(p)

Neither Liquid nor its subsidiary owns any real property;

(q)

All accounts receivable of Liquid and its subsidiary were created in the ordinary course of business, are reflected property in their respective books and records and are valid and outstanding, except as provided therein;

(r)

Liquid and its subsidiary have no material obligations or liabilities, direct or indirect, vested or contingent, in respect of any rate swap transactions, basis swaps, forward rate transactions, commodity swaps, commodity options, equity or equity index swaps, equity or equity index options, bond options, interest rate options, foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, transactions having terms greater than 90 days or any similar transactions (including any option with respect to any of such transactions) or any combination of such transactions;

(s)

Except as otherwise disclosed to LBIX in writing:

(i)

Liquid and its subsidiary has filed all Tax Returns required to be filed by it on or before the date of this Agreement, and those Tax Returns were complete and correct;

(ii)

Liquid and its subsidiary has duly and timely paid all Taxes (including installments on account of Taxes for the current year) which are due and payable by it on or before the date hereof and have provided adequate accruals in the Liquid Financial Statements for any Taxes for the period covered by such Liquid Financial Statements that have not been paid whether or not shown as being due on any Tax Returns;

(iii)

Since the date of the Liquid Financial Statements, no liability in respect of Taxes not reflected in such Liquid Financial Statements or otherwise provided for has been assessed, proposed to be assessed, incurred or accrued.

(iv)

Liquid and its subsidiary has duly and timely withheld, deducted and collected, the amount of all Taxes and other amounts required under any applicable laws to be withheld, deducted or collected and has duly and timely remitted such amounts to the appropriate Governmental Entity;

(v)

To Liquid’s knowledge, there are no actions, suits, proceedings, investigations or claims threatened against Liquid or its subsidiary in respect of Taxes, or any matters under discussion, audit or appeal with any Governmental Entity relating to Taxes asserted by any such Governmental Entity;

(vi)

The income Tax liability of Liquid and its subsidiary has been assessed by the relevant tax authority in respect of the taxation years of Liquid and its subsidiary ending before the date hereof;

(vii)

Liquid and its subsidiary have never been required to file any Tax Return with, and have never been liable to pay any Taxes to, any taxation authority outside Canada or any jurisdiction in which one of Liquid’s subsidiary resides. No claim has ever been made by any taxation authority in a jurisdiction where Liquid or its subsidiary does not file Tax Returns that it is or may be subject to the imposition of any Tax by that jurisdiction;

(viii)

Liquid and its subsidiary have not requested, offered to enter into or entered into any agreement or other arrangement, or executed any waiver providing for any extension of time within which any Governmental Authority may assess or collect Taxes for which Liquid or its subsidiary is or may be liable;

(ix)

the Liquid Disclosure Documents contain, at the time of their filing, full, true, and plain disclosure of all facts required to be disclosed at the time of such disclosure; and

(x)

Neither Liquid nor its subsidiary has ever made an “excessive eligible dividend designation” within the meaning of the Tax Act;

(t)

Except as disclosed to LBIX in writing, since November 30, 2016, Liquid and its subsidiary have:

(i)

not amended their respective articles, by-laws or other governing documents;

(ii)

except for the transactions contemplated herein, conducted the business in the usual, ordinary and regular course and consistent with past practice;

(iii)

not suffered any change that would have a Material Adverse Effect;

(iv)

not made any change in their respective accounting principles and practices which are not required by Canadian GAAP as theretofore applied including, without limitation, the basis upon which its assets and liabilities are recorded on its books and its earnings and profits and losses are ascertained;

(v)

not settled any litigation;

(vi)

not sold, leased, transferred or assigned, in one or more transactions, any assets, tangible or intangible, except inventory in the ordinary course of business;

(vii)

(viii)

(ix)

not adopted, amended, modified or terminated any bonus, profit-sharing, incentive, severance, pension or other plan, contract or commitment (or taken any such action with respect to any other such plan) for the benefit of: (A) any of its or its subsidiary’s officers or directors; or (B) any of its or its subsidiary’s other employees; and

(u)

All documents delivered by Liquid to LBIX, including, without limitation. any third party reports, that describe or relate to the business of Liquid, including, without limitation, any assets and liabilities, are true and accurate in all material respects;

(v)

ARTICLE 4 COVENANTS AND RIGHTS

4.1

COVENANTS OF LIQUID REGARDING THE ARRANGEMENT

Liquid hereby covenants and agrees with LBIX as follows:

(a)

subject to obtaining the Interim Order, Liquid will convene the Liquid Meeting for the approval of the Arrangement and other matters incidental to the Arrangement;

(b)

Liquid will perform all such other acts and do such things as may be necessary or desirable in order to give effect to the Arrangement and, without limiting the generality of the foregoing, Liquid will use its best efforts to apply for and obtain:

(i)

the Interim Order;

(ii)

the Final Order;

(iii)

approval of the Arrangement from the Liquid Shareholders; and

(iv)

such other consents, orders and approvals as counsel may advise are necessary or desirable for the implementation of the Arrangement;

(c)

Liquid will use all reasonable efforts to cause each of the conditions precedent set forth in Article 5 hereof to be complied with, on or before the Effective Date; and

(d)

Liquid will ensure that the Liquid Circular will not contain an untrue statement of a Material Fact concerning Liquid and will not omit to state a Material Fact concerning Liquid that is required to be stated or that is necessary in order to render a statement contained therein not misleading in the light of the circumstances in which it was made.

4.2

COVENANTS OF LBIX REGARDING THE ARRANGEMENT

LBIX hereby covenants and agrees with Liquid as follows:

(a)

LBIX shall be solely responsible for all of its outstanding and subsequent professional fees associated with negotiating and closing the Arrangement and the transactions contemplated therein, such costs and expenses, including legal and accounting fees, are estimated to be CDN$225,000 as of the date of this Agreement;

(b)

LBIX shall apply for and use commercially reasonable efforts to obtain conditional approval of the listing and posting for trading on NASDAQ of the Consideration Shares, subject only to the satisfaction by Liquid and LBIX of customary post-closing conditions imposed by NASDAQ in similar circumstances;

(c)

LBIX shall apply for directors’ and officers’ insurance policies for the incoming directors and officers following completion of the Arrangement.

(d)

LBIX will convene the LBIX Meeting for the approval of the LBIX Resolution and other matters incidental to the Arrangement;

(e)

LBIX will perform all such other acts and do such things as may be necessary or desirable in order to consummate and make effective, as soon as reasonably practicable, the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, LBIX shall:

(i)

effective as of the Effective Time, cause LBIX to change its name to Liquid Media Group Ltd. or such other name approved by Liquid and approved by the Registrar and NASDAQ;

(ii)

effective as of the Effective Time, cause the board of directors of LBIX to consist of four directors, three of which shall be designated by Liquid and the fourth shall be Thomas Gaglardi;

(iii)

use reasonable commercial efforts to obtain, prior to the Effective Date, written resignations, effective as of the Effective Time, from officers of LBIX specified by Liquid; and

(iv)

in accordance with the certificates governing the terms and conditions of the Liquid Warrants, issue to each holder of a Liquid Warrant outstanding immediately prior to the Effective Time upon the exercise of such holder’s Liquid Warrants, in lieu of each Liquid Share to which such holder was theretofore entitled, upon such exercise and for the same aggregate consideration payable therefor, the number of LBIX Shares equal to the product of: (i) the number of Liquid Shares subject to such Liquid Warrant immediately prior to the Effective Time; and (ii ) 0.5741. Each Liquid Warrant shall continue to be governed by and be subject to the terms of the certificate governing the terms and conditions of such Liquid Warrant;

(f)

LBIX will use all reasonable efforts to cause each of the conditions precedent set forth in Article 5 hereof to be complied with, on or before the Effective Date;

(g)

On or prior to the Effective Date, LBIX will waive, suspend the operation of, or otherwise render the LBIX Shareholder Rights Plan inoperative or ineffective as regards to the Plan of Arrangement; and

(h)

LBIX will ensure that the LBIX Circular and Liquid Circular will not contain an untrue statement of a Material Fact concerning LBIX and will not omit to state a Material Fact concerning LBIX that is required to be stated or that is necessary in order to render a statement contained therein not misleading in the light of the circumstances in which it was made.

