TIDMHAL TIDMHALO
RNS Number : 7323B
HaloSource Inc
06 April 2017
6 April 2017
This announcement contains inside information
HaloSource, Inc.
("HaloSource" or the "Company")
Preliminary Results for the year ended 31 December 2016
HaloSource Inc. (HAL.LN, HALO.LN), the global clean water
technology company traded on London's AIM, today announces its
preliminary results for the financial year ended 31 December
2016.
Financial Highlights
-- Consolidated revenues from continuing operations (the
Company's Drinking Water segment) were $2.1 million (2015: $4.3
million)
-- Operating expenses from continuing operations of $10.3 million (2015: $10.8 million)
-- Income from discontinued operations, the Company's
Recreational and Environmental Water segments which were disposed
in 2016, was $0.4 million (2015: loss of $0.8 million), including a
gain on the sale of the two segments of $1.5 million total
-- Net loss of $10.7 million (2015: net loss of $11.4 million)
-- Total net cash at year end, including short-term investments,
of $2.1 million, which is expected to fund the Company until the
end of Q2 2017
-- Pursuit of additional equity financing or sale of the
Company, as announced on 9 January 2017, continues
Operational Highlights
-- Completed the sale of the Company's Recreational Water and
Environmental Water businesses to focus exclusively on the Drinking
Water business
-- Simplification of the Company's supply chain and closure of
its manufacturing facility in India to improve gross margins in
2017 and beyond
-- New lab established in India, cost-effectively increasing the
Company's capability to provide global support for microbiological
and heavy metals testing, as well as innovation
-- Continued advancement of the Company's lead reduction
technology, including successful completion of pilot scale
production as previously announced
James Thompson, Acting CEO of HaloSource, said:
"In 2016 we successfully implemented our plan to focus
exclusively on HaloSource's Drinking Water business, whilst
continuing to aggressively reduce our cost of goods and operating
expenses. We remain committed to delivering our class-leading
HaloPure(R) Drinking Water technology through current and future
strategic partnerships with some of the world's leading brands and
retailers. In addition, we look forward to completing the
commercialisation of our previously announced lead reduction
technology, thereby opening the Company's products to more new
customers and markets around the world."
Enquiries:
HaloSource, Inc.
James Thompson, Acting Chief
Executive Officer +1 425 419 2257
Craig Crowell, Chief Financial
Officer +1 425 419 2248
Liberum Capital (NOMAD and
Broker)
Richard Bootle
Jill Li
Steve Pearce +44 20 3100 2222
About HaloSource
HaloSource, Inc. innovates and integrates technologies to
deliver clean drinking water solutions to partners with trusted
brands around the world. The Company works with scientists and
industry experts across the globe in search of new ways to improve
drinking water quality and has been awarded more than 30 patents
for its ground breaking chemistries, which provide safe drinking
water for more than 10 million consumers globally. The Company's
class-leading HaloPure(R) Drinking Water technology has the highest
global certifications, including registration with the US EPA.
Founded in Seattle, Washington, HaloSource has grown to become
an influential leader in drinking water purification. HaloSource is
headquartered in the US with operations in China and in India.
Learn more about the Company's research and development and future
cutting edge technologies by visiting www.halosource.com.
HaloPure(R) is a registered trademark of HaloSource, Inc. All
other trademarks, brand names or product names belong to their
respective holders.
This document contains certain forward-looking statements
relating to the Company. The Company considers any statements that
are not historical facts as "forward-looking statements". They
relate to events and trends that are subject to risk and
uncertainty that may cause actual results and the financial
performance of the Company to differ materially from those
contained in any forward-looking statement. These statements are
made by management in good faith based on information available to
them and such statements should be treated with caution due to the
inherent uncertainties, including both economic and business risk
factors, underlying any such forward-looking information.
JOINT STATEMENT BY THE ACTING CEO AND CHAIRMAN
As announced in early 2016, the Board approved a strategic plan
to accelerate focus exclusively on the growth of the Drinking Water
business by divesting our Environmental Water and Recreation Water
businesses. During the year, the Company also made significant
structural changes to the Drinking Water business to place key
resources in our largest market China, which resulted in
significant headcount reductions in the United States. We expect
that these actions will reduce operating expenses, strengthen our
balance sheet and accelerate growth in the Drinking Water
business.
