TIDMHAL TIDMHALO
RNS Number : 3408O
HaloSource Inc
15 September 2011
FOR IMMEDIATE RELEASE
15th September 2011
This press release contains certain forward-looking statements
with respect to the operations, performance and financial condition
of the Company. 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.
INTERIM Results Announcement
Seattle, U.S.A. - HaloSource, Inc. ("HaloSource" or "the
Company") (HAL.LN, HALO.LN), the clean water and antimicrobial
technology company traded on London's AIM, today announces its
interim results for the period ended 30 June 2011.
Summary of first half-year progress:
-- China MOH (Ministry of Health) certification of HaloPure
media received
-- NSF International certification of HaloPure under Standard 42
achieved
-- Development of our first finished device, the HaloPure
Waterbird line of gravity purifiers completed
-- Shipment of Bajaj branded HaloPure powered devices in India
began in June with 3,500 units shipped to support formal launch. As
of September 14th, 12,400 have been shipped
-- Continued shipments of HaloPure powered devices to a major
brand-name device manufacturer to support China roll-out,
additional partner agreements in process
-- Facility expansions in India and China nearing completion to
support anticipated growth through 2013, increasing global HaloPure
cartridge manufacturing capacity by an additional 50%
-- HaloSource highlighted in Lux Research Water Chemicals and
Competitors: The Long, Long March of the 'Chemical-Free'
Revolution, as "deepest in the dominant quadrant"
-- Strong revenue growth in OEM recreational water category, up
34% over 2010 inclusive of Aquapill acquisition
-- SeaKlear supply agreement reached with a major U.S. pool
products retailer with 600 outlets
-- Brazilian corporate entity formation completed and country
manager appointed - key launch customer in final device regulatory
testing with initial shipments targeted for second half of 2011
-- Cash, short-term investments and restricted cash balances
totaling $20.5 million at 30 June 2011
Subsequent events:
-- Signed a Joint Development Agreement for HaloPure with one of
the world's largest direct selling companies for the launch of a
line of HaloPure-powered gravity-fed water purifiers in the
emerging markets where this company has very strong distribution
networks
-- Regulatory advancements since June 30, 2011 include:
o U.S. state registrations of bacteriostatic pitcher and reverse
osmosis cartridge completed in 49 U.S. states. New York state
registration is in final review
o Pitcher and reverse osmosis cartridges passed China regulatory
testing, formal regulatory reviews underway
John Kaestle, President and Chief Executive of HaloSource Inc,
commented:
"We are proud of our progress in the first-half despite
experiencing a number of unforeseen obstacles during the period
which slowed the realization of the Company's revenue
expectations.
"In Water Clarification, SeaKlear revenue fell short of
expectations due to unseasonably adverse weather across the U.S
which negatively impacted the entire U.S. pool industry in the
critically important spring buying season.
"In our Water Purification segment, manufacturing challenges
associated with launching our Waterbird product line delayed the
inaugural product shipments to our key distribution partner, Bajaj,
during the very important early monsoon season of May/June. While
we are pleased to report that the issues that led to these delays
have been resolved, they have had an impact on our full-year
results and we have adjusted our full-year revenue guidance for
2011 down to a range of $18-22 million, representing top-line sales
growth of 35-50% over 2010 levels.
"With the Bajaj launch, China MOH approval and the scale-up of
our HaloPure drinking water business in India, China and Brazil, I
am confident that 2011 will be a year of important milestones for
the Company."
Enquiries
HaloSource John Kaestle, Executive
Director, President and Chief Executive
James Thompson, Executive Director, +1 425 974 1975
Chief Financial Officer +1 425 974 1993
Brunswick Group
Justine McIlroy/Patrick Handley/
Elizabeth Adams +44 207 404 5959
Liberum Capital (NOMAD)
Simon Atkinson/Richard Bootle +44 203 100 2222
Notes to Editors
About HaloSource
HaloSource is a clean water technology company, headquartered in
Seattle, US with operations in India and China. It is focused on
the provision of cleaner, clearer and safer water using its
proprietary N-halamine bead technology to clean and purify water,
killing bacteria and viruses that may cause disease.
HaloPure provides safer drinking water. In 2009, it became the
first new drinking water technology in 30 years to be granted both
Manufacture-For-Use and Device registrations by the United States
Environmental Protection Agency (USEPA), which is widely recognized
as having the world's most stringent performance requirements for
water purification. HaloPure(R) is a unique contact biocide
technology that is proven to attack and kill a wide range of
harmful micro-organisms and is approved for long-term use in a
variety of markets, including the United States.
SeaKlear and StormKlear products use a second technology based
on natural bio-polymers to provide water clarification and
antimicrobial applications for treating recreational and
environmental water; and HaloShield facilitates the binding of
chlorine-based bleach to textiles such as sheets, lab coats and
towels. www.halosource.com
About HaloPure's Markets
HaloPure products are principally targeted at consumers in
emerging market countries, where access to safe drinking water is
particularly poor. In an independent analysis of the global Point
of Use drinking water device market carried out in 2005, Frost and
Sullivan concluded that:
-- the market for residential water treatment equipment in China
was estimated at $960 million in 2005, growing at an annual rate of
20.4 per cent between 2004 and 2011;
-- the market for residential drinking water devices in India
was estimated at $425 million in 2009, and experiencing growth of
approximately 25 per cent annually; and
-- in 2005 the global markets for filtration formats in the form
of under-the-sink, counter top and replacement cartridges were
growing annually at 20 per cent, 21 per cent and 18 per cent,
respectively.
The World Health Organisation has estimated that 1.1 billion
people lack access to safe drinking water and the Centre for
Disease Control is recommending Point Of Use filtration and
disinfection.
HaloSource Inc.
Statement by the Chairman and CEO
Overview and Financials
We are pleased to announce that our 2011 first-half results show
continued advancement in our water purification, water
clarification, and antimicrobial businesses. It has been an active
period.
In May, we achieved a significant milestone: our drinking water
technology (HaloPure) received approval from the Chinese Ministry
of Health, becoming the first international drinking water
purifying technology to meet the new elevated standards set by the
Chinese government.
In June, we launched our proprietary Waterbird drinking water
device with Bajaj, India's largest appliance seller which has
300,000 Indian distribution points. Bajaj is now distributing the
device, branded in the Indian market as the XTP 21 with a HaloPure
ingredient brand, through its distribution networks across India.