4.3

COVENANTS OF LIQUID REGARDING CONDUCT OF BUSINESS

Liquid covenants and agrees that it shall, and shall cause its subsidiary to, during the period from the date of this Agreement until the earlier of the Effective Time and the time that this Agreement is terminated in accordance with its terms, unless LBIX shall otherwise agree in writing, or except as is otherwise expressly permitted or contemplated by this Agreement or the Plan of Arrangement or as otherwise required by law:

(a)

not merge into or with or amalgamate or consolidate with or enter into any other corporate reorganization with any other Person or perform any act or enter into any transaction or negotiation which interferes or is inconsistent with the completion of the transactions contemplated hereby or would render inaccurate in any material way any of the representations and warranties set forth in Section 3.2 hereof if such representations and warranties were made at a date subsequent to such act, negotiation or transaction and all references to the date of this Agreement were deemed to be such later date, except as contemplated in this Agreement or as otherwise approved by LBIX;

(b)

conduct its business only in, not take any action except in, and maintain its properties and facilities in, the ordinary course of business consistent with past practice;

(c)

not amend or propose to amend its articles or by-laws;

(d)

ensure that, immediately prior to the Effective Time, subject to the additional offering of securities by Liquid under terms mutually agreed upon between the parties, (i) there are issued and outstanding only 11,198,155 Liquid Shares; (ii) there are no Liquid Shares issuable pursuant to Liquid Options; (iii) there are not more than 2,859,597 Liquid Shares issuable pursuant to Liquid Warrants; and (iv) there are issued and outstanding not more than 3,913,894 Liquid Preferred Shares;

(e)

not split, consolidate, combine or reclassify any class of securities or declare, set aside or pay any dividend or other distribution payable in cash, securities, property or otherwise with respect to any class of securities;

(f)

not redeem, purchase or offer to purchase any securities;

(g)

not to amend any stock option plan or adopt any other bonus, profit sharing, incentive, compensation, stock option, pension, retirement, deferred compensation, employment or other employee benefit plan, agreement, trust, fund or arrangement for the benefit or welfare of any employee;

(h)

use its commercially reasonable efforts to preserve intact the business and the goodwill of Liquid, Majesco and Waterproof, and to keep available the services of the officers and employees of Liquid, Majesco and Waterproof;

(i)

not to take any action that would render, or that may reasonably be expected to render, any representation or warranty (except any representation and warranty which speaks solely as of a date prior to the occurrence of such action) made by it in this Agreement untrue at any time prior to the Effective Time;

(j)

promptly notify LBIX of any change that could have a Material Adverse Effect;

(k)

not repay any outstanding indebtedness in excess of an amount of CDN$25,000 except such indebtedness disclosed in the Liquid Financial Statements;

(l)

not make capital expenditures from the date hereof to the Effective Date;

(m)

not incur any new indebtedness or issue any debt securities or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other Person;

(n)

not amend any Tax Returns or settle or compromise any material federal, national, provincial, foreign, state or local tax liability;

(o)

not reduce the stated capital of the shares of Liquid;

(p)

not adopt a plan of liquidation or resolutions providing for the liquidation or dissolution;

(q)

not pay, discharge, satisfy or settle any claims, liabilities or obligations other than the payment, discharge, settlement or satisfaction, in the ordinary course of business consistent with past practice, of liabilities reflected or reserved against in the Liquid Financial Statements;

(r)

not authorize, recommend or propose any release or relinquishment of any contractual right;

(s)

not enter into any interest rate, currency swaps, hedges, caps, collars, forward sales or other similar financial instruments;

(t)

not, except as required by Canadian GAAP or any applicable laws, make any changes to the existing accounting practices of Liquid or make any tax election inconsistent with past practice;

(u)

not increase the remuneration or benefits payable or to become payable to its directors, officers or, except as required pursuant to an existing contractual obligation, employees (whether from Liquid or its subsidiary); or enter into or modify any employment, retention, severance or similar agreements or arrangements with, or grant any bonuses, salary increases, retention, severance or termination pay to, any member of its board of directors, officer or employee of Liquid or its subsidiary;

(v)

not waive, release, assign, settle or compromise any legal actions or any claim or liability other than in the ordinary course of business consistent with past practice; or

(w)

not agree or commit to do any of the foregoing.

4.4

COVENANTS OF LBIX REGARDING CONDUCT OF BUSINESS

LBIX covenants and agrees that it shall, and shall cause any subsidiaries to, during the period from the date of this Agreement until the earlier of the Effective Time and the time that this Agreement is terminated in accordance with its terms, unless Liquid shall otherwise agree in writing, or except as is otherwise expressly permitted or contemplated by this Agreement or the Plan of Arrangement or as otherwise required by law:

(a)

LBIX will not merge into or with or amalgamate or consolidate with or enter into any other corporate reorganization with any other Person or perform any act or enter into any transaction or negotiation which interferes or is inconsistent with the completion of the transactions contemplated hereby or would render inaccurate in any material way any of the representations and warranties set forth in Section 3.2 hereof if such representations and warranties were made at a date subsequent to such act, negotiation or transaction and all references to the date of this Agreement were deemed to be such later date, except as contemplated in this Agreement or as otherwise approved by Liquid;

(b)

conduct its business only in, not take any action except in, and maintain its properties and facilities in, the ordinary course of business consistent with past practice;

(c)

not amend or propose to amend its articles or by-laws;

(d)

ensure that, immediately prior to the Effective Time, (i) there are issued and outstanding only 2,802,412 LBIX Shares; (ii) there are not more than 694,000 LBIX Shares issuable pursuant to LBIX Management Options; and (iii) there are not more than 25,000 LBIX Shares issuable pursuant to LBIX Warrants;

(e)

(f)

not redeem, purchase or offer to purchase any securities;

(g)

(h)

to maintain insurance on and in respect of the property and assets owned or leased by LBIX and any subsidiaries in like kind to, and in an amount not less than the amount of, insurance in respect of such property and assets in effect on the date hereof;

(i)

use its commercially reasonable efforts to preserve intact the business and the goodwill of LBIX, to keep available the services of the officers and employees of LBIX;

(j)

(k)

promptly notify Liquid of any change that could have a Material Adverse Effect;

(l)

not repay any outstanding indebtedness in excess of an amount of CDN$25,000 except such indebtedness disclosed in the LBIX Financial Statements;

(m)

not make capital expenditures from the date hereof to the Effective Date;

(n)

not incur any new indebtedness or issue any debt securities or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other Person;

(o)

not amend any Tax Returns or settle or compromise any material federal, national, provincial, foreign, state or local tax liability;

(p)

not reduce the stated capital of the shares of LBIX;

(q)

not adopt a plan or resolutions providing for dissolution;

(r)

(s)

not authorize, recommend or propose any release or relinquishment of any contractual right;

(t)

not enter into any interest rate, currency swaps, hedges, caps, collars, forward sales or other similar financial instruments;

(u)

not, except as required by U.S. GAAP or any applicable laws, make any changes to the existing accounting practices of LBIX or make any tax election inconsistent with past practice;

(v)

not increase the remuneration or benefits payable or to become payable to its directors, officers or, except as required pursuant to an existing contractual obligation, employees (whether from LBIX or any subsidiaries); or enter into or modify any employment, retention, severance or similar agreements or arrangements with, or grant any bonuses, salary increases, retention, severance or termination pay to, any member of its board of directors, officer or employee of LBIX or any subsidiaries;

(w)

not waive, release, assign, settle or compromise any legal actions or any claim or liability other than in the ordinary course of business consistent with past practice; or

(x)

not agree or commit to do any of the foregoing.

