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Newtopia Inc. — Management Reports 2024
Jun 6, 2024
47712_rns_2024-06-05_3f6327e1-a947-4c95-9df6-901b82d6a8c1.pdf
Management Reports
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Management’s Discussion and Analysis
Dated: June 5, 2024
For the First Quarter Ended March 31, 2024
MANAGEMENT’S DISCUSSION AND ANALYSIS
Introduction
This Management’s Discussion and Analysis (“ MD&A ”) is provided to enable readers to assess the results of the operations and financial condition for Newtopia for the three months ended March 31, 2024. This MD&A is dated June 5, 2024. Unless the context indicates otherwise, references to “Newtopia”, “the Company”, “we”, “us” and “our” in this MD&A refer to Newtopia Inc. and its operations.
Forward-looking information
Certain information included in this MD&A contains forward-looking information within the meaning of applicable Canadian securities laws. This information includes, but is not limited to, statements made in “Business Overview”, “Results from Operations”, “Debt Operations”, “Debt-Profile” and other statements concerning Newtopia’s objectives, its strategies to achieve those objectives, as well as statements with respect to management’s beliefs, plans, estimates and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking information generally can be identified by the use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “would”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “plan”, “continue”, or similar expressions suggesting future outcomes or events or the negative thereof. Such forward-looking information reflects management’s beliefs and is based on information currently available. All forward-looking information in this MD&A is qualified by the following cautionary statements.
Forward-looking information necessarily involves known and unknown risks and uncertainties, which may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, assumptions may not be correct and objectives, strategic goals and priorities may not be achieved. A variety of factors, many of which are beyond the Company’s control, affect the operations, performance and results of the Company, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results.
Although Newtopia believes that the expectations reflected in such forward-looking information is reasonable and represents the Company’s projections, expectations and beliefs at this time, such information involves known and unknown risks and uncertainties which may cause the Company’s actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking information. Important factors that could cause actual results to differ materially include, but are not limited to: ability to maintain and expand its customer base with products that result in lasting health benefits to customers; ability to invest in technology as tools to support and enhance the customer experience; risks of regulatory changes applicable to the healthcare industry in the United States; general economic conditions that we operate in; and the ability to raise financing to fund capital expenditures and operations. The reader is cautioned to consider these factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking information, as there can be no assurance that actual results will be consistent with such forward-looking information.
The forward-looking information included in this MD&A is made as of the date of this MD&A and should not be relied upon as representing the Company’s view as of any date subsequent to the date of this MD&A. Management undertakes no obligation, except as otherwise required by applicable law, to publicly update
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or revise any forward-looking information, whether as a result of new information, future events or otherwise.
Business Overview
Newtopia was incorporated on May 9, 2008, pursuant to the provisions under the Ontario Business Corporations Act . The Company’s shares are listed on the TSX Venture Exchange under the symbol “NEWU” and on the U.S. OTCQB® Venture Market under the ticker “NEWUF”.
The Company’s registered and head office is 33 Bloor Street East, 5[th] Floor, Toronto, Ontario, M4W 3H1.
Newtopia is a tech-enabled whole health platform helping people create positive lifelong habits that prevent, slow, or reverse chronic disease while reducing healthcare costs for health insurers. The platform leverages genetic, social and behavioral insights to create individualized prevention programs with a focus on metabolic disease, diabetes, mental health challenges, hypertension, weight management and musculoskeletal disorders. With a person-centered approach that combines virtual care, digital tools, connected devices and actionable data science, Newtopia delivers sustainable clinical and financial outcomes.
Each personalized program aims to sustainably reduce the five primary metabolic risk factors of chronic disease, including (1) waist circumference or BMI, (2) blood pressure, (3) blood glucose, (4) triglycerides, and (5) cholesterol, along with mental and emotional health risk factors, thereby delivering proven meaningful and growing healthcare risk reduction to individuals and cost savings to risk-bearing employers or insurers. While many population and disease management companies today focus on either managing those with chronic disease or offering general wellness or engagement solutions across the entire member population, the Company’s platform instead targets the approximately 50% to 80% at-risk population. Newtopia enables participants to sustainably change habits, maintain health, avoid or reduce their likelihood of developing chronic disease and reduce exorbitant healthcare costs in the United States by delivering clinical and cost savings outcomes proven to grow and improve over time.