To handle our growing volume, our Bangalore and Shanghai facilities
are currently completing expansions which will increase capacities
by 50%. As of September 14th, over 12,400 Waterbirds and 32,000
cartridges have been shipped into the Bajaj distribution channel.
In addition, since 2007 we have shipped 2.6 million cartridge
equivalents of HaloPure media to Eureka Forbes, India's largest
water appliance manufacturer.
Furthermore, our drinking water technology achieved National
Science Foundation ("NSF") Standard 42 safety certification in
June, a key measure by our multi-national partners of safety and
effectiveness of our drinking water technology.
Summary of first half-year progress:
-- China MOH (Ministry of Health) certification of HaloPure
media received
-- NSF International certification of HaloPure under Standard 42
achieved
-- Development of our first finished device, the HaloPure
Waterbird line of gravity purifiers completed
-- Shipment of Bajaj branded HaloPure powered devices in India
began in June with 3,500 units shipped to support formal launch,
and as of September 14th, 12,400 have been shipped
-- Continued shipments of HaloPure powered devices to a major
brand-name device manufacturer to support China roll-out,
additional partner agreements in process
-- Facility expansions in India and China nearing completion to
support anticipated growth through 2013, increasing global HaloPure
cartridge manufacturing capacity by an additional 50%
-- HaloSource highlighted in Lux Research Water Chemicals and
Competitors: The Long, Long March of the 'Chemical-Free'
Revolution, as "deepest in the dominant quadrant"
-- Strong revenue growth in OEM recreational water category, up
34% over 2010 inclusive of Aquapill acquisition
-- SeaKlear supply agreement reached with a major U.S. pool
products retailer with 600 outlets
-- Brazilian corporate entity formation completed and country
manager appointed - key launch customer in final device regulatory
testing with initial shipments targeted for second half of 2011
-- Cash, short-term investments and restricted cash balances
totaling $20.5 million at 30 June 2011
Subsequent events:
-- Signed a Joint Development Agreement for HaloPure with one of
the world's largest direct selling companies for the launch of a
line of HaloPure-powered gravity-fed water purifiers in the
emerging markets where this company has very strong distribution
networks.
-- Regulatory advancements since June 30, 2011 include:
o U.S. state registrations of bacteriostatic pitcher and reverse
osmosis cartridge completed in 49 U.S. states. New York state
registration is in final review
o Pitcher and reverse osmosis cartridges passed China regulatory
testing, formal regulatory reviews underway
We are proud of our progress in the first-half despite
experiencing a number of unforeseen obstacles during the period
which slowed the realization of the Company's revenue
expectations.
In Water Clarification, the Company's largest current revenue
line, SeaKlear, fell short of expectations due to unseasonably
adverse weather across the U.S. This negatively impacted the
distribution pull-through for the entire U.S. pool industry in the
critically important spring buying season.
In our Water Purification segment, manufacturing challenges
associated with launching our Waterbird product line delayed the
inaugural product shipments to our key distribution partner, Bajaj,
during the very important early monsoon season of May/June. While
we are pleased to report that the issues that led to these delays
have been resolved, they have had an impact on our full year
results of operations.
As a result, we have adjusted our full-year revenue guidance for
2011 down to a range of $18-22 million, representing top-line sales
growth of 35-50% over 2010 levels.
Moving forward, our team is committed to the continued
advancement of our technologies across all business units,
especially in the water purification business where we are serving
end markets that are growing at 20-30%+ annually with market
penetration rates in the single digits. We ended the first half
with over $20 million of cash and cash equivalents, short-term
investments and restricted cash, which we believe is adequate
capital to execute our growth plans.
Finally, in our continuing effort to strengthen our management
team and Board governance practices in July we welcomed Martin
Coles as our new Executive Deputy Chairman of the Board of
Directors. We are very excited by this appointment as Mr. Coles
brings over three decades of executive experience and considerable
brand-building savvy to our team, having worked in leadership
positions at global consumer products companies including
Starbucks, Reebok, and Proctor & Gamble. He will be advising
our leadership team on strategy as well as all sales and marketing
execution.
With the Bajaj launch, China MOH approval and the scale-up of
our HaloPure drinking water business in India, China and Brazil,
2011 will be a year of important milestones for the Company. On
behalf of the entire HaloSource team, we would like to thank you
for your continued support.
John Kaestle
Chief Executive Officer
Jerry Wetherbee
Non Executive Chairman
Financial Overview
In a very challenging environment, 1H 2011 total Company revenue
fell approximately 10% to $5.4 million, primarily due to poor
weather negatively impacting our SeaKlear(R) brand of recreational
water products and delays in shipping our HaloPure(R) branded water
purifier to Bajaj in India during the very important monsoon
season. In Antimicrobial Coatings, our 1H 2011 revenues were down
as compared to 1H 2010 due primarily to timing of product purchases
and other one-time royalty and other development fees which
occurred in 2010.
As a result of these volume shortfalls the Company's gross
margin totaled 38% for the 1H period. We have recently increased
our manufacturing capacity in India and China by 50%, requiring us
to carry higher than normal fixed costs and further depressing
gross margins. As volumes scale, we expect our gross margins to
improve.
During the period, operating expenses totaled $9.6 million, up
30% over 2010 due primarily to increased headcount and marketing
costs related to the launch of our new line of water purification
devices now being sold by Bajaj in India. Our consolidated net
loss, under U.S. GAAP, was $7.1 million for the 1H period.
We ended the period with over $20 million of cash, short-term
investments and restricted cash. While we will continue to evaluate
strategic acquisitions, our primary focus is driving revenue growth
across all segments of our business and achieving break-even from a
cash-flow perspective.
Business Review
As noted previously, we have revised our full year 2011 revenue
guidance down to a range of $18-22 million. As a result of these
revisions, we have taken a number of actions to reduce our spend
levels and focus our initiatives. This has included replacement of
key leaders in the Water Clarification businesses, further focusing
of our R&D and marketing initiatives, and the retention of
Martin Coles as special advisor for sales and marketing efforts.
Our focus will remain on scaling of the HaloPure drinking water
business and delivering against our overall revenue and growth
commitments.
Water Purification - HaloPure
We continue to make progress in the drinking water business with
a full development pipeline and with adjustments mentioned above,
we now have strong alignment between our business development and
product development teams. Regulatory approvals are still a major
hurdle in this business globally and with China MOH (Ministry of
Health) approval we now have secured the two most stringent
registrations in the drinking water industry (MOH and U.S. EPA).
