TIDMHAL TIDMHALO
RNS Number : 0796C
HaloSource Corporation
27 September 2018
27 September 2018
HaloSource Corporation
("HaloSource" or the "Company")
Interim results for the six months ended 30 June 2018
HaloSource Corporation (HAL.LN, HALO.LN), the global clean water
technology company trading on London Stock Exchange's AIM market,
today announces its unaudited interim results for the six months
ended 30 June 2018 (H1 2018" or the "Period").
Highlights
-- Revenue from continuing operations of $0.9 million (H1 2017: $0.9 million),
-- First orders received for the Company's lead reduction
technology under its astrea(TM) brand, with product shipments
beginning this month
-- Operating expenses from continuing operations increased by
10% to $3.6 million (H1 2017: $3.2 million) largely resulting from
non-recurring expenses arising from the Company's re-domicile to
the British Virgin Islands ("BVI")
-- Net loss of $3.9 million (H1 2017: $3.2 million)
-- Net cash and short-term investments at period end of $0.1
million ($1.2 million as at 31 December 2017) before completion of
$2.0 million financing (before professional fees incurred) on 10
September 2018
James Thompson, CEO of HaloSource, said:
"HaloSource has always been an innovation company at its core.
With world-class technologies we partner with global consumer
product companies to provide innovative drinking water purification
products. However, since focusing solely on our drinking water
business in the last two years, we have recognized the commercial
limitations of this go-to-market strategy. As a result, we have
augmented our commercial strategy to better leverage our
technologies and generate greater returns for our shareholders by
launching our own line of drinking water products targeting the US
and European hydration markets (bottles and pitchers) while
continuing to grow our OEM business in China. With the new
astrea(TM) line of one-of-a-kind heavy metal removal (specifically
lead) hydration products, we now believe that we can have greater
control over our technology and improve the likelihood of
commercial success.
During H1 2018, we announced the successful completion of the
first commercial production of our new heavy-metal reduction media
in conjunction with our supply chain partner, Chematek SpA. Also,
in Q1, we received our first orders from this new strategy via the
Indiegogo crowdfunding platform. On World Water Day 2018 (March 22)
we launched this crowdfunding campaign in the US targeting
health-conscious consumers with our new astreaOne daily filtering
water bottle. In a few weeks, we received orders for 1,300 bottles
to consumers, with interest from consumers in Europe and Asia in
addition to the US. We expect these orders to be fulfilled by
mid-October. We followed up this effort by signing our first
specialty retail partner, Sur La Table, Inc. a premium retailer
selling kitchen and housewares products in over 130 stores in 30
states nationwide, as well as through their website and catalogs.
Product to Sur La Table commenced shipping last week.
The market for hydration products in the US is $2 billion and is
projected to grow by 25% through 2024 according to Snovus
Consulting's analysis published in 2016. Drivers of this growth
include; the role of water in health, the backlash against single
use plastics and the rising awareness of deteriorating
infrastructure first witnessed in Flint, Michigan. The Flint lead
poisoning incident was a catalyst for heightened awareness of the
issue of deteriorating infrastructure and cities across the US are
struggling to provide clean, safe drinking water to their
residents. Awareness of the problem of lead in drinking water
continues to grow with regular coverage in news outlets across the
US and we believe this rising awareness of lead leaching into our
drinking water via antiquated piping will increase the demand for
daily-use reusable filtering bottles.
As evidenced by our progress in H1 2018, the response to our
new, branded hydration product has been positive. AstreaOne is the
world's only daily-use filtering water bottle expected to be
certified to the NSF53 standard for the removal of lead, thereby
clearly differentiating it from other products available in the
market category.
As a management team we can't do any of this without
outstanding, experienced people. In 2017, we formed the Astrea
Advisory Board, a group of highly accomplished consumer product
professionals from companies including Nike, Starbucks, LuLuLemon,
Philips and Soma Water. In conjunction with our highly competent
and motivated commercial team, this advisory board has been
invaluable in providing guidance in areas including design,
promotion, brand, strategy, supply chain and business
development.
Going forward we will accelerate our strategic pivot by building
out further distribution for the AstreaOne line of products.
Whether online (at Amazon and our own digital store-front) or
additional retail partners, we expect our pipeline to grow
significantly over the next year and beyond."
