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Relevium Technologies Inc. — Interim / Quarterly Report 2020
Jul 16, 2020
47081_rns_2020-07-16_cd3ad559-6a1b-4a5f-98c8-c80251ffd2ce.pdf
Interim / Quarterly Report
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RELEVIUM TECHNOLOGIES INC. MANAGEMENT DISCUSSION AND ANALYSIS – QUARTERLY HIGHLIGHTS For the three and nine-month periods ended March 31, 2020 and 2019
This Management's Discussion and Analysis – Quarterly Highlights ("MD&A") for Relevium Technologies Inc. ("Relevium" or the "Company") should be read in conjunction with: the audited consolidated financialstatementsforthe year ended June 30, 2019 and the notes thereto, prepared in accordance with International Financial Reporting Standards ("IFRS"); the MD&A for the year ended June 30, 2019; and the unaudited interim consolidated financial statements for the period ended March 31, 2020 (the "Reporting Period").
The effective date of this MD&A is July 16, 2020.
COVID-19 PANDEMIC
The COVID-19 pandemic hit Canada and the United States in March 2020, during the Reporting Period. The operations and financial condition of the Company have been affected by this global health crisis. Since the beginning of the COVID-19 pandemic, the management and board of Relevium have worked remotely. The Company is in compliance with all federal, provincial and municipal regulations that have been put in place since the beginning of the pandemic. The Company will continue to monitor closely developments in this regard, with the health and safety of the Company's employees and management as the primary concern.
OVERVIEW
Relevium is a publicly traded company that operates in the health and wellness industry with a primary focus on online distribution. The Company's primary listing exchange is the TSX Venture Exchange (TSXV: RLV); its common shares also trade on the OTCQB (OTCQB: RLLVF) and on the Open Market Segment of the Frankfurt Stock Exchange (FRA: 6BX).
The principal business of the Company is the identification, evaluation, acquisition and operations of brands and businesses in the health and wellness markets with a focus on e-commerce. The Company pursues its business strategy through an acquisition and partnership model in a holistic approach to encompass a wide range of health and wellness.
Background
Relevium 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 in Montreal, Quebec, Canada.
The Company completed its Qualifying Transaction ("QT") on the TSX Venture Exchange ("TSX-V") in August 2015 and began operating under the name Bioflex Technologies Inc., trading under the symbol "BFT" on the TSX-V. On December 17, 2015 the Company rebranded to Relevium Technologies Inc., trading under the symbol "RLV", in order to reflect better its focus on health and wellness and on the consolidation of brands and businesses in the space.
The Company completed its first acquisition in July 2017, consisting of the assets of Bioganix®, a branded online business in the nutraceutical space, with products sold in the US through Amazon.com and its native website, Bioganix.com. The transaction was conducted through BGX E-Health LLC., a wholly owned subsidiary based in Orlando, Florida.
Relevium operates through two wholly owned subsidiaries, BGX E-Health LLC and Biocannabix Health Corporation Inc.
BGX E-Health LLC (BGX)
Based in Orlando, Florida, BGX markets dietary supplements, nutraceuticals, sports nutrition and cosmeceuticals, primarily through its Bioganix® brand portfolio online in the US and, as of September 2018, in Europe. Relevium's brands, such as Bioganix®, are sold at some of the world's largest retailers, including Walmart.com and Amazon.com.
The Company's strategy for growing its brands includes expanding its product offering, adding new distribution channels and developing partnerships that add value through exclusive ingredients. During the year, the Company developed relationships with companies such as Tersus Life Sciences, Neptune Wellness Solutions and Hempco Food and Fiber in order to provide its current and future customer base with a balanced and comprehensive product offering.
BGX is currently testing a complete line of dietary supplements derived from hemp, with an initial focus on hemp-derived, whole-plant organic extracts rich in CBD (cannabidiol). These hempderived dietary supplements are deemed as food supplements rather than medicinal products. The product line will be marketed through its brand LeefyLyfeTM and will be sold in the USA, Latin America and Europe. Products are expected to enter the US market in the second quarter of this fiscal year.
The Company launched in February 2019 the Push & Pull System™ by Bioganix®, which is the firstever comprehensive natural anti-aging system for complete skin care that combines collagen protein supplements (PUSH) and naturally-sourced aloe vera skin anti-aging cream (PULL). This launch is targeting a brand-new revenue stream in the burgeoning cosmeceutical market, which is the fastest growing segment of the health and wellness market.
Biocannabix Health Corporation (BCX)
Based in Montreal, Quebec, BCX is a biopharma start-up, launched in 2018, with the objective of establishing a vertically integrated medical cannabis company, targeting pediatric applications of phyto cannabinoid nutraceutical products.
In line with the company's strategy to develop a fully integrated business, Biocannabix Health Corporation entered into a binding agreement to acquire 100% of Lifeline Pharma SAS, a licensed cultivator and extractor in Cali, Colombia. In addition to an operational integration, Biocannabix has also developed a scientific integration in partnership with key institutions in Colombia and Canada, which will allow the company to optimize the research and clinical work required to validate its pediatric formulations.