This is a key differentiator when working with multi-national
partners like Bajaj, Eureka Forbes and Lorenzetti (in Brazil) as a
strategic advantage over its competitors. As an example in 1H we
shipped our first commercial order to a Chinese partner that
launched a HaloPure powered, MOH -approved device.
During 1H, to support our partners in Brazil, we also
incorporated HaloSource Water Purification Importacoes, Ltda., our
Brazilian subsidiary. We hired Luiz Cintra as our Brazilian Country
Manager, who brings a career of building businesses in Brazil and
was a former colleague of HaloSource CEO, John Kaestle.
With regulatory approvals, expanded capacity, fully aligned
teams, motivated partners, and a strategic realignment of our sales
and marketing activities, the HaloPure business is well positioned
to deliver against our stated growth objectives.
Water Clarification - SeaKlear and HaloKlear (formerly
StormKlear)
In SeaKlear we continue to offer one of the strongest lines of
specialty chemicals for recreational water cleaning and clarifying
products in the marketplace. Our 2010 acquisition of the Aquapill
product line has helped us expand from our core dealer-based
distribution to new mass merchant retailer accounts including
Wal-mart and Canadian Tire. With this new line we are able to
cross-sell and up-sell across our three primary channels (core
distribution, mass (Aquapill and OEM) and service.) While we
continue to make progress in marketing and merchandising, this year
has been difficult with inclement weather in core pool markets and
overall poor economic conditions in the U.S.
During the period, we added a new leader in HaloKlear, with Eric
Rothberg being appointed Director of Environmental Water. Mr.
Rothberg comes to HaloSource after 19 years selling internationally
into the Oil and Gas (formerly with Amiad), waste water, power
generation and chemical processing industries and believes our
unique all natural technology can play a significant role in
addressing water management issues and meeting emerging regulatory
standards.
Antimicrobial Coatings
Beyond water technology, we expect that continued regulatory
efforts with the U.S. EPA will result in our out-licensed
HaloShield-powered textile products (marketed in the U.S. under the
Clorox Freshcare(TM) brand) becoming the first and only textile
products to carry U.S. EPA-registered pathogenic-killing
claims.
People
Employee headcount at the beginning of the year was 116
worldwide. With rapid expansion of activities throughout 2011, we
have added 26 additional staff already and plan to add
approximately 20 more throughout the remainder of 2011 bringing our
expected headcount to approximately 160 worldwide by the end of
2011. Our additional headcount has been comprised primarily of
operational and semi-professional roles in India and China.
Outlook
As noted previously, we are targeting a full year 2011 revenue
range of $18-22 million. Two key drivers to that outcome are the
ability to ramp Bajaj Waterbird product revenues in India and
industry reception to our fall buying program in the SeaKlear
business. As of September 14th, we have shipped 12,400 Waterbirds
and we expect continued growth in that relationship. In SeaKlear,
we are currently negotiating terms of our fall program with our key
partners and expect continued growth in revenues related to our
Water Clarification business. As a management team, we remain
committed to delivering on our commitments and expect to continue
an open dialogue with our shareholders.
Independent Accountant's Report
The Board of Directors and Stockholders
HaloSource, Inc. and Subsidiaries
Bothell, Washington
We have reviewed the accompanying condensed consolidated balance
sheet of HaloSource, Inc. and subsidiaries as of June 30, 2011, and
the related interim condensed consolidated statements of operations
and comprehensive loss, stockholders' equity, and cash flows for
the six-month period from January 1, 2011 to June 30, 2011. These
interim condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in
scope than an audit conducted in accordance with auditing standards
generally accepted in the United States of America, the objective
of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying interim
condensed consolidated financial statements as of June 30, 2011 and
for the six-month period from January 1, 2011 to June 30, 2011 for
them to be in conformity with accounting principles generally
accepted in the United States of America.
We have previously audited, in accordance with auditing
standards generally accepted in the United States of America, the
consolidated balance sheet of HaloSource, Inc. and subsidiaries as
of December 31, 2010, and the related consolidated statements of
operations and comprehensive loss, redeemable convertible preferred
stock and stockholders' equity (deficit) (not presented herein),
and cash flows for the year then ended and in our report dated
April 6, 2011, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information
set forth in the accompanying condensed consolidated balance sheet
as of December 31, 2010, and the related condensed consolidated
statements of operations and comprehensive loss, redeemable
convertible preferred stock and stockholders' equity (deficit), and
cash flows for the year then ended, is fairly stated, in all
material respects, in relation to the consolidated financial
statements from which it has been derived.
/s/ BDO USA, LLP
Seattle, Washington
September 13, 2011
HaloSource, Inc. and Subsidiaries
Unaudited Interim Condensed Consolidated Statements of Operations
and Comprehensive Loss
-----------------------------------------------------------------------------------------------
Six months ended Six months ended
Year ended
June 30, June 30, December 31,
(US$000's) 2011 2010 2010
----------------------------- ------------------- ------------------- ----------------------
Revenue - net $ 5,418 $ 6,037 $ 14,140
Cost of goods sold 3,340 3,147 7,579
----------------------------- ------------------- ------------------- ----------------------
Gross profit 2,078 2,890 6,561
Operating expenses
Research and
development 1,545 1,413 3,025
Selling,
general, and
administrative 8,012 5,983 12,543
Total operating
expenses 9,557 7,396 15,568
----------------------------- ------------------- ------------------- ----------------------
Operating loss (7,479) (4,506) (9,007)
----------------------------- ------------------- ------------------- ----------------------
Other income
(expense)
Interest income 151 4 23
Interest expense (3) (977) (2,051)
Other
miscellaneous
gains 203 - -
Change in fair
value of
preferred stock
warrant
liability - 607 147
Foreign exchange
gain (loss) (7) 17 (559)
----------------------------- ------------------- ------------------- ----------------------
Total other income
(expense), net 344 (349) (2,440)
----------------------------- ------------------- ------------------- ----------------------
Loss from
continuing
operations before
income taxes (7,135) (4,855) (11,447)
Income taxes - - (4)
----------------------------- ------------------- ------------------- ----------------------
Loss from
continuing
operations (7,135) (4,855) (11,451)
Loss from
discontinued
operations - (2) (2)
----------------------------- ------------------- ------------------- ----------------------
Net loss (7,135) (4,857) (11,453)
----------------------------- ------------------- ------------------- ----------------------
Other comprehensive
income (loss)
Unrealized gain
(loss) on
available-for-sale
investments 33 - (33)
Foreign currency
translation
adjustments 13 7 21
----------------------------- ------------------- ------------------- ----------------------
Comprehensive loss $ (7,089) $ (4,850) $ (11,465)
----------------------------- ------------------- ------------------- ----------------------
Loss per share from
continuing
operations- basic
and diluted $ (0.10) $(4.30) $(0.72)
Loss per share from
discontinued
operations- basic
and diluted - $(0.00) $(0.00)
----------------------------- ------------------- ------------------- ----------------------
Basic and diluted
net loss per
share $ (0.10) $(4.30) $(0.72)
----------------------------- ------------------- ------------------- ----------------------
Shares used to
compute basic and
diluted loss per
share 74,240 1,130 16,003
----------------------------- ------------------- ------------------- ----------------------
See accompanying notes to unaudited interim condensed consolidated
financial statements.
