For the Three and Nine-Month Period Ended March 31, 2018 and 2017
MANAGEMENT DISCUSSION AND ANALYSIS
OVERVIEW
Relevium Technologies Inc., (the "Company") was incorporated under the Canada Business Corporations Act on July 19, 2012 and its registered head office is located at 1000 Sherbrooke St. West, Suite 2700, Montreal, Quebec, Canada. The principal business of the Company is the identification, evaluation, acquisition and operation of entrepreneurial brands and businesses in the Health and Wellness markets with a strong focus on E-Commerce. The Company is a publicly traded corporation trading under ticker symbol "RLV" on the TSX Venture Exchange and "6BX" on the Open Market Segment of the Frankfurt Stock Exchange.
Background
The Company was incorporated on July 19, 2012 as Ovid Capital Inc. and was classified as a Capital Pool Company (“CPC”) as defined by Policy 2.4 of the TSX Venture Exchange (the “Exchange”). On August 7, 2015, the Company completed its Qualifying Transaction (“QT”) and on August 13, 2015 changed its name to Bioflex Technologies Inc. and began trading under the symbol “BFT” in the TSX Venture Exchange. Under the terms of the QT, the Company acquired certain assets from Bioflex Medical Magnets and ITECH Medical, including the patents and trademarks with the objective of developing a new product line of wearable braces to improve pain and swelling arising primarily from musculoskeletal injuries.
On October 29, 2015, the Company announced a corporate rebrand and name change to Relevium Technologies Inc. to better reflect a broader approach to its Health and Wellness corporate strategy. On December 17, 2015, the Company was rebranded to Relevium Technologies Inc. as approved by shareholders’ vote at the Company’s scheduled annual general meeting.
For the Three and Nine-Month Period Ended March 31, 2018 and 2017
The Company is engaged in the identification, acquisition and development of entrepreneurial consumer brands in the Health and Wellness space, including Nutraceuticals, Nutrition and consumables that support overall fitness and wellbeing.
CORPORATE HIGHLIGHTS FOR THE REPORTING PERIOD
During the nine-month period ended March 31, 2017 (the “Reporting Period”), the Company focused on the integration of BioGanix, evaluation of the product offering, brand repositioning and developing a growth strategy including accessing new online marketplaces, international expansion investing into technology, new talent and management platforms. The Company is guided by the objective of increasing the existing brand equity of the assets acquired.
The following section describes the major highlights of the Company for the reporting period:
Core Business
The Company’s wholly-owned subsidiary, BGX E-Health LLC, operates all the online assets that support the operations and sales of its Bioganix® brand of nutraceutical and wellness consumer products with quality formulations at competitive prices, with a focus on providing an overall awesome customer experience. All BioGanix products are produced by tested and verified by GMP Certified and FDA inspected facilities across the USA.
During the reporting period the company has invested a large portion of its resources to reposition the Bioganix® brand and prepare it for expansion internationally. As at March 31, 2018, the company offered 38 dietary supplement products and was preparing to launch an additional 12 products in fiscal Q4. The Bioganix® brand offers a complete line of products, from trending weight loss to proven health supporting supplements including digestive health, heart health, brain health, blood sugar, as well as anti-aging supplements. Bioganix® is sold in the USA primarily through amazon and through its website https://www.bioganix.com.
Bioganix® is currently not sold in Canada and it is expected that the company will apply to the Natural and Non-prescription Health Products Directorate (NNHPD) to seek approval for sale in Canada.
During the three-month period ended March 31, 2018, the company’s core business:
1. Initiated a market test for the eventual launch of a complete Aloe Vera based health support products and cosmetics 2. Revealed a new brand architecture for Bioganix® 3. Conducted the initial joint-launch of Planet Hemp with HEMPCO 4. Established its presence for the European marketplace in partnership with Amazon
During the three months ended March 31, 2018 the company reported $1,036,176 in revenues from its Bioganix® brand with a gross profit margin of 56% or $575,495. During the nine-month reporting period of fiscal year ending June 30, 2018, the Bioganix® brand reported revenues of $3,157,644 and a gross profit margin of 57% or $1,806,515. Bioganix® is a stepping stone in the Company’s strategic plan to build a portfolio of e-commerce brands in the Health and Wellness space. In addition to expanding the current product offering through the introduction of new products, the Company also plans to launch parallel brands under BGX E-Health to target specific segments.