Market Abuse Regulation
The information communicated in this Announcement is inside
information for the purposes of Article 7 of Market Abuse
Regulation 596/2014 ("MAR"). For the purposes of MAR and Article 2
of Commission Implementing Regulation (EU) 2016/1055, this
announcement is being made on behalf of the Company by Craig
Crowell, Chief Financial Officer.
Enquiries:
HaloSource Corporation
James Thompson, Chief Executive Officer +1 425 419 2258
Craig Crowell, Chief Financial Officer +1 425 419 2248
WH Ireland Limited (NOMAD and Broker)
Tim Feather / Chris Viggor +44 (0) 20 7220 1666
About HaloSource
HaloSource Corporation 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.
astrea(TM) is a new brand in progress of registration for consumer
products. 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.
Financial Review
Total revenues from continuing operations in H1 2018 were flat
at $0.9 million compared to the prior year. Revenue during the
period came primarily from established customers including Perfect
and Lonsid. We expect considerably higher revenues in H2 2018, with
the full launch of the astreaOne lead bottle in e-commerce channels
and at Sur La Table (as previously announced on 18 July 2018), as
well as continued sales to established customers in our HaloPure(R)
business in China.
Gross margin from continuing operations was -25%, down from -12%
for the same period last year, primarily due to revenues not
covering the Company's fixed manufacturing expenses arising from
its manufacturing facility in China and a write-down of inventory
in China totaling approximately $0.1 million. Operating expenses
from continuing operations for H1 2018 totaled $3.6 million, up 10%
from $3.2 million in H1 2017. These expenses were higher in the
current period as a result of non-recurring legal and regulatory
costs associated with the move of the Company's domicile from the
US to the BVI, along with marketing, website and design costs
associated with the launch of the astrea(TM) brand in the United
States.
Consolidated net loss was $3.9 million for the period, an
increase from the net loss of $3.2 million in H1 2017. The
increased loss was driven primarily by the increases in operating
expenses discussed above. The income from discontinued operations
for H1 2018 arose from the final earn-out payment on the sale of
the Company's Environmental Water business exceeding the amount
previously expected.
Net cash used in operations by the Company was $3.7 million in
H1 2018, a 79% increase from net cash used in operations of $2.1
million in H1 2017, primarily as a result of the increased net
loss, a build in accounts receivable that were recovered subsequent
to the end of H1 2018 and slowing reductions in the size of our
inventory compared to the prior year.
After completion of the equity financing, as announced on 10
September 2018, that raised $2.0 million before professional fees
the Directors anticipate that the Company has sufficient working
capital until approximately the end of 2018. As previously
announced, the Directors are continuing to explore means of raising
additional capital.
Operational Review
H1 2018 revenues were generated primarily through sales to our
two largest customers in China, Perfect and Lonsid. Perfect has
been actively promoting their JWL water purification device using
HaloPure(R) cartridges throughout the first half. Perfect also
recently confirmed that the next generation JWL device will launch
in Q1 2019 and continue to use HaloPure(R) as the primary
technology within. The new device is expected to include an
automatic shutoff once the HaloPure(R) powered cartridge requires
replacement, which should drive considerably improved cartridge
replacement and sales in following years. As noted previously, we
expect to significantly grow sales to Perfect with the launch of
the second generation device beginning in 2019.
Lonsid remains our second largest Drinking Water revenue
contributor and our technology is now used in five of their reverse
osmosis devices, an increase from three devices in previous years.
Sales to this customer would have been larger during H1 2018,
however we struggled to meet sales demand due to quality issues
with plastic parts purchased from third party manufacturers needed
to make the Lonsid HaloPure(R) cartridges. These quality issues
were resolved subsequent to 30 June 2018, with plastics now being
sourced from a new supplier at a lower cost than the previous,
inferior product.
With respect to our astrea(TM) product, our lead reduction media
is now fully scaled at Chematek SpA in Italy, and ready to meet
both expected and future demand for the astreaONE bottle. The media
will be packaged into cartridges for the bottle at our own
facility, while the stainless-steel bottle itself along with other
bottle components, are being sourced from a responsible, high
quality third party manufacturer in China. This supplier is the
same one used by many other high quality hydration brands and we
expect them to be fully capable of scaling up their manufacturing
to meet astreaONE demand for the remainder of 2018 and beyond, as
needed.
People
The Company's headcount at 30 June 2018 was 49, versus 48 at 30
June 2017. Headcount in the United States remained steady, at 12,
year over year and we expect it to remain relatively stable going
forward. At 30 June 2018, 76% of the Company's headcount is located
in India and China, compared to 75% in the prior year.