The company has also secured the exclusive license for a complete line of pediatric formulations under the brand Cannakids. The company is developing the educational and distribution support for the products and is currently in discussions with Health Canada-licensed processors to manufacture the product according to the strict specifications provided by the licensor. The company expects the introduction of its products to take place in 2020.
ADDRESSABLE MARKETS FOR RELEVIUM
The Nutraceutical Market
Nutraceuticals are nutritional supplements derived from natural sources that complement 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 has been 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®, the Company competes 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.
The Medical Cannabis and Hemp Market
The legalization of cannabis around the globe is setting the stage for a market revolution. Notwithstanding the 80 years of prohibition, it is estimated that more than 37 million people in the U.S. and millions more in Canada use cannabis, both legally and illicitly.
The first round of players in the market were licensed producers in Canada. The appetite for blue ocean in cannabis did drive market valuations to unsustainable levels, and the lack of financial performance led to a major correction. On average, cannabis companies lost about 65% of their market capitalization over the second and third quarter of this year.
Today, the focus is in the development of sustainable business, medical research, distribution platforms and, of course, a major event like the full legalization in the US at the federal level.
Ongoing research about the importance of endocannabinoid system dysfunction and its impact on health is demonstrating the positive link between medical cannabis therapy, combined with that of traditional pharma to treat diseases like cancer and neurological syndromes, both in adults and children. In Canada, the estimated market size of medical marijuana in Canada is expected to grow,
and it is predicted that the medical marijuana market in Canada will be worth over $2.35 billion (Canadian dollars) by 2025.
The market for cannabis in North America is large and experiencing quick growth. It is expected that, by 2026, cannabis-related businesses will exceed $90 billion per year. The addition of medical cannabis to the Company's portfolio offers a new revenue stream for medical applications and potential research partnerships in this lucrative emerging market.
Canada
The market for cannabis (including medical marijuana) in Canada is highly regulated and brand restrictive. Health Canada is the primary regulator of the industry as a whole and cultivators, producers and packagers of cannabis products are required to obtain a CRA license from the Canada Revenue Agency. In Canada, hemp-derived CBD products that contains less than 0.3% of THC are legal in Canada and without a prescription as long as the selling entity is licensed to do so under Health Canada rules.
Any applicant seeking to become a licensed producer is subject to stringent licensing requirements, which can be summarized as follows:
Screening: During screening, the application and supporting documents are assessed for completeness, legibility and the ability to be further assessed.
Review and security clearance: Once an application has passed the screening stage, and security clearance applications are being processed, the application will undergo a detailed review to verify that the requirements are met. Health Canada works in conjunction with the RCMP on security clearance applications.
Pre-licensing and approval: Once Health Canada completes the detailed review of the submitted application, Health Canada provides the applicant with a confirmation of readiness email. This email prompts the applicant for information to demonstrate that there is a functioning facility at the site address. The applicant is required to provide a site evidence package with documentation including, but not limited to, detailed video walkthroughs of both the interior and exterior of the site, and site and building plans including descriptions and photographs that clearly detail facility completion.
Pre-License inspection: Health Canada inspectors may be deemed necessary prior to further licensing decisions. If an inspection is required, the inspection team will contact the applicant to schedule the pre-license inspection. In the case where an on-site pre-license inspection is not required, the license issuance will be based on the thoroughness of information found in the site evidence package. As the regulatory requirements for each license type vary, so do the requirements for the site evidence package. When an applicant reaches this stage in the application process, they are informed of what specific information is required.
Issuance of license: Once all information has been reviewed, including the results and observations from a pre-license inspection, if necessary, and all security clearances have been granted, an initial license for authorized activities is issued. A hard copy of the license, as well as an accompanying issuance letter detailing any conditions around the issued license, is mailed to the identified mailing address. In addition, all security-cleared key personnel are sent letters regarding the status of their security clearances for that site, under that application. Following issuance of the license, Health Canada holds a teleconference with the new license holder to discuss the license, including any conditions. License holders must ensure that the quality of cannabis products they produce meets all applicable requirements. When a license holder is first licensed, activities may be limited, particularly prior to being authorized to conduct the activity of sale for medical purposes. This graduated licensing is for the purpose of verifying that cannabis products intended for sale meet all of the quality standards set out under the Cannabis Regulations.
United States
Regarding North America, in the USA, the Farm Bill was adopted in late 2018, which removed hemp as a Schedule I substance and reclassified it as an ''agricultural commodity''. Hemp-derived CBD products are federally legal as long as they adhere to the law. The FDA has undertaken to review and provide oversight over CBD in foods and supplements. Until a final decision is taken, companies selling CBD products are not allowed to make any health claims on the products. The Company is closely following the development of the state's adoption and will make sure that the expected products that will be launched will be respecting the regulations. The estimated time before selling the hemp-derived CBD products in the USA depends on the adoption of the Farm Bill by the different states. The Company will not sell any marijuana-derived products in the USA before it is legal federally in the USA.