HaloSource, Inc. and Subsidiaries
Unaudited Interim Condensed Consolidated Balance Sheets
------------------------------------------------------------------------------------
June December
June 30, 30, 31,
(US$000's) 2011 2010 2010
------------------------ ------------------ ------------------ ------------------
ASSETS
Current assets
Cash and cash
equivalents $ 3,070 $ 7,578 $ 16,141
Short term
investments 13,770 - 15,104
Restricted
cash 3,685 - -
Accounts
receivable,
less allowance
for doubtful
accounts of
$5, $16, and
$20,
respectively 2,189 2,209 1,837
Inventories -
net 3,827 1,850 2,530
Prepaid
expenses and
other current
assets 1,053 563 1,105
------------------------ ------------------ ------------------ ------------------
Total current
assets 27,594 12,200 36,717
Property and
equipment -
net 2,254 965 1,127
Goodwill 2,180 690 2,180
Other
intangible
assets - net 1,154 3 1,216
Deferred
financing
fees - 96 -
Deposits 260 200 220
------------------------ ------------------ ------------------ ------------------
Total Assets 33,442 14,154 41,460
------------------------ ------------------ ------------------ ------------------
LIABILITIES,
REDEEMABLE
CONVERTIBLE
PREFERRED
STOCK AND
STOCKHOLDERS'
EQUITY
(DEFICIT)
Current
liabilities
Accounts
payable 1,264 967 2,060
Accrued
expenses 297 337 933
Salaries and
benefits
payable 681 788 451
Current
portion of
debt and
capital lease
obligations 110 13,587 29
Deferred
revenue -
current
portion - 36 -
------------------------ ------------------ ------------------ ------------------
Total current
liabilities 2,352 15,715 3,473
Deferred
revenue -
long-term
portion - 163 163
Long-term
portion of
debt and
capital lease
obligations 62 27 12
Deferred rent 189 161 174
Preferred
stock warrant
liability - 529 -
------------------------ ------------------ ------------------ ------------------
Total
liabilities 2,603 16,595 3,822
------------------------ ------------------ ------------------ ------------------
Redeemable
convertible
preferred
stock - 26,414 -
Stockholders'
equity
(deficit)
Convertible
preferred
stock, no par
value - 28,221 -
Common stock,
no par value 104,362 2,743 104,072
Accumulated
other
comprehensive
income
(loss) 10 (17) (36)
Accumulated
deficit (73,533) (59,802) (66,398)
------------------------ ------------------ ------------------ ------------------
Total
stockholders'
equity
(deficit) 30,839 (28,855) 37,638
------------------------ ------------------ ------------------ ------------------
Total
liabilities,
redeemable
convertible
preferred
stock and
stockholders'
equity
(deficit) $ 33,442 $ 14,154 $ 41,460
------------------------ ------------------ ------------------ ------------------
See accompanying notes to unaudited interim condensed consolidated
financial statements.
HaloSource, Inc. and Subsidiaries
Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity (Deficit)
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Redeemable Convertible Preferred
Stock Convertible Preferred Stock Accumulated
Series C Series D Series A Series B Other Total
Preferred
Preferred Stock Preferred Stock Stock Preferred Stock Common Stock Comprehensive Accumulated Stockholders'
(US$000's, except shares Income (Loss)
in 000's) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Deficit Equity (Deficit)
----------------------------------- ---------------- ---------------- ---------------- ------------------ ---------------- ----------------- ---------------- ------------------ ---------------- ------------------- ---------------- --------------------------- ---------------------------------
Balance, January 1, 2010 4,482 $6,455 16,329 $19,526 11,000 $12,002 12,128 $ 16,219 1,122 $ 2,551 $ (24) $ (54,945) $ (24,197)
---------------- ---------------- ---------------- ------------------ ---------------- ----------------- ---------------- ------------------ ---------------- ------------------- ---------------- --------------------------- ---------------------------------
Exercise of common stock
options - - - - - - - - 13 8 - - 8
Issuance of Series D
redeemable convertible
preferred stock - - 159 253 - - - - - - - - -
Series C warrants issued
for convertible debt
extension - 179 - - - - - - - - - - -
Share-based compensation - - - - - - - - - 184 - - 184
Other comprehensive loss - - - - - - - - - - 7 - 7
Net loss - - - - - - - - - - - (4,857) (4,857)
----------------------------------- ---------------- ---------------- ---------------- ------------------ ---------------- ----------------- ---------------- ------------------ ---------------- ------------------- ---------------- --------------------------- ---------------------------------
Balance, June 30, 2010 4,482 $6,634 16,488 $ 19,779 11,000 $12,002 12,128 $ 16,219 1,135 $ 2,743 $ (17) $ (59,802) $ (28,855)
----------------------------------- ---------------- ---------------- ---------------- ------------------ ---------------- ----------------- ---------------- ------------------ ---------------- ------------------- ---------------- --------------------------- ---------------------------------
Balance, January 1, 2011 - $ - - $ - - $ - - $ - 74,136 $104,072 $ (36) $ (66,398) $ 37,638
----------------------------------- ---------------- ---------------- ---------------- ------------------ ---------------- ----------------- ---------------- ------------------ ---------------- ------------------- ---------------- --------------------------- ---------------------------------
Exercise of common stock
options - - - - - - - - 120 35 - - 35
Exercise of common stock
warrants - - - - - - - - 19 11 - - 11
Issuance of shares upon
vesting of restricted
stock - - - - - - - - 26 - - - -
Share-based compensation - - - - - - - - - 252 - - 252
Public offering costs - - - - - - - - - (8) - - (8)
Other comprehensive
income - - - - - - - - - - 46 - 46
Net loss - - - - - - - - - - - (7,135) (7,135)
----------------------------------- ---------------- ---------------- ---------------- ------------------ ---------------- ----------------- ---------------- ------------------ ---------------- ------------------- ---------------- --------------------------- ---------------------------------
Balance, June 30, 2011 - $ - - $ - - $ - - $ - 74,301 $ 104,362 $ 10 $(73,533) $ 30,839
----------------------------------- ---------------- ---------------- ---------------- ------------------ ---------------- ----------------- ---------------- ------------------ ---------------- ------------------- ---------------- --------------------------- ---------------------------------
See accompanying notes to unaudited interim condensed consolidated financial statements.