New Business
During the nine-month period ended March 31, 2018, the Company was able to execute several exclusivity agreements aimed at securing exclusive products, formulations and/or intellectual property in order to build brand equity. The company executed exclusive deals that allows the company to introduce Hemp Products, Aloe Vera products, Omega 7 formulations and Pet supplements. The transaction with Hempco aims at collaborating with a Canadian-based leader in the Hemp business to develop and launch hemp-based products. The Company executed an initial launch of several HEMP products and is now targeting the other markets and platforms including the UK.
The transaction with Tersus Life Sciences aims at licensing the exclusive rights to launch a series of specialized and unique Omega 7 Provinal nutraceuticals, which will be unique in the market. The companies have developed two formulations, which are expected to go into production in the month of May and be online in June.
The cooperation between the Company, Salvenia Nutrition and Biodevas Laboratories will lead to the development of a line of Phytoceuticals for companion pets and complement a wider product line planned for launching this year. The development of the pet nutrition products are expected to take place in the fall of this year.
Technology Development
During the reporting period, the Company initiated several projects aimed at utilizing artificial intelligence and blockchain in its e-retail strategy. On January 11, 2018 the Company announced a JV with Quantomic LLC with the objective to pool resources to use the Tagspire technology, integrate blockchain and pursue a token offering. During the reporting quarter, the companies continued to cooperate to develop the right strategy and fit for the technology within the context of blockchain.
On March 5, 2018, the Company engaged blockchain expert Didier Martin as the company’s Lead Blockchain Expert. The company remains committed to integrate AI and Blockchain technology to address value added opportunities for its current business and for the future scalability of its M&A activities.
Mergers and Acquisitions
The Company remains active in reviewing and sustaining the incoming deal flow for M&A transactions. However, management is of the opinion that the company’s equity remains undervalued and cannot currently sustain dilution at these levels.
During the three-month period ended March 31, 2018 the company reviewed three opportunities for acquisitions and decided to postpone negotiations until such time as deemed accretive and beneficial to the company and its shareholders.
About the Nutraceutical Marketplace
Nutraceuticals are nutritional supplements derived from natural sources that compliment progressive health and wellness programs. Nutraceuticals play a significant role in preventive health and therefore are an area of strategic focus in terms of our business strategy. Relevium’s initial focus will be on building e-retail assets and expanding product offerings by introducing new formulations to support Health and Wellness. Investment in this market is supported by industry projections for growth in a market that is estimated to reach USD 38.7 Billion by 2020.
The market for nutraceuticals is highly competitive. Direct competition to Relevium consists of publicly and privately-owned companies, which tend to be highly fragmented in terms of both geographic market coverage and product categories. In many of the products offered through BioGanix, we compete not only with widely advertised branded products, but also with private label products.
The Company’s management, combined with the support of the members of its Board of Directors and Advisory Board, has access to strong innovation capabilities and has established access to high-quality manufacturing through the acquisition of BioGanix. Management believes that it is well-positioned to capitalize on favorable long-term trends in the nutraceutical market.
FINANCIAL HIGHLIGHTS FOR THE REPORTING PERIOD
During the nine-month period ended March 31, 2018 the Company consolidated the sales revenues from its subsidiary BGX E-Health LLC, which holds and operates the acquired assets from BioGanix.
Sales revenue were generated by the Bioganix® brand and totaled $3,157,644 for the reporting period ($NIL in 2016), which generated a gross profit of $1,806,515 ($NIL in 2016). The gross margin of 57% continues to remain stable and adjusted EBITDA for the brand remain positive at 25%.
On a global basis, the reporting period was marked by a period of preparation for market expansion, which included investments (increased expenses) on initiatives to build brand equity, expand geographically, launch of new products and build the operating team. The investments included brand repositioning, restructuring marketing spend, purchasing operating software and other value-added services. Additionally, the company incurred material non-cash expenses such as share-based payments and accretion, all of which impacted the earnings for the period.
