GABY Announces Third Quarter 2019 Financial Results

Q3 '19 revenue of $6.2MM, 147% sequential revenue growth over Q2 '19, 2,035% increase over Q3 '18

SANTA ROSA, CA and CALGARY, AB / ACCESSWIRE / November 29, 2019 / GABY Inc. (formerly Gabriella's Kitchen Inc.) ("GABY" or the "Company") (CSE:GABY) (OTCQB:GABLF), a U.S.-focused CPG company operating in the regulated cannabis sector in California as well as the mainstream grocery channel nationally, today announced financial results for the three-month period ended September 30, 2019. GABY's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). All financial information presented in this release is in Canadian dollars ($), unless otherwise noted.

"In Q3 '19 we made significant progress on building out our supply chain infrastructure to support both our inhouse and 3rd party distributed brands, driving revenue growth of 2,035% from Q3 '18 and 147% from Q2 '19," said Margot Micallef, Founder, and CEO of GABY. "This growth is largely driven by the expansion of our third-party brand services, including our proven strength in procurement, co-packing and white labeling services, and our strong growth in our customer and distribution network. Since the start of 2019 we've more than doubled the number of dispensaries we sell into – a testament to the strength of our sales team. These 218 dispensaries (vs 82 at the start of the year) represent approximately 30% of the dispensaries in California."

Ms. Micallef continued, "As we look forward to 2020, we are focused on building a nimbler, higher-margin business. Over the next three quarters we will optimize our portfolio of 3rd party brands and grow sales of inhouse brands to drive gross margin, intelligently reduce SG&A, and continue to opportunistically pursue M&A that compliments GABY's core strengths and our commitment to shareholders to reach profitability in 2020."

Financial Highlights for the Third Quarter Ended September 30, 2019

The following are financial highlights of GABY's operating results for the three months ended September 30, 2019, compared to the three months ended September 30, 2018:

Revenue was $6.2 million as compared to $289,092
Gross loss was $45,008 as compared to $173,518
Operating expenses were $3.3 million as compared to $1.3 million

The following is a summary of key balance sheet items on September 30, 2019, compared to December 31, 2018:

Cash was $2.3 million as compared to $53,658
Total assets of $34.6 million as compared to $4.6 million
Total working capital1 of $5.0 million as compared to ($319,112)
Total debt excluding lease obligations of $1.6 million as compared to nil.

Corporate Highlights

On July 22, 2019, GABY entered into a definitive agreement for the acquisition of Lulu's Chocolates, a California-based manufacturer of CBD and THC infused chocolates
On July 25, 2019, GABY announced the acquisition of a 25,000 sq. ft. state-of-the-art production facility enabling it to consolidate in due course all its current operating segments (manufacturing and distribution) and move into cultivation
As of August 20, 2019, Lulu's Chocolates CBD infused chocolates are now sold in over 300 mainstream retail locations in California
On September 5, 2019, the Company announced a name change to GABY Inc.
On October 2, 2019, GABY announced that it entered into a definitive agreement for the acquisition of premium organic CBD brand 2Rise Naturals

About GABY INC.

GABY is a U.S.-focused, consumer packaged goods company operating a family of brands in the cannabis industry and in the mainstream grocery channel. Through its subsidiaries GABY indirectly holds a number of licenses and permits issued by the California Department of Health, the California Bureau of Cannabis Control, the California Department of Food and Agriculture and the County of Sonoma respectively, including manufacturing, distribution licenses and a pending cultivation license. With these licenses and permits to operate in the cannabis channel, and its existing infrastructure of major retailers and an extensive broker and distribution network in the mainstream channel, GABY has successfully brought a number of its proprietary, acquired and third-party brands to market in both the licensed and mainstream market.

Margot and her sister Gabriella co-founded GABY after Gabriella received a dire cancer diagnosis which spurred the sisters to prolong Gabriella's life through a holistic approach to health. Today, GABY is a wellness company with a diverse range of products that use cannabis, hemp and hemp derived cannabinoids to address a variety of dietary and health concerns. Although Gabriella ultimately passed away from her illness, she lived exponentially longer than doctors predicted. Her memory and passion live on through GABY's mission: to empower people to live healthy lives without compromise.

GABY's shares trade on the CSE under the symbol "GABY" and on the OTCQB under the symbol "GABLF". For more information, visit www.GABYInc.com

For further inquiries, please contact:

General

Margot Micallef, Founder & CEO or Investor Relations at IR@gabriellas-kitchen.com or 800-674-2239.