The Company’s personalized habit change platform focuses on physical and mental health risk reduction (i.e. whole person care) rather than disease management or aesthetic weight loss. The Company believes it is time to get ahead of the increasing prevalence of chronic disease and focus on sustainable prevention rather than disease management. The key to achieving sustainable risk and cost reduction is a focus on building confidence and habit change as opposed to increasing knowledge and education. While disease prevention is still limited in the market, most disease prevention guidelines and offerings focus on teaching a “one-size-fits-all” curriculum in order to build greater knowledge of how to live a healthier lifestyle. Built on similar assumptions as those within the dominant one-size-fits-all education model, the end goal of curriculum-based prevention is to educate individuals in order to build enough knowledge that will hopefully translate into the appropriate behaviour changes to reduce risk. However, in a personalized habit change model, the ultimate goal is not to teach and build knowledge; rather, it is to inspire and instill confidence in order to build new progressive habits and reduce risk. The biggest advantage of a habit change platform relative to a learning platform is sustainability and growth of outcomes and cost savings. With a habit change platform, the value increases over 12 and 24 months (and beyond) as opposed to producing short-term outcomes within the first few months, with both clinical risk factors and costs returning the following year. Therefore, habit change platforms produce a higher level of engagement, clinical risk reduction and cost savings that grow over time compared to many existing knowledge-based models.
The Company’s patented persuasive enterprise technology platform converges genetic testing and the latest social and behavioural science with real-time online human coaching and a cutting-edge virtual platform,
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wireless tracking devices, personalized gamification and a curated social health network to ensure lasting results at scale and a strong return on investment for risk-bearing insurers.
The Company markets to individuals (employees of the self-insured employer market or members of private and public health plans) covered by risk-bearing insurers that have out-of-range physical and mental health risk factors and is paid by the risk-bearing insurer on behalf of the member. These out-of-range factors can be identified by leveraging existing risk identification data including in-person biometric test outcomes, health risk assessments, claims or risk screener data. Eligible at-risk individuals are offered an exclusive invitation to enroll. Once enrolled, they are referred to as participants, and complete a personal profile which helps the Company understand their personality type, level of motivation, readiness to change, eating habits, activity level and underlying social determinants of health. Participants are then personality-matched with a Company Inspirator who acts as a personal health coach and works with each participant to build confidence and develop new progressive habits with respect to nutrition, exercise and behavioural/mental well-being. Participants and Inspirators meet virtually which leverages a combination of online video, text messaging, email or telephone. The use of virtual care has been part of the Newtopia program since day one, enabling the company to continually optimize its philosophy of humans helping humans amplified by technology.
In addition to working with a health coach, participants are also provided tools for success in their personal program. These tools can include a genetic test, smart scale, activity tracker, and access to a personalized mobile or web app. The Company’s mobile platform provides participants access to their Inspirator, video lessons, reporting from bio-sensors, goals, messaging, and their progress from anywhere in the world. It also helps to extend the relationship between participant and Inspirator and increase accountability and engagement between coaching sessions.
Newtopia is a pioneer in genetic engagement and leveraging behavioral genetic testing primarily for habit change and engagement purposes. Newtopia’s genetic testing allows the Company to help participants understand if they have inherited genetic factors that may be having an impact on their physical or mental health and to personalize lifestyle recommendations by gaining a deeper understanding of how genes impact an individual’s risk. Newtopia’s behavior genetic test is designed specifically to look for genetic characteristics related to physical and mental health as well as lifestyle management. The Company provides specific genetically-driven recommendations that are evidence and guideline-based for nutrition, exercise and behaviour management to combat the potential effect of those genetic characteristics. These recommendations could include changes in the proportion of fats, carbohydrates and proteins the participant eats, the form and intensity of exercise required to burn a sufficient number of calories and appropriate behavioural and mental health support and exercises related to satiety signals, cravings and resilience to stress. These genetically driven recommendations are then incorporated into the participant’s personalized lifestyle plan to further refine and personalize each participant’s experience in order to create more durable habit change. Newtopia’s Innovation Lab is frequently working on identifying new genes that could prove helpful in chronic disease prevention.
In addition to its whole person care solution for lowering risk for broad chronic disease prevention, Newtopia delivers individualized support through the following personalized program focus areas:
1. Habit Change and Resiliency
2. Weight Management
3. Diabetes Prevention
4. Hypertension and Heart Health
5. Healthy Living with Diabetes
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Corporate Update
Operating results
Revenue during the three months ended March 31, 2024 of $1,814,000 decreased by 32% over the same period of the previous year. This decline was driven by a structural incentive change with one of our clients, and we’re actively working with said client to offset with future avenues for growth.
Operating expenses during the three months ended March 31, 2024 of $1,656,471 decreased $745,311 or 31% over the same quarter of the previous year. The decreases are mainly driven by reductions in technology headcounts, lower expenses in web and software development, and sales & marketing expenses that did not meet the Company’s ROI performance indicator.