The Company reported net and comprehensive losses of $1,787,985 ($566,070 in 2017) and Adjusted Earnings Before Interest, Taxes and Amortization (Adjusted EBITDA – see table below) totaling ($384,151) in the same period.
Adjusted EBITDA
Net Loss -$ 1,787,985 Share based payments $ 554,110 Interest on long-term debt $ 348,422 Acreeted interest $ 263,618 Acquisitions and Related Costs $ 237,684 Adjusted EBITDA -$ 384,151 *Adjusted EBITDA and Non-IFRS Financial Measures This MD&A includes certain measures which are not defined terms in accordance with IFRS such as Adjusted EBITDA. The Term “Adjusted EBITDA” refers to net income (loss) after adjusting for interest, taxes, depreciation and costs relating to acquisitions and their integration.
The Company believes that Adjusted EBITDA is useful supplemental information as it provides an indication of the results generated by the company’s main business activities prior to taking into consideration how those activities are financed and taxed and prior to taking into consideration depreciation and particularly the costs of integration of acquisitions.
Adjusted EBITDA is a key measure used by Management and the Company’s Board of Directors (“Board”) to understand and evaluate the company’s operating performance, to prepare annual budgets, and to help develop Operating Plans. Adjusted EBITDA is not a measure of performance under IFRS and should not be considered in isolation or as a substitute for net and comprehensive income (loss) prepared in accordance with IFRS or as a measure of operating performance or profitability.
Adjusted EBITDA does not have a standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures presented by other companies.
OUTLOOK
The Company will continue to pursue the acquisition of e-retail brands, businesses and technologies in the Health and Wellness market. As part of the overall acquisition strategy, Relevium will invest in optimizing and developing the acquired e-brands and business following a business model that includes:
• Optimization of its marketing and product positioning strategies • Overview of its current product line and launching of new products • Creation and launch new brands and product segments • Obtaining licenses or direct sourcing of exclusive products • Joint Ventures for market expansions
RESULTS FROM OPERATIONS
The reader of this MD&A and accompanying interim financial statements should be aware that in the comparable periods for the three and nine months ended March 31, 2017, the Company did not have an operating business. The consolidation of the financial statements of BGX EHealth LLC (BioGanix) results in a completely different profile of both, revenues and expenses. Nine months ended March 31, 2018 The following table summarizes financial results the six months ended March 31, 2018 Nine-months ended March 31, 2018 Ninemonths ended March 31, 2017 Variance Revenues 3,157,644 - 3,157,644 COGS 1,351,129 - 1,351,129 Gross Profit 1,806,515 - 1,806,515 Expenses - Administration fees 287,248 112,700 174,548 Consulting Fees 308,067 165,438 142,629 General and administrative expenses 430,580 157,419 273,161 Selling and Marketing 1,252,668 - 1,252,668 Professional Fees 166,818 42,400 124,418 Share-based payments 554,110 14,638 539,472 Loss(gain) on foreign exchange (20,184) 1,179 (21,363) Amortization expense 3,178 72,321 (69,143) Interest and accretion 612,040 - 612,040 Net loss and comprehensive loss (1,787,985) (566,070) (1,221,915) Adjusted EBITDA* (384,151) (477,932) 93,781 *Adusted EBITDA is a non-IFRS Financial Measure of Performance During the nine-month period ended March 31, 2018, the Company’s focused primarily on the integration of the activities of the BioGanix brand, business valuations and diligence in terms of acquisitions development.