Outlook
Going forward our keen focus is on the successful launch of the
AstreaOne line of hydration products as well as supporting Perfect
in the Chinese launch of their new JWL device containing
HaloPure(R) technology (having sold $10 million in cartridges to
Perfect with the first generation JWL product). We have a team that
is highly focused on the deliverables that matter - growing sales
and striving for profitability as soon as possible. For the
AstreaOne line, the technology is developed, with NSF 53
certification expected to be received in the very near future; the
product is designed, the supply chain is functioning, and the
Company has initial orders in hand. Going forward we will expect to
accelerate our distribution efforts both online and in traditional
retail channels to achieve a profitable scale.
HaloSource Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive
Loss
Six months Six months
ended ended
June 30, June 30,
2018 2017
(US $000's, except per share data) (unaudited) (unaudited)
---------------------------------------------------------- ------------- ---------------
Revenue - net $935 $906
Cost of goods sold 1,169 1,012
---------------------------------------------------------- ------------- ---------------
Gross loss (234) (106)
Operating expenses
Research and development 416 592
Selling, general, and administrative 3,153 2,652
---------------------------------------------------------- ------------- ---------------
Total operating expenses 3,569 3,244
---------------------------------------------------------- ------------- ---------------
Operating loss (3,803) (3,350)
Other (expense) income, net (121) 53
---------------------------------------------------------- ------------- ---------------
Loss before income taxes (3,924) (3,297)
Income taxes - -
---------------------------------------------------------- ------------- ---------------
Loss from continuing operations (3,924) (3,297)
Income from discontinued operations, net of tax 67 70
Net loss $(3,857) $(3,227)
---------------------------------------------------------- ------------- ---------------
Other comprehensive income (loss)
Unrealized loss on available-for-sale investments (2) -
Foreign currency translation adjustments 69 (2)
---------------------------------------------------------- ------------- ---------------
Other comprehensive income (loss) 67 (2)
---------------------------------------------------------- ------------- ---------------
Comprehensive loss $(3,790) $(3,229)
---------------------------------------------------------- ------------- ---------------
Loss per share from continuing operations - basic
and diluted $(0.01) $(0.01)
Income per share from discontinued operations
- basic and diluted 0.00 (0.00)
---------------------------------------------------------- ------------- ---------------
Basic and diluted net loss per share $(0.01) $(0.01)
---------------------------------------------------------- ------------- ---------------
Shares used to compute basic and diluted loss
per share (000's) 560,519 224,830
---------------------------------------------------------- ------------- ---------------
See accompanying notes to interim unaudited financial information
HaloSource Corporation and Subsidiaries
Consolidated Balance Sheets June 30, December
31,
2018 2017
(US $000's) (unaudited) (audited)
---------------------------------------------- ------------- -----------
ASSETS
Current assets
Cash and cash equivalents $128 $1,209
Accounts receivable, less allowance for
doubtful
accounts of $316 and $317, respectively 1,076 720
Inventories, net 766 1,114
Prepaid expenses and other current assets 560 626
Total current assets 2,530 3,669
Property and equipment, net 1,035 1,040
Deposits and other noncurrent assets 143 121
Other noncurrent receivables 75 117
Deferred rent asset 44 47
---------------------------------------------- ------------- -----------
Total assets $3,827 $4,994
---------------------------------------------- ------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $1,781 $1,583
Accrued expenses 473 627
Salaries and benefits payable 153 162
Total current liabilities 2,407 2,372
Common stock subscriptions received, net - 880
Deferred rent and sublease liability 522 601
---------------------------------------------- ------------- -----------
Total liabilities 2,929 3,853
---------------------------------------------- ------------- -----------
Stockholders' equity
Common stock, $0.0001 par value per share
and no par value per share as of June 30,
2018 and December 31, 2017, respectively 147,169 143,622
Accumulated other comprehensive income 18 (49)
Accumulated deficit (146,289) (142,432)
---------------------------------------------- ------------- -----------
Total stockholders' equity 898 1,141
---------------------------------------------- ------------- -----------
Total liabilities and stockholders' equity $3,827 $4,994
---------------------------------------------- ------------- -----------
See accompanying notes to interim unaudited financial information
HaloSource Corporation and Subsidiaries Six months Six months
Consolidated Statements of Cash Flows ended ended
June 30, June 30,
2018 2017
(US $000's) (unaudited) (unaudited)
------------------------------------------------------ --------------- -------------