4.5

INTERIM ORDER AND FINAL ORDER

Liquid covenants and agrees that it will, as soon as reasonably practicable, apply to the Court pursuant to Section 291 of the BCBCA for the Interim Order providing for, among other things, the calling and holding of the Meetings for the purpose of, among other matters, the Liquid Shareholders and LBIX Shareholders considering and, if deemed advisable, approving the Arrangement and that, if the approval of the Liquid Shareholders and LBIX Shareholders of the Arrangement as set forth in the Interim Order is obtained by Liquid, as soon as practicable thereafter Liquid will take the necessary steps to submit the Arrangement to the Court and apply for the Final Order in such fashion as the Court may direct. As soon as practicable thereafter, and subject to compliance with the other conditions provided in Article 5 hereof, Liquid shall send to the Registrar, in accordance with Section 292 of the BCBCA, the necessary documents to give effect to the Arrangement.

4.6

ADDITIONAL COVENANTS

(a)

Liquid and LBIX hereby covenant and agree to retain, at Liquid’s cost, Donohoe Advisory Associates LLC to advise and assist in preparing the application to NASDAQ for the listing and posting for trading on NASDAQ of the Consideration Shares.

(b)

On or before the Effective Date, [REDACTED: COMMERCIALLY SENSITIVE CONTRACTUAL TERM RELATING TO PENDING MATTERS].

(c)

Prior to the Effective Time, LBIX shall obtain and fully pay the premiums for a non-cancellable extension of the directors’ and officers’ liability coverage of LBIX’s existing directors’ and officers’ insurance policies and LBIX’s existing fiduciary liability insurance policies (collectively, the “D&O Insurance”), in each case for a claims reporting or discovery period of up to six (6) years from and after the Effective Time with respect to any claim related to any period of time at or prior to the Effective Time from LBIX’s current D&O Insurance carriers or one or more insurance carriers with the same or better credit rating as LBIX’s current D&O Insurance carriers with respect to directors’ and officers’ insurance policies in an amount and scope at least as favorable as the D&O Insurance;

(d)

LBIX shall honour all rights to indemnification or exculpation now existing in favour of present and former officers and directors of LBIX and any subsidiaries, and acknowledges that such rights shall survive the completion of the Plan of Arrangement and shall continue in full force and effect for a period of not less than six (6) years from the Effective Date.

(e)

The provisions of this Section 4.6(c) and (d) are intended for the benefit of, and shall be enforceable by, each insured or indemnified person, his or her heirs and his or her legal representatives and, for such purpose, LBIX hereby confirms that it is acting as agent and trustee on their behalf. Furthermore, this Section 4.7 shall survive the termination of this Agreement as a result of the occurrence of the Effective Date for a period of six (6) years.

ARTICLE 5 CONDITIONS

5.1

MUTUAL CONDITIONS PRECEDENT

The obligations of the Parties to complete the Arrangement are subject to the fulfillment of each of the following conditions precedent on or before the Effective Time, each of which may only be waived with the mutual consent of the Parties:

(a)

the Arrangement Resolution shall have been approved and adopted by the Liquid Shareholders at the Liquid Meeting in accordance with the Interim Order;

(b)

the Interim Order and the Final Order shall each have been obtained on terms consistent with this Agreement, and shall not have been set aside or modified in a manner unacceptable to LBIX or Liquid, acting reasonably, on appeal or otherwise;

(c)

the LBIX Resolution shall have been approved by the LBIX Shareholders;

(d)

there shall not exist any prohibition at law, including any final, non-appealable cease trade order, injunction or other prohibition or order of any Governmental Entity of competent jurisdiction, which shall restrain, enjoin, make illegal or otherwise prohibit or prevent the consummation of the Arrangement

(e)

LBIX shall continue to be a Foreign Private Issuer and not required to be registered under the US Investment Company Act ;

(f)

the distribution of the Consideration Shares, as contemplated in the Plan of Arrangement, in the United States pursuant to the Arrangement shall be exempt from registration requirements under the U.S. Securities Act and except with respect to persons deemed “affiliates” under such enactment, the Consideration Shares, as contemplated in the Plan of Arrangement, to be distributed in the United States pursuant to the Arrangement shall not be subject to resale restrictions in the United States under such enactment;

(g)

the distribution of the Consideration Shares, as contemplated in the Plan of Arrangement, in Canada pursuant to the Arrangement shall be exempt from registration and prospectus requirements of applicable Canadian securities legislation;

(h)

there shall not be in force any law, ruling, order or decree that makes it illegal or restrains, or enjoins or prohibits the consummation of the transactions contemplated by this Agreement and the Arrangement; and

(i)

this Agreement shall not have been terminated under Article 6.

5.2

CONDITIONS IN FAVOUR OF LIQUID

The obligations of Liquid to complete the transactions contemplated by this Agreement shall be subject to the satisfaction of the following conditions, unless otherwise waived by Liquid:

(a)

LBIX shall have no less than CDN$250,000 from its current cash and prepaid expenses and shall conduct its business and affairs in the normal course and in accordance with its rights and obligations under this Agreement;

(b)

The contingency fund set out in section 3.1(v)(iv) shall not have been reassigned for any other purpose than set out therein;

(c)

Any receivables collected by LBIX related to the lease set out in section 3.1(v)(v) shall have been pooled and not have been spent for any purpose other than costs and expenses in relation to such lease;

(d)

the representations and warranties of LBIX contained in this Agreement shall be true as of the Effective Date (except to the extent that the representations and warranties speak as of an earlier date, in which event they shall be true as of such earlier date) as if made on and as of that date except for any failures or breaches of representations and warranties that have not had, or would not have, individually or in the aggregate, a Material Adverse Effect on LBIX or prevent or delay the completion of the Arrangement or the transactions contemplated by this Agreement to be completed on the Effective Date; and

(e)

LBIX shall have complied with its obligations under this Agreement, except to the extent the failure to comply with those obligations has not had, or would not have, individually or in the aggregate, a Material Adverse Effect on LBIX or prevent or delay the completion of the Arrangement or the transactions contemplated by this Agreement to be completed on the Effective Date.