Net loss for the three months ended March 31, 2024 was $1,209,371, an improvement of $163,456 (12%) compared to prior year, driven by lower operating expenses.
Financing activities
On February 29, 2024, the Company closed a brokered private placement offering of 14,430,000 units of the Company at a price of $0.05 per unit for aggregate gross proceeds of $721,500 (net $617,690 after transaction costs). Each unit is comprised of one common share in the capital of the Company and one common share purchase warrant (“Bonus Warrants”). Each warrant is exercisable to acquire one common share of the Company at an exercise price of $0.10 per common share, subject to adjustments in certain events, until March 1, 2027.
The Company also concurrently closed a non-brokered private placement offering of 500,000 units for gross proceeds of $25,000 (net $23,750 after transaction costs) on the same terms as the brokered private placement offering. Net proceeds from these two offerings totaling $641,440 were used to fund the operations of the Company.
On March 7, 2023, the Company closed a private placement offering of units at a price of $0.07 per unit for gross proceeds of $1,534,960. Each unit is comprised of: (i) one Common Share in the capital of the Company; (ii) a first one-half of one Common Share purchase warrant (each whole first warrant, an "A Warrant"); and (iii) a second one-half of one Common Share purchase warrant (each whole second warrant, a "B Warrant"). Each A Warrant entitling the holder thereof to acquire one Common Share at an exercise price of $0.10 per A Warrant Share for a period of six months from the closing date of the offering. Each B Warrant entitling the holder thereof to acquire one Common Share at an exercise price of $0.15 per B Warrant Share for a period of 24 months from the closing date of the Offering. The Company received net proceeds of $1,467,295 after deducting finders' fees closing costs.
In connection with the operating credit Line facility in the amount of $5,000,000 provided by a Canadian Schedule I bank, the Company provides regular updates on all strategic alternatives to the bank, and the bank is continuing to provide credit as Company plans begin to materialize.
Recent development
In March 2024 a client informed the Company that they have decided to stop providing our program to their employees effective June 1, 2024. To address the financial impact upon the departure of this client,
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management is actively reducing variable costs associated with this lost revenue, accelerating new market opportunities, and exploring a variety of strategic alternatives.
Trends
Management regularly monitors economic conditions and estimates their impact on the Company’s operations and incorporates these estimates in both short-term operating and longer-term strategic decisions.
Apart from the risk factors noted under the heading “Risks and Uncertainties”, management is not aware of any other trends, commitments, events or uncertainties that would have a material effect on the Company’s business, financial condition or results of operations.
The Company’s financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize the carrying value of its assets and discharge its liabilities in the normal course of operations. The Company incurred a comprehensive loss of $1,209,371 for the quarter ended March 31, 2024, which was 12% or $163,456 lower than the same quarter of previous fiscal year 2023. The Company has an accumulated deficit of 74,183,815 as at March 31, 2024. The Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing and/or achieve profitable operations in the future. There is no certainty additional financing will be available to the Company on favourable terms, or at all. These conditions indicate the existence of a material uncertainty that may cast significant doubt regarding the company's ability to continue as a going concern.
The financial statements do not reflect adjustments that would be necessary if the going concern assumption was not appropriate. These adjustments could be material.
Off-Balance Sheet Arrangements
As of the date of this filing, the Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company including, without limitation, such considerations as liquidity and capital resources that have not previously been discussed.
Proposed Transactions
There are no proposed transactions of a material nature being considered by the Company.
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Selected Financial Information
Three Months Ended March 31,
| Revenue Cost of revenue Gross profit Gross profit margin Operating expenses Operating loss Other expenses Net loss and comprehensive loss Basic and diluted loss per share |
2024 $ 1,814,000 899,396 914,604 50% 1,656,471 (741,867) 497,504 (1,209,371) (0.01) |
2023 $ 2,648,657 1,275,682 1,372,975 52% 2,401,782 (727,454) 344,020 (1,372,827) (0.01) |
Favourable (Unfavourable) Change |
|---|---|---|---|
| $ % (834,658) (32%) 376,286 29% (458,371) (33%) (2 ppts) (4%) 745,311 31% (14,413) (2%) (123,484) (36%) 163,456 12% - -% |
As a result of losses reported during the three months ended March 31, 2024 and 2023, the outstanding stock options and warrants have an anti-dilutive effect and are not included in the computation of diluted loss per share. Consequently, basic and diluted loss per share are the same.
Revenue
The Company’s performance-based revenue model consists of three elements: (1) Welcome Kit sales, (2) monthly subscription fees, and (3) outcome milestone fees. Welcome Kit sales are recognized when they are delivered to participants upon enrollment. Subscription fees are tied to participant engagement in the Company’s programs based on specific criteria outlined in an individual contract.