Operating activities
Net loss $(3,857) $(3,227)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 130 149
Allowance for inventory, sales returns and bad
debts 91 (274)
Share-based compensation 25 36
Loss on disposal of property, equipment and
other assets - 29
Gain on sale of discontinued operations (67) (53)
Changes in operating assets and liabilities:
Accounts receivable (290) 294
Inventories 242 590
Prepaid expenses and other assets 1 116
Accounts payable 280 403
Accrued expenses and other current liabilities (77) 60
Salaries and benefits payable (6) (55)
Deferred rent and sublease liability (151) (123)
------------------------------------------------------ --------------- -------------
Net cash used in operating activities (3,679) (2,055)
------------------------------------------------------ --------------- -------------
Cash flows from investing activities
Proceeds on disposal of discontinued operations 78 172
Proceeds on disposal of property and equipment - 36
Purchase of property and equipment (135) (32)
Sale of short-term investments 1,002 969
Purchase of short-term investments (1,004) -
------------------------------------------------------ --------------- -------------
Net cash (used in) provided by investing activities (59) 1,145
------------------------------------------------------ --------------- -------------
Cash flows from financing activities
Proceeds from public offerings, net of offering
costs of $219 and $321, respectively 2,641 1,909
Repayments of debt and capital lease obligations - (6)
------------------------------------------------------ --------------- -------------
Net cash provided by financing activities 2,641 1,903
------------------------------------------------------ --------------- -------------
Effect of exchange rate changes on cash 16 11
------------------------------------------------------ --------------- -------------
Net decrease (increase) in cash and cash equivalents (1,081) 1,004
Cash and cash equivalents, beginning of period 1,209 1,117
------------------------------------------------------ --------------- -------------
Cash and cash equivalents, end of period $128 $2,121
------------------------------------------------------ --------------- -------------
See accompanying notes to interim unaudited financial information
Notes
1. General information
HaloSource Corporation and its subsidiaries (together, the
"Company" or "HaloSource") is a global clean water technology
company, headquartered in the British Virgin Islands, with
subsidiaries in the United States, India and China and operations
in other markets around the world through its relationships with
partners with trusted brands. The Company's proprietary
technologies enable the Company's partners to provide safe drinking
water to their customers. HaloSource markets its products under its
brand names, HaloPure(R) and astrea(TM) .
The Board of Directors approved this interim report on 26
September 2018
2. Basis of preparation
The consolidated financial information as of June 30, 2018 and
December 31, 2017 and for the six-month periods ended June 30, 2018
and 2017 has been prepared in accordance with generally accepted
accounting principles in the United States of America ("U.S.
GAAP"). References to U.S. GAAP issued by the Financial Accounting
Standards Board ("FASB") in the Company's notes to its consolidated
financial statements are to the FASB Accounting Standards
Codification, sometimes referred to as the "Codification" or "ASC".
They do not include all disclosures that would otherwise be
required in a complete set of financial statements and the
consolidated financial information should be read in conjunction
with the audited annual financial statements for the year ended
December 31, 2017, which have also been prepared in accordance with
U.S. GAAP and were made available on June 15, 2018. The independent
Auditors' Report on that Annual Report and Financial Statements for
the year ended 31(st) December 2017 was unqualified but did include
a reference to the uncertainty surrounding going concern, to which
the auditors drew attention by way of emphasis. The financial
information for the six-month periods ended June 30, 2018 and June
30, 2017 is unaudited.
The same accounting policies, presentation and methods of
computation are followed in these interim consolidated financial
statements as were applied in the Company's 2017 annual audited
financial statements, with the exception of those that relate to
new standards and interpretations effective for the first time for
periods beginning on (or after) 1 January 2018 and will be adopted
in the 2018 financial statements. The new standard impacting the
Group that will be adopted in the annual financial statements for
the year ended 31 December 2018, and which have given rise to
changes in the Group's accounting policies is:
-- ASC 606: Revenue from Contracts with Customers
ASC 606 is a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers and
supersedes most current revenue recognition guidance, noting that
the Company has adopted the modified retrospective approach. There
is no material impact on the adoption of this standard on any
revenue stream for the Group, further information is detailed in
note 3.