HaloSource, Inc. and Subsidiaries
Unaudited Interim Condensed Consolidated Statements of Cash Flows
-------------------------------------------------------------------------------------------
Year ended
Six months ended Six months ended December
31,
June 30, June 30,
(US$000's) 2011 2010 2010
--------------------------- ------------------- ------------------- --------------------
Operating
activities
Net loss $ (7,135) $ (4,857) $ (11,453)
Adjustments to
reconcile net
loss to net cash
used in operating
activities:
Depreciation and
amortization 281 177 291
Allowance for
sales returns
and bad debts (12) 5 (54)
Non-cash interest
expense - 288 639
Share-based
compensation 252 184 388
Realized loss on
sale of
short-term
investments 15 - -
Loss on disposal
of property,
equipment and
other assets - 2 -
Accrued interest
payable on
convertible
debt - 671 (3,108)
Change in fair
value of
preferred stock
warrant
liability - (607) (147)
Changes in
operating assets
and liabilities:
Accounts
receivable (402) 279 655
Inventories (1,220) (21) (428)
Prepaid expenses
and other
assets 16 (80) (631)
Accounts payable (853) (1,005) 77
Accrued expenses (654) 379 204
Salaries and
benefits
payable 246 (383) 43
Deferred revenue (163) 10 (26)
Deferred rent 15 (12) 1
--------------------------- ------------------- ------------------- --------------------
Net cash used in
operating
activities (9,614) (4,970) (13,549)
--------------------------- ------------------- ------------------- --------------------
Cash flows from
investing
activities
Purchase of
property and
equipment (1,119) (75) (251)
Purchase of
short-term
investments (9,148) - (15,137)
Sale of
short-term
investments 10,500 - -
Increase in
restricted cash (3,685) - -
Cash paid for
business
acquisition - - (2,971)
--------------------------- ------------------- ------------------- --------------------
Net cash used in
investing
activities (3,452) (75) (18,359)
--------------------------- ------------------- ------------------- --------------------
Cash flows from
financing
activities
Net proceeds
under revolving
line of credit - (500) -
Repayments of
debt and capital
lease
obligations (35) (184) (10,732)
Proceeds from
issuance of
Series D
preferred stock
and
warrants (net of
issuance costs
of $597) - 10,253 10,253
Proceeds from
exercise of
stock options
and warrants 45 5 80
Proceeds
(expenses) from
IPO (8) - 45,426
--------------------------- ------------------- ------------------- --------------------
Net cash provided
by financing
activities 2 9,574 45,027
--------------------------- ------------------- ------------------- --------------------
Cash flows from
discontinued
operations
Investing
activities - 75 75
--------------------------- ------------------- ------------------- --------------------
Net cash provided
by discontinued
operations - 75 75
--------------------------- ------------------- ------------------- --------------------
Effect of
exchange rate
changes on cash (7) 7 (20)
--------------------------- ------------------- ------------------- --------------------
Net increase
(decrease) in
cash and cash
equivalents (13,071) 4,611 13,174
Cash and cash
equivalents,
beginning of
period 16,141 2,967 2,967
--------------------------- ------------------- ------------------- --------------------
Cash and cash
equivalents, end
of period $ 3,070 $ 7,578 $ 16,141
--------------------------- ------------------- ------------------- --------------------
See accompanying notes to unaudited interim condensed consolidated
financial statements.
Notes to Unaudited Interim Condensed Consolidated Financial
Statements
1. General Information
HaloSource, Inc. and its subsidiaries (together, the "Company"
or "HaloSource") are a clean water technology company,
headquartered in Seattle, U.S. with operations in India and China.
HaloSource is focused on the provision of cleaner, clearer and
safer water using its proprietary N-halamine bead technology to
clean and purify water, killing bacteria and viruses that may cause
disease. HaloSource markets its products under its brand names of
HaloPure, HaloShield, SeaKlear, AquaPill, PoolMark, HaloKlear and
StormKlear.
2. Basis of Preparation
The condensed consolidated interim financial statements include
the accounts of HaloSource and its wholly owned subsidiaries:
HaloSource International, Inc., HaloSource Asia, Inc., HaloSource
Hong Kong Ltd., HaloSource China Inc., SeaKlear Pool Pills LLC,
HaloSource Technologies Pvt. Ltd., HaloSource Water Purification
Technology (Shanghai) Co. Ltd., HASO Corporation, and HaloSource
Water Purification Importacoes Ltda. Intercompany transactions and
balances have been eliminated.
The principal accounting policies have been applied consistently
throughout the period in the preparation of these financial
statements. In the opinion of management, all adjustments necessary
for the fair statement of the financial position, results of
operations and cash flows for the interim periods have been
included and are of a normal, recurring nature.
This condensed consolidated interim financial information for
the six months ended June 30, 2011 has been prepared in accordance
with generally accepted accounting principles in the U.S. ("U.S.
GAAP") which is appropriate given the Company is incorporated in
the State of Washington in the United States. The condensed
consolidated interim financial information should be read in
conjunction with the annual financial statements for the year ended
December 31, 2010, which have also been prepared in accordance with
U.S. GAAP and were filed on April 6, 2011.
The condensed consolidated interim financial information as of
and for the six months ended June 30, 2010 has been prepared in
accordance with U.S. GAAP. The interim financial information as of
and for the six month period ended June 30, 2010, as presented in
this report, is unaudited and has not been reviewed in accordance
with standards established by the American Institute of Certified
Public Accountants. However, this interim data was included in the
Company's Application for Admission to AIM as filed on October 18,
2010.
Use of estimates
The preparation of condensed consolidated interim financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
condensed consolidated interim financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Estimates
include the allowance for doubtful accounts, sales returns
allowances, inventory obsolescence, share-based compensation, stock
warrant valuations, and impairment evaluations for goodwill and
long-lived assets.