5.3

CONDITIONS IN FAVOUR OF LBIX

The obligations of LBIX to complete the transactions contemplated by this Agreement shall be subject to the satisfaction of the following conditions, unless otherwise waived by LBIX:

(a)

the LBIX Management Options are extended for a period of 12 months following the Effective Time, with 25% of such LBIX Management Options of each holder thereof vesting immediately following the Effective Time, with the remainder vesting 25% quarterly thereafter;

(b)

all of the existing directors and officers of LBIX immediately prior to the Effective Time shall have received a general release and indemnity from LBIX on terms satisfactory to such directors and officers;

(c)

LBIX shall be reasonably satisfied that, immediately prior to the Effective Date, all of the outstanding Liquid Options shall have been cancelled or shall otherwise have ceased to exist or represent a liability or obligation of Liquid;

(d)

LBIX shall be reasonably satisfied that, within thirty (30) days of the date of this Agreement and in any event prior to the record date for Liquid Shareholders regarding entitlement to notice of and to vote at the Liquid Meeting, each Liquid Supporting Shareholder has entered into a Liquid Voting Agreement with LBIX in a form satisfactory to LBIX in its sole discretion;

(e)

the representations and warranties of Liquid contained in this Agreement shall be true as of the Effective Date (except to the extent that the representations and warranties speak as of an earlier date, in which event they shall be true as of such earlier date) as if made on and as of that date except for any failures or breaches of representations and warranties that have not had, or would not have, individually or in the aggregate, a Material Adverse Effect on Liquid or prevent or delay the completion of the Arrangement or the transactions contemplated by this Agreement to be completed on the Effective Date;

(f)

LBIX shall be reasonably satisfied that, as of the Effective Date, Liquid continues to holds at least 51% of the total outstanding share capital of Majesco, two of the three directors on the Majesco board have been designated by Liquid, and all that documents contemplated in relation to the Majesco Acquisition continue to remain in full force and effect;

(g)

the representations and warranties made in Article II of the Majesco Share Purchase Agreement shall be true as of the Effective Date (except to the extent that the representations and warranties speak as of an earlier date, in which event they shall be true as of such earlier date) as if made on and as of that date, and the covenants and agreements contained in the Majesco Share Purchase Agreement to be performed by Majesco have been fully performed;

(h)

Donohoe Advisory Associates LLC shall be reasonably satisfied in its sole discretion that, as of the Effective Date, there are adequate funds committed under the Liquid Financing such that LBIX and/or Liquid has sufficient capital and/or capital commitments as to satisfy the requirements for the listing and posting for trading on NASDAQ of the Consideration Shares;

(i)

Liquid shall have complied with its obligations under this Agreement, except to the extent the failure to comply with those obligations has not had, or would not have, individually or in the aggregate, a Material Adverse Effect on Liquid or prevent or delay the completion of the Arrangement or the transactions contemplated by this Agreement to be completed on the Effective Date.

ARTICLE 6 AMENDMENT AND TERMINATION

6.1

AMENDMENT AND VARIATION

Subject to Sections 6.2 and 6.5 hereof, this Agreement may, at any time and from time to time, before and after the holding of the Meetings, but not later than the Effective Date, be amended or varied by written agreement of Liquid and LBIX, subject to subject to the Interim Order, the Final Order and applicable law, without further notice to or authorization on the part of the Liquid Shareholders and LBIX Shareholders. Without limiting the generality of the foregoing, any such amendment may:

(a)

change the time for the performance of any of the obligations or acts of the Parties;

(b)

waive any inaccuracies or modify any representation or warranty contained herein or in any document to be delivered pursuant hereto;

(c)

waive compliance with or modify any of the covenants contained herein or waive or modify the performance of any of the obligations of the Parties contained herein;

(d)

waive compliance with or modify any mutual conditions precedent herein contained; and/or

(e)

amend the steps comprising the Arrangement.

6.2

AMENDMENT OF PLAN

The Plan of Arrangement may be amended, modified or supplemented in accordance with Section 6.1 of the Plan of Arrangement.

6.3

RIGHTS OF TERMINATION

(a) If any of the conditions contained in Sections 5.1, 5.2 or 5.3 are not fulfilled or performed on or before the Effective Date, the Party not responsible hereunder to fulfill or perform any such condition may terminate this Agreement by notice to the other Party, as the case may be, in writing, and in such event, Liquid or LBIX, as the case may be, shall be released from all obligations under this Agreement, all rights of specific performance by the Parties shall terminate and the other Party shall also be released from all obligations hereunder.

6.4

NOTICE OF UNFULFILLED CONDITIONS

If any Party shall determine at any time prior to the Effective Date that it intends to refuse to consummate the Arrangement or any of the transactions contemplated thereby because of any unfulfilled or unperformed condition precedent contained in this Agreement on the part of the other Party to be fulfilled or performed, such Party, as the case may be, shall so notify the other Party forthwith upon making such determination in order that the other Party shall have the right and opportunity to take such steps, at its own expense, as may be necessary for the purpose of fulfilling or performing such condition precedent within a reasonable period of time.

6.5

MUTUAL TERMINATION

This Agreement may, at any time before or after the holding of the Liquid Meeting and LBIX Meeting, but no later than the Effective Date, be terminated by agreement in writing executed by Liquid and LBIX without further action on the part of either of the Liquid Shareholders or LBIX Shareholders.

6.6

EFFECT OF TERMINATION

Upon the termination of this Agreement pursuant to Article 6 hereof, neither Party shall have any liability or further obligation to the other Party.

ARTICLE 7 MERGER

7.1

MERGER OF CONDITIONS

The conditions set out in Sections 5.1, 5.2 and 5.3 hereof shall be conclusively deemed to have been satisfied or waived upon the Effective Date.

7.2

MERGER OF COVENANTS

The provisions of Sections 4.1 and 4.2 hereof shall be conclusively deemed to have been satisfied in all respects upon the Registrar accepting for filing the documents required to be filed pursuant to Section 292 of the BCBCA giving effect to the Arrangement.

7.3

INDEMNIFICATION

Each of the Parties hereto (the “ Indemnifying Party ”) hereby undertakes with the other Party to this Agreement (the “ Indemnified Party ”) to indemnify and hold harmless the Indemnified Party from and against all losses, claims, damages, liabilities, actions or demands including, without limiting the generality of the foregoing, amounts paid in any settlement approved by the Indemnifying Party of any action, suit, proceeding or claim, to which the Indemnified Party may become subject insofar as such losses, claims, damages, liabilities, actions or demands arise out of or are based upon any breach of a representation, warranty, covenant or obligation of the Indemnifying Party contained in this Agreement or any certificate or notice delivered by it in connection herewith, and will reimburse the Indemnified Party for any legal or other expenses reasonably incurred by the Indemnified Party in connection with investigating or defending any such loss, claim, damage, liability, action or demand.

This indemnity will not apply in respect of an Indemnified Party in the event and to the extent that a court of competent jurisdiction in a final judgment shall determine that the Indemnified Party was grossly negligent or guilty of willful misconduct.