Certain customer contracts contain clauses that trigger success fees and/or outcome guarantees. Success fees are paid by customers upon the completion of certain target metrics such as a specific percentage weight loss on average across participants engaged in the program. Upon achievement of those metrics, success fees are billed on a monthly basis. Outcome guarantees result in a repayment of a portion of the engagement fees previously earned by the Company in the event that average participant weight-loss does not meet a targeted range.
Revenue for the three months ended March 31, 2024 decreased by 32% over the same periods in the previous year. The decrease in revenue is mainly attributed to lower engaged participant fees which were charged based on engagement criteria as defined in each customer’s contract such as the number of coaching sessions or logging weight through a smart weight scale.
Gross Profit
Gross profit is comprised of revenue less direct expenses, which consists of the cost of Welcome Kits sold to new participants, and the labour costs associated with the Company’s coaching team or “Inspirators”
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Cost of revenue for the three months ended March 31, 2024 decreased by 29% over the same quarter in the previous year. The decrease is due primarily to decrease in the shipment of welcome kits and no amortization of intangible asset compared to amortization of $206,514 in the same quarter of last year. The absence of amortization in the current quarter was the result of the recording of intangible impairment in the last quarter of fiscal year 2003 (see the annual audited financial statements and related notes for the years ended December 31, 2023 and 2022).
Operating Expenses
| Three Months Ended March 31, 2024 2023 Change $ $ $ % 435,242 922,065 (486,823) (53%) 248,372 426,170 (177,798) (42%) 898,457 958,708 (60,251) (6%) 73,665 93,290 (19,625) (21%) 735 1,549 (814) (53%) - - - 1,656,471 2,401,782 (745,311) (31%) |
Three Months Ended March 31, 2024 2023 Change $ $ $ % 435,242 922,065 (486,823) (53%) 248,372 426,170 (177,798) (42%) 898,457 958,708 (60,251) (6%) 73,665 93,290 (19,625) (21%) 735 1,549 (814) (53%) - - - 1,656,471 2,401,782 (745,311) (31%) |
Three Months Ended March 31, 2024 2023 Change $ $ $ % 435,242 922,065 (486,823) (53%) 248,372 426,170 (177,798) (42%) 898,457 958,708 (60,251) (6%) 73,665 93,290 (19,625) (21%) 735 1,549 (814) (53%) - - - 1,656,471 2,401,782 (745,311) (31%) |
||
|---|---|---|---|---|
| 2024 | 2023 | |||
| $ | $ | |||
| Technology and development | 435,242 | 922,065 | ||
| Sales and marketing | 248,372 | 426,170 | ||
| General and administrative | 898,457 | 958,708 | ||
| Share-based compensation | 73,665 | 93,290 | ||
| Depreciation of property and equipment |
735 | 1,549 | ||
| Depreciation of right-of-use asset | - | - | ||
| 1,656,471 | 2,401,782 | |||
Operating expenses consist of technology and development, sales and marketing and general and administrative expenses.
Technology and development expenditures during the three months ended March 31, 2024 decreased by 53% over the same period in the prior year, driven by headcount reductions and reduced web and software development costs.
Sales and marketing expenses during the three months ended March 31, 2024 decreased by 42% over the same periods in the prior year. The Company eliminate marketing activities that did not meet ROI performance indicator.
General and administrative expenses during the three months ended March 31, 2024 decreased by 6% over the same period of the previous year due to headcount reductions, partially offset by lower corporate expense in the same quarter of last year due to a rent credit recorded in that quarter.
Share-based compensation expenses during the three months ended March 31, 2024 decreased $19,625 or 21 % over the same period of the previous year because stock options issued prior to fiscal year 2021 that were still being amortized in the same quarter of fiscal year 2023 had been fully amortized and had no expense during the current quarter.
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Other Expenses
The table below sets forth the details of other expenses for the three months ended March 31 , 2024 and 2023:
| 2023: | |||
|---|---|---|---|
| Three Months Ended March 31, | |||
| 2024 | 2023 | Change | |
| $ | $ | $ % |
|
| Interest on lease obligations | - | 12,590 | (12,590) (100%) |
| Interest and accretion expense | 267,361 | 169,695 | 97,666 58% |
| Finance charges | 129,025 | 109,648 | 19,377 18% |
| Foreign exchange loss | 3,308 | 18,272 | (14,964) (82%) |
| Loss on settlement of related party payable |
9,797 | - | 9,797 100% |
| Amortization of deferred finance charges |
58,013 | 33,815 | 24,198 72% |
| 467,504 | 344,020 | 123,484 36% |
Interest on lease obligations as of March 31, 2024 decreased by 100% over the prior year periods. The Company terminated its expensive headquarters lease when it adopted a remote office model in the final quarter of 2022.