Other new and amended standards and interpretations issued by
the FASB that will apply for the first time in the next annual
financial statements are not expected to have a material impact on
the Group.
Principles of consolidation
The consolidated financial statements include the accounts of
HaloSource and its wholly owned subsidiaries: HaloSource, Inc.,
HaloSource International, Inc., HaloSource Asia, Inc., HaloSource
Hong Kong Ltd., HaloSource China, Inc., HaloSource Technologies
Pvt. Ltd., and HaloSource Water Purification Technology (Shanghai)
Co. Ltd. Intercompany transactions and balances have been
eliminated.
Liquidity and capital resources
The Company has incurred net losses and negative operating cash
flows since inception, and as of June 30, 2018, the Company had an
accumulated deficit of approximately $146.3 million. For the six
months ended June 30, 2018, the Company's net loss was $3.9 million
and cash used in operating activities was $3.7 million. As of June
30, 2018, the Company has $0.1 million of cash and cash
equivalents. Subsequent to June 30, 2018, the Company raised an
additional $2 million in equity financing to fund its
operations.
The Company has continued to implement certain cost savings
measures and implemented other plans that are expected to reduce
net loss and cash used by operations compared to prior periods and
expects to continue to do so. 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. There can be no assurance that these
efforts will be successful. 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. The ability of the
Company to continue as a going concern is dependent on the Company
obtaining adequate capital to fund operating losses until it
becomes profitable. Management believes current funding will be
sufficient to finance the Company's operations through the
remainder of 2018; however, sufficient funds are not currently
available to fund operations for 12 months from the issuance of
these financial statements and the Company anticipates raising
additional funds in the next 12 months. If adequate funds are not
available, the Company may be required to reduce the scope, delay
or eliminate some or all of its planned commercial activities.
Given that securing additional funds is an uncertain event,
management has determined that these conditions raise substantial
doubt as to the Company's ability to continue as a going
concern.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The
financial statements for the period ended June 30, 2018 do not
include any adjustments to reflect the possible future effects on
the recoverability and classification of assets or the amounts and
classification of liabilities that may result from uncertainty
related to the Company's ability to continue as a going
concern.
Discontinued operations
A discontinued operation is a significant component of the
Company that has either been disposed of, or is classified as held
for sale, and represents a separate major line of business or is
part of a plan to dispose of a separate major line of business.
Results from discontinued operations that are clearly identifiable
as part of the component disposed of and that will not be
recognized subsequent to the disposal are presented separately as a
single amount in the consolidated statements of operations and
comprehensive loss. Results from discontinued operations are
reclassified for prior periods presented in the financial
statements so that the results from discontinued operations relate
to all operations that have been discontinued as of the balance
sheet date for the latest period presented.
3. Recently adopted accounting pronouncements and accounting pronouncements not yet adopted
Recently adopted accounting pronouncements
In May 2014, the FASB issued Accounting Standards Update ("ASU")
2014-09, Revenue from Contracts with Customers, and has
subsequently issued several supplemental and/or clarifying ASUs
(collectively, "ASC 606"). The new accounting standard outlines a
single comprehensive model for entities to use in accounting for
revenue arising from contracts with customers and supersedes most
current revenue recognition guidance. The new standard requires a
company to recognize revenue as control of goods or services
transfers to a customer at an amount that reflects the expected
consideration to be received in exchange for those goods or
services. It defines a five-step approach for recognizing revenue,
which may require a company to use more judgment and make more
estimates than under the current standard. The Company adopted ASC
606 on January 1, 2018 using the modified retrospective transition
method.
The Company determines revenue recognition through the following
steps: (1) identification of the contract with a customer; (2)
identification of the performance obligations in the contract; (3)
determination of the transaction price; (4) allocation of the
transaction price to the performance obligations in the contract;
and (5) recognition of revenue when, or as, we satisfy a
performance obligation. The adoption of ASC 606 was applied to all
contracts and did not have a significant impact on the Company's
accumulated deficit as of the adoption date as the timing of
Company's revenue recognition under the new standard coincides with
the way the Company previously recognized revenue. There was no
impact on the opening accumulated deficit balance as of January 1,
2018 due to the adoption of ASC 606 using the modified
retrospective method.
The Company's customer contracts, which may be in the form of
purchase orders, contracts or purchase agreements, contain
performance obligations for delivery of agreed upon products.