Reclassifications
Certain reclassifications of 2010 amounts have been made for
consistent presentation with 2011 consisting of minor
reclassifications within the interim condensed consolidated balance
sheets and the interim condensed consolidated statements of cash
flows. During April 2011, the Company became aware of further
information related to the fair value of inventory purchased at the
time of the Company's acquisition of the Pool Pill product line
which was completed on November 30, 2010. Based on the nature and
timing of this additional information, it was determined that a
measurement period adjustment would be recorded to reduce the value
of inventory acquired by $70,000 and increase goodwill assigned to
the business combination by the same amount. This adjustment has
been reflected in the interim condensed consolidated balance sheets
as of June 30, 2011 and December 31, 2010. Reclassifications within
the 2010 interim condensed consolidated statement of cash flows
were made for consistent presentation with the audited consolidated
statement of cash flows for the year ended December 31, 2010. These
reclassifications were immaterial individually and in the
aggregate.
3. Accounting Policies
The accounting policies applied are consistent with those of the
annual financial statements for the year ended December 31, 2010,
except as described below.
Restricted Cash
Restricted cash represents cash collateral used to secure
working capital borrowing needs related to operations of the
Company's foreign subsidiaries. In April 2011, the Company
established a working capital line of credit arrangement through
Axis Bank in India. In consideration for establishing this working
capital line of credit with Axis Bank, the Company entered a
Sanction of Credit Facilities Agreement with Axis Bank to secure
all borrowings under this line of credit. As such, the Company
established a standby letter of credit with Wells Fargo Bank NA in
which the Company has provided cash collateral to secure all
borrowings by its foreign subsidiary under the new working capital
line of credit. The line of credit with Axis Bank allows for
borrowings up to Rs. 70,000,000, or approximately $1,600,000,
however there were no borrowings under the line of credit as of
June 30, 2011 or through September 13, 2011, the date this report
was available to be issued.
As of June 30, 2011, the Company had $3,685,000 in restricted
cash which represents the minimum amount of secured borrowings
under the Sanction of Credit Facilities Agreement with Axis Bank,
plus additional funds which have been restricted by the Company for
increased capacity under this, or any other secured working capital
needs in the future. The Company maintains the restricted cash
holdings in money market funds, or other short duration investment
options, as allowed under the Security Agreement. See further
discussion of Axis Bank line of credit in Note 11 below.
Commitments and Contingencies
Guarantees and Indemnities
During its normal course of business, the Company has made
certain guarantees, indemnities and commitments under which it may
be required to make payments in relation to certain transactions.
These indemnities include intellectual property and other
indemnities to the Company's customers and suppliers in connection
with the sales of its products, and indemnities to directors and
officers of the Company to the maximum extent permitted under the
laws of the State of Delaware. Historically, the Company has not
incurred any losses or recorded any liabilities related to
performance under these types of indemnities.
Legal Proceedings
The Company may be subject to a variety of legal proceedings
which could arise in the ordinary course of business or from its
shareholders. The Company evaluates its exposure to threatened or
pending litigation on a regular basis. To the extent it were
required, the Company would evaluate the potential amount of loss
related to litigation as well as the potential range of outcomes
related to such loss. Determining the amount of potential loss and
the range of potential outcomes requires significant judgment. The
Company will record a loss contingency if an amount becomes both
probable and measurable.
As of June 30, 2011 and through September 13, 2011, the date
this report was available to be issued, the Company was not
involved in any pending litigation, claims or assessments.
Recent Accounting Pronouncements Affecting the Company
In May 2011, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") 2011-04, or ASU 2011-04,
Fair Value Measurement (Topic 820), of the Accounting Standards
Codification ("ASC" or the "Codification"). The amendments in this
update were intended to result in common fair value measurement and
disclosure requirements in U.S. GAAP and International Financial
Reporting Standards, or IFRS. ASU 2011-04 expands and enhances
current disclosures about fair value measurements and clarifies the
FASB's intent about the application of existing fair value
measurement requirements in certain circumstances. These amendments
are effective for fiscal years and interim periods beginning after
December 15, 2011 and should be applied prospectively. The Company
is continuing to review this update, but does not believe that it
will have a material impact on its consolidated financial
statements or the notes thereto.
In June 2011, the FASB issued ASU 2011-05, Presentation of
Comprehensive Income (Topic 220), amending the Comprehensive Income
topic of the Codification. This update changes the requirements for
the presentation of other comprehensive income, eliminating the
option to present components of other comprehensive income as part
of the statement of changes in stockholders' equity, among other
things. ASU 2011-05 requires that all non-owner changes in
stockholders' equity be presented either in a single continuous
statement of comprehensive income or in two separate but
consecutive statements. These amendments are effective for fiscal
years and interim periods beginning after December 15, 2011 and
should be applied retrospectively. The Company is continuing to
review this update, but does not believe that it will have a
material impact on its consolidated financial statements or the
notes thereto.
In December 2010, the FASB issued ASU 2010-29, Business
Combinations (Topic 805): Disclosure of Supplementary Pro Forma
Information for Business Combinations (a consensus of the FASB
Emerging Issues Task Force). The amendments in this ASU specify
that if a public entity presents comparative financial statements,
the entity should disclose revenue and earnings of the combined
entity as though the business combination(s) that occurred during
the current year had occurred as of the beginning of the comparable
prior annual reporting period only. The amendments in this ASU also
expand the supplemental pro forma disclosures under ASC 805 to
include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the
business combination included in the reported pro forma revenue and
earnings. The amendments in this ASU are effective prospectively
for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning
on or after December 15, 2010. As the Company was not involved with
any business combinations during the first half of 2011, adoption
of ASU 2010-29 had no impact on the Company's financial position,
results of operations or cash flows for the six month period ending
June 30, 2011.
In December 2010, the FASB issued ASU 2010-28
Intangibles-Goodwill and Other (Topic 350): When to Perform Step 2
of the Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts (a consensus of the FASB Emerging Issues
Task Force). The amendments in this ASU modify Step 1 of the
goodwill impairment test for reporting units with zero or negative
carrying amounts to assess whether qualitative factors indicate
that it is more likely than not that an impairment of goodwill
exists, and if an entity concludes that it is more likely than not
that an impairment exists, the entity must measure the goodwill
impairment. The qualitative factors are consistent with the
existing guidance and examples in paragraph 350-20-35-30 of the
Codification, which requires that goodwill of a reporting unit be
tested for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. The
Company adopted this guidance on January 1, 2011, and does not
currently have negative carrying amounts related to goodwill for
purposes of the annual goodwill impairment test.