The company produced total revenues of $3,157,644 ($NIL in 2017) arising from direct to consumer sales of nutraceutical products through the company’s various online platforms. Cost of goods sold for the reporting period totaled $1,351,129 ($NIL in 2017), primarily composed of the cost of finished products, warehousing and logistics, resulting in a gross profit of $1,806,515 (NIL in 2017) or a gross profit margin of 57% as compared to sales. Total expenses for the reporting period were $3,594,524 ($566,095 in 2017) representing a dollar value increase of $3,028,454, which resulted primarily from new expense categories associated with the consolidation of the acquired business, the service of the debt incurred to finance the acquisition and non-cash share-based compensation grants. The company reported administration fees of $287,248 ($112,700 in 2017), consulting fees of $308,067 ($165,438 in 2017), general and administrative expenses of $430,580 ($157,419 in 2017) and professional fees of $166,818 ($42,400 in 2017) all associated with the change in business structure, hiring of key personnel and costs associated transition services, technology development and due diligence. The Company reported selling and marketing expenses of $1,252,668 ($NIL in 2017), representing primarily the costs of operating the company’s e-commerce platforms including Amazon and Shopify. The nature of these expenses includes commissions, advertising, promotional campaigns and paid traffic, all costs that did not exist in the comparable period. During the reporting period, the Company issued stock-based compensation to management, directors and consultants resulting in a non-cash expense of $554,110 ($14,638 in 2017). This is the company’s second issuance of stock options for directors and officers since it began trading in August 2015. The Company reported interest on long-term debt of $348,422 (NIL in 2017) and accreted interest of $263,618 (NIL in 2017). The Company had a gain from foreign exchange of $20,184 (Loss of $1,179 in 2017). As a result of the operations of the company for the nine-month period ended March 31, 2018, the company reported a net loss and comprehensive loss of $1,787,985 ($566,070 in 2017).
Three months ended March 31, 2018 The following table summarizes financial results the three months ended March 31, 2018 Quarter ended March 31, 2018 Quarter ended March 31, 2017 Variance Revenues 1,036,176 - 1,036,176 COGS 460,681 - 460,681 Gross Profit 575,495 - 575,495 Expenses Administration fees 98,849 36,000 62,849 Consulting Fees 107,732 49,500 58,232 General and administrative expenses 186,489 79,217 107,272 Selling and Marketing 584,796 - 584,796 Professional Fees 85,921 18,246 67,675 Share-based payments - 3,698 (3,698) Loss(gain) on foreign exchange 56,577 (331) 56,908 Amortization expense 2,119 24,107 (21,988) Interest and accretion 208,656 - 208,656 Net loss and comprehensive loss (755,644) (210,437) (545,207) Adjusted EBITDA* (292,517) (182,963) (109,554) *Adusted EBITDA is a non-IFRS Financial Measure of Performance During the three-month period ended March 31, 2018, the Company’s focused primarily on the optimization and integration of the activities of the BioGanix brand, business valuations and diligence in terms of acquisitions development. The company produced total revenues of $1,036,176 ($NIL in 2017) arising from direct to consumer sales of nutraceutical products through the company’s various online platforms. As compared to the first quarter ended September 30, 2017, the revenues were slightly down primarily the result of a 30-day disruption in the payment gateway in the Shopify marketplace, product mix adjustments and minor seasonality.
Cost of goods sold for the reporting period totaled $460,681 ($NIL in 2017), primarily composed of the cost of finished products, warehousing and logistics, resulting in a gross profit of $575,495 (NIL in 2017) or a gross profit margin of 56% as compared to sales. Total expenses for the reporting period were $1,331,139 ($210,437 in 2017) representing a dollar value increase of $1,120,702, which resulted primarily from new expense categories associated with the consolidation of the acquired business, the service of the debt incurred to finance the acquisition, accreted interest and non-cash share-based compensation grants. The company reported administration fees of $98,849 ($36,000 in 2017), consulting fees of $107,732 ($49,500 in 2017), general and administrative expenses of $186,489 ($79,217 in 2017) and professional fees of $85,921 ($18,246 in 2017) all associated with the change in business structure, hiring of key personnel and costs associated transition services, technology development and due diligence. The Company reported selling and marketing expenses of $584,796 ($NIL in 2017), representing primarily the costs of operating the company’s e-commerce platforms including Amazon and Shopify. The nature of these expenses includes commissions, advertising, promotional campaigns and paid traffic, all costs that did not exist in the comparable period. The Company reported interest on long-term debt of $132,691 (NIL in 2017) and accreted interest of $75,965 (NIL in 2017). The Company had a loss from foreign exchange of $56,577 (gain of $331 in 2017). As a result of the operations of the company for the three-month period ended March 31, 2018, the company reported a net loss and comprehensive loss of $755,644 ($210,437 in 2017).