7.4

DEFENCE

Promptly after receipt by the Indemnified Party of notice of a possible action, suit, proceeding or claim referred to in Section 7.3 hereof, the Indemnified Party, if a claim in respect thereof is to be made against the Indemnifying Party under such section, shall provide the Indemnifying Party with written particulars thereof; provided that the failure to so provide the Indemnifying Party with such particulars shall not relieve such Indemnifying Party from any liability which it might have on account of the indemnity provided for in this Article 7, except insofar as such failure shall prejudice such Indemnifying Party. The Indemnified Party shall also provide the Indemnifying Party with copies of all relevant documentation, and unless the Indemnifying Party assumes the defence thereof, shall keep such Indemnifying Party advised of the progress thereof and shall keep such Indemnifying Party advised of all significant actions proposed. An Indemnifying Party shall be entitled, at its own expense, to participate in and, to the extent that it may wish, to assume the defence of any such action, suit, proceeding or claim but such defence shall be conducted by counsel of good standing approved by the Indemnified Party, such approval not to be unreasonably withheld. Upon the Indemnifying Party notifying the Indemnified Party of its election so to assume the defence and retaining such counsel, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by it in connection with such defence other than for reasonable costs of investigation. If such defence is assumed by the Indemnifying Party, it shall, throughout the course thereof, provide copies of all relevant documentation to the Indemnified Party, keep such Indemnified Party advised of the progress thereof and shall discuss with the Indemnified Party all significant actions proposed. No Indemnifying Party shall enter into any settlement without the consent of the Indemnified Party, but such consent shall not be unreasonably withheld. Notwithstanding the foregoing, the Indemnified Party shall have the right, at the Indemnifying Party’s expense, to employ counsel of their own choice in respect of the defence of any such action, suit, proceeding or claim if:

(a)

the employment of such counsel has been authorized by the Indemnifying Party in connection with such defence;

(b)

counsel retained by the Indemnifying Party or the Indemnified Party shall have advised the Indemnified Party that there may be legal defences available to it which are different from or in addition to those available to the Indemnifying Party (in which event, and to that extent, the Indemnifying Party shall not have the right to assume or direct the defence on behalf of the Indemnified Party) or that there may be a conflict of interest between the Indemnifying Party and the Indemnified Party; or

(c)

the Indemnifying Party shall not have assumed such defence and employed counsel therefor within a reasonable time after receiving notice of such action, suit, proceeding or claim.

7.5

TERM

This Agreement shall be effective from the date hereof until the earlier of the Effective Time and the termination of this Agreement in accordance with its terms.

ARTICLE 8 GENERAL

8.1

NOTICES

All notices which may or are required to be given pursuant to any provision of this Agreement shall be given or made in writing and shall be deemed to be validly given if served personally or by facsimile, in each case to the attention of the senior officer at the following addresses or at such other address as shall be specified by a Party by like notice:

(a)

if to Liquid:

Suite 1000 - 409 Granville Street

Vancouver, British Columbia V6C 1T2

Attention: Krysanne Katsoolis

with a copy to:

Segev LLP

Suite 310, 318 Homer Street

Vancouver, BC, V6B 2V2

Attention: Danny Matthews

Facsimile: 604.629.5409

(b)

if to LBIX:

33 W. 8th Avenue - Unit 101

Vancouver, BC V5Y 1M8

Attention: Ralph McRae

Facsimile: 604.685.5249

with a copy to:

Dumoulin Black LLP

10 ^th Floor – 595 Howe Street

Vancouver, BC, V6C 2T5

Attention: Kristopher Britch

Facsimile: 604.687.8772

Any notice that is delivered to such address shall be deemed to be delivered on the date of delivery if delivered on a Business Day prior to 5:00 p.m. (local time at the place of receipt) or on the next Business Day if delivered after 5:00 p.m. or on a non-Business Day. Any notice delivered by facsimile transmission shall be deemed to be delivered on the date of transmission if delivered on a Business Day prior to 5:00 p.m. (local time at the place of receipt) or on the next Business Day if delivered after 5:00 p.m. or on a non-Business Day.

8.2

TIME OF THE ESSENCE

Time shall be of the essence in this Agreement.

8.3

ASSIGNMENT

Neither Liquid nor LBIX may assign its rights or obligations under this Agreement or the Arrangement without the prior written consent of the other of them.

8.4

BINDING EFFECT

This Agreement and the Plan of Arrangement shall be binding upon and shall enure to the benefit of each of LBIX and Liquid and the respective successors and permitted assigns thereof.

8.5

WAIVER

Any waiver or release of any of the provisions of this Agreement, to be effective, must be in writing executed by the Party granting such waiver or release.

8.6

FURTHER ASSURANCES

Each Party shall, from time to time, and at all times hereafter, at the request of the other of them, but without further consideration, do, or cause to be done, all such other acts, and execute and deliver, or cause to be executed and delivered, all such further agreements, transfers, assurances, instruments or documents as may be reasonably required in order to fully perform and carry out the terms and intent hereof including, without limitation, the Arrangement.

8.7

GOVERNING LAW

This Agreement shall be governed by, and be construed in accordance with, the laws of the Province of British Columbia and the laws of Canada applicable therein but the reference to such laws shall not, by conflict of laws rules or otherwise, require the application of the law of any jurisdiction other than the Province of British Columbia. Each Party hereby irrevocably attorns to the exclusive jurisdiction of the courts of the Province of British Columbia in respect of all matters arising under or in relation to this Agreement.

8.8

EXPENSES

Except as otherwise provided herein, each Party to this Agreement will be responsible for all of its own expenses, legal and other professional fees, disbursements, and all other costs incurred in connection with the negotiation, preparation, execution, and delivery of this Agreement and all documents and instruments relating hereto and the consummation of the transactions contemplated hereby.

8.9

SEVERABILITY

If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, then:

(a)

that provision shall (to the extent of the invalidity, illegality or unenforceability) be given no effect and shall be deemed not to be part of this Agreement; and

(b)

the Parties hereto shall use all reasonable commercial efforts to replace each invalid, illegal or unenforceable provision with a valid, legal and enforceable substitute provision, the effect of which is as close as possible to the intended effect of the invalid, illegal or unenforceable provision.

8.10

PARTIES IN INTEREST

This Agreement will be binding upon and inure solely to the benefit of each Party, and, other than pursuant to Article 7 hereof, nothing in this Agreement, express or implied, is intended to or will confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

8.11

COUNTERPARTS

This Agreement may be executed in one or more counterparts, manually or by facsimile, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of the date and year first above written.

LIQUID MEDIA GROUP LTD.


Per:		“Krysanne Katsoolis”
Name:		Krysanne Katsoolis
Title:		Chief Executive Officer

LEADING BRANDS, INC.


Per:		“Ralph McRae”
Name:		Ralph McRae
Title:		Chief Executive Officer

APPENDIX I

TO THE AMENDED AND RESTATED ARRANGEMENT AGREEMENT MADE AS OF , 2018 BETWEEN LIQUID MEDIA GROUP LTD. AND LEADING BRANDS, INC.

PLAN OF ARRANGEMENT UNDER

SECTION 288 OF THE BRITISH COLUMBIA BUSINESS CORPORATIONS ACT

ARTICLE 1

DEFINITIONS AND INTERPRETATION

1.1

Definitions

In this Plan of Arrangement, unless the context otherwise requires, capitalized terms used but not defined shall have the meanings ascribed to them below:

“ Arrangement ” means the arrangement of Liquid under Section 288 of the BCBCA on the terms and subject to the conditions set out in this Plan of Arrangement, subject to any amendments or variations thereto made in accordance with Section 6.2 of the Arrangement Agreement or this Plan of Arrangement or made at the direction of the Court in the Final Order (provided that any such amendment or variation is acceptable to both Liquid and LBIX, each acting reasonably);

“ Arrangement Agreement ” means the amended and restated arrangement agreement dated as of , 2018 between Liquid and LBIX, as may be amended, amended and restated or supplemented prior to the Effective Date;

“ Arrangement Resolution ” means the Special Resolution of the Liquid Shareholders approving the Plan of Arrangement which is to be considered at the Liquid Meeting;

“ BCBCA ” means the Business Corporations Act (British Columbia) and the regulations made thereunder, as now in effect and as they may be promulgated or amended from time to time;

“ business day ” means any day other than a Saturday, Sunday, a federal holiday in Canada or a day other than a day on which banks are not open for business in Vancouver, British Columbia;