Delivery of all performance obligations contained within a contract
with a customer typically occurs at the same time. Transfer of
control typically occurs at the time of shipment as that is the
point at which there is a present obligation to pay and legal title
and the risks and rewards of ownership has transferred which
outweighs the physical possession or acceptance of the asset by the
customer. Thus, the Company will generally recognize revenue upon
shipment of the product.
Because all the Company's performance obligations relate to
contracts with a duration of less than one year, the Company
elected to apply the optional exemption practical expedient
provided in ASC 606 and, therefore, is not required to disclose the
aggregate amount of the transaction price allocated to performance
obligations that are unsatisfied or partially unsatisfied at the
end of the reporting period.
The Company adjusts the transaction price for variable
consideration. Variable consideration is not typically significant
and primarily results from volume rebates provided to our
customers. As a practical expedient, the Company is recognizing the
incremental costs of obtaining a contract, specifically commission
expenses that have a period of benefit of less than twelve months,
as an expense when incurred. The Company has elected to recognize
shipping costs incurred after control transfers to a customer as a
fulfillment activity.
The Company's contracts with customers do not typically include
extended payment terms. Payment terms vary by contract type and
type of customer and generally range from 30 to 60 days from
shipment. Additionally, the Company has right to payment upon
shipment.
The Company records revenue net of sales tax, value added tax,
excise tax and other taxes collected concurrent with product sales.
The impact of such taxes on product sales is immaterial. The
Company has also elected to recognize the cost for freight and
shipping when control over the products sold passes to customers
and revenue is recognized.
The Company's revenue for the six months ended June 30, 2018 is
derived entirely from sales of drinking water purification
products. Substantially all of the Company's revenue is derived
from sales of the Company's products to manufacturers who use our
products in their drinking water purification devices, representing
approximately 95% of net revenue for the six months ended June 30,
2018. Details on the magnitude of sales revenues from the Company's
largest customers is disclosed in footnote 9.
Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-2, Leases. The
new standard in this update requires that any entity that is a
lessee record, for all leases with a term exceeding 12 months, an
asset representing its right to use the underlying asset for the
lease term and a liability to make lease payments. The update is
effective for the Company as of January 1, 2019. The Company's
analysis of the impact of the provisions of this ASU is incomplete
and is currently in the process of determining if there will be any
material effect on its consolidated financial statements. Operating
lease obligations are disclosed in footnote 4.
In June 2018, the FASB issued ASU No. 2018-7, Improvements to
Nonemployee Share-Based Payment Accounting. Under the revised
guidance, the accounting for awards issued to nonemployees will be
similar to the accounting for employee awards under ASC 718. This
includes allowing for the measurement of awards at the grant date
and recognition of awards with performance conditions when those
conditions are probable - both of which are earlier than under
current guidance for nonemployee awards. The update is effective
for the Company as of January 1, 2019. The Company's analysis of
the impact of the provisions of this ASU is incomplete but it is
not expected that adoption of the revised guidance will have a
material effect on its consolidated financial statements.
4. Commitments and contingencies
Litigation and other contingencies
The Company may be subject to a variety of legal proceedings
that 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 was
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. In addition, any such proceedings, whether
meritorious or not, could be time consuming, costly, and result in
the diversion of significant operational resources or management
time.
Operating leases
The Company has entered into operating lease agreements for its
various office and manufacturing facilities worldwide. These leases
are in effect through 2022.
Total rent expense under operating lease agreements for the six
months ended June 30, 2018 and 2017 was $138,000 and $242,000,
respectively.
5. Discontinued operations
The Company disposed of its Recreational Water and Environmental
Water businesses in May 2016 and February 2016, respectively. The
results of operations for both Recreational Water and Environmental
Water have been reported in discontinued operations for all periods
presented.
Recreational Water
Under the terms of the disposition agreement, the Company sold
its Recreational Water business for total consideration of:
-- a cash payment at closing of the disposition of $4,000,000;
-- a cash payment of $2,157,000 based upon $3,500,000 adjusted
for uncollected receivables, non-saleable inventory and other
working capital adjustments; and
For the six months ended June 30, 2018 and 2017, respectively,
the Company recognized a gain (loss) of zero and ($1,000) on the
sale of its Recreational Water business.