Sale of Recreational Water
In late 2015, we engaged in a banker-advised auction of our
Recreational Water business. As announced on 9 May 2016, we
accepted an offer from Natural Chemistry L.P., a leading specialty
chemicals manufacturer in the swimming pool industry, to purchase
the assets of the business for total proceeds in excess of $6
million. The deal closed on 24 May 2016.
Sale of Environmental Water
As announced on 23 February 2016, we agreed to sell our
Environmental Water business to Dober Chemical Corporation. This
transaction resulted in receipt of a one-time payment for assets of
$0.7 million and two years of cash payments based upon future
revenues of the business under which we have received $0.3 million
to date and will continue to collect between $0.1 million and $0.5
million in additional proceeds between the present date and May
2018.
Drinking Water
During the year in the drinking water business, we continued to
grow the list of respected multinational corporations ("MNCs")
deploying our unique HaloPure(R) technology, signing one new
partnership agreement, with Midea in India, and expanding
distribution with Jarden in a test in 10 Mexican Costco stores. We
will target to grow revenues and gross margins in 2017 as new and
current partners continue to expand product launches and regional
rollouts to expand their market presence and the size of the
category as a whole.
Perfect, one of China's largest direct sales organisations,
continued the national roll-out of their pressure-fed water
purification device powered by HaloPure(R) water purification
technology and continues to be the largest revenue contributor to
Drinking Water, with more than 1 million cartridges shipped since
launching the JWL 7-stage water purifier in 2013. There are now
over 600,000 JWL units in homes in China, each requiring an annual
cartridge replacement. While the level of cartridge replacement
compliance with our partners has not been as strong as expected to
date, we have now engaged with Perfect on promotional activities to
improve replacement rates and increase the Company's revenues
accordingly. We also continue to work with Perfect's technical
staff on the next generation of the JWL purifier, along with
introduction of a HaloPure(R) powered, Perfect branded,
pitcher.
We continued to grow our business with Lonsid in 2016, as they
remained our second largest Drinking Water revenue contributor
behind Perfect during the year. Lonsid has deployed HaloPure(R)
water purification technology in three of their reverse osmosis
systems, including a reverse osmosis "smart" device, with an
integrated digital monitor. We expect to continue to build momentum
with this important new customer, which has more than 10,000
distributors in China and also exports to the US and Europe.
Eureka Forbes Limited continues to be our largest customer in
India with a potential total distribution network of 15,000 retail
outlets and a presence in 1,800 cities and towns. We shipped over 4
metric tons of HaloPure(R) media to Eureka Forbes Limited during
2016.
Our development of innovative Drinking Water technologies
continued in 2016, with strong progress made with respect to our
advanced applications to remove other highly toxic dissolved
contaminants, such as lead, to levels below current EPA and NSF
standards. On 14 February 2017 we announced successful pilot-scale
production of filtration media that exceeds the NSF 53 standard for
lead removal. We believe that this will enable the Company to
market its technologies to customers in North American and European
markets. This patent-pending media is presently being tested by
several commercial partners and we expect further progress on this
initiative in 2017.
Financial Review
Company revenue from continuing operations for the year to 31
December 2016 was $2.1 million (2015: $4.3 million). The decrease
is primarily related to lower sales to two of the Company's three
largest customers in China (being Perfect and Lonsid), as well as
the Company's largest customer in India (Eureka Forbes
Limited).
Gross margins from continuing operations were (38)% (2015: 12%).
Our gross margin was negatively impacted by lower production and
revenues in 2016, as well as one time charges to cost of goods sold
related to the closure of our manufacturing facility in India
totaling $0.2 million.
Operating expenses from continuing operations totaled $10.3
million (2015: $10.8 million) and include non-cash goodwill
impairment charges of $0.5 million and $0.2 million, in 2016 and
2015, respectively. In the second half of 2016, operating expenses
from continuing operations excluding goodwill impairment were $4.5
million, compared to $5.2 million in the first half of the year and
$5.4 million in the comparative period in 2015. We expect to see
further significant reductions in operating expenses as we complete
our headcount reductions in the United States and continue to
reduce corporate expenses, resulting in operating expenses in 2017
being approximately one half of the 2016 level.