Europe
New rules and regulations are now affecting the European market since January 2019, and hemp extracts might need to get authorized by the European Food Safety Agency (EFSA) as being a novel food before hitting the market. The Company is closely following the development of these new rules and regulations and will make sure that the expected products that will be launched will be respecting these rules and regulations. The estimated time before selling the products in Europe will depend on the implementation of these new rules and regulations.
CORPORATE HIGHLIGHTS FOR THE REPORTING PERIOD
OVERALL COST AND PRODUCT REVIEW MANDATE
During the three-month Reporting Period ended March 31, 2020, the Company began a program to revamp its cost structure by conducting a major review of its existing product line and cost structure. Over the 18 months prior to the Reporting Period, costs for selling and marketing began to escalate due to increased competition and changes in the Amazon algorithms. In view of this, the Company decided to begin a process of eliminating unprofitable or high marketing cost products and those facing aggressive price competition in the Company's various marketplaces, primarily Amazon.
THE ROLL-OVER TRANSACTION OF BGX E-HEALTH AND COVID-19 GLOBAL PANDEMIC
During the same period, management's strategic focus was on the conclusion of the roll-over of BGX E-Health LLC into NewScope Capital and the completion of the concurrent financings for both companies. During the Reporting Period, macroeconomic conditions in terms of liquidity in the Canadian financial markets began to deteriorate and, along with it, the overall market capitalization of the Company. In early February 2020, the market began to feel the effects from the situation in China relating to COVID-19, and in mid-February 2020, the World Health Organization declared a global pandemic, which in itself solidified the weak financial markets, and the appetite for new financings contracted.
RESULTING IMPACT ON THE COMPANY'S OVERALL PERFORMANCE FOR THE PERIOD
The lack of liquidity and the depressed market capitalization of the Company further forced the Company to restrain spending, which combined with the elimination of high cost-high competition products and reduced working capital, led to a significant decrease in total revenues for the Reporting Period totaling $529,735, as compared to $1,038,467 in the previous year.
During the three months ended March 31, 2020, the Company was also able to execute a major cost reduction program, which led to significantly lower costs, and a net loss of $11,514, as compared to a net loss of $945,261 in the previous year.
OTHER IMPORTANT HIGHLIGHTS FOR THE REPORTING PERIOD
During the three-month period ended March 31, 2020, the Company announced the following developments:
On March 3, 2020, Relevium announced that the Company's subsidiary, BGX, had shipped a total of $130,000 worth of generic formulations to its customer, Innova Health Care, based in Saudi Arabia. This represents the first shipment of the initial $1,000,000 purchase order the Company received, as announced on October 30, 2019. Given the current situation with the COVID-19 pandemic, the balance of the order was extended until further notice.
On March 4, 2020, Relevium announced the passing of Dr. Tina Sampalis, director and scientific officer of the Company. She had died on March 1, after fighting cancer with courage, resilience and tenacity. She will be greatly missed by the entire Relevium team.
SUBSEQUENT EVENTS
The following are the Subsequent Events that occurred after the end of the Reporting Period:
On April 2, 2020, Relevium announced that it had sourced and would begin commercializing a line of Bioganix® hand sanitizers.
Relevium is leveraging its strong network of suppliers and formulators to manufacture and bring to market a line of hand sanitizers under the Bioganix® CleanCare™ brand. The Company will have an initial format of 8 oz (235 ml) that will effectively kill 99.9% of germs and bacteria. The product is formulated and manufactured in Miami, Florida at the Company's specialty products contract manufacturing partner and will be sold both online and through selected retail chains in the US.
On April 6, 2020, the Company announced that it had a pre-order platform where customers can purchase in advance and reserve its new line of CleanCare™ hand sanitizers by Bioganix®.
The Company began accepting pre-orders for the Company's new CleanCare™ hand sanitizer products and will ship them to customers on a first-come, first-serve basis. The priority will be existing customers in the United States.
Relevium added that it would begin its initial pre-order with approximately 10,000 units and would scale up operations to meet market demand. The Company will also begin to formulate new formats of CleanCare™ products, including 2 oz travel size, as well as working on launching new technologies for the home care market.
In addition to launching the Company's new hand sanitizer product, Relevium has also pledged to donate Bioganix® CleanCare™ products to local shelters, institutions, and support centres in Montreal.
On April 8, 2020, Relevium announced that it had secured the natural product number ("NPN") for the Canadian market and is ready to launch the product for Canadian customers.
Relevium is leveraging product formulation and manufacturing expertise of its integrated supply chain in Montreal to commercialize the newly announced Bioganix® CleanCare™ hand sanitizers that effectively kill 99.9% of germs and bacteria. The Company, through its local manufacturing partner, has secured a Health Canada NPN and will begin accepting pre-sale orders on a firstcome, first-serve basis.
On April 9, 2020, the Company announced that it had launched its new Bioganix® CleanCare™ hand sanitizer product on pre-order to consumers in the Canadian and US markets.
The Company began accepting pre-orders for its new hand sanitizer products, which will be shipped out to Canadian customers on a first-come, first-served basis.
The Company has launched a new 8 oz six-pack format for its customers in the Canadian and US marketplaces.
On April 13, 2020, the Company announced that it had partnered with Montreal-based air purification leaders to launch a new line of residential and office air purification systems.