Interest and accretion expense relates to the accretion of the debt portion of the subordinated, postponed and secured non-convertible debenture units and interests on the debentures. Interest and accretion expense for the three months ended March 31, 2024 increased by 58% over the same periods of the previous year, reflecting debenture issuances in July, September and October 2023 at higher interest rates.
Finance charges relate to interest and fees connected to the credit facility and other loans. Finance charges for the three months and ended March 31, 2024 increased by 18% over the same periods of the previous year, driven by the rising macro interest rate environment.
The Company derives most of its revenue in U.S. currency. The Company’s USD denominated assets include U.S. cash and 100% of its trade receivables. The exchange loss during the current quarter was lower than the same quarter of last year because the exchange rate flotation in the current quarter was lower than the same quarter of last year.
Amortization of deferred finance charges relates to the fees paid to the EDC to guarantee 50% of the Company’s credit facility with a Schedule 1 Canadian bank and the maintenance fees paid to the lenders of the debentures. The charges are deferred and amortized over their respective terms. Amortization for the three months ended March 31, 2024 increased by 72% as compared to the same quarter of prior year relating to the maintenance fees for the issuance of July, September and October 2023 debentures.
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As at
| As at | |||
|---|---|---|---|
| Total assets Total liabilities Deficit Total liabilities and deficit |
March 31, 2024 $ 2,300,788 12,203,917 (9,903,129) 2,300,788 |
December 31, 2023 $ 2,332,893 11,751,553 (9,418,660) 2,332,893 |
**Change ** |
| $ % (32,105) (1%) |
|||
| 452,364 4% (484,469) (5%) |
|||
| (32,105) (1%) |
Total Assets
Total assets as at March 31, 2024 decreased by 1% from total assets as at December 31, 2023. Various small decreases in cash, receivables, contract assets and deferred costs were partially offset by increase in prepaid expenses.
Total Liabilities
The Company’s total liabilities as at March 31 ,2024 increased by 4% from December 31, 2023, primarily as result of the increase in trade and other payables.
Summary of Quarterly Results
The table below sets forth selected financial data for the quarters ended March 31, 2024,
| (In thousands, | except loss per share) | ||
|---|---|---|---|
| Revenue | Net Loss | Loss per Share | |
| Quarter-ended | (Unaudited) | (Unaudited) | (Unaudited) |
| $ | $ | $ | |
| March 31, 2024 | 1,814 | (1,209) | (0.01) |
| December 31, 2023 | 2,343 | (3,226) | (0.02) |
| September 30, 2023 | 2,435 | (770) | (0.01) |
| June 30, 2023 | 2,357 | (1,231) | (0.01) |
| March 31, 2023 | 2,649 | (1,373) | (0.01) |
| December 31, 2022 | 3,114 | (1,590) | (0.01) |
| September 30, 2022 | 2,653 | (2,251) | (0.02) |
| June 30, 2022 | 2,532 | (2,232) | (0.02) |
| March 31, 2022 | 2,867 | (1,628) | (0.02) |
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The Company’s revenues fluctuate quarterly depending on the level of Welcome Kit sales, which usually occur in bulk at the outset of a new customer contract or in phases as customers roll out Newtopia’s programs to its at-risk employees. Recurring engagement revenues, which follow Welcome Kit sales, are subject to seasonality with greater participant engagement at the start of the calendar year. As new clients onboard or as new phases within existing clients launch, Welcome Kit revenue is followed by recurring engagement revenues. Success Fees are typically triggered by milestones such as a participant’s one year mark in the program.
Strategic Growth Drivers and Outlook
In order to continue to expand its market share and further enhance overall engagement levels, the Company is focusing on three key pillars of growth.
First, Newtopia will look to expand its current client base beyond the existing customer pipeline. The addressable market for chronic disease prevention is significant and growing. The Centers for Disease Control reports that 90% of the $4.0 trillion annual healthcare costs paid for by health insurers in the United States are spent to cover chronic physical and mental health conditions. Clients are expected to be generated from one of three verticals, though there can be additional opportunities to expand beyond these identified target markets. United States-based verticals include the 140 million lives covered by self-insured employers, the 100 million lives covered by private insurers and 100 million lives covered by the public and government insurers such as Medicare and Medicare Advantage. The Canadian market also offers an additional 38 million individuals covered by government supplied health insurance. The Company is in its early stages in the Canadian market, having at present signed with a single prevention pilot program. In the large public and private health plans, Newtopia has been leveraging its world-class advisors to wire into many of these accounts in 2023.