“ Consideration ” means the consideration to be received by the Liquid Shareholders pursuant to this Plan of Arrangement as consideration for their Liquid Shares, consisting of 0.5741 of one LBIX Share for each Liquid Share;

“ Court ” means the Supreme Court of British Columbia;

“ Depositary ” means any trust company, bank or other financial institution agreed to in writing by Liquid and LBIX for the purpose of, among other things, exchanging certificates representing Liquid Shares for the Consideration in connection with the Arrangement;

“ Dissent Right ” shall have the meaning ascribed thereto in Section 4.1(a);

“ Dissenting Shareholder ” means a registered holder of Liquid Shares who dissents in respect of the Arrangement in strict compliance with the Dissent Rights and who is ultimately entitled to be paid fair value for their Liquid Shares;

“ Dissenting Shares ” means Liquid Shares held by a Dissenting Shareholder who has demanded and perfected Dissent Rights in respect of the Liquid Shares in accordance with the Interim Order and who, as of the Effective Time has not effectively withdrawn or lost such Dissent Rights;

“ Effective Date ” means the date upon which the Arrangement becomes effective as set out in Section 2.8(a) of the Arrangement Agreement;

“ Effective Time ” means 12:01 a.m. on the Effective Date;

“ final proscription date ” shall have the meaning ascribed thereto in Section 5.5;

“ Former Liquid Shareholders ” means, at and following the Effective Time, the registered Liquid Shareholders immediately prior to the Effective Time;

“ law ” or “ laws ” means all laws (including common law), by-laws, statutes, rules, regulations, principles of law and equity, orders, rulings, ordinances, judgments, injunctions, determinations, awards, decrees or other requirements, whether domestic or foreign, and the terms and conditions of any Permit of or from any Governmental Entity or self-regulatory authority, and the term “ applicable ” with respect to such laws and in a context that refers to a Party, means such laws as are applicable to such Party and/or its subsidiaries or their business, undertaking, property or securities and emanate from a Person having jurisdiction over the Party and/or its subsidiaries or its or their business, undertaking, property or securities;

“ LBIX ” means Leading Brands, Inc., a company existing under the BCBCA;

“ LBIX Shares ” means the common shares of LBIX;

“ Letter of Transmittal ” means the letter of transmittal to be forwarded by Liquid to Liquid Shareholders together with the Liquid Circular or such other equivalent form of letter of transmittal acceptable to LBIX acting reasonably;

“ Liquid ” means Liquid Media Group Ltd., a company existing under the BCBCA;

“ Liquid Meeting ” means the special meeting of Liquid Shareholders, including any adjournment or postponement thereof, to be called and held in accordance with the Interim Order to consider the Arrangement Resolution;

“ Liquid Options ” means the outstanding options to purchase Liquid Shares granted under the Liquid Stock Option Plan;

“Liquid Preferred Shares ” has the meaning set out in in Section 3.2(i) of the Arrangement Agreement;

“ Liquid Securityholders ” means the Liquid Shareholders and holders of Liquid Options and Liquid Warrants at the applicable time;

“ Liquid Shareholders ” means the holders of Liquid Shares at the applicable time;

“ Liquid Shares ” means the common shares in the authorized share capital of Liquid;

“ Liquid Stock Option Plan ” means the stock option plan of Liquid, approved most recently by the Liquid Shareholders on July 28, 2017;

“ Liquid Warrants ” means the outstanding common share purchase warrants to acquire Liquid Shares;

“ Parties ” means Liquid and LBIX, and “ Party ” means either of Liquid or LBIX;

“ Person ” includes an individual, partnership, association, body corporate, trustee, executor, administrator, legal representative, government (including any Governmental Entity) or any other entity, whether or not having legal status;

“ Tax Act ” means the Income Tax Act (Canada) and the regulations made thereunder, as now in effect and as they may be promulgated or amended from time to time; and

“ Taxes ” includes any taxes, duties, fees, premiums, assessments, imposts, levies, expansion fees and other charges of any kind whatsoever imposed by any Governmental Entity, including all interest, penalties, fines, additions to tax or other additional amounts imposed by any Governmental Entity in respect thereof, and including those levied on, or measured by, or referred to as, income, gross receipts, profits, windfall, royalty, capital, transfer, land transfer, sales, goods and services, harmonized sales, use, value-added, excise, stamp, withholding, business, franchising, property, development, occupancy, employer health, payroll, employment, health, social services, education and social security taxes, all surtaxes, all customs duties and import and export taxes, countervail and anti-dumping, all licence, franchise and registration fees and all employment insurance, health insurance and Canada, Québec and other pension plan premiums or contributions imposed by any Governmental Entity, and any transferee liability in respect of any of the foregoing.

In addition, words and phrases used herein and defined in the BCBCA and not otherwise defined herein or in the Arrangement Agreement shall have the same meaning herein as in the BCBCA unless the context otherwise requires.

1.2

Interpretation Not Affected by Headings

The division of this Plan of Arrangement into articles, sections, paragraphs and subparagraphs and the insertion of headings herein are for convenience of reference only and shall not affect the construction or interpretation of this Plan of Arrangement. The terms “this Plan of Arrangement”, “hereof”, “herein”, “hereto”, “hereunder” and similar expressions refer to this Plan of Arrangement and not to any particular article, section or other portion hereof and include any instrument supplementary or ancillary hereto.

1.3

Number, Gender and Persons

In this Plan of Arrangement, unless the context otherwise requires, words importing the singular shall include the plural and vice versa, words importing the use of either gender shall include both genders and neuter.

1.4

Date for any Action

If the date on which any action is required to be taken hereunder is not a business day, such action shall be required to be taken on the next succeeding day which is a business day.

1.5

Statutory References

Any reference in this Plan of Arrangement to a statute includes all regulations made thereunder, all amendments to such statute or regulation in force from time to time and any statute or regulation that supplements or supersedes such statute or regulation.

1.6

Currency

Unless otherwise stated, all references herein to amounts of money are expressed in lawful currency of the United States of America and “$” refers to U.S. dollars.

1.7

Time

Time shall be of the essence in every matter or action contemplated hereunder. All times expressed herein are local time in Vancouver, British Columbia unless otherwise stipulated herein.

ARTICLE 2

ARRANGEMENT AGREEMENT

2.1

Arrangement Agreement

This Plan of Arrangement is made pursuant to, and is subject to the provisions of, the Arrangement Agreement, except in respect of the sequence of the steps comprising the Arrangement, which shall occur in the order set forth herein.

2.2

Binding Effect

At the Effective Time, this Plan of Arrangement shall be binding on:

(a)

LBIX;

(b)

Liquid;

(c)

all registered and beneficial Liquid Shareholders, including Dissenting Shareholders;

(d)

all registered and beneficial holders of Liquid Warrants;

(e)

all registered and beneficial holders of Liquid Preferred Shares;

(f)

the registrar and transfer agent in respect of the Liquid Shares and the LBIX Shares; and

(g)

the Depositary.