The systems, which will be added to the Bioganix® CleanCare™ line of personal health products, contain ultra-violet and photocatalytic technology, as well as particulate and gas filtration capabilities that are able to eliminate airborne pollutants, including viruses and bacteria.
On April 15, 2020, the Company announced that its new line of Bioganix® CleanCare™ hand sanitizers had been met with very strong pre-sales demand of approximately $250,000 since the product was made available on April 9, 2020.
On April 24, 2020, Relevium announced that it was expanding its CleanCare™ hand sanitizing line to include two new retail formats, as well as one institutional format, with the latter targeting the critical needs of retirement homes and community centres across Canada and the US.
Relevium, through its integrated supply chain, is successfully expanding production capabilities for CleanCare™ hand sanitizers to over 100,000 units per week.
On May 27, 2020, Relevium announced a private placement of 46,894,194 units ("Units") of the Company at a price of $0.035 per Unit (the "Offering"), resulting in gross proceeds to the Company of $1,642,296.76. Each Unit consists of one common share and one common share purchase warrant ("Warrant"). Each Warrant entitles its holder to acquire one common share of the Company at a strike price of $0.05 for a period of two years from the date of issuance. The Warrants are subject to an acceleration feature if the volume-weighted average price of the common shares trades at or above $0.075 on the TSX Venture Exchange for a period of seven consecutive days starting four months and a day from closing.
The Company paid finder's fees of $25,584.30 and issued 730,980 broker warrants ("Broker Warrants"). Each Broker Warrant entitles the holder to acquire one common share of the Company at a strike price of $0.05 for a period of one year from the date of issuance.
The net proceeds of the Offering will be used to fund business development, as well as for working capital purposes. All securities issued pursuant to the Offering are subject to a statutory fourmonth hold period.
On June 19, 2020, the Company received the last portion of the private placement totaling 6,000,000 Units, for gross proceeds of $210,000. The Units issued in this private placement have the same terms and conditions as described above.
On June 2, 2020, the Company provided a corporate update to its shareholders. The COVID-19 pandemic has created a new and challenging business environment around the world, and the economic consequences of this pandemic have been felt by the Company. The following are the decisions made by the management of the Company after the Reporting Period:
On October 17, 2019, the Company announced that its wholly owned subsidiary, Biocannabix, had executed a binding agreement to acquire the late-stage medical sales applicant Weedsense Inc., subject to approval of the TSX Venture Exchange and other regulatory approvals. The proposed transaction included the initial issuance of shares of Relevium, the investment of capital to build out the facility and a series of milestone payments thereafter. Following the lack of liquidity in the capital markets and the working capital deficiency of the Company, both of which prevented Relevium from securing regulatory approvals, management of the Company sought to postpone and renegotiate the proposed transaction. The Company was notified by the sellers of their position regarding the termination of the proposed transaction and has been working to settle any outstanding matters relating to such termination.
On October 29, 2019, the Company announced that it had executed a letter of intent to roll its wholly owned subsidiary, BGX, into NewScope Capital Corporation ("NewScope"), with the objective of crystalizing the value of the business in the wellness industry. Following the decline in cannabis and the loss in market value of Relevium, the Company sought to conclude this transaction to create focus and secure the necessary funding through an initial public offering. The transaction required the approval of the secured debenture holders, the shareholders and the TSX Venture Exchange, as well as the completion of a substantial equity financing and the listing of NewScope shares on the Canadian Securities Exchange. On January 28, 2020, the Company provided an update on the status of the proposed transaction with NewScope, including the updated terms and conditions. The economic uncertainty created by the global COVID-19 pandemic has delayed the Company's plans and this transaction with NewScope is no longer being pursued by the Company. A definitive agreement was not signed, and the only remaining obligation toward NewScope relates to $200,000 of unsecured promissory notes.
On November 8, 2019, the Company announced that it had entered into an agreement to acquire a Montreal-based biopharma contract manufacturer. The transaction was aimed to complement the spin out of BGX and its Bioganix® brand. The Company is working closely with the contract manufacturer to transfer the manufacturing of key products to the Montreal-based manufacturer.
The same macroeconomic factors affecting the transaction with NewScope have led Relevium to put the transaction on hold pending a strategic review on a post-pandemic basis. Relevium does not have any outstanding obligations toward the contract manufacturer.
On June 11, 2020, Relevium announced the successful delivery of CleanCare™ hand sanitizers to retail customers in the US, including the orders announced in the Company's news release of April 15, 2020.
On June 19, 2020, the Company announced that it had expanded and continues to expand its CleanCare™ product line, as it prepares to address increased government and institutional demand for disinfection supplies in preparation for a potential second wave of COVD-19.
On June 18, 2020, CBC News reported that NATO nations have agreed to stockpile medical equipment and essential supplies to prepare for an anticipated second wave of COVID-19. Defence ministers from NATO have asked member nations to contribute to an emergency fund to buy even more supplies, as the alliance braces for a second wave of the pandemic. Municipal, regional and federal governments and institutions are also following suit, and the demand for North American-made and compliant products increases daily.