The Company is also in the early stages of opening new client channels by repackaging its current offerings that focus on self-insured employers to make such offerings accessible to public and private health plans, including the Medicare Advantage market. Health plan funding is highly dependent on a five-star quality system. Star ratings are released on an annual basis and reflect the experience of a health plan’s membership base. An increase in a half a star could result in millions of dollars in additional funding for that health plan. The Newtopia platform is therefore resonating with health plans’ ability to increase their star ratings by working directly with Newtopia to fill in gaps in care that ultimately result in improved star ratings and funding.
The second core pillar of growth will come from improving product density within new markets or crossselling of current products within Newtopia’s existing customer base. This cross-selling of products will include those on the prevention side, including weight management and diabetes prevention offerings, as well as those that reverse and slow chronic disease, including hypertension and related heart health conditions, all of which are aimed at improving resiliency and building strong, long-term habits. In 2021, the Company also added new mental health offerings to its disease prevention platform as a means by which to provide whole health care (physical and mental) to the participant. Opportunities to cross-sell mental health offerings also now offer incremental revenue opportunities, and the Company believes it has positioned itself very strongly for future customer expansion. Newtopia’s research and development team
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is actively looking into identifying other chronic disease risk identifiers that will continue to differentiate the Company from other health tech providers.
The third pillar of growth will be to increase enrolment rates with its existing customers. Newtopia’s customer contracts are often set up in phases where only a portion of the total at-risk population is offered to onboard onto the Company’s health tech platform initially. As a result of this phased, strategic approach to customer contracts, the Company has only rolled out to approximately 30% of the potential population across Newtopia’s entire customer base at present. While an improvement in sales is not guaranteed, expanding with this current customer base offers significant opportunity for potential incremental revenue for the Company.
To support these efforts and promote the aforementioned pillars of growth, the Company has invested approximately $3.3 million on a new engagement platform. The new platform includes a state-of-the-art participant experience for habit change and enhanced communications and nudges that combined enable the personalized programs that are core to Newtopia. The new engagement platform is anticipated to drive both operational and technological efficiencies so that the Company can enhance its Inspirator to participant service ratios. Increasing the number of participants per Inspirator should also lead to improved gross margin.
Going forward, Newtopia will focus on making strategic investments in its technology that increase the efficiency of its services and provide participants with improved user engagement and better leverage of its health coaches while still maintaining a high-level of individualized care. As the Company expands its participant base, it may also make a number of investments to scale the business further including, but not limited to: bringing on additional Inspirators to maintain the same level of one-on-one service; enhancing claims processing and reimbursement toolset; and improving its enterprise risk management integrations.
Liquidity and capital resources
The table below sets forth the cash flows for the three months endedMarch 31, 2024 and 2023 :
| Cash generated by (used in) Operating activities Investing activities Financing activities Decrease in cash |
Three Months Ended | Three Months Ended | March 31, |
|---|---|---|---|
| 2024 $ (474,149) - 416,372 (57,777) |
2023 $ (820,547) (1,099) 814,066 (7,580) |
Change | |
| $ % 346,398 (42%) 1,099 100% (397,694) (49%) |
|||
| (50,197) (662%) |
Cash used in operating activities during the three months ended March 31, 2024 decreased by $346,398 or 42%compared to the same period ended March 31, 2023. This improvement is mainly attributed to the improvement in net loss and reduction in working capital, in particular increase in trade payables.
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Cash inflow from financing activities during the three months ended March 31, 2024 decreased by $397,694 or 49% over the same period of the previous year due mainly to reduction in proceeds from private placement of share offerings by $825,855 (see “Financing activities” under Corporate Update section), partially offset by savings in lease obligations payments and lower credit facility repayments.
Financing
The Company may be adversely impacted by uncertain market conditions and adverse results from operations. The Company may face challenges due to such factors as the loss of a major customer contract, entry of new competitors or significant changes in healthcare regulations. Should expected revenue growth not materialize, the Company may be required to seek additional financing through the sale of equity securities and/or through debt.
Below is a summary of recent, successfully raised financing activities:
Private placement offerings
On February 29, 2024, the Company closed a brokered private placement offering of 14,430,000 units of the Company at a price of $0.05 per unit for aggregate gross proceeds of $721,500 (net $617,690 after transaction costs). Each unit is comprised of one common share in the capital of the Company and one common share purchase warrant (“Bonus Warrants”). Each warrant is exercisable to acquire one common share of the Company at an exercise price of $0.10 per common share, subject to adjustments in certain events, until March 1, 2027.
The Company also concurrently closed a non-brokered private placement offering of 500,000 units for gross proceeds of $25,000 (net $23,750 after transaction costs) on the same terms as the brokered private placement offering. Net proceeds from these two offerings totaling $641,440 were used to fund the operations of the Company.
