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Quarterly Company Progress Report March 2017

Welcome to the March Quarterly Company Progress Report. This report covers details already reported to shareholders on the progress that companies have made since our last update. At the end of the report there’s also an update covering the latest happenings at Snowball Effect.

If you missed out on last quarter’s report, you can check it out here.

The information below is provided by the companies themselves, and participation in the report is at each company's discretion. Many companies have chosen to moderate the level of financial / commercial information included below due to sensitivity, with shareholders typically receiving more fulsome detail on company progress. There are a small number of companies not covered in the current report due to timing issues with their own shareholder reports. Updates from these companies will be added as their reports are made available to shareholders.

SOS

SOS is a medically formulated hydration drink mix that’s as effective as an IV drip. SOS raised over $250k through Snowball Effect in January 2016.

  • November was another record month for SOS: 350k sticks sold resulting in US$101k revenue.
  • Total revenue for 2016 was over US$478k and over 1.2m sticks sold, which is 50% growth on 2015. We also reduced expenses by US$120k when compared to 2015 and a Gross Profit increase of 100%.
  • SOS’s exclusive Australian distribution partner has signed the rights to become the “official hydration partner” of the Wallabies, the Australian Men and Women’s Sevens and the Wallaroos both nationally and internationally. This partnership is at no cost to the SOS company.
  • In 2017, SOS will also become the official hydration partner of Basketball NZ.
  • Continued growth in US across Kroger, Meijer, CVS and 7 Eleven. Sales through Amazon in 2016 were particularly strong at 3x last year’s total online sales.
  • Our first NZ distributorship has been signed and an announcement will be made soon, this will be further reducing costs and increasing store reach.
  • Our shareholders converted their convertible notes to equity in November on a US$8m valuation. SOS is continuing to successfully raise funds at minimum US$10m valuation.

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Mad Group

Mad Group is one of New Zealand’s fastest growing companies, with two extremely passionate brands under one shelter: Mad Mex and Habitual Fix. Mad Group raised $500k through a Snowball Effect Private offer in June 2015.

  • The December quarter has seen an improvement year on year in our financial performance albeit not as sharply as in Q1 given a higher base last year. The majority of EBITDA growth has been driven from the Mad Mex business.
  • Mad Mex continues to see margin improvement through close cost control and additional supply chain efficiencies.
  • During the quarter we completed the POS migration to a cloud based system for Mad Mex.
  • During the quarter Habitual Fix opened 1 store (Apollo Drive, Albany). Our Palmerston North store hits several hurdles with council but is back under construction with a scheduled opening date in late March.
  • On the product development front, Mad Mex launched chorizo last week.

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Veriphi

Veriphi is a New Zealand company that has worked to develop a highly innovative laser-based analyser to verify intravenous drugs and alert clinicians before administration to prevent medication error in hospitals. Veriphi raised over $700k through Snowball Effect in May 2016.

  • The testing team has completed its first round of testing using our new analyser. 68 blind tests were used on 5 commonly used anaesthetic drugs and solutions, with 100% successful drug/solution identification. We are now commencing trials using a further 5 drugs for a 10 drug blind trial.
  • We have developed two further new analysers which are producing sensible data. With these newest analysers we have been successful in reducing test time from 100 seconds to 10 seconds, dramatically reducing the time taken to collect training data.
  • One of the fundamental patents on our laser based system has been granted in Japan. Japan is the third largest medical device market in the world after the US and Europe. We have also filed a new patent for our current intravenous consumable design.

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Squirrel

Squirrel Group is made up of Squirrel Mortgages, Squirrel Money (P2P Lending), and TenanSee (SaaS platform for property investors). Squirrel raised over $3.4m through Snowball Effect in April 2015 - the largest raise through an equity crowdfunding marketplace in New Zealand to date.

  • The profitability of the business has improved markedly over the past two quarters on the back of stabilised operating costs, continued growth in mortgage settlement volumes and increases in trail commission income. The reported EBITDA for Q3 was $263,720 (YTD:$500,500).
  • Mortgage Settlements up 26% on same quarter last year and 33.5% for the year to date with mortgages settled in the preceding 12 months reaching over $1 billion for the first time during the quarter. Cash-flows attributable to trail commissions continue to increase each month, with the cash received in the third quarter up almost twice that received in the first quarter of the financial year. We expect to see these cash-flows increase by circa 20-30% each quarter for the next 12-18 months.
  • Loans originated through the Squirrel Money platform reached $7.4 million at the end of December 2016. We expect the P2P loan book to break-even once it reaches circa $30m and are actively evaluating the most effective path to get to that threshold. In the meantime, it is reassuring that every investor repayment from the P2P platform has been on time with the average annual investor return still tracking at around 8.6%.
  • At the end of December 2016, the business employed circa 48 full time equivalent staff, with 75% of those working within the Mortgage or Money businesses and the remainder making up the Head Office team. We added one new employee during the quarter – an intermediate web developer to assist us in taking our digital offerings to the next level.

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WOOP — World On Our Plate

WOOP makes cooking dinner easy and is a world leader in the pre-prepared food-kit delivery space. Founded by Thomas Dietz in 2015, WOOP is answering to the demands of busy professionals in Auckland who are time poor but still looking to cook delicious healthy dinners. WOOP raised $800k through the Snowball Effect in September 2015.