Relevium continues to innovate and bring new products to market to address market demand for critical health and wellness products, including surface disinfectants in the form of liquid sprays and wipes, targeting B2B, institutional and government customers. The Company's news product pipeline now includes air purification systems, seven new formats of gel and liquid sanitizers, surface disinfectants, wipes and a new alcohol-free product line.
On June 23, 2020, Relevium announced the appointment of James Mansour, an award-winning brand and marketing executive, to its advisory board.
Mr. Mansour is an award-winning branding authority who works closely with global brands to ensure success. He was instrumental in the development of many brands that became icons in the marketplace and multi-billion dollar businesses, including Victoria's Secret, the #1 lingerie brand in the world, and Bath and Body Works, the #1 beauty products specialty retailer in the world.
Mr. Mansour is an award-winning brand marketer and customer experience authority, a master at crafting compelling, powerful and resonant customer brand experiences. He is an authentic, influential and successful industry leader with over 25 years of experience as both an executive and international consultant.
His unique background provides a broad spectrum of significant business acumen in branding and marketing, including concept development, product design and promotion. This blend of disciplines delivers a rare combination of style and substance, seasoned strategic thinking, inspired ideas and hands-on experience.
Well versed in the needs of global corporations like 3M and Corian and highly experienced in navigating the demands of emerging companies, Mansour Design specializes in integrating brands across all media, delivering clarity, consistency and engaging interactivity, which elevates brands and drives target customers to new products online and on-shelf.
On July 13, 2020, the Company announced the expansion of its CleanCare™ brand into the disinfection and personal protection market, following its successful entry into the hand sanitizing business.
Following this successful launch of its hand sanitizing products, and in view of new demand arising from the ongoing global pandemic, the Company's brand is expanding its mandate to cover disinfection and personal protection equipment and supplies (the "PPES Business"). With the expected introduction of air purification and disinfection home and office systems this fall, the Company is also mapping the entry into disinfection technologies and other personal protection products.
The Company also announced the appointment of The Paper Store as an official retailer for its Bioganix® CleanCare™ products, covering the northeastern United States. Established in 1964, The Paper Store is the largest family owned and operated specialty gif business in the American northeast. Today, the Anderson family runs over 80 stores throughout the northeast with a thriving ecommerce business and over 3,000 employees. The Company completed the delivery of initial inventory of Bioganix® CleanCare™ during the month of June 2020, and the products received great acceptance by the customer base of The Paper Store.
Also on July 13, 2020, Relevium entered into a letter of intent ("LOI") with H-Source Holdings Ltd. ("H-Source") to partner in the development, strategic sourcing and supply of global personal protective equipment ("PPE") requirements due to COVID-19.
The HSource1 proprietary platform is focused on supplying the significant demand for PPE products by providing a central location for hospitals, governments, and businesses to procure highly needed medical surgical supplies, pharmaceuticals, capital equipment and wellness products. Relevium has established contracts with multiple vendors and products that are approved for global distribution, greatly increasing opportunities for supporting a healthier world.
H-Source and Relevium are partnering to make the CleanCare™ line available through HSource1, as well as other PPE products. HSource1 is a fully secured and auditable platform that connects buyers and suppliers in a secured, compliant, and transparent manner. The platform is registered and approved is 35 states in the USA, as well as Canada and Europe. H-Source partners with the accounting firm EY to deploy the platform.
H-Source and Relevium will be cooperating to list the Company's product offerings and incorporating its newly developed network of PPE products, vendors, and buyers onto the HSource1 platform. Relevium's Bioganix® CleanCare™ is now poised to expand to global markets utilizing the efficiencies of HSource1.
Both companies have also expressed their intention, in the LOI, to exchange equity and share resources to solidify the partnership.
FINANCIAL HIGHLIGHTS FOR THE REPORTING PERIOD
The Company reported total assets of $8,338,820 as at March 31, 2020 (June 30, 2019: $8,560,452), a decrease of $221,632. This was primarily driven by decreases in cash of $861,732 and inventory of $289,301. This was counterbalanced by increases in receivables of $639,053 and a deposit on the acquisition of Lifeline Pharma of $272,400. Total liabilities at March 31, 2020 were $4,339,071 (June 30, 2019: $3,512,144), an increase of $826,927. This is primarily due to increases of accounts payable and accrued liabilities of $739,247, a bridge loan payable of $200,000 and short-term debt of $2,224,550. This was counterbalanced by decreases in long-term debt of $1,973,480, the loan payable of $210,930 and the warrant liability of $153,000.
Shareholders' equity was $3,999,749 at March 31, 2020 (June 30, 2019: $5,048,308), a decrease of $1,048,559. This is primarily due to the net comprehensive loss of $1,241,322 incurred in the nine-month period ended March 31, 2020.
During the three-month period ended March 31, 2020, the Company generated revenues from its Bioganix® brand of $529,735 (March 31, 2019: $1,038,467), representing a decrease of $508,732. The Company reported a net comprehensive loss of $197,871 in the three-month reporting period (March 31, 2019: loss of $955,038).