4. Segment reporting
The Company measures the results of its reportable segments
based on revenue and gross profit. The Company does not allocate
operating expenses, income taxes or interest income (expense) to
the reportable business units for purposes of reporting to the
chief operating decision maker.
The Company's operating segments are Water Clarification, Water
Purification, and Antimicrobial Coatings. Information on reportable
segments and a reconciliation to interim condensed consolidated net
loss for the periods ended June 30, 2010 and 2011 and the year
ended December 31, 2010 are presented below. Also presented below
are total assets by operating segment as of June 30, 2010 and 2011
and December 31, 2010. The Company does not report to management
its capital expenditures or assign intangible assets by business
unit.
Six months ended June 30, 2011
Water Clarification Water Antimicrobial
(US $000's) Purification Coatings Unallocated Consolidated
---------------------- ----------------------- ---------------------- ----------------------- --------------------- ----------------------
Revenue $ 4,570 $ 515 $333 $-- $ 5,418
Gross profit
(loss) 2,073 (235) 240 -- 2,078
Operating
expenses (9,557) (9,557)
Interest income,
net 148 148
Other income,
net 196 196
Net loss $(7,135)
----------------------
Total Assets $ 4,714 $ 5,886 $120 $ 22,722 $ 33,442
-------------------------- ----------------------- ---------------------- ----------------------- --------------------- ----------------------
Six months ended June 30, 2010
Water Clarification Water Antimicrobial
(US $000's) Purification Coatings Unallocated Consolidated
----------------------- ----------------------- ---------------------- ----------------------- --------------------- ----------------------
Revenue $ 4,737 $ 770 $530 $-- $ 6,037
Gross profit 2,467 43 380 -- 2,890
Operating
expenses (7,396) (7,396)
Interest expense, net
(973) (973)
Change in
value of
preferred
stock
warrant
liability 607 607
Other income,
net 17 17
----------------------
Loss from
continuing
operations (4,855)
Discontinued
operations (2) (2)
----------------------
Net loss $(4,857)
----------------------
Total Assets $ 3,287 $ 2,188 $155 $8,524 $ 14,154
----------------------- ----------------------- ---------------------- ----------------------- --------------------- ----------------------
Year ended December 31, 2010
Water Clarification Water Antimicrobial
(US $000's) Purification Coatings Unallocated Consolidated
----------------------- ----------------------- ---------------------- ----------------------- --------------------- ----------------------
Revenue $ 11,607 $ 1,675 $ 858 $-- $ 14,140
Gross profit 5,891 48 622 -- 6,561
Operating
expenses (15,568) (15,568)
Interest expense, net
(2,028) (2,028)
Other expenses, net
(559) (559)
Change in
value of
preferred
stock
warrant
liability 147 147
Income taxes (4) (4)
----------------------
Loss from
continuing
operations (11,451)
Discontinued
operations (2) (2)
----------------------
Net loss $ (11,453)
----------------------
Total Assets $3,241 $ 3,254 $163 $ 34,802 $ 41,460
----------------------- ----------------------- ---------------------- ----------------------- --------------------- ----------------------
5. Income taxes
Taxes on income in the interim periods are accrued using the tax
rate that would be applicable to expected total annual
earnings.
During the period there were no taxable profits.
Deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes, and (b) operating losses and tax credit
carry forwards.
ASC 740 requires that the tax benefit of net operating losses,
temporary differences and credit carry forwards be recorded as an
asset to the extent that management assesses that realization is
"more likely than not". Realization of the future tax benefits is
dependent on the Company's ability to generate sufficient taxable
income within the carry forward period. Because of the Company's
recent history of operating losses, management believes that
recognition of the deferred tax assets arising from the
above-mentioned future tax benefits is currently not likely to be
realized and, accordingly, has provided a full valuation allowance
on its deferred tax assets.
Uncertain tax positions
On January 1, 2009, the Company adopted the provisions relating
to uncertain tax positions of ASC 740, Income Taxes, which had no
financial statement impact to the Company upon adoption. As of June
30, 2011, the Company had no unrecognized tax benefits.
The Company files income tax returns in the US federal
jurisdiction, and various state and foreign jurisdictions. Due to
the Company's operating loss carry forwards, the U.S. federal
statute of limitations remains open for 1997 and onward.
6. Net loss per share
Basic net loss per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net
loss per share is computed using the weighted average number of
common and potentially dilutive shares outstanding during the
period. Potentially dilutive shares consist of the incremental
common shares issuable upon conversion of the exercise of common
stock options and warrants. For the six months ended June 30, 2010
and the year ended December 31, 2010, potentially dilutive shares
also included the conversion of redeemable convertible preferred
stock, convertible preferred stock, and warrants to purchase
redeemable convertible preferred stock. The Company had a net loss
for all periods presented herein; therefore, none of the options,
warrants, redeemable convertible preferred stock or convertible
preferred stock outstanding during each of the periods presented
have been included in the computation of diluted loss per share as
they were antidilutive.
7. Inventories
Inventories at June 30, 2011 and 2010 and December 31, 2010,
consist of the following:
December
June 30, 2011 June 30, 2010 31,
(US $000's) 2010
----------------------- ---------------- ---------------- ------------------
Raw materials $2,348 $1,367 $1,809
Finished
goods 1,479 483 721
---------------- ---------------- ------------------
Inventories,
net $3,827 $1,850 $2,530
----------------------- ---------------- ---------------- ------------------
8. Property and equipment
Property and equipment as of June 30, 2011 and 2010 and December
31, 2010 consist of the following:
December
June 30, 2011 June 30, 2010 31,
(US $000's) 2010
------------------------ ----------------- ----------------- ------------------
Manufacturing
equipment $2,501 $1,389 $1,704
Furniture and
fixtures 132 127 131
Office
equipment 466 375 406
Leasehold
improvements 379 283 299
Construction
in process 412 31 5
----------------- ----------------- ------------------
3,890 2,205 2,545
Less
accumulated
depreciation
and
amortization (1,636) (1,240) (1,418)
----------------- ----------------- ------------------
Property and
equipment,
net $2,254 $965 $1,127
------------------------ ----------------- ----------------- ------------------
9. Related party transactions
During the six months ended June 30, 2010 and 2011 and during
the year ended December 31, 2010, the Company was provided legal
services, which are included in selling, general, and
administrative expenses in the accompanying interim condensed
consolidated statements of operations and comprehensive loss, of
$317,000, $264,000 and $1,592,000, respectively, from a firm whose
partner is a stockholder of the Company and its secretary. The
Company owed this firm $80,000, $93,000 and $94,000 at June 30,
2010 and 2011 and December 31, 2010, respectively. These amounts
are included in accounts payable in the accompanying interim
condensed consolidated balance sheets.
