TIDMHAL TIDMHALO
RNS Number : 3005Q
HaloSource Inc
11 September 2017
11 September 2017
HaloSource, Inc.
("HaloSource" or the "Company")
Interim results for the six months ended 30 June 2017
HaloSource, Inc. (HAL.LN, HALO.LN), the global clean water
technology company trading on London Stock Exchange's AIM market,
today announces its interim results for the six months ended 30
June 2017.
Highlights
-- Revenue from continuing operations of $0.9 million (H1 2016: $1.4 million)
-- Net cash used in operating activities reduced by 58% to $2.1
million (H1 2016: $5.0 million)
-- Reduced operating expenses from continuing operations by 38%
to $3.2 million (H1 2016: $5.2 million), expected to decrease
further in H2 2017
-- Net loss reduced by 29% to $3.2 million (H1 2016: $4.5 million)
-- Net cash and short-term investments at period end of $2.1
million ($2.1 million as at 31 December 2016)
James Thompson, CEO of HaloSource, said:
"We are very pleased with the progress we have made with our
newly executed all Drinking Water business strategy. We generated
over 30% revenue growth over H2 2016, our first half year period
since exiting our other water related businesses. We made
significant announcements in the area of lead-removal (our
manufacturing scale-up deal with Chematek, SpA), restructured our
supply-chain (exiting manufacturing in India) and signed a brand
new e-commerce distribution partner in China (JiuBan).
HaloSource today is a very different business than just one year
ago. We are no longer distracted by the non-core commercial
activities of our former Environmental Water and Recreational Water
businesses. This focus, along with the continued development of a
new, proprietary heavy-metal removal offering, will fuel our growth
and future profitability. With the expected addition of lead and
arsenic reduction to our existing bacteria and virus disinfection
technology we expect to cover a much larger segment of the global
drinking water contamination landscape. This expanded technology
offering not only provides us more to offer new and existing
customers in Asia and Latin America, but also enables us to move
into the largest markets for drinking water devices; the United
States and Europe.
On the product side, in addition to continuing to offer our
technologies on an OEM basis, we also are now offering our own
astrea(TM) branded line of hydration products (bottles and
pitchers); one of the fastest growing segments in the global
housewares market. As evidenced by our recently signed distribution
deal with JiuBan in China, the market for hydration products is
accelerating. We also believe we will expand our gross margins with
these types of deals, reflecting products developed with
world-class technologies combined with world-class regulatory
approvals. Whether it be US EPA, China Ministry of Health, NSF or
WQA, our technologies enable us and our partners to offer
un-matched differentiation.
While making progress on expanding our product offerings and
technology functionality, we also have significantly reduced our
operating costs and realigned our resources to focus exclusively on
the growth of the Drinking Water business. Going forward we expect
to see continued revenue growth, margin expansion (due to
restructuring our supply chain and now offering higher margin
hydration products) and importantly, continued tight control on
costs. As a result of the strategic and operational decisions we
have made over the past year, cashflow break-even is clearly within
our sights."
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, Inc.
James Thompson, Chief Executive
Officer +1 425 419 2258
Craig Crowell, Chief Financial
Officer +1 425 419 2248
Liberum Capital (NOMAD and
Broker)
Richard Bootle, Jill Li, Steve
Pearce +44 203 100 2222
About HaloSource
HaloSource, Inc. innovates and integrates technologies to
deliver clean drinking water solutions to partners with trusted
brands around the world. The Company works with scientists and
industry experts across the globe in search of new ways to improve
drinking water quality and has been awarded more than 30 patents
for its ground-breaking chemistries, which provide safe drinking
water for more than 10 million consumers globally. The Company's