ARTICLE 3

ARRANGEMENT

3.1

Arrangement

At the Effective Time, except as otherwise noted herein, the following shall occur and shall be deemed to occur sequentially, in the following order, without any further act or formality required on the part of any Person, in each case effective as at the Effective Time:

(a)

each Liquid Share (other than any Liquid Shares held by LBIX and any Liquid Shares in respect of which any Liquid Shareholder has validly exercised his, her or its Dissent Right) shall be deemed to be transferred to LBIX (free and clear of any Encumbrances) in exchange for the Consideration, subject to Article 4 hereof;

(b)

each Liquid Share in respect of which any Liquid Shareholder has validly exercised his, her or its Dissent Right shall be directly transferred and assigned by such Dissenting Shareholder to LBIX (free and clear of any Encumbrances) in accordance with Article 4 hereof;

(c)

with respect to each Liquid Share transferred and assigned in accordance with Section 3.1(a) or Section 3.1(b) hereto:

(i)

the registered holder thereof shall cease to be the registered holder of such Liquid Share and the name of such registered holder shall be removed from the register of Liquid Shareholders as of the Effective Time;

(ii)

the registered holder thereof shall be deemed to have executed and delivered all consents, releases, assignments and waivers, statutory or otherwise, required to transfer and assign such Liquid Shares in accordance with Section 3.1(a) or Section 3.1(b) hereto, as applicable; and

(iii)

LBIX will be the holder of all of the outstanding Liquid Shares and the register of Liquid Shareholders shall be revised accordingly;

(d)

in accordance with the certificates governing the terms and conditions of the Liquid Warrants, each holder of a Liquid Warrant outstanding immediately prior to the Effective Time shall be entitled to receive (and such holder shall accept), upon the exercise of such holder’s Liquid Warrants, in lieu of each Liquid Share to which such holder was theretofore entitled, upon such exercise and for the same aggregate consideration payable therefor, the number of LBIX Shares equal to the product of: (i) the number of Liquid Shares subject to such Liquid Warrant immediately prior to the Effective Time; and (ii) 0.5741. Each liquid Warrant shall continue to be governed by and be subject to the terms of the certificate governing the terms and conditions of such Liquid Warrant; and

(e)

the exchanges, cancellations and transactions provided for in this Section 3.1 will be deemed to occur on the Effective Date, notwithstanding certain procedures related thereto may not be completed until after the Effective Date.

3.2

Post-Effective Time Procedures

(a)

Following the receipt of the Final Order and prior to the Effective Date, LBIX shall deliver or arrange to be delivered to the Depositary the Consideration, comprised of certificates representing the LBIX Shares required to be issued to Former Liquid Shareholders in accordance with the provisions of Section 3.1(a) hereof, which certificates shall be held by the Depositary as agent and nominee for such Former Liquid Shareholders for distribution to such Former Liquid Shareholders in accordance with the provisions of Article 5 hereof.

(b)

Subject to the provisions of Article 5 hereof, and upon return of a properly completed Letter of Transmittal by a registered Former Liquid Shareholder together with certificates, if any, which, immediately prior to the Effective Time represented Liquid Shares and such other documents as the Depositary may require, Former Liquid Shareholders shall be entitled to receive delivery of the certificates representing the LBIX Shares to which they are entitled pursuant to Section 3.1(a) hereof.

3.3

No Fractional LBIX Shares

In no event shall any holder of Liquid Shares be entitled to a fractional LBIX Share. Where the aggregate number of LBIX Shares to be issued to a Liquid Shareholder as consideration under this Arrangement would result in a fraction of a LBIX Share being issuable, the number of LBIX Shares to be received by such Liquid Shareholder shall be rounded down to the nearest whole LBIX Share in the event a Liquid Shareholder is entitled to a fractional share representing 0.5 or less of a LBIX Share and shall be rounded up to the nearest whole LBIX Share in the event a Liquid Shareholder is entitled to a fractional share representing more than 0.5 of a LBIX Share.

ARTICLE 4

DISSENT RIGHTS

4.1

Rights of Dissent

(a)

Pursuant to the Interim Order, Liquid Shareholders may exercise rights of dissent (“ Dissent Rights ”) under Division 2 of Part 8 of the BCBCA, as modified by this Article 4, the Interim Order and the Final Order, with respect to Liquid Shares in connection with the Arrangement, provided that the written notice setting forth the objection of such registered Liquid Shareholders to the Arrangement and exercise of Dissent Rights must be received by Liquid not later than 5:00 p.m. on the business day that is two (2) business days before the Liquid Meeting or any date to which the Liquid Meeting may be postponed or adjourned and provided further that holders who exercise such Dissent Rights and who:

(i)

are ultimately entitled to be paid fair value for their Liquid Shares, which fair value, notwithstanding anything to the contrary contained in Section 245 of the BCBCA, shall be determined as of the close of business on the day before the Effective Date, shall be deemed to have transferred their Liquid Shares to LBIX as of the Effective Time, without any further act or formality and free and clear of all Encumbrances, in consideration for the payment by LBIX of the fair value thereof, in cash; and

(ii)

are ultimately not entitled, for any reason, to be paid fair value for their Liquid Shares shall be deemed to have participated in the Arrangement, as of the Effective Time, on the same basis as a non-dissenting holder of Liquid Shares and shall be entitled to receive only the consideration contemplated in Section 3.1(a) hereof that such holder would have received pursuant to the Arrangement if such holder had not exercised Dissent Rights;

(b)

in no circumstances shall Liquid, LBIX or any other Person be required to recognize a Person exercising Dissent Rights unless such Person is a registered holder of those Liquid Shares in respect of which such rights are sought to be exercised; and

(c)

for greater certainty, in no case shall Liquid, LBIX or any other Person be required to recognize Dissenting Shareholders as Liquid Shareholders after the Effective Time, and the names of such Dissenting Shareholders shall be deleted from the register of Liquid Shareholders as of the Effective Time. In addition to any other restrictions under Division 2 of Part 8 of the BCBCA, and for greater certainty, none of the following shall be entitled to exercise Dissent Rights: (i) holders of Liquid Options or Liquid Warrants; and (ii) Liquid Shareholders who vote, or who have instructed a proxyholder to vote, in favour of the Arrangement Resolution.

ARTICLE 5

DELIVERY OF CONSIDERATION

5.1

Delivery of Consideration

(a)

Upon surrender to the Depositary for cancellation of a certificate that immediately before the Effective Time represented one or more outstanding Liquid Shares that were exchanged for the Consideration in accordance with Section 3.1(a) hereof, together with such other documents and instruments as would have been required to effect the transfer of the Liquid Shares formerly represented by such certificate under the BCBCA and the articles of Liquid and such additional documents and instruments as the Depositary may reasonably require, the holder of such surrendered certificate shall be entitled to receive in exchange therefor, and the Depositary shall deliver to such holder following the Effective Time, a certificate representing the LBIX Shares that such holder is entitled to receive in accordance with Section 3.1(a) hereof.

(b)

After the Effective Time and until surrendered for cancellation as contemplated by Section 5.1(a) hereof, each certificate that immediately prior to the Effective Time represented one or more Liquid Shares shall be deemed at all times to represent only the right to receive in exchange therefor the Consideration that the holder of such certificate is entitled to receive in accordance with Section 3.1(a) hereof.

5.2

Lost Certificates

If any certificate, that immediately prior to the Effective Time represented one or more outstanding Liquid Shares that were exchanged for the Consideration in accordance with Section 3.1 hereof, shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the holder claiming such certificate to be lost, stolen or destroyed, the Depositary shall deliver in exchange for such lost, stolen or destroyed certificate, the Consideration that such holder is entitled to receive in accordance with Section 3.1 hereof. When authorizing such delivery of Consideration that such holder is entitled to receive in exchange for such lost, stolen or destroyed certificate, the holder to whom such Consideration is to be delivered shall, as a condition precedent to the delivery of such Consideration, give a bond satisfactory to LBIX and the Depositary in such amount as LBIX and the Depositary may direct, or otherwise indemnify LBIX and the Depositary in a manner satisfactory to LBIX and the Depositary, against any claim that may be made against LBIX or the Depositary with respect to the certificate alleged to have been lost, stolen or destroyed and shall otherwise take such actions as may be required by the articles and by-laws of Liquid.