SUMMARY OF QUARTERLY RESULTS
Quarter Ended Revenues Net & comprehensive lossfor the period Net loss per share (Basic & Diluted) Weighted average common shares March 31, 2018 1,036,176 755,644 0.00087 86,363,372 December 31, 2017 968,474 904,565 0.013 69,824,611 September 31, 2017 1,152,994 127,776 0.0019 65,971,466 June 30, 2017 NIL 2,018,668 0.055 35,918,448 March 31, 2017 NIL 210,437 0.0061 34,743,966 December 31, 2016 NIL 164,966 0.0048 34,582,966 September 31, 2016 NIL 190,667 0.006 31,886,367 June 30, 2016 NIL 684,198 0.0248 27,637,653
FINANCIAL POSITION
During the reporting period, which was also a period of integration, the Company continued to deliver stable and growing sales revenues of $3,157,644 ($NIL in 2017) and a net and comprehensive loss of $1,787,985 ($566,070 in 2017). As at March 31, 2018, the Company reported cash and cash equivalents totaling $1,521,654 ($904,603 in June 30, 2017). On July 2017, the Company obtained control over the assets purchased under the purchase agreement for the acquisition of the assets of BioGanix. 31-mars-18 30-juin-17 $ $ Total Assets 8 158 384 7 115 152 Current Assets 2 332 699 1 038 452 Current Liabilities 1 166 245 1 285 690 Working Capital* 1 166 454 -247 238 *Working capital is defined as current assets less current liabilities. For the nine-month period ended March 31, 2018, the company reported negative cash flows from operations totaling $1,498,117 ($450,107 in 2017) primarily the result of increases in noncash working capital items non-existing prior to the acquisition of BioGanix, including an increase in accounts receivable of $134,776, increase in inventories of $468,687, increases in prepaid expenses of $73,733 and decrease of accrued liabilities of $110,537 As at March 31, 2018 the company reported negative cash flows from investing activities of $21,158 ($25 in 2017) for the purchase of office equipment.
As at March 31, 2018 the company reported positive cash flows from financing activities of $2,136,351 ($520,025 in 2017) arising primarily from the exercise of incentive stock options and share purchase warrants of $2,023,704 ($40,000 in 2017), the settlement of subscriptions receivable of $60,000 ($NIL in 2017), the issue of a short term loan payable of $375,780 ($NIL in 2016), the repayment of long term debt of $25,380 ($23,775 in 2017), the repayment of contingent consideration payable of $145,714 ($NIL in 2016) and the repayment of the shortterm loan payable of $152,039 ($NIL in 2017). The Company’s only significant source of funding has been the issuance of equity securities for cash and debt financing. The acquisition of BioGanix has changed the status of the company, from a developing stage company to an operating company with revenues and earnings, with adjusted negative EBITDA of $384,515 (negative EBITDA $477,932 in 2017). The company expects to continue to require funding from the capital markets to execute its ongoing acquisitions strategy. As at March 31, 2018 the Company had 27,322,354 warrants issued and outstanding that if fully exercised, could generate $4,032,779 (27,322,354 warrants x $0.1476) in capital to support the Company’s activities. Number of warrants Exercise price $ Expiry Date 6,383,355 $0.15 Aug-18 1,722,500 $0.11 Aug-19 13,803,500 $0.15 Jun-19 3,913,000 $0.15 Aug-19 1,499,999 $0.15 Dec-19 27,322,354 $0.1476 Management also recognizes that capital markets are always in flux and there may be risks involved beyond its control in securing additional capital or having outstanding warrants exercised (See Going Concern Note)
CAPITAL RESOURCES
The Company’s objective is to maintain a strong capital base to maintain investor, creditor and market confidence and to sustain future development of the business. Management defines capital as the Company’s shareholders’ equity and long-term debt. The Company’s only significant source of funding has been the issuance of equity securities for cash and debt financing. The acquisition of BioGanix and subsequent acquisitions are expected to change the status of the company, from non-revenue to a cash generating business.
The Company’s business model also includes the role of a consolidator in the nutraceutical ecommerce space and such the Company expects to continue to make acquisitions in this space through the capital markets.