Employee headcount at the beginning of 2015 was 110 and as of 31
December 2016 stood at 60. The decrease in headcount from the prior
year is primarily due to reductions in our corporate office staff,
the sale of our Recreational Water and Environmental Water
businesses and the closure of our manufacturing facility in India.
We have continued to reduce headcount in the US in Q1 2017, whilst
keeping headcount in China relatively stable.
The income from discontinued operations, comprising our
Recreational Water and Environmental Water businesses which were
disposed in 2016, was $0.4 million, compared to a loss from
discontinued operations of $0.8 million in 2015. The income from
discontinued operations for 2016 includes gains on disposition of
the Recreational Water business and Environmental Water business of
$1.1 million and $0.4 million, respectively. In total, the Company
has received cash proceeds to date of over $7 million from the
disposition of the two businesses and will continue to realize
earn-out payments of between $0.1 million and $0.5 million from the
sale of its Environmental Water business through Q2 2018.
The net loss for the year decreased to $10.7 million (2015:
$11.4 million) and includes the impact of non-cash costs related to
share-based compensation of $0.2 million and $0.3 million in 2016
and 2015, respectively, as well as the income (loss) from
discontinued operations and goodwill impairment in 2016 and 2015,
as described above.
As at 31 December 2016, the Company had a total of $2.1 million
in cash, comprised of cash and cash equivalents ($1.1 million), and
short-term investments ($1.0 million), which is expected to fund
the Company until the end of Q2 2017. As previously announced on 9
January 2017, the Company continues to pursue either additional
equity financing, or a sale of the Company, in order to strengthen
the current cash position of the Company. Shareholders should be
aware that there is no certainty that an equity fundraising, or a
sale of the Company, will be completed.
The Company has continued to implement certain cost savings
measures and implemented other plans that are expected to reduce
the net loss and cash used by operations in 2017 as compared to
2016, including the disposal of the Company's Recreational Water
and Environmental Water businesses in 2016. In order to generate
sufficient revenue to achieve profitability, the Company must
successfully maintain its existing relationships and build new
relationships with its customers to develop the reach and
application of the Company's technologies. The Company continues to
face significant risks associated with successful execution of its
strategy. These risks include, but are not limited to, technology
and product development, introduction and market acceptance of new
products and services, changes in the marketplace, liquidity,
competition from existing and new competitors which may enter the
marketplace, and retention of key personnel. There can be no
assurance that these efforts will be successful.
The ability of the Company to continue as a going concern is
dependent on the Company obtaining additional capital to fund
operating losses until it becomes profitable. The Company can give
no assurances that any additional capital that it is able to
obtain, if any, will be sufficient to meet its needs, or that any
such financing will be obtainable on acceptable terms. If the
Company is unable to obtain adequate capital, it could be forced to
cease operations or substantially curtail its commercial
activities. This situation indicates the existence of an
uncertainty which may cast doubt about the Company's ability to
continue as a going concern.
Market
The global residential water treatment market was valued at over
$11 billion in 2014 and is expected to see a growth rate of over 9
percent over the next 5 to 7 years. (Source: 2015 Verify Markets
Report). While the problem of access to clean safe, water continues
to be a challenge, there is growing consumer awareness of the
levels of heavy metals in water, especially lead. In the US alone,
the US EPA estimates that up to 10% of Americans are affected by
infrastructure with potential lead contamination.
The residential water treatment market in China was valued at
over $2.5 billion in 2014 and the market is expected to grow at a
double-digit growth rate over the next 7 years. The key drivers in
the Chinese residential water treatment market include rising
customer awareness, growing health concerns, rising disposable
incomes and the rise in China's middle class. (Source: 2015 Verify
Markets Report). Lead contamination of drinking water continues to
be a looming issue in China. According to the World Health
Organization website a 2006 report from researchers at Beijing
University found that 34% of all Chinese children had blood levels
above safety standards. In 2015, a major reservoir supplying
drinking water to Beijing and other cities in northern China
contained heavy metal pollutants at levels 20 times the maximum
safe level set by the World Health Organization for a period of at
least three years, according to a study by Chinese scientists.
