I posted this a while back once the takeover was announced:
This acquisition may be an excellent strategic move for Zelira in my opinion.
Lets have a look at the half year figures released by both Health House International and Zelira in their most recent reports.
Zelira:
Total Revenue (last 6 months) - $727,699
Total Loss (last 6 months) - $5,613,420
Health House International:
Total Revenue (last 6 months) - $7,417,233
Total Loss (last 6 months) - $12,305,920
On the surface, the loss attributed to Health House International may make it seem like a really bad idea for Zelira to acquire the business, however if you dig a little deeper you will see that the Health House International report goes into more detail as to why that loss was so large. The report states that $8,779,251 of the $12,305,920 loss was due to 'impairment' which resulted from the health house acquisition of CanPharma, a German based pharmaceutical distribution business focused on medicinal cannabis. Here's the breakdown from the report which explains the $8,779,251 'impairment' that contributed so significantly to the total loss of $12,305,920:
1) Net Liabilities assumed from CanPharma ($5,122,251) - this included the settling of debts owed by CanPharma to other entities
2) Share-based payment to CanPharma($3,657,000) - To facilitate the acquisition
3) Acquisition date fair value of the total consideration transferred ($8,779,251)
Therefore based on the clarification above, the loss of $8,779,251 is very much a 'once off' event which occurred due to the business acquiring CanPharma, and clearing their debts. Therefore we can deduce that a more realistic loss for the next 6 months would be something like $3,526,669 (total loss of $12,305,920 minus the acquisition costs of $8,779,251).
Therefore, I think I'm right in saying that this move will dramatically improve the financial performance of Zelira in the next 6 months, which should be reflected in a dramatic reduction in our half yearly losses. If we use the most recent reports from each company and combine the total figures to get an indicator of what the next half yearly report may look like, I get the below:
1) Projected Zelira total revenue for next half year report 2022 - $8,144,932 (obtained by adding Zelira's half year revenue of $727,699 to HHI half year revenue of $7,417,233)
2) Projected Zelira total costs for next half year report 2022 - $9,140,089 (obtained by adding Zelira's half year loss of $5,613,420 to HHI half year loss of $3,526,669, remembering that we arrived at this figure of $3,526,669 by subtracting the CanPharma acquisition costs of $8,779,251 from the reported total loss of $12,305,920)
3) Consequently, the loss incurred by Zelira in the next half year report once the total costs are offset by the total revenue ($8,144,932 in revenue minus $9,140,089 in costs) will be something like $995,157, a dramatic improvement on the loss of $5,613,420 just reported. This doesn't take into account increasing sales revenue, better margins as a result of acquiring HHI, or the savings we'll obtain by being able to manufacture in Europe as opposed to just Tasmania and the USA (think transport costs etc.)
In addition to the above, we'll now be generating revenue from cannabis flower and other tinctures distributed by HHI via our mark up on a whole range of products, including the Little Green Pharma range. This is particularly interesting as cannabis flower is the fastest growing segment of the medicinal market, we now have a piece of it whilst maintaining our core brand image, whereby we position ourselves as being a pharmaceutical company that doesn't touch the plant itself, win win.
In closing, I think this announcement is a tremendous step forward for the company and shareholders may have been a little hasty to judge without doing a deep dive. I believe we're now on track to significantly boost our revenues, control our distribution channels, improve our margins and reach financial break even within the next 6-12 months.
Great work Zelira credit where credit is due.
Expand
(20min delay)