Mimi's Rock Corp. Announces 2019 Year End Results; Provides Q1 2020 Update

TORONTO, June 4, 2020 /CNW/ - Mimi's Rock Corp. (TSXV: MIMI) (the "Company"), an online dietary supplement and wellness company, today announced its financial results for the year ended December 31, 2019.

Recent Developments

• On February 24, 2020, the Company announced that its common shares were approved for trading on the OTCQB Venture Market (the "OTCQB") under the ticker symbol MIMNF. The Company also received clearance from The Depositary Trust Company for transfer eligibility. The Company expects that the U.S. listing will increase the Company's exposure and accessibility to the U.S. market, providing additional liquidity for shareholders, and raising the awareness of the Company's brands to a much larger audience.
  
  
• On April 7, 2020, the Company provided an operational update regarding COVID-19 and its impact on the business. While the proliferation of the coronavirus has forced the world to adapt, the Company has so far been able to navigate the consequential operational challenges. The Company has increased inventory levels on-hand with its e-commerce channel partners to help protect against the possibility of future supply chain disruptions. The Company has been able to maintain growth in its vitamins and supplements business. As well, the newly acquired skin care business has performed as expected, with no material decline in demand. At this time, management does not foresee any major disruptions to the Company's business.
  
  
• On April 22, 2020, the Company announced it would be relying on the 45-day extension period provided under the blanket relief from the Canadian Securities Administrators for the filing of its annual financial report for the year ended December 31, 2019 and the related management's discussion & analysis (collectively, the "2019 Annual Financials").

"The latter half of 2019 was challenging, as Amazon sellers met with significant changes within the platform. Frankly, we hit some "speed bumps" in Q3 and Q4, although I am pleased to announce that our team was responsive and effective in rapidly adapting and instituting a new approach. By Q1 2020, we began seeing the benefit of our operational adjustments. Further, the team's impressive performance in integrating the All Natural Advice and Maritime Naturals lines, as well as reacting to the increased demands resulting from the COVID-19 pandemic, resulted in a strong Q1 and an improved financial outlook for 2020, of which we are very proud. We continue to launch new products and enter into new geographic jurisdictions each and every quarter, with improved efficiencies and operational performance. Our belief in the building of an online focused health products platform is well aligned with the current and future purchasing practices in the global marketplace. We see these recent events as driving even more consumers away from "bricks-and-mortar" retail and towards e-commerce, and we believe that our positioning and deeper understanding of the e-commerce world will allow us to continue to develop as a leader in in the new economy" said David Kohler, CEO.

Outlook for Q1 2020

The Company is establishing its initial outlook for fiscal 2020 and anticipates reported Q1 2020 results to be in the following range:

• Expected Q1 2020 revenue of $10.3M – $10.6M
• Expected Q1 2020 adjusted EBITDA of $1.2M – $1.4M

Results in this range would represent an increase in revenue of 33% to 37% over Q4 2019 and would represent the highest quarterly revenue level to date. While approximately half of this increase is from the newly acquired skin care businesses, the Dr Tobias brand also experienced a strong recovery in the first quarter of 2020. Management has implemented a new advertising strategy, streamlined processes and is focused on new market growth for the balance of 2020.

On May 29, 2020, the Company provided an update on the status of its 2019 Annual Financials and indicated that it would provide guidance on the timing to file its 2020 first quarter interim financial statements and related management's discussion and analysis for the three months ended March 31, 2020 (collectively the "Q1 2020 Financials") at the time of filing the 2019 Annual Financials. The Company continues to rely on the exemption under Ontario Instrument 51-502 – Temporary Exemption from Certain Corporate Finance Requirements, which instrument became effective as of March 23, 2020, in postponing the filing of its Q1 2020 Financials and expects to issue the Q1 Financials on or before June 30, 2020. Until such time as the Q1 Financials are filed, management and other insiders of the Company will be subject to an insider trading black-out consistent with the principles in section 9 of National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions. The Company confirms that, except as disclosed by the Company, there have been no material business developments since May 29, 2020.

COVID-19

The Company is generally well positioned as a business to sustain through the disruption as a result of the pandemic as our products sales are all online. As we sell health and wellness products, the demand during the current outbreak has remained strong, particularly for certain immunity products. The initial outbreak and requests to self-isolate caused a brief but significant uptick in sales as consumers stocked-up on essentials. While the initial surge was not long-lasting, sales have continued to remain at levels at or above those seen prior to the outbreak.

Based on current information, we remain confident that we can continue to operate as the economy attempts to resume to normalcy. For precautionary reasons, over the past ten weeks we have taken the opportunity to increase our finished goods inventory on-hand from the normal 25 days to approximately 75 days on average. While this requires an additional investment in working capital, increased inventory in the fulfillment centres reduces the risk of delivery disruption. While the nature of the pandemic is such that it is difficult to predict how long it will last, there is so far no indication that the COVID-19 outbreak will have a negative impact on the Company's business.