Environmental Water
Under the terms of the disposition agreement, the Company sold
its Environmental Water business for total consideration of:
-- a cash payment for the book value of inventory and certain
capital assets in the amount of $662,000;
-- a cash payment of not less than $303,000 and not more than
$1,147,000 payable in quarterly instalments based upon revenues of
the Environmental Water business for the two-year period
post-disposal. For the six months ended June 30, 2018 and 2017, the
Company has received or accrued $78,000 and $123,000,
respectively.
For the six months ended June 30, 2018 and 2017, respectively,
the Company recognized a gain of $67,000 and $71,000 on the sale of
its Environmental Water business arising from earn-out payments
received in excess of the minimum amounts payable under the terms
of the disposition agreement but does not anticipate income taxes
to arise from the gain.
The following table details selected financial information for
Recreational Water and Environmental Water included in income
(loss) from discontinued operations in the consolidated statements
of operations and comprehensive loss:
Six months ended June 30, 2018
Recreational Environmental
(US $000's) Water Water Total
------------------------------------- ------------- -------------- -------
Revenue - net $ - $ - $ -
Cost of goods sold - - -
------------- -------------- -------
Gross profit (loss) - - -
Operating expenses - - -
-------------- -------
Net income (loss) - - -
Gain on disposal - 67 67
------------- -------------- -------
Income from discontinued operations,
net of tax $ - $ 67 $ 67
------------------------------------- ------------- -------------- -------
Six months ended June 30, 2017
Recreational Environmental
(US $000's) Water Water Total
-------------------------------------------- ------------- -------------- -------
Revenue - net $ - $ 5 $ 5
Cost of goods sold - - -
------------- -------------- -------
Gross profit (loss) - 5 5
Operating expenses 26 (1) 25
-------------- -------
Net income (loss) (26) 6 (20)
Gain on disposal 25 65 90
------------- -------------- -------
Income (loss) from discontinued operations,
net of tax $ (1) $ 71 $ 70
-------------------------------------------- ------------- -------------- -------
The consolidated balance sheet of the Company had no assets or
liabilities held for sale from the Recreational Water and
Environmental Water segments at June 30, 2018 or December 31,
2017.
The Company's consolidated statement of cash flows for the six
months ended June 30, 2018 and 2017 do not include any significant
operating and investing noncash items related to discontinued
operations.
6. Common Stock
The Company has 563,005,776 and 337,970,964 shares of common
stock issued and outstanding as of June 30, 2018 and December 31,
2017, respectively.
In January 2018, the Company announced the placing of
225,034,812 new common shares. The new common shares were issued at
a price of 1.25 UK pence per share (equivalent to $0.02 US dollars
per share at the time of the placing) on AIM on January 3, 2018 for
total gross proceeds of $3.8 million (GBP2.8 million) and net
proceeds of $3.5 million, of which $0.9 million were received prior
to December 31, 2017. In connection with the offering the Company
sought a waiver from its shareholders since the Articles of
Incorporation of the Company provide that each shareholder would
have a pre-emption right to purchase its pro-rata share of these
new common shares provided that the Pre-emptive Rights are subject
to waiver by existing shareholders of the Company holding 75% of
the Company's outstanding common shares and voting in person or by
proxy at an annual or special meeting of shareholders. The Company
was successful in obtaining this waiver.
In April 2018, the Company announced its successful re-domicile
from Washington State, USA to the British Virgin Islands. The
re-domicile was effected by means of a reverse triangular
reincorporation merger, whereby shareholders were issued new shares
in HaloSource Corporation, a BVI entity, in exchange for their
existing shares in the Company. After the exchange, the Washington
State entity, HaloSource, Inc. became a wholly owned subsidiary of
HaloSource Corporation without change to the Company's status, for
tax purposes, in the US. Accordingly, immediately upon the merger
being effective, a shareholder in the Company has the same
proportionate interest in the profits, net assets and dividends of
the Company as they had before the merger.
7. Income Taxes
Deferred income tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences
between the financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates in effect for
the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided for the
amount of deferred tax assets that, based on available evidence,
are not expected to be realized.
As a result of the Company's cumulative losses, management has
concluded that a full valuation allowance against the Company's net
deferred tax assets is appropriate. No income tax liabilities
existed as of June 30, 2018 and December 31, 2017 due to the
Company's continuing operating losses.