(South China Morning Post, July 15th 2015).
The Indian residential water treatment market was valued at over
$600 million in 2014. Poor water quality, rising disposable incomes
and improved customer awareness continues to be the key drivers in
the residential water treatment market in India. (Source: 2015
Verify Markets Report). Lead contamination is also growing in
awareness in India as the 2010 Blacksmith Institute's World's Worst
Pollution Problem Report conservatively estimates that 1.5-2
million children in India have 2 times the safe amount of lead in
their blood.
With the addition of our lead removal media to the product line,
the Company's product offerings will continue to broaden to address
more issues in more market segments around the world. With
technologies that earn the highest regulatory certifications, a
stable of strong strategic relationships and a pipeline of new
products and performance, the company expects to be well positioned
to capitalize on the opportunities available to it in the
residential water treatment market.
Outlook
The Company has now largely completed its corporate
restructuring, resulting in a more focused and much lower cost
organization in place to grow the business and target reaching a
profitable scale. Our focus is on profitably growing our drinking
water business, primarily in Asia, where the problems are most
acute and emerging middle class is seeking out solutions that
deliver great tasting, safe water. In 2018 we expect to add lead
removal technology as a product offering for partners in North
America and Europe, with 2017 being a scale-up year for that media.
This will allow us to address a much larger percentage of the
global contaminant spectrum than ever before. HaloPure(R) continues
to be uniquely positioned (for both disinfection and remediation)
to offer partners world-class technical performance with the
highest of regulatory approvals.
HaloSource, Inc. and Subsidiaries
Consolidated Statements of Operations
and Comprehensive Loss
(US $000's, except per share data)
----------------------------------------------------- ------------ -----------
Years ended December 31, 2016 2015
US$000 US$000
(Unaudited) (Audited)
----------------------------------------------------- ------------ -----------
Revenue - net 2,055 4,251
Cost of goods sold 2,832 3,748
----------------------------------------------------- ------------ -----------
Gross (loss) profit (777) 503
Operating expenses
Research and development 1,535 1,995
Goodwill impairment 518 173
Selling, general, and administrative 8,207 8,639
----------------------------------------------------- ------------ -----------
Total operating expenses 10,260 10,807
----------------------------------------------------- ------------ -----------
Operating loss (11,037) (10,304)
Other expense, net (166) (229)
----------------------------------------------------- ------------ -----------
Loss before income taxes (11,203) (10,533)
Income tax benefit (expense) 109 (41)
----------------------------------------------------- ------------ -----------
Loss from continuing operations (11,094) (10,574)
Income (loss) from discontinued operations,
net of tax 387 (844)
----------------------------------------------------- ------------ -----------
Net loss (10,707) (11,418)
Other comprehensive income (loss)
Unrealized gain (loss) on available-for-sale
investments 2 (27)
Foreign currency translation adjustments (56) (126)
----------------------------------------------------- ------------ -----------
Other comprehensive loss (54) (153)
----------------------------------------------------- ------------ -----------
Comprehensive loss (10,761) (11,571)
----------------------------------------------------- ------------ -----------
Continuing operations (0.05) (0.04)
Discontinued operations (0.00) (0.01)
----------------------------------------------------- ------------ -----------
Basic and diluted net loss per share (0.05) (0.05)
----------------------------------------------------- ------------ -----------
Shares used to compute basic and diluted
loss per share (000's) 220,278 220,260
See accompanying notes to consolidated
financial statements.