Results of Operations for the Year Ended December 31, 2019

For the year ended December 31, 2019, the Company incurred a net loss of $3,551,010 ($0.10 per share), compared to a net loss of $945,101 ($0.06 per share) for the year ended December 31, 2018. EBITDA for the year ended December 31, 2019 was $828,758, compared to $897,042 for the year ended 2018. adjusted EBITDA, which adds back (deducts) non-cash stock based compensation, investment income, acquisition costs and listing expenses, was $2,382,898 for the year ended December 31, 2019, compared to adjusted EBITDA of $2,736,093 for the year ended December 31, 2018.

Revenues and Gross Margin

Revenues were $35,409,072 for the year ended December 31, 2019 compared to revenues of $17,754,166 for the year ended December 31, 2018. Revenues reported in the current and prior year primarily represent revenues from the DTI business, which was acquired in July 13, 2018. While the Company's sales do not experience significant seasonality, there is some fluctuation on a quarterly basis due to natural demand fluctuation as well as promotional impacts. Results of operations of the All Natural and Maritime Naturals businesses were included from the date of acquisition, however, had minimal impact due to their acquisition in mid-December 2019. The Company continues to adapt its brand strategy, advertising spend and execution strategies as conditions in the online dietary supplements market dictate. Beginning in Q2 2019, the Company began to see considerable shifts in the marketplace, however, advertising spend was adjusted and sales remained strong through the middle of the third quarter. Despite increasing advertising spend, sales continued to decline through Q4 2019.

Fourth quarter 2019 results reflected the full impact of the decline, as revenues were $7,716,827 for the three months ended December 31, 2019 compared to revenues of $9,231,216 for the three months ended December 31, 2018.

Management has made significant changes to its marketing strategy. While customer loyalty remained strong throughout 2019, new customer acquisition became increasingly difficult. The Dr Tobias brand began to see many new competitors emerge in mid-late 2019. As a result, costs to direct customer traffic began to get more expensive and less effective. Simultaneous with this market activity increase, changes in the way products were displayed on the Company's primary marketplace had the impact of reducing the importance of rankings and reviews with a preference for paid advertisements. Despite increasing advertising spend and making investments in customer engagement, results did not show sufficient improvement such that management made a decision to terminate its relationship with its advertising partner. These changes seem to have made an impact in the period since year end.

As a result, sales and revenues have recovered in the period since December 31, 2019 to levels similar to those in Q2 2019 and prior. Sales from its own e-commerce site, drtobias.com, as well through additional online retail outlets continued to grow, however, a majority of sales of Dr Tobias products are generated through the Amazon.com sales channel in the United States.

Gross margin for the year ended December 31, 2019 was $24,759,327 (70%) compared to $11,963,253 (67%) for the year ended December 31, 2018. Since the acquisition of DTI, the Company has been able to improve efficiency and obtain better pricing from its supplier. Gross margin ratios have improved over the comparative period as a result.

Selling and Marketing Expense

The Company incurred selling and marketing expenses of $16,908,419, or 47.8% of revenue, for the year ended December 31, 2019, compared to $7,314,329, or approximately 41.2% of revenue, for the year ended December 31, 2018. Sales and marketing expenses for the period consist primarily of fulfillment costs related to delivering products to customers, direct online advertising placements, costs related to marketing the Dr. Tobias brand and other promotional and awareness initiatives. In the fourth quarter of 2019, the Company incurred selling and marketing expenses of $4,867,462, or 63.1% of revenue, compared to $4,013,384, or approximately 41.2% of revenue, for the fourth quarter of 2018. Advertising spend levels were considerably higher than originally anticipated due to strategies implemented to ensure protection of the brand and customer retention. Going forward, the Company expects selling and marketing expenses to return to more normal levels in the mid-40% range compared to revenue.

As the Company acquired the Dr Tobias brand in mid-2018, the first two quarters of 2019 involved understanding the dynamics of the Dr Tobias customer base as well as launching a new brand. Advertising spend in the third quarter of 2019 was increased with a deliberate focus on attracting longer term repeat customers. While the brand continues to generate strong repeat sales, investments are also being made attract new-to-brand customers. Despite consistent investment, returns in the form of revenue growth did not materialize. Organic growth began to decline until very late in 2019 as new strategies began to show results. The Company is confident it has appropriately adapted its advertising strategies in the near term as both efficiency and effectiveness of advertising has improved in the period since December 31, 2019. The Company will continue to actively monitor its selling and marketing expenses, particularly those directly related to advertising and expects that these will vary in relation to sales revenues going forward as advertising spend is optimized relative to competitive conditions.