The U.S. signed into law, on December 22, 2017, tax reform
legislation commonly referred to as the U.S. Tax Cuts and Jobs Act
of 2017 (the "2017 Tax Act"). The 2017 Tax Act significantly
revised the U.S. corporate income tax by, among other things,
lowering the statutory corporate tax rate from 35% to 21%,
eliminating certain deductions, imposing a mandatory one-time tax
on accumulated earnings of foreign subsidiaries, introducing new
tax regimes, and changing how foreign earnings are subject to U.S.
tax. The 2017 Tax Act also enhanced and extended through 2026 the
option to claim accelerated depreciation deductions on qualified
property. We completed our determination of the accounting
implications of the 2017 Tax Act in conjunction with the 2017
annual report. The impact of the Act on the 2017 annual report was
a $16,300,000 reduction in the net deferred tax assets to reflect
the new statutory rate. The rate adjustment to the deferred tax
assets, a discrete item for the year, was fully offset by a
decrease in the valuation allowance so there was no rate impact to
the Company. In addition, there was no impact to current or
deferred taxes related to the one-time deemed repatriation, as our
foreign subsidiaries do not have cumulative positive earnings and
profits. No change in circumstances have occurred during the half
year.
8. 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. The Company had a net loss for all
periods presented herein; therefore, none of the options or
warrants outstanding during each of the periods presented have been
included in the computation of diluted loss per share as they were
antidilutive. Total potentially dilutive shares of 6,989,000 and
7,655,000 of common stock were excluded from the calculations of
diluted loss per share for the six months ended June 30, 2018 and
2017, respectively.
9. Business and credit concentration
Essentially all the Company's revenue from continuing operations
is generated in emerging market countries, primarily India and
China. For the six-month periods ended June 30, 2018 and 2017, two
of the Company's Drinking Water customers individually accounted
for greater than 10% of the Company's revenue, as well as 81% and
77% in the aggregate, respectively. Accounts receivable from these
customers represented 76% and 70% of total accounts receivable at
June 30, 2018 and December 31, 2017, respectively. In addition,
essentially all raw materials and manufacturing facilities used in
continuing operations are sourced from, or located in, the same
emerging market countries. These markets represent varying
political and regulatory environments that can potentially affect
the Company's continuing operations.
The Company also has an accounts receivable balance retained
after the sale of its Recreational Water business that represents
10% and 9% of total accounts receivable at June 30, 2018 and
December 31, 2017, respectively.
10. Subsequent events
In August 2018, the Company announced the placing of 158,570,498
new common shares. The new common shares were issued at a price of
1 UK pence per share (equivalent to $0.01 US dollars per share at
the time of the placing) on AIM on September 11, 2018 for total
gross proceeds of $2.0 million (GBP1.6 million). In connection with
the offering the Company sought a waiver from its shareholders as
well as an increase in the authorized shares of common stock of the
Company from 600,000,000 to 1,000,000,000. The Articles of
Association of the Company provide that each shareholder would have
a pre-emption right to purchase its pro-rata share of these new
common shares provided that the Pre-emptive Rights are subject to
waiver by existing shareholders of the Company holding 75% of the
Company's outstanding common shares and voting in person or by
proxy at an annual or special meeting of shareholders. The Company
was successful in obtaining this waiver as well as an increase in
the authorized shares of common stock.
In connection with the placing, the Company issued 3,171,410
warrants to the Company's broker. Each warrant is exercisable to
acquire one common share at an exercise price of 1 UK pence per
share for a five year period commencing 12 September 2018.
At the Company's annual meeting held on 10 September 2018,
shareholders approved the adoption of a new equity incentive plan,
with 70,000,000 common shares reserved for future issuance.
The Company has evaluated subsequent events through the date on
which the financial statements were available to be issued.
11. Cautionary statement
This Interim Report has been prepared solely to provide
additional information to shareholders to assess the Company's
strategies and the potential for these strategies to succeed. The
Interim Report should not be relied on by any other party or for
any other purpose. The Interim Report contains certain
forward-looking statements with respect to the financial condition,
results of operations and businesses of the Company. These
statements are made in good faith based on the information
available to them up to the time of their approval of this report.
However, such statements should be treated with caution as they
involve risk and uncertainty because they relate to events and
depend upon circumstances that will occur in the future. There are
a number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these
forward-looking statements. The continuing uncertainty in global
economic outlook inevitably increases the economic and business
risks to which the Company is exposed. Nothing in this announcement
should be construed as a profit forecast.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LFMPTMBBTBRP
(END) Dow Jones Newswires
September 27, 2018 02:01 ET (06:01 GMT)
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