During the nine-month period ended March 31, 2020, the Company's generated revenues from its Bioganix® brand of $2,671,675 (March 31, 2019: $3,030,019), representing a decrease of $358,344. The Company reported a net comprehensive loss of $1,305,932 in the nine-month reporting period (March 31, 2019: loss of $2,600,085).
OUTLOOK
In addition to the launch and development of its entrepreneurial start-up in medical cannabis, the Company will continue to focus on 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:
- Marketing and product positioning strategies into segmented demographics in the US
- Continued review of its current product line and product development
- Launch of CBD and other cannabinoid-based brands and product segments
- Obtaining licenses or direct sourcing of exclusive products
- Partnerships and Joint Ventures for Medical Cannabis
COVID-19
The management of the Company will continue to monitor the COVID-19 pandemic situation and attempt to orient the Company's operations and corporate strategy, accordingly, as outlined in the Subsequent Events section of this MD&A.
RESULTS FROM OPERATIONS: THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019
The following table summarizes financial results for each of the reported three-month periods.
| Three-month periods ended March 31 | |||
|---|---|---|---|
| 2020 | 2019 | Variance | |
| $ | $ | $ | |
| Sales | 529,735 | 1,038,467 | (508,732) |
| Cost of sales | 107,113 | 476,729 | (369,616) |
| Gross profit | 422,622 | 561,738 | (139,116) |
| Administration fees | 44,366 | 132,357 | (87,991) |
| Consulting fees | 2,812 | 267,775 | (264,963) |
| General and administrative | 124,479 | 342,997 | (218,518) |
| Selling and marketing | 165,260 | 694,785 | (529,525) |
| Professional fees | 80,019 | 106,283 | (26,264) |
| Amortization of assets | 1,164 | 37,012 | (35,848) |
| Loss (gain) on foreign exchange | (935) | (594) | (341) |
| Change in fair value of warrants | - | (181,500) | 181,500 |
| Interest on long-term debt | 20,301 | 71,276 | (50,975) |
| Accreted interest | (3,330) | 36,608 | (39,938) |
| 434,136 | 1,506,999 | (1,072,863) | |
| Net loss | (11,514) | (945,261) | 933,747 |
| Other comprehensive items | |||
| Exchange differences on | |||
| translation of foreign operations | (186,357) | (9,777) | (176,580) |
| Net comprehensive loss | (197,871) | (955,038) | 757,167 |
| Loss per share –basic and diluted | (0.0013) | (0.0084) | |
| Weighted average number ofshares outstanding | 147,446,356 | 113,581,773 |
During the three-month period ended March 31, 2020, the Company generated $529,735 in revenues (March 31, 2019: $1,038,467), representing a decrease of $508,732 over revenues generated in the quarter ended March 31, 2019. In this quarter, the Company reduced amounts spent on sales and marketing, which had the effect of decreased sales. In addition, in March 2020, the COVID-19 pandemic hit North America, the principal market of the Company.
In the Reporting Period, the Company significantly reduced its costs, as explained in detail above. Consequently, costs of goodssold in the three-month period ended March 31, 2020 were $107,113 (March 31, 2019: $476,729) and accounted for 20% of sales (March 31, 2019: 46%). This resulted in a gross profit of $422,622 for the quarter ended March 31, 2020 (March 31, 2019: $561,738) and accounted for 80% of sales (March 31, 2019: 54%).
Total expenses for the three-month period ended March 31, 2020 were $434,146 (March 31, 2019: $1,506,999), representing a decrease of $1,072,863. The Company reduced its cost structure significantly. As indicated in the table above, nearly all expense categories had significant decreases, including particularly consulting fees (decrease of $264,963), general and administrative expenses (decrease of $218,518) and selling and marketing expenses (decrease of $529,525).
Despite the decrease in sales during the quarter ended March 31, 2020, the economies realized by the Company resulted in a net loss significantly lower than that incurred in the quarter ended March 31, 2019. The net comprehensive loss for the three-month period ended March 31, 2020 was $197,871 (March 31, 2019: loss of $955,038), a difference of $757,167.
As outlined in the Subsequent Events section, the Company has launched new products in response to the COVID-19 pandemic. The Company will continue to find new opportunities and ways of increasing revenues, despite these tough economic times, and will monitor closely its cost structure.
RESULTS FROM OPERATIONS: NINE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019
The following table summarizes financial results for each of the reported nine-month periods.
