An initial exploration into the operation and finances of Health House International (HHI) has further convinced Creso Pharma that its plan to buy the company is a sound one.
Creso said in an update today that it has “gained additional confidence” after analysing the revenue, restructure and cost-saving opportunities at HHI.
Creso announced last month its intention to acquire 100% of HHI in an-scrip deal valued at A$4.6 million.
The update came as Health House reported an 85% rise in revenue to $15.6m in the 2022 financial year. However, net losses blew out to $16.3m, up from $5.3m in FY21.
Creso chief executive William Lay said: “Our initial diligence investigations into HHI have reaffirmed the view that we have the opportunity to purchase strategically aligned, significant revenue at an attractive multiple, while being able to rein in costs with the aim of being able to accelerate a pathway to profitability.”
To advance the deal, Creso will provide a loan of up to $700,000 to HHI for general corporate purposes and working capital. The cash will help fund the drafting and completion of a Scheme Implementation Deed and independent experts’ report.
“Subject to the completion of due diligence, we will now look to advance and execute definitive transaction agreements with HHI in the short term for the shareholders of both companies to benefit from the strategic opportunities of the proposed transaction,” Lay said.
Meanwhile, HHI has raised $400,000 through a convertible note as it seeks to repay funds owed to Zelira Therapeutics following the termination of a merger agreement between the two companies.
A broader capital raise is on hold while it pursues a Creso Scheme Implementation Deed with Creso. HHI remains in a trading halt.
Creso’s continued interest in HHI comes despite HHI’s huge FY22 loss which included a goodwill impairment of almost $8.8m.
Administration costs also soared, from $4.6m to $9.6m.
HHI held cash and cash equivalents of $974,000 as of June 30, 2022 prompting directors to warn that without additional funding through a capital raise or from Creso, or continuing revenue growth, there was “material uncertainty” whether HHI could continue as a going concern.
But the report added: “The directors have reviewed the group’s financial position and are of the opinion… that the group will be able to generate sufficient revenue or secure funds to meet its commitments.”