Investors
Mark Kuindersma, CFA
LodeRock Advisors Inc.
mark.kuindersma@loderockadvisors.com
416-465-6931

Media
Colin Trethewey, APR
colin@prmedianow.com

Disclaimer and Forward-Looking Information

The CSE does not accept responsibility for the adequacy or accuracy of this release. Certain information set forth in this news release may contain forward-looking statements that involve substantial known and unknown risks and uncertainties, certain of which are beyond the control of the Company. Forward-looking statements are frequently characterized by words such as "plan", "continue", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words, or statements that certain events or conditions "may" or "will" occur. These statements are only predictions. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Forward looking statements include, but are not limited to, the anticipated closing of additional acquisitions by the Company, including but not limited to the acquisition of Raw Chocolate Alchemy, LLC (Lulu's Chocolate), 2Rise Naturals, LLC (2Rise Naturals) and other potential acquisition(s), the continued growth and expansion of the Company's operations, the receipt of regulatory approvals, including the approval of the CSE, expectations that licenses applied for will be obtained, potential future legalization of adult-use and/or medical cannabis under United States ("U.S.") federal law, expectations of market size and growth in the U.S., California and such other states in which the Company has expressed desire to operate in, expectations for other economic, business, regulatory and/or competitive factors related to the Company or the cannabis industry general, and other events or conditions that may occur in the future. The Company assumes no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

The purpose of forward-looking statements is to provide the reader with a description of management's expectations, and such forward-looking statements may not be appropriate for any other purpose. In particular, but without limiting the foregoing, disclosure in this press release as well as statements regarding the Company's objectives, plans and goals, including future operating results and economic performance may make reference to or involve forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. A number of factors could cause actual events, performance or results to differ materially from what is projected in the forward-looking statements. You should not place undue reliance on forward-looking statements contained in this press release. Such forward-looking statements are made as of the date of this press release. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. The Company's forward-looking statements are expressly qualified in their entirety by this cautionary statement.

Each of KJM Data and Research, Inc., and Sonoma Pacific Distribution, Inc. are subsidiaries of GABY. Each of these subsidiaries hold cannabis licenses in the State of California. Unlike in Canada which has Federal legislation uniformly governing the cultivation, distribution, sale and possession of medical cannabis under the Cannabis Act (Federal), readers are cautioned that in the U.S., cannabis is largely regulated at the State level. Cannabis is legal in the State of California however cannabis remains illegal under U.S. federal laws. Notwithstanding the permissive regulatory environment of cannabis at the State level, cannabis continues to be categorized as a controlled substance under the Controlled Substances Act in the U.S. and as such, cannabis-related practices or activities, including without limitation, the manufacture, importation, possession, use or distribution of cannabis are illegal under U.S. federal law. To the knowledge of the Company, the businesses operated by each of GABY's subsidiaries are conducted in a manner consistent with the State law of California and are in compliance with regulatory and licensing requirements applicable in the State of California. However, readers should be aware that strict compliance with State laws with respect to cannabis will neither absolve GABY, or its subsidiaries of liability under U.S. federal law, nor will it provide a defense to any federal proceeding in the U.S. which could be brought against any of GABY, or its subsidiaries. Any such proceedings brought against GABY, or its subsidiaries may materially adversely affect the Company's operations and financial performance generally in the U.S. market specifically.

For additional details please refer to the Company's management discussion and analysis (MD&A) for Q3 ended September 30, 2019, a copy of which can be found under the Company's profile on SEDAR at www.sedar.com.

Neither the Canadian Securities Exchange nor its Regulation Services Provider accepts responsibility for the adequacy or accuracy of this release.

 
Condensed Interim consolidated Statements of Net Loss and Comprehensive Loss
 

(Unaudited)

 
Three months ended September 30,
 
 

Nine months ended

September 30,

In Canadian dollars

 
2019
 
 
2018
 
 
2019
 
 
2018
 

REVENUE

Gross revenue

 
 
6,352,919
 
 
 
539,766
 
 
 
9,566,644
 
 
 
1,762,017
 

Promotional activity

 
 
(152,525)
 
 
 
(223,148
)
 
 
(559,535)
 
 
 
(610,779
)

Amortization of product listing fees

 
 
(27,216)
 
 
 
(27,526
)
 
 
(75,267)
 
 
 
(85,090
)

Total revenue

 
 
6,173,178
 
 
 
289,092
 
 
 
8,931,842
 
 
 
1,066,148
 

COST OF SALES

Direct inventory costs

 
 
5,811,095
 
 
 
305,432
 
 
 
8,334,503
 
 
 
991,737
 

Variable gross profit (loss)

 
 
362,083
 
 
 
(16,340
)
 
 
597,339
 
 
 
74,411
 

Allocated indirect costs

 
 
363,884
 
 
 
121,217
 
 
 
875,979
 
 
 
475,632
 

Distribution costs

 
 
43,207
 
 
 
35,961
 
 
 
142,587
 
 
 
149,984
 

Total cost of sales

 
 
6,218,186
 
 
 
462,610
 
 
 
9,353,069
 
 
 
1,617,353
 

Gross profit (loss)

 
 
(45,008)
 
 
 
(173,518
)
 
 
(421,227)
 
 
 
(551,205
)

Selling, general and administrative expenses

 
 
3,327,176
 
 
 
1,321,886
 
 
 
9,378,795
 
 
 
3,192,319
 

Share based compensation and expenses

 
 
328,907
 
 
 
99,843
 
 
 
708,259
 
 
 
99,843
 

Depreciation of plant and equipment

 
 
186,172
 
 
 