| Nine-month periods ended March31 | |||
|---|---|---|---|
| 2020 | 2019 | Variance | |
| $ | 131$ | $ | |
| Sales | 2,671,675 | 3,030,019 | (358,344) |
| Cost of sales | 1,058,921 | 1,374,973 | (316,052) |
| Gross profit | 1,612,754 | 1,655,046 | (42,292) |
| Administration fees | 176,716 | 359,134 | (182,418) |
| Consulting fees | 475,743 | 614,002 | (138,259) |
| General and administrative | 605,467 | 799,695 | (194,228) |
| Selling and marketing | 1,395,489 | 1,770,383 | (374,894) |
| Professional fees | 204,293 | 244,082 | (39,789) |
| Amortization of assets | 3,494 | 110,930 | (107,436) |
| Share-based payments | - | 32,250 | (32,250) |
| Loss (gain) on foreign exchange | 893 | (1,170) | 2,063 |
| Write-down of contingent | |||
| consideration payable | - | (77,670) | 77,670 |
| Change in fair value of warrants | (153,000) | 52,500 | (205,500) |
| Amortization of deferred | |||
| financing costs | - | 58,207 | (58,207) |
| Interest on long-term debt | 158,521 | 204,323 | (45,802) |
| Accreted interest | 51,070 | 88,465 | (37,395) |
| 2,918,686 | 4,255,131 | (1,336,445) | |
| Net loss | (1,305,932) | (2,600,085) | 1,294,153 |
| Other comprehensive loss | |||
| Exchange differences on | |||
| translation of foreign operations | 64,610 | (13,501) | 78,111 |
| Net comprehensive loss | (1,241,322) | (2,613,586) | 1,372,264 |
| Loss per share –basic and diluted | (0.0085) | (0.0238) | |
| Weighted average number ofshares outstanding | 146,455,288 | 110,000,687 |
During the nine-month period ended March 31, 2020, the Company generated $2,671,675 in revenues (March 31, 2019: $3,030,019), representing a decrease of $358,344 over revenues generated in the nine-month period ended March 31, 2019.
Although revenues decreased in the nine-month period ended March 31, 2020, expenses did as well. The Company's costs of goods sold in the nine-month period ended March 31, 2020 were $1,058,921 (March 31, 2019: $1,374,973) and accounted for 40% of sales (March 31, 2019: 45%). This resulted in a gross profit of $1,612,754 for the nine-month period ended March 31, 2020 (March 31, 2019: $1655,046) and accounted for 60% of sales (March 31, 2019: 55%).
Total expenses for the nine-month period ended March 31, 2020 were $2,918,686 (March 31, 2019: $4,255,131), representing a decrease of $1,336,445. Specifically, in the most recent threemonth period ended March 31, 2020, the Company reduced its cost structure significantly. As indicated in the table above, nearly all expense categories had significant decreases, including administration fees (decrease of $182,418) consulting fees (decrease of $138,259), general and administrative expenses (decrease of $194,228) and selling and marketing expenses (decrease of $374,894).
Despite the decrease in sales during the nine-month period ended March 31, 2020, the economies realized by the Company resulted in a net loss significantly lower than that incurred in the ninemonth period ended March 31, 2019. The net comprehensive loss for the nine-month period ended March 31, 2020 was $1,241,322 (March 31, 2019: loss of $2,613,586), a difference of $1,372,264.
As outlined in the Subsequent Events section, the Company has launched new products in response to the COVID-19 pandemic. The Company will continue to find new opportunities and ways of increasing revenues, despite these tough economic times, and will monitor closely its cost structure.
The Company's ability to continue as a going concern is subject to its ability to develop its biopharma business, to consolidate its over-the-counter business and its ability to raise additional financing to execute the roll-up strategy from its current pipeline of targets.
| Quarter Ended | Revenues | Net Loss &Comprehensive Loss | Net loss per share(Basic & diluted) | Weighted AverageCommon Shares |
|---|---|---|---|---|
| $ | $ | $ | ||
| Mar. 31, 2020 | 529,735 | 197,871 | 0.0013 | 147,446,356 |
| Dec. 31, 2019 | 1,124,254 | 190,451 | 0.0013 | 147,446,356 |
| Sep. 30, 2019 | 1,017,686 | 853,000 | 0.006 | 144,483,924 |
| June 30, 2019 | 1,023,598 | 1,136,950 | 0.009 | 125,250,747 |
| Mar. 31, 2019 | 1,038,467 | 955,038 | 0.009 | 113,581,773 |
| Dec. 31, 2018 | 1,006,501 | 1,001,151 | 0.009 | 111,918,730 |
| Sep. 30, 2018 | 985,051 | 657,397 | 0.006 | 104,579,409 |
| June 30, 2018 | 995,180 | 1,120,650 | 0.012 | 92,786,684 |
SUMMARY OF QUARTERLY RESULTS
FINANCIAL POSITION
The reporting period includes the operations for its subsidiary, BGX E-Health LLC, and the Bioganix® brand. The Company remains focused on growth and acquisitions and continues to rely primarily on equity and debt financing.
| As at | Mar. 31, 2020 | June 30, 2019 | |
|---|---|---|---|
| $ | $ | ||
| Total Assets | 8,338,820 | 8,560,452 | |
| Current Assets | 1,573,678 | 1,796,016 | |
| Current Liabilities | 4,297,071 | 1,343,664 | |
| Current Working Capital | (2,723,393) | 452,352 |
At March 31, 2020, the Company had total assets of $8,338,820 (June 30, 2019: $8,560,452), current assets of $1,573,678 (June 30, 2019: $1,796,016) and current liabilities of $4,297,071 (June 30, 2019: $1,343,664). The Company had negative working capital of $2,723,393 at March 31, 2020, compared to positive working capital of $452,352 at June 30, 2019. The principal reason for this significant change in working capital in due to the debt on the Company's balance sheet. At June 30, 2019, Relevium had $1,973,480 in long-term debt. Given that this debt matures in December 2020, the Company reported this amount as short-term debt at March 31, 2020, thereby affecting the working capital of the Company. In addition, at March 31, 2020, the Company had a lower cash position, lower inventory, higher accounts payable and a bridge loan payable, all of which negatively affected the Company's working capital position.