OFF-BALANCE SHEET ARRANGEMENTS
The Company did not have any off-balance sheet transactions as at March 31, 2018.
RELATED PARTIES TRANSACTIONS
During the reporting period the following transactions occurred: Consulting fees include $20,245 (2017 - $NIL) paid to a director of the Company. Administration fees include directors fees of $10,500 (2017 – $NIL). Professional fees include $58,177 of services provided by the legal secretary. The company entered into an agreement with the legal secretary to issue shares in exchange for services rendered in this capacity. The number shares to be issued is to be determined using a value weighted price determination in exchange for the value of the services received. These transactions are measured at the exchange amount, which is the amount of consideration determined and agreed to by the related parties. As at March 31, 2018, the balance due to related parties amounted to $20,107.
BIOGANIX LTD ASSET ACQUISITION
On July 4, 2017, the Company completed its acquisition of certain assets of BioGanix LTD in exchange for cash consideration in the amount of $1,900,000, the issuance of 6,750,000 common shares of the Company at the price of Cdn $0.13 per share which represents the fair value of the shares issued, $500,000 as a performance based contingent consideration payable in cash on December 31, 2017 and $1,550,000 in the form of a two-year convertible note bearing interest at the rate of 8% payable quarterly. The convertible note allows the holder to convert the principal amount, after an initial period of 12 months, into common shares of the Company at an exercise price of Cdn$0.1396. as described in Note 11 of the condensed consolidated interim financial statements. The fair values of the acquired assets have been determined on a provisional basis pending the completion of a formal valuation and have been allocated as follows: $ Inventory 269,020 Trademarks and other intangible assets 2,555,692 Goodwill 3,251,988 6,076,700
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect amounts reported in financial statements and accompanying notes. There is a full description and a detailed presentation of the Corporation’s critical accounting policies, accounting judgments and uncertainties relative to significant estimates are provided in the audited financial statements as at June 30, 2017.
OUTSTANDING SHARE DATA
The following information sets out the outstanding share data of the Company as at March 31, 2018: Common shares issued Number of shares Amount Balance as at June 30, 2017 65 971 466 $ 5 119 909 Balance as at March 31, 2018 87 079 063 $ 8 392 355 As of March 31, 2018, the Company had 87,079,063 common shares issued of which 2,359,125 of the issued and outstanding shares were subject to escrow conditions. The company also has a total of 27,322,354 warrants issued. On December 22, 2017, the Company amended its incentive stock option plan to increase the maximum number of common shares issuable from 3,838,847 to 6,983,684. As at March 31, 2018, 4,432,800 options were issued and exercisable.
SUBSEQUENT EVENTS
Subsequent to March 31, 2018, the following events occurred: On April 5, 2018 the Company announced that it has started the process of establishing European presence for the new Bioganix® brand in partnership with several online partners, including Amazon. The Company targets doing an initial launch of eight best-selling products, which will be live online on the week of the May 21, 2018 with full marketing launch by midsummer.
On April 19, 2018 the Company announced the creation of Biocannabix Health Corporation (the “Subsidiary” or “BHC”), a Canadian wholly owned subsidiary structured to lead the development of the legal cannabis derivatives business for RLV. The Company projects to complete its ACMPR application for the Canadian marketplace within the current fiscal quarter and has begun to assemble its legal and regulatory team of experts within targeted jurisdictions. On April 26, 2018 the Company announced the creation of its two first cannabis brands, LeefyLyfe and Biocannabix offering cannabis products in the North-American and European markets. LeefyLyfe and Biocannabix brands are part of the wholly owned Biocannabix Health Corporation (the “Subsidiary” or “BHC”). On April 30, 2018 the Company announced the signing of a product development, supply and commercialization agreement with Neptune Wellness Solutions (TSX:NEPT) (NASDAQ:NEPT) for MaxSimil®, a patented fish oil monoglyceride omega 3 technology. On May 3, 2018 the Company announced that it has received approval to sell its biggest mover Bioganix® products on Walmart.com.
On behalf of the Board of Directors, we thank our shareholders for their continued support. “Aurelio Useche” Aurelio Useche Chief Executive Officer
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