HaloSource, Inc. and Subsidiaries
Consolidated Balance Sheets
-------------------------------------------------------------------- -----------
As of December 31, 2016 2015
US$000 US$000
(Unaudited) (Audited)
---------------------------------------------- --- ------------- -----------
ASSETS
Current assets
Cash and cash equivalents 1,117 3,052
Short-term investments 968 1,504
Accounts receivable, less allowance
for doubtful
accounts of $338 in 2016 and $23
in 2015 1,016 3,194
Inventories - net 1,388 1,372
Prepaid expenses and other current
assets 971 1,107
Current assets held for sale - 6,718
------------------------------------------------------ ------------ -----------
Total current assets 5,460 16,947
Property and equipment - net 1,201 1,866
Deposits 233 214
Other noncurrent receivables 149 -
Noncurrent assets held for sale - 2,241
Goodwill - 518
------------------------------------------------------ ------------ -----------
Total assets 7,043 21,786
------------------------------------------------------ ------------ -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable 536 1,620
Accrued expenses and other current
liabilities 524 1,357
Salaries and benefits payable 202 415
Current portion of debt and capital
lease obligations 6 19
Current liabilities held for sale - 1,676
------------------------------------------------------ ------------ -----------
Total current liabilities 1,268 5,087
Long-term portion of debt and
capital lease obligations - 6
Deferred rent and sublease liability 819 960
Deferred tax liabilities - 174
------------------------------------------------------ ------------ -----------
Total liabilities 2,087 6,227
------------------------------------------------------ ------------ -----------
Commitments and contingencies
Stockholders' equity
Common stock, no par value; 400,000,000
shares authorized;
220,278,404 issued and outstanding 141,651 141,493
Accumulated other comprehensive
income 18 72
Accumulated deficit (136,713) (126,006)
------------------------------------------------------ ------------ -----------
Total stockholders' equity 4,956 15,559
------------------------------------------------------ ------------ -----------
Total liabilities and stockholders'
equity 7,043 21,786
------------------------------------------------------ ------------ -----------
See accompanying notes to consolidated financial
statements.
HaloSource, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
-------------------------------------------------------------------------------
Years ended December 31, 2016 2015
US$000 US$000
(Unaudited) (Audited)
--------------------------------------------------- ------------ ----------
Operating Activities
Net loss (10,707) (11,418)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 476 836
Goodwill impairment 518 173
Impairment of long-lived assets 250 817
Allowance for inventory, sales returns
and bad debts 286 74
Share-based compensation 158 273
Loss (gain) on disposal of property,
equipment and other assets 2 (7)
Gain on sale of discontinued operations (1,519) -
Loss on lease obligation 116 -
Deferred income taxes (174) 36
Changes in operating assets and liabilities:
Accounts receivable 5,436 61
Inventories (623) 96
Prepaid expenses and other assets 326 297
Accounts payable (2,320) 427
Accrued expenses and other current
liabilities (842) (46)
Salaries and benefits payable (380) (137)
Deferred rent (195) (137)
--------------------------------------------------- ------------ ----------
Net Cash Used in Operating Activities (9,192) (8,655)
--------------------------------------------------- ------------ ----------
Cash Flows From Investing Activities
Proceeds on disposal of discontinued
operations 7,023 -
Purchase of property and equipment (160) (422)
Purchase of short-term investments (4,262) (46)
Sales of short-term investments 4,800 8,500
Proceeds from sale of property and
equipment 44 8
Decrease in restricted cash - 1,552
--------------------------------------------------- ------------ ----------
Net Cash Provided By Investing Activities 7,445 9,592
--------------------------------------------------- ------------ ----------
Cash Flows from Financing Activities
Repayments of debt and capital lease
obligations (98) (1,042)
Proceeds from exercise of stock options - 1
--------------------------------------------------- ------------ ----------
Net Cash Used In Financing Activities (98) (1,041)
--------------------------------------------------- ------------ ----------
Effect of exchange rate changes on
cash (90) (139)
--------------------------------------------------- ------------ ----------
Net Decrease in Cash and Cash Equivalents (1,935) (243)
Cash and Cash Equivalents, beginning
of year 3,052 3,295
--------------------------------------------------- ------------ ----------
Cash and Cash Equivalents, end of
year 1,117 3,052
--------------------------------------------------- ------------ ----------
Supplemental disclosures of cash
flow information:
Cash paid for interest 1 29
Cash paid for income taxes 4 55
See accompanying notes to consolidated
financial statements.