  • November was a record month for WOOP, with growth of over 50% in recurring revenue over the last 4 months, demonstrating the efficiency of our strategies and desirability of our product.
  • Families across the North Island enjoyed the WOOP Christmas Box in December. Sales exceeded expectations and the reviews have been positive, putting us in a great position to be able to capitalise on the success again in December 2017.
  • We are currently in the final stages of closing our second round of capital raising. This is a strategic move for the business and will help us to continue the growth we have had in 2016.

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Renaissance

Renaissance is an award winning New Zealand craft beer producer situated in the heart of Marlborough wine country. Renaissance raised $700k through Snowball Effect in Snowball Effect in August 2014 - the first company in New Zealand to raise capital through equity crowdfunding.

  • The Christmas and New Year periods are now behind us and our sales reflected the holiday mode around the country. Stock levels were conservatively built up to ensure that out of stock situations did not occur and this was achieved.
  • Sales in the domestic market are down on expectations, partly due to the change in distributor mid-way through the year. This transition to Eurovintage has meant that relationships with independent outlets will now be handled on a national scale.
  • Brewing operations were as normal during the quarter. Sound planning in the lead up to the festive season paid dividends. There are a number of seasonal brews that we’ll be pushing out over the next few months. There has also been a significant jump in contract brewing requirements, which helps generate more regular revenue streams for the company.
  • Over and above the seasonal range, the mixed 6 pack is still a focus as a means to introduce people to Renaissance and craft beer products. Golden Dawn (“The Pilsner of Power”) has been launched in the Auckland bar of the same name. A specific brew has been prepared and will be delivered over February and March to both the Auckland and Queenstown bars.
  • Export wise, a number of opportunities exist in Japan over the next few months. The first consignment will be departing Renaissance mid-February. Opportunities for the Boonies range into the Japanese market are still being pursued and will hopefully be part of upcoming orders. Hong Kong and the UK are ticking away with recent orders having left at the end of last year.

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Punakaiki Fund

Punakaiki Fund is one of the most active venture capital investors in New Zealand, with investments in 19 high-growth companies. Punakaiki Fund raised over $3.2m through Snowball Effect, over three separate offers in 2015 and 2016, and a total of $15.7 million to date. As at the end of December 2016 Punakaiki Fund had assets of $22.8 million.

  • Raised over $2.9m during the quarter through a public offer and exercise of our September options, welcoming 116 new investors (for a total of 608 investors).
  • Invested $1.35m into the existing portfolio during the quarter, with four more investments made after quarter-end.
  • Recorded a December-end Investor Net Asset Value per share of $18.44, up from $18.30 per share at the end of September 2016.
  • Combined quarterly revenue (unweighted) from all companies exceeded an annualised rate of $70 million.
  • The portfolio as a whole remained profitable on an equity-weighted basis.
  • Investors in Punakaiki Fund received a detailed quarterly report on company activity, with highlights including a very strong quarter from Melon Health, the completion of a large funding rounds for Vend and NZ Artesian Water, and Timely’s successful rollout of new pricing plans.

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Red Witch

Red Witch is a boutique manufacture of world-leading premium analog guitar and bass effects pedals. Red Witch raised $406k through Snowball Effect in June 2015.

  • Revenue continues to be driven by online sales, with over $200k in sales through our website since September. Through our online sales, we are seeing that ‘new’ sells ‘old’. That is, new products and offerings are needed to capture consumer attention, which assists with the sale of our iconic products. Bundling new with old has proved an effective offering.
  • We have reduced costs and overheads and, with the adoption of our online strategy, have slowed the rate of cash-burn to a point that suggests that breakeven is not far away.
  • We have also cost-effectively grown our database from 5586 to 27,195, which helps support our increased online focus.
  • To continue on our current trajectory of building a direct-to-consumer distribution model, we will need to raise further capital and will look to commence with a further fund raising round this month. Funds raised would be used for new product development, marketing activities and working capital.

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Snowball Effect

Snowball Effect is an online investment marketplace. Our mission is to simplify investment into high growth Kiwi companies. We’ve been funded by existing shareholders and cashflow to date to support the continued growth and development of the equity capital market for early-mid stage New Zealand growth businesses.

  • Over $23m has been raised through the Snowball Effect platform to date - a mix of public and private offers.
  • December and January were fairly busy for the team, with a series of successful offers. While there has been a constant supply of public offers over the last few months, we’ve been busiest with private raises, typically running 5-10 deals at any one time.
  • Punakaiki Fund undertook a public offer in December, raising $889k (as part of a $2.3m round). This is the third offer we've facilitated for Punakaiki.
  • Over the Christmas period, Roholm, creators of the Inverse hair conditioning system, successfully raised over $322k.
  • Ubco Bikes, who have developed the world’s first production dual electric drive bike, raised $341k as part of a $2.1m round.
  • We are on track to fall within our F17 budget range for revenue and EBITDA. This financial year has seen the business grow a number of new revenue streams, part of our focus for F18 will be on growing these.
  • We anticipate releasing several new features to our site within the next 6 months. These features will focus on providing investors and companies with educational resources, improving networks and connections, and providing more interactivity.
  • Last month Peter Thomson, joined the Snowball team as Head of Digital. Peter was instrumental to the growth of both the UK’s leading equity crowdfunding platform, Seedrs, and US online venture capital firm, SeedInvest. Peter will be leading product development and marketing.
  • Josh Daniell, co-founder of Snowball Effect, moved to Washington in January with his wife, who is commencing a diplomatic posting at the NZ embassy. Josh will continue to remain actively involved with Snowball Effect.
  • There are no firm capital raising plans at this stage.

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