18,525
 
 
 
279,222
 
 
 
36,392
 

Amortization of intangibles

 
 
4,560
 
 
 
7,466
 
 
 
13,530
 
 
 
11,668
 

Loss from operations before the following:

 
 
(3,891,823)
 
 
 
(1,621,238
)
 
 
(10,801,033)
 
 
 
(3,891,427
)

Interest expense

 
 
(213,120)
 
 
 
(474,028
)
 
 
(510,452)
 
 
 
(628,902
)

Interest income

 
 
23
 
 
 
11,127
 
 
 
3,851
 
 
 
11,918
 

Other gains and losses

 
 
1,749,228
 
 
 
(23,228
)
 
 
1,589,434
 
 
 
(448,829
)

Total other expenses

 
 
1,536,131
 
 
 
(486,129
)
 
 
1,082,833
 
 
 
(1,065,813
)

Loss before income tax expense (recovery)

 
 
(2,355,692)
 
 
 
(2,107,367
)
 
 
(9,718,200)
 
 
 
(4,957,240
)

Current income tax expense

 
 
40,287
 
 
 
–
 
 
 
140,238
 
 
 
–
 

Deferred income tax recovery

 
 
(48,060)
 
 
 
–
 
 
 
(158,877)
 
 
 
–
 

Income tax expense (recovery)

 
 
(7,773)
 
 
 
–
 
 
 
(18,639)
 
 
 
–
 

Net loss

 
 
(2,347,919)
 
 
 
(2,107,367
)
 
 
(9,699,561)
 
 
 
(4,957,240
)

Other comprehensive loss, net of tax

Items that may be reclassified to net profit in the future:

Exchange difference on translation

 
 
(124,713)
 
 
 
–
 
 
 
(247,996)
 
 
 
–
 

Items reclassified to net profit in the current period:

Divestiture of subsidiary

 
 
(94,525)
 
 
 
 
 
 
 
(94,525)
 
 
 
 
 

Total comprehensive loss

 
 
(2,567,157)
 
 
 
(2,107,367
)
 
 
(10,042,082)
 
 
 
(4,957,240
)

Net loss per share:

Basic and diluted

 
$
(0.01)
 
 
$
(0.03
)
 
$
(0.07)
 
 
$
(0.09
)

 
Condensed Interim consolidated
Statements of Financial Position 
 
 
 

 
(Unaudited)
 
 
(Audited)
 

 
September 30,
 
 
December 31,
 

In Canadian dollars

 
2019
 
 
2018
 

ASSETS

Current

Cash

 
 
2,264,054
 
 
 
53,658
 

Accounts receivable

 
 
8,268,252
 
 
 
367,590
 

Inventories

 
 
2,607,774
 
 
 
592,771
 

Prepaid expenses and deferred costs

 
 
1,034,273
 
 
 
236,259
 

 
 
14,174,353
 
 
 
1,250,278
 

Non-current

Property and equipment

 
 
7,875,803
 
 
 
534,028
 

Intangible assets and goodwill

 
 
12,258,857
 
 
 
2,775,642
 

Security deposits

 
 
254,257
 
 
 
54,194
 

Total assets

 
 
34,563,270
 
 
 
4,614,142
 

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities

Accounts payable and accrued liabilities

 
 
8,525,228
 
 
 
1,510,790
 

Income taxes payable

 
 
139,152
 
 
 
–
 

Current portion of long-term debt

 
 
81,041
 
 
 
–
 

Current portion of lease liabilities

 
 
397,782
 
 
 
58,600
 

Current liabilities before the following:

 
 
9,143,203
 
 
 
1,569,390
 

Promissory notes payable

 
 
751,253
 
 
 
–
 

Convertible debentures

 
 
558,249
 
 
 
–
 

Contingent consideration payable

 
 
1,820,000
 
 
 
1,615,392
 

 
 
12,272,705
 
 
 
3,184,782
 

Non-current liabilities

Lease liabilities

 
 
6,459,307
 
 
 
79,087
 

Long-term debt

 
 
202,158
 
 
 
–
 

Derivative liability

 
 
72,228
 
 
 
–
 

Deferred lease inducement

 
 
–
 
 
 
46,942
 

Deferred tax liability

 
 
262,831
 
 
 
332,600
 

Total liabilities

 
 
19,269,229
 
 
 
3,643,411
 

SHAREHOLDERS' EQUITY

Share issuance obligation

 
 
83,333
 
 
 
511,200
 

Share capital

 
 
40,205,512
 
 
 
18,218,110
 

Contributed surplus

 
 
4,076,520
 
 
 
1,270,663
 

Deficit

 
 
(28,854,184)
 
 
 
(19,154,623
)

Accumulated other comprehensive income

 
 
(217,140)
 
 
 
125,381
 

 
 
15,294,041
 
 
 
970,731
 

Total liabilities and shareholders' equity

 
 
34,563,270
 
 
 
4,614,142
 

1) Excluding: related party payables, promissory notes, convertible debentures and contingent consideration

SOURCE: GABY Inc.

ReleaseID: 568573