Credit Facility
On December 4, 2020, the Company closed an Operating Credit Line Agreement (the “ Facility ”) in the amount of $5,000,000 with a Schedule I bank (the “ Bank ”). The Company could avail itself of the operating credit under the Facility by way of either Canadian dollars at prime lending rate plus 2.25% or United States dollars at the U.S. base lending rate plus 2.25%. The Facility is secured by all Newtopia property and is subject to certain covenants where the Company is required to meet minimum cash runway ratios.
In connection with the Facility, the Company was required to obtain a guarantee from Export Development Canada of 50% of the available Facility plus accrued and unpaid interest up to a maximum of 120 days (the “Guaranteed Amount”). The Company agreed to pay a guarantee fee of 2.35% of the Guaranteed Amount and guaranteed interest on outstanding amounts at the lender’s prime rate minus 0.05%. The initial guarantee covered the period from October 14, 2020 to September 30, 2021. In October 2021 the guarantee was extended until September 30, 2022, and in October 2022 the guarantee was further extended until October 2024.
In accordance with the terms of the Facility, the lender received 210,526 warrants on December 4, 2020, with each warrant entitling the lender to acquire one common share at a price of $0.95 at any time within the earlier of the Maturity Date and December 4, 2025.
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On September 30, 2021, the Company refinanced the Facility for an increased revolving credit facility of $7.5 million, up from the $5.0 million in funding secured previously. In October 2021 the guarantee obtained from Export Development Canada was extended until September 30, 2022.
On June 29, 2022, the Company entered into a 2nd amendment of the Facility with the Bank to replace the cash runway ratio covenant with a covenant to maintain minimum total liquidity thresholds for the months from May to September 2022 and to reduce the cash runway ratio covenant for the month of October 2022.
The Company was not in compliance with the covenants of the Facility. On November 1, 2022, the Bank agreed to not accelerate repayment of the Facility on the conditions that the Company receives minimum capital injections of $700,000 by November 11, 2022 and $2,500,000 by December 15, 2022. The maximum credit on the Facility was capped at $4,880,760. Any injection in the form of debt financing would be fully subordinated to the Facility.
On May 15, 2023, the Bank issued a letter to the Company with the following amendments i) the Company was to provide evidence by May 31, 2023 of its intention to raise capital no less than $1,500,000 by June 30, 2023, ii) the Facility was to be repaid on or prior to November 30, 2023, iii) effective May 23, 2023, the Company is to pay 15% annual interest on advances in excess of the lesser of the borrowing base and the maximum limit of the Facility which is adjusted from $4,880,760 to $4,900,000, and iv) pricing on the Facility is increased by 3%, payable in kind and subject to ratable forgiveness tied to full repayment of the loan before November 30, 2023. On July 14, 2023, the Company successfully raised $1.5M from a private placement of debenture units (See above). The Bank and Newtopia continue to work together and provide mutual updates on a regular basis, and as of the date of this MD&A no additional measures have been taken.
Issued and Outstanding Share Capital
The Company’s authorized capital consists of an unlimited number of Common Shares and unlimited number of Class A Preferred Shares, issuable in series. As of the date of this MD&A, the issued and outstanding shares consists of 173,265,303 Common Shares with no Class A Preferred Shares outstanding.
The Company has established a stock option plan (the “ Plan ”) for the benefit of its employees, directors, officers and consultants. On September 14, 2022 the Company amended and restated the existing plan. Under the new plan (the “ 2022 Option Plan ”), the maximum number of options that may be granted cannot exceed 23,598,557, representing 20% of the aggregate of issued and outstanding Common Shares on September 14, 2022 being the date of the annual and special meeting of shareholders of the Company. As of the date of this MD&A, there are 19,482,823 stock options outstanding under the Plan.
As of the date of this MD&A, there are a total of 39,950,290 outstanding warrants consisting of 36,644,000 non-broker warrants to purchase up to 36,644,000 Common Shares and 3,306,290 compensation options to purchase up to 3,306,290 Common Shares.
Significant Accounting Policies and Estimates
The Company’s significant accounting policies and accounting estimates under International Financial Reporting Standards (“ IFRS ”) are contained in the Annual Financial Statements. Certain of these policies involve critical accounting estimates as they require management to make particularly subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts could be reported under different conditions or using different assumptions. Actual
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results may differ from estimates under different assumptions and conditions. Significant judgments include income taxes and significant estimates include fair value measurements and the valuation process.