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.
At March 31, 2020, the Company has 36,897,916 warrants issued and outstanding that, if fully exercised, could generate $4,603,750 (36,897,916 warrants x an average exercise price of $0.1248) in capital to support the Company's activities.
| Number of warrants | Exercise price ($) | Expiry Date |
|---|---|---|
| 5,866,666 | 0.15 | Apr. 2020 |
| 15,350,000 | 0.12 | June 2020 |
| 2,400,000 | 0.12 | July 2020 |
| 3,781,250 | 0.12 | Sep. 2020 |
| 9,500,000 | 0.12 | Dec. 2020 |
| 36,897,916 | 0.1248 |
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.
CAPITAL RESOURCES
The Company's objective isto maintain a strong capital base in order to maintain investor, creditor and market confidence and to sustain future development of the business.
Management defines capital as the shareholders' equity of the Company. 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 the Company therefore 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, 2020.
RELATED PARTIES TRANSACTIONS
The Company's related parties include the CEO, CFO, directors and corporate secretary. Unless otherwise stated, none of the transactions incorporates special terms and conditions and no guarantees were given or received. Outstanding balances are usually settled in cash. All balance of advances receivable and advances payable are measured at fair value and occurred in the normal course of business.
Transactions with related parties for the nine-month period ended March 31, 2020 were as follows:
| Ninemonths ended March 31 | 2020 | 2019 |
|---|---|---|
| (unaudited) | $ | $ |
| Management and directors' fees | 213,697 | 275,340 |
| Professional fees to corporate secretary | 46,205 | 49,256 |
Amounts payable to related parties included in the non-current liabilities and in the accounts payable and accrued liabilities were as follows:
| Amounts owed toRelated Parties | ||
|---|---|---|
| Period | $ | |
| Management and directors | March 31, 2020 | 133,823 |
| June 30, 2019 | 19,500 | |
| Corporate Secretary | March 31, 2020 | 58,572 |
| June 30, 2019 | 15,064 |
Stock Option Plan
The purpose of the Stock Option Plan (the "Plan") is to serve as an incentive for the directors, officers, employees and service providers who will be motivated by the Company's success, as well as to promote ownership of common shares of the Company by these people. There is no objective attached to the Plan and no relationship to manage the Company's risks. A description of Relevium's stock option transactions can be found in Note 16 of Relevium's annual consolidated financial statements for the year ended June 30, 2019.
At March 31, 2020, the Company had a total of 3,995,000 options issued and outstanding that, if fully exercised, could generate $584,250 (3,995,000 options x an average exercise price of $0.1477) in capital to support the Company's activities.
| Number of options | Exercise price ($) | Expiry Date |
|---|---|---|
| 180,000 | 0.10 | Dec. 2022 |
| 1,250,000 | 0.15 | Sep. 2025 |
| 2,275,000 | 0.15 | Dec. 2027 |
| 250,000 | 0.15 | Dec. 2020 |
| 3,995,000 | 0.1477 |
The Company has issued 3,955,000 options out of 6,983,684 options authorized under the incentive stock option plan.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
The preparation of the 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 Company's significant accounting policies, accounting judgements and uncertainties relative to significant estimates in the audited consolidated financial statements as at June 30, 2019 (note 4).
OUTSTANDING SHARE DATA
As at the date of this MD&A, there are 202,820,472 common shares issued and outstanding of Relevium.
RISK FACTORS
For a detailed list of risks and uncertainties related to the business of Relevium, please consult the Company's MD&A for the year ended June 30, 2019.
CAUTIONARY STATEMENT
This Management and Discussion Analysis may contain forward-looking information within the meaning of applicable securities legislation, which reflects the Company's current expectations regarding future events. Forward-looking information is based on several assumptions and is
subject to several risks and uncertainties, many of which are beyond the Company's control that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. Readers should not place undue reliance on forward- looking statements and forward-looking information and are cautioned that reliance on such information may not be appropriate for other purposes.
The Company does not undertake any obligation to update such forward-looking information, whether because of new information, future events or otherwise, except as expressly required by applicable law. These risks and uncertaintiesinclude, but are notlimited to,those described under the headings "Financial Instruments & Risk Management" and "Inherent Risk Factors" in this MD&A and could cause actual events or results to differ materially from those projected in any forward-looking statements. The Company does not intend, nor does it undertake any obligation, to update or revise any forward-looking statements contained in this MD&A to reflect subsequent information, events or circumstances or otherwise, except if required by applicable law.
ADDITIONAL INFORMATION
Additional disclosures pertaining to the Company's material change reports, press releases and other information are available on the SEDAR website at www.sedar.com.
On behalf of the Board of Directors, we thank our shareholders for their continued support.
"Aurelio Useche"
Aurelio Useche Chief Executive Officer
July 16, 2020