Resonance to raise $3m at two cents per share

Claremont based healthcare company Resonance Health Ltd today announced a deeply discounted $3.06 million entitlements offer at two cents per share to fund further development of FibroScreen, a non-invasive liver fibrosis test using magnetic resonance imaging.

The capital raising follows a major restructuring of the business, which has appointed a new board and announced plans to acquire pathology businesses in the United States.

It also puts a cloud over a planned $8 million capital injection from the Queensland Investment Corporation, which had been priced at 6.3 cents per share.

Shareholders are being offered three new ordinary shares for every four shares currently held, at a price of two cents per share.

Resonance Health said in a statement the share price was not indicative of the value of its assets, and the board was mindful that many investors were holding the stock at a loss.

The board wished to provide an opportunity for shareholders to participate at a lower pricing level, and believed the current share price was a result of the perception the company had insufficient funds to develop its technologies.

Shares not taken up may be issued to other wholesale and professional investors, but no shares will be issued under the offer unless the company receives subscriptions of at least $1.5 million before costs, inclusive of outside investment.

The full statement is printed below:

Resonance Health Limited (ASX:RHT) today announced a pro-rata non-renounceable entitlements offer ("Entitlements Offer") to Australian and New Zealand registered holders as at 7.00pm on Monday, 17 July 2006 ("Record Date").
Eligible shareholders are being offered the opportunity to subscribe for 3 new ordinary shares for every 4 shares (fractions rounded up to the next whole share) held on the Record Date at a price of A$0.02 (2 cents) per new share.
If all current shareholders accept their entitlements, the offering will raise approximately $3.06 million. The Entitlements Offer is not underwritten. To the extent shareholders do not take up their entitlements, the shortfall may be placed with other wholesale and professional investors chosen by the Board. The Company will not accept any funds and no shares will be issued under the Entitlements Offer unless it receives subscriptions of at least $1.5 million (inclusive of subscriptions from the placement of any shortfall) before costs.
The Entitlements Offer will be open for acceptances during the period 18 July 2006 to 1 August 2006. The Company expects to lodge its Prospectus for the Entitlements Offer with the ASIC by 7 July 2006.
On 6 June 2006, Resonance Health announced the successful completion of "Proof of Concept" for its non-invasive liver fibrosis test, known as FibroScreen™. The initial research project determined that MRI data acquired using the FerriScan® technology can also be used to identify and quantify the presence of fibrosis and cirrhosis in the liver.
The World Health Organisation (WHO) estimates that 170 million people are infected with Hepatitis C, a major cause of liver fibrosis. Additionally, recent population studies have shown that 60 million adult Americans and an unknown proportion of children in the US suffer from nonalcoholic fatty liver disease (NAFLD), a condition that can lead to cirrhosis, liver failure, and/or cancer. Fibrotic liver diseases accounts for 1.3 million deaths per annum, making these diseases the 8th most common global cause of death.
Because the potential market for FibroScreen™ is very attractive, with 170 million people worldwide affected by Hepatitis C as just one potential market, the Board of Directors has determined that the Company should proceed with continued development of FibroScreen™.
The funds from the entitlements issue will be primarily used to commence full development of FibroScreen™. The Company will also seek to obtain Government grants to accelerate and complete the development of the product. While there can be no guarantee the Company will obtain a grant, one of the conditions of such grants is that RHT is able to fund 50% of the FibroScreen™ development costs.
In setting the price for the Entitlements Offer at 2 cents per new share, the Board is mindful that many investors are holding the stock at a loss, and wishes to provide an opportunity for shareholders to participate at this pricing level.
The Board does not believe that the pricing discount is a negative reflection on the value of the Company's assets. To the contrary, the Board believes that one reason for the current share price may be the perception that the Company does not have sufficient funding to develop its technologies.
Resonance Health already provides an FDA and TGA cleared test in FerriScan®. The clearances already received for FerriScan® from regulatory bodies around the world and the initial market adoption of the test provides a base from which a clinically superior and market acceptable fibrosis test may be developed.
Finally, it is the view of the board that this Entitlements Offer enhances the plans announced by the Company on 6 June 2006 to continue to pursue potential acquisitions of pathology labs. The Board believes that a stronger balance sheet will assist Resonance Health in its goal of acquiring pathology labs and attracting equity investment for such labs. The Queensland Biotechnology Fund ("QBF") remains ready to invest $8 million in Resonance Health to help finance such acquisitions. Final terms and conditions of both the pathology lab acquisitions and the equity investment are subject to a final agreement.
An ASX Appendix 3B for the entitlements offer is also lodged with this announcement.
The Prospectus and Entitlement and Acceptance Form will be dispatched to shareholders by 18 July 2006. Anyone wishing to subscribe for shares under the Entitlements Offer will need to complete the Entitlement and Acceptance Form that will accompany the Prospectus.