5.3

Distributions with Respect to Unsurrendered Certificates

No dividend or other distribution declared or made after the Effective Time with respect to LBIX Shares with a record date after the Effective Time shall be paid to the holder of any unsurrendered certificate that, immediately prior to the Effective Time, represented outstanding Liquid Shares unless and until the holder of such certificate shall have complied with the provisions of Section 5.1 or Section 5.2 hereof. Subject to applicable law and to Section 5.4 hereof, at the time of such compliance, there shall, in addition to the delivery of Consideration to which such holder is thereby entitled, be delivered to such holder, without interest, the amount of the dividend or other distribution with a record date after the Effective Time theretofore paid with respect to such LBIX Shares.

5.4

Withholding Rights

LBIX, Liquid and the Depositary shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable to any Person hereunder and from all dividends or other distributions otherwise payable to any former Liquid Securityholder such amounts as LBIX, Liquid or the Depositary may be required to deduct and withhold therefrom under any provision of applicable laws in respect of Taxes. To the extent that such amounts are so deducted, withheld and remitted, such amounts shall be treated for all purposes under this Arrangement as having been paid to the Person to whom such amounts would otherwise have been paid.

5.5

Limitation and Proscription

To the extent that a Former Liquid Shareholder shall not have complied with the provisions of Section 5.1 or Section 5.2 hereof on or before the date that is six (6) years after the Effective Date (the “ final proscription date ”), then the Consideration that such Former Liquid Shareholder was entitled to receive shall be automatically cancelled without any repayment of capital in respect thereof, and the Consideration to which such Former Liquid Shareholder was entitled shall be delivered to LBIX by the Depositary and certificates representing LBIX Shares forming a portion of the Consideration shall be cancelled by LBIX, and the interest of the Former Liquid Shareholder in the Consideration to which it was entitled shall be terminated as of such final proscription date.

5.6

No Encumbrances

Any exchange or transfer of securities pursuant to this Plan of Arrangement shall be free and clear of any Encumbrances.

5.7

Paramountcy

From and after the Effective Time: (i) this Plan of Arrangement shall take precedence and priority over any and all Liquid Shares and Liquid Options or Liquid Warrants issued prior to the Effective Time, (ii) the rights and obligations of the registered Liquid Shareholders and holders of Liquid Options, and Liquid, LBIX, the Depositary and any transfer agent or other depositary therefor in relation thereto, shall be solely as provided for in this Plan of Arrangement, and (iii) all actions, causes of action, claims or proceedings (actual or contingent and whether or not previously asserted) based on or in any way relating to any Liquid Shares, Liquid Options or Liquid shall be deemed to have been settled, compromised, released and determined without liability except as set forth herein.

ARTICLE 6

AMENDMENTS

6.1

Amendments to Plan of Arrangement

(a)

LBIX and Liquid reserve the right to amend, modify or supplement this Plan of Arrangement at any time and from time to time, provided that each such amendment, modification or supplement must be: (i) set out in writing; (ii) agreed to in writing by LBIX and Liquid; (iii) filed with the Court and, if made following the Liquid Meeting, approved by the Court; and (iv) communicated to Liquid Shareholders if and as required by the Court.

(b)

Any amendment, modification or supplement to this Plan of Arrangement may be proposed by Liquid at any time prior to the Liquid Meeting provided that LBIX shall have consented thereto in writing, with or without any other prior notice or communication, and, if so proposed and accepted by the Persons voting at the Liquid Meeting (other than as may be required under the Interim Order), shall become part of this Plan of Arrangement for all purposes.

(c)

Any amendment, modification or supplement to this Plan of Arrangement that is approved by the Court following the Liquid Meeting shall be effective only if: (i) it is consented to in writing by each of LBIX and Liquid; (ii) it is filed with the Court (other than amendments contemplated in Section 6.1(d), which shall not require such filing) and (iii) if required by the Court, it is consented to by holders of the Liquid Shares voting in the manner directed by the Court.

(d)

Any amendment, modification or supplement to this Plan of Arrangement may be made following the Effective Time unilaterally by LBIX, provided that it concerns a matter that, in the reasonable opinion of LBIX, is of an administrative nature required to better give effect to the implementation of this Plan of Arrangement and is not adverse to the economic interest of any Former Liquid Shareholder or former holder of Liquid Options.

(e)

This Plan of Arrangement may be withdrawn prior to the Effective Time in accordance with the terms of the Arrangement Agreement.

ARTICLE 7

FURTHER ASSURANCES

7.1

Further Assurances

Notwithstanding that the transactions and events set out herein shall occur and be deemed to occur in the order set out in this Plan of Arrangement without any further act or formality, each of the parties to the Arrangement Agreement shall make, do and execute, or cause to be made, done and executed, all such further acts, deeds, agreements, transfers, assurances, instruments or documents as may reasonably be required by any of them in order further to document or evidence any of the transactions or events set out therein.

EXHIBIT 8.1

SUBSIDIARIES OF THE REGISTRANT

The Company had no subsidiaries ⁽¹⁾ as at February 28, 2018. Below is a list of the names of each of the Company’s subsidiaries that were disposed of during the fiscal year ended February 28, 2018:

•

Leading Brands of Canada, Inc.;

•

LBI Brands, Inc.;

•

Kert Technologies Inc.

•

Neurogenesis Inc. (Canada);

•

Neurogenesis Inc.: (Nevada);

•

Quick, Inc.;

•

Leading Brands USA, Inc.; and

•

Leading Brands of America, Inc.

⁽¹⁾	as defined in rule 1-02(w) of Regulation S-X

EXHIBIT 12.1

CERTIFICATIONS

I, Ralph D. McRae, certify that:

1.	I have reviewed this annual report on Form 20-F of Leading Brands, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting, and

5.	The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: May 29, 2018

/s/ Ralph D. McRae

Ralph D. McRae

Chairman and Chief Executive Officer

(Principal Executive Officer)

EXHIBIT 12.2

I, Ralph D. McRae, certify that:

1.	I have reviewed this annual report on Form 20-F of Leading Brands, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

5.	The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: May 29, 2018

/s/ Ralph D. McRae

Ralph D. McRae

Interim Principal Financial Officer

(Principal Financial Officer)

EXHIBIT 13.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Leading Brands, Inc. (the “Company”) on Form 20-F for the period ended February 28, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify that to the best of our knowledge:

1.	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 29, 2018

/s/ Ralph McRae

Name: Ralph D. McRae

Title: Chairman and Chief Executive Officer

(Principal Executive Officer)

Date: May 29, 2018

/s/ Ralph D. McRae

Name: Ralph D. McRae

Title: Interim Principal Financial Officer

(Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to Leading Brands, Inc. and will be retained by Leading Brands, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished to the Securities and Exchange Commission pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EXHIBIT 15.1

Tel: 604 688 5421

Fax: 604 688 5132

www.bdo.ca

BDO Canada LLP

600 Cathedral Place

925 West Georgia Street

Vancouver BC V6C 3L2 Canada

Consent of Independent Registered Public Accounting Firm

Leading Brands, Inc.

Vancouver, Canada

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-175241 and No. 333-101555) of Leading Brands Inc. of our report dated May 29, 2018, relating to the consolidated financial statements, which appears in this Form 20-F.

/s/ BDO Canada LLP

Vancouver, Canada

June 1, 2018