New and Revised IFRS Standards issued but not yet effective
In January 2020, the IASB issued amendments to IAS 1, Presentation of Financial Statements, to clarify the requirements for classifying liabilities as current or non-current. The amendments clarify the classification of liabilities as current or non-current based on rights that are in existence at the end of the reporting period and are unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability. The amendments also clarify the definition of "settlement" of a liability. The amendments are effective January 1, 2024, with early adoption permitted. The amendments are to be applied retrospectively. Management does not expect any material impact to the Corporation’s financial statements upon adoption of these amendments.
In October 2022, the IASB issued amendments to IAS 1 – Presentation of Financial Statements, which specifies that covenants whose compliance is asse202ssed after the reporting date do not affect the classification of debt as current or non-current at the reporting date. Instead, the amendments require disclosure of information about these covenants in the notes to the financial statements. The amendments are effective for annual reporting periods beginning on or after January 1, 2024, with early adoption permitted. Management does not expect any material impact to the Company’s financial statements upon adoption of these amendments.
Related party transactions
The Company’s key management is comprised of the Board of Directors and current or former members of the executive team of the Company. Key management compensation for the three ended March 31, 2024, and 2023 consisted of the following:
| Three | Months Ended | |
|---|---|---|
| March 31, | ||
| 2024 | 2023 | |
| $ | $ | |
| Salaries, fees and short-term benefits | 593,607 | 872,888 |
| Share-based benefits | 79,540 | 126,787 |
| 673,147 | 999,675 |
On March 10, 2023, the Company issued 2,200,000 stock options to the directors of the Company for fees related to the three months ended December 31, 2022 and year ended December 31, 2023 of $33,125 and $165,625, respectively. Each option vests quarterly over one year and is exercisable at a price of $0.10 per common share at any time up to March 3, 2028. The fair value of the stock options was determined at $198,000 using the Black-Scholes option pricing model with the following assumptions: risk free interest rate 3.16%, expected life of 5 years and expected volatility of 124.19%.
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As at March 31, 2024, aggregate bonuses payable to members of the Company's executive team was $153,600 (December 31, 2023 - $133,600).
Financial Instruments and Risk Management
The Company may be exposed to risks of varying degrees of significance that affect its ability to achieve its strategic objectives. The main objectives of the Company’s risk processes are to ensure that the risks are properly identified and managed within Board approved policies and guidelines. The principal risks to which the Company is exposed to are as follows:
Customer Concentration Risk
Newtopia’s client base is fairly concentrated with two customers comprising 89% of the total revenues. In March 2024 a client informed the Company that they have decided to stop providing our program to their employees effective June 1, 2024. To address the financial impact upon the departure of this client, management is actively reducing variable costs associated with this lost revenue, accelerating new market opportunities, and exploring a variety of strategic alternatives.
Credit risk
Credit risk arises from the possibility that Newtopia’s customers may experience financial difficulty and be unable to fulfil their contract commitments. The Company’s exposure to credit risk is mitigated by its customer base, which consists primarily of US healthcare insurance payors or self-insured employers that are typically large, established Fortune 500 companies with high credit quality. In addition, the Company mitigates exposure to credit loss by placing its cash with major financial institutions.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate based on the changes in foreign exchange rates. The Company enters into transactions to purchase and sell goods denominated in foreign currencies, which relate to revenues, cost of sales, expenses, cash, accounts receivable and accounts payable balances. These balances are subject to exchange rate fluctuations.
Liquidity risk
The Company’s objective is to have sufficient liquidity to meet its liabilities when due. The Company monitors its cash balances and cash flows generated from operations to meet its requirements. There has been no change to the Company’s policies and processes with respect to the way it manages liquidity risk.
Disclosure controls and procedures and internal controls over financial reporting
Disclosure controls and procedures
The CEO and CFO have designed or caused to be designed controls to provide reasonable assurance that (i) material information relating to the Company is made known to management by others, particularly during the period in which the annual and interim filings are being prepared; and (ii) information required to be disclosed by the Company in its annual and interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time frame specified in
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the securities legislation. Based on the evaluations, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were adequate and effective.
Internal controls over financial reporting
Newtopia has established internal controls over financial reporting to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS. Management, including the CEO and CFO, have determined that as at March 31, 2024, the internal controls over financial reporting were effective.
Inherent limitations
It should be noted that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Given the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, including instances of fraud, if any, have been detected. These inherent limitations include, among other items: (i) that management’s assumptions and judgments could ultimately prove to be incorrect under varying conditions and circumstances; (ii) the impact of any undetected errors; and (iii) controls may be circumvented by unauthorized acts of individuals, by collusion of two or more people, or by management override.
Additional Information
Additional information relating to the Company can be found on SEDAR at www.sedar.com.
APPROVAL
The Board of Directors of the Company has approved the disclosure contained in this MD&A.
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