Note 1 - Basis of Preparation
The financial information set out in this document does not
constitute the Company's financial statements for years to 31
December 2016 and 2015. The results for 31 December 2016 are
unaudited. Financial statements for the year ended 31 December 2016
will be finalized based on the information presented in this
announcement. The independent auditor's report will be based on
those financial statements once they are complete.
Financial statements for the year ended 31 December 2015 have
been reported on by the Independent Auditor. The Independent
Auditor's report on the financial statements for 2015 was
unqualified however it included an emphasis of matter regarding the
Company's ability to remain a going concern.
The financial information set out in these preliminary results
has been prepared using accounting principles generally accepted in
the United States of America ("U.S. GAAP"). The accounting policies
adopted in these preliminary results have been consistently applied
to all the years presented and are consistent with the policies
used in the preparation of the statutory accounts for the period
ended 31 December 2016. The principal accounting policies adopted
are unchanged from those used in the preparation of the statutory
accounts for the period ended 31 December 2015. New standards,
amendments and interpretations to existing standards, which have
been adopted by the Group for the year ended December, 31 2016,
have not been listed, since they have no material impact on the
financial statements.
Note 2 - Liquidity and Going Concern
The Company has continued to implement certain cost savings
measures and implemented other plans that are expected to reduce
the net loss and cash used by operations in 2017 as compared to
2016, including the disposition of the Company's Recreational Water
and Environmental Water businesses in 2016. In order to generate
sufficient revenue to achieve profitability, the Company must
successfully maintain its existing relationships and build new
relationships with its customers to develop the reach and
application of the Company's technologies. The Company continues to
face significant risks associated with successful execution of its
strategy. These risks include, but are not limited to, technology
and product development, introduction and market acceptance of new
products and services, changes in the marketplace, liquidity,
competition from existing and new competitors which may enter the
marketplace, and retention of key personnel. There can be no
assurance that these efforts will be successful.
The ability of the Company to continue as a going concern is
dependent on the Company obtaining additional capital to fund
operating losses until it becomes profitable. The Company can give
no assurances that any additional capital that it is able to
obtain, if any, will be sufficient to meet its needs, or that any
such financing will be obtainable on acceptable terms. If the
Company is unable to obtain adequate capital, it could be forced to
cease operations or substantially curtail its commercial
activities. This situation indicates the existence of an
uncertainty which may cast doubt about the Company's ability to
continue as a going concern. The financial statements do not
include the adjustments that would result if the Company was unable
to continue as a going concern.
Cautionary Statement:
This press release contains certain forward-looking statements.
All statements contained in this press release that do not relate
to matters of historical facts should be considered forward-looking
statements. Forward-looking statements include statements with
respect to the operations, performance and financial condition of
the Company, including, but not limited to, cash consumption and
sufficiency of capital, the available opportunities, markets for
and benefits of its products and services, the Company's innovation
and deployment of new products, the improvements to and expanded
deployment of existing products, the potential benefits of business
relationships with third parties, and the Company's plans and
strategies for and expected future growth. By their nature, these
statements involve uncertainty since future events and
circumstances can cause results and developments to differ
materially from those anticipated. The forward-looking statements
reflect knowledge and information available at the date of
preparation of this press release and the Company undertakes no
obligation to update these forward-looking statements. Nothing in
this press release should be construed as a profit forecast. These
statements about future events are subject to risks and
uncertainties that could cause HaloSource's actual results to
differ materially from those that might be inferred from the
forward-looking statements. HaloSource can make no assurance that
any forward-looking statements will prove correct.
General Information:
The Company is incorporated and domiciled in the State of
Washington, USA. The address of its registered office is 1725
220(th) Street SE, Suite 103, Bothell, WA 98021, USA. The Company
has its primary listing on the Alternative Investment Market
("AIM"), a sub-market of the London Stock Exchange.
The 2016 unaudited preliminary results announcement was prepared
under U.S. GAAP and was approved for issue on 3 April 2017. The
Company anticipates its 2016 audited consolidated financial
statements and 2017 Annual Report will be available to shareholders
as soon as practicable.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SSWFAIFWSEDL
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