Additionally, during the six months ended June 30, 2010 and 2011
and during the year ended December 31, 2010, the Company purchased
services, which are included in and selling, general, and
administrative expenses in the accompanying interim condensed
consolidated statements of operations and comprehensive loss, of
$0, $69,000 and $69,000, respectively, from other stockholders or
companies owned by stockholders. The Company had no open accounts
payable to these stockholders or companies at June 30, 2010 and
2011 or at December 31, 2010. During the six months ended June 30,
2010 and 2011 and during the year ended December 31, 2010, the
Company also paid royalties for certain patent rights of $225,000,
$225,000 and $450,000, respectively, to a university which held
stock in the Company. Royalty payments are allocated between cost
of goods sold, where there are identifiable product and sublicense
revenues, and research and development expenses in the accompanying
interim condensed consolidated statements of operations and
comprehensive loss. The Company had no outstanding accounts payable
to the university at June 30, 2010 and 2011 or at December 31,
2010.
10. Business and credit concentration
For the six month periods ended June 30, 2010 and 2011, one of
the Company's Water Clarification customers individually accounted
for 18% and 17% of the Company's revenue, respectively, and the
same customer accounted for 29% of the Company's revenue for the
year ended December 31, 2010. Accounts receivable from this
customer represented 25% and 41% at June 30, 2010 and 2011,
respectively, and represented 9% of the total accounts receivable
at December 31, 2010.
The Company sources a significant portion of finished products
related to its Water Clarification business from one supplier in
the United States. Although the Company could obtain these items
from other sources, including its own resources, this supplier's
inability or unwillingness to supply Water Clarification products
in a timely manner or on terms that are unacceptable to the Company
could adversely impact the Company's ability to meet customer
demands for these products. For the six months ended June 30, 2010
and 2011 and the year ended December 31, 2010, the Company made
total payments to this supplier of $1,100,000, $2,100,000, and
$1,843,000, respectively.
Essentially all of the Company's revenue from its Water
Purification segment is generated in emerging market countries,
including India and China. During 2010 and 2011, the majority of
Water Purification revenue was derived from a single customer in
India. In addition, essentially all raw materials and manufacturing
facilities used in the Water Purification segment are sourced from
or located in the same emerging market countries. These markets
represent varying political and regulatory environments that can
potentially affect Water Purification operations. Net long-lived
assets located in India amounted to $346,000 and $767,000 at June
30, 2010 and 2011, respectively, and $350,000 at December 31, 2010.
Net long-lived assets located in China amounted to $210,000 and
$472,000 at June 30, 2010 and 2011, respectively and $193,000 at
December 31, 2010. The remaining net assets are located in the
United States.
11. Foreign line of credit
In May 2011, Halosource Technologies Pvt. Ltd. ("Halosource
Technologies"), a wholly-owned subsidiary of Halosource, Inc. which
is located in Bangalore, India, entered into a Sanction of Credit
Facilities Agreement with Axis Bank for a credit facility for up to
an amount of Rs. 70,000,000, or approximately at $1,600,000 at June
30, 2011. This line of credit is available for borrowings to
support working capital needs of Halosource Technologies. Any
borrowings under the line of credit will bear interest at a
base-rate, plus 1.85% or approximately 11% annually. The line of
credit agreement expires in May 2012. There were no borrowings
under this line of credit agreement as of June 30, 2011 or through
September 13, 2011, the date this report was available to be
issued.
As a condition to borrowing under this line of credit, the
Company is required to maintain a standby letter of credit through
Wells Fargo Bank NA in an amount equivalent to 110% of the line of
credit, or Rs. 77,000,000, approximately $1,700,000 at June 30,
2011. Based on this requirement, the Company has restricted
$1,750,000 of cash under the standby letter of credit to serve as
collateral for future borrowings, if any, under the foreign line of
credit. See further discussion of this standby letter of credit and
restricted cash obligations in Note 3 above.
12. Stock options and share-based compensation
The Company recognizes compensation expense for awards of equity
instruments to employees and directors based on the grant date fair
value of those awards. For stock options, the Company utilizes the
Black-Scholes option pricing model to estimate the fair value of
employee stock-based compensation at the date of the grant, which
requires the input of subjective assumptions including expected
volatility, expected term, and a risk free interest rate. Because
the Company has limited historical patterns, the expected life of
stock options is based on the experience of similar publicly traded
companies and management's judgment. The expected volatility is
based on volatility from comparable options with similar publicly
traded companies. The risk free interest rate is estimated using
comparable published federal funds rates. Compensation expense is
recognized over the requisite service period for those options
expected to vest, net of a forfeiture rate.
The Company typically recognizes share-based compensation costs
for an award on a straight-line basis over the requisite service
period for each separately vesting portion of the award as if the
award was, in substance, multiple awards. For the six month periods
ended June 30, 2010 and 2011 and the year ended December 31, 2010,
the Company recorded stock based compensation expense of $184,000,
$252,000 and $388,000, respectively. No income tax benefit was
recognized in the interim condensed consolidated statements of
operations and comprehensive loss for share-based compensation
arrangements.
13. Subsequent Events
On July 25, 2011, the Company announced the appointment of
Martin Coles to the Company's Board of Directors as Executive
Deputy Chairman, effective immediately. Additive to his Board
responsibilities, Mr. Coles will be responsible for advising the
CEO on business strategy and sales and marketing initiatives. Mr.
Coles has held senior roles and board positions in leading
international blue-chip companies spanning a wide variety of
sectors including consumer industries, technology and sport. He has
over 30 years of significant business experience, including
consultancy and advisory work on corporate strategy, and brings
senior board experience to the Company as a Director and member of
the Board's compensation committee.
The Company has evaluated subsequent events through September
13, 2011, which is the date on which the financial statements were
available to be issued. Except for the matter noted above, no other
transactions or events have occurred that would require further
disclosure.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR ZELFFFKFEBBD
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