General and Administrative Expense

General and administrative expenses for the year ended December 31, 2019 were $5,468,010, or 15.4% of revenue, compared to $1,912,831, for the year ended 2018, representing 10.8% of revenue. General and administrative expenses consist primarily of salaries and benefits, professional fees, occupancy costs and insurance. General and administrative expenses in the 2019 period are higher than the same period in 2018 primarily due to due a full year of operations of the Dr Tobias business as well as higher overall staff levels due to considerably more operational activity. General and administrative expenses were higher than considered typical in 2019, primarily due to certain one-time legal costs, as well as some employee relocation expenses.

Share based compensation expense relates to awards under the Company's incentive stock option plan and is based on the estimated number of awards that will eventually vest using the Black-Scholes option pricing model. Share based compensation expense for the year ended December 31, 2019 was $617,461 compared to $549,744 for the year ended December 31, 2018.

Listing expenses of $786,138 in the year ended December 31, 2019 are related to the acquisition and reverse takeover transaction in connection with the Company's public listing in May 2019 and are $nil for the same period in the prior year. Listing expenses include legal and professional fees, as well as $385,487 in non-cash charges related to the reverse takeover. Acquisition costs in the year ended December 31, 2019 were $99,788, incurred in connection with the acquisitions of All Natural and Maritime Naturals in December 2019. Acquisition costs of $1,267,590 were incurred in the year ended December 31, 2018 in connection with the acquisition of DTI.

Foreign exchange losses of $64,332 were recorded in the year ended December 31, 2019, compared to $48,379 for the year ended December 31, 2018, primarily due to the movements in the value of the US dollar relative to the Euro between the time that expenses were incurred and the time that they were settled.

Interest and financing costs of $2,735,815 were incurred during the year ended December 31, 2019, compared to $919,142 for the year ended December 31, 2018. Interest and financing expenses in the 2019 period include approximately $1,629,633 (2018: $354,755) in non-cash charges related to amortization of expenses incurred in securing the Company's senior secured loan. Both the non-cash and total amount of expense was higher in 2019 due to the recognition of all unamortized costs incurred on the Company's original senior secured debt upon refinancing in December 2019.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

About Mimi's Rock Corp.:

Mimi's Rock Corp. is an online dietary supplement and wellness company operating under the Dr. Tobias brand. The brand features over 30 products including the top selling colon cleansing product and the #1 selling Omega 3 Fish Oil on Amazon.com. Mimi's Rock currently serves customers in the United States and has rapid growth plans to expand into other markets. For more information, visit https://mimisrock.com.

Forward-Looking Information

This news release contains forward-looking statements and forward looking information within the meaning of applicable securities laws. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or describes a "goal", or variation of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. The forward looking statements in this press release include, but are not limited to, statements regarding the impact of the COVID-19 pandemic on the business and operations of the Company, the anticipated timeline to file the Q1 2020 Financials, the Company's expected revenues, the expected increase in quarterly revenues, and the expected adjusted EBITDA. Please refer to the 2019 Annual Financials for more details on the Company's calculation of EBITDA and adjusted EBITDA.

All forward-looking statements reflect the Company's beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those predicted in these forward-looking statements. All of the Company's forward-looking statements are qualified by the assumptions that are stated or inherent in such forward-looking statements, including the assumptions listed below. Although the Company believes that these assumptions are reasonable, this list is not exhaustive of factors that may affect any of the forward-looking statements.

Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, prediction, projection, forecast, performance or achievements expressed or implied by the forward-looking statements, including risks relating to: the Company's reliance on strength of reputation and brands, third-party manufacturing, transportation and distribution, the Company's ability to protect its intellectual property, the Company's reliance on e-commerce sites, disruption or breaches in information technology systems, the successful integration subsequent to acquisitions, litigation, volatility in the market price, the inability to successfully implement growth strategy on a timely basis, difficulty expanding sales in targeted international markets, changes in general economic conditions, the Company's ability to service its debt obligations, management of growth, reliance on management, conflicts of interest, local and foreign tax matters, liquidity, currency and other financial risks, potential product liability or other regulatory claims, product recalls, the need to develop and innovate products, changes in legal and regulatory standards, competition, operating risk and insurance coverage, natural disasters, unusual weather and geo-political events, the effect of COVID-19 on operations and other risks relating to the business and industry of the Company that are detailed from time to time in the Company's filings with the Canadian provincial securities regulators.

Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. All forward-looking information contained in this press release is given as of the date hereof and is based upon the opinions and estimates of management and information available to management as at the date hereof. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise, except in accordance with applicable securities laws.

Please visit www.mimisrock.com or www.sedar.com for the Company's recent filings.

SOURCE Mimi's Rock Corp.

David Kohler, CEO, 905-330-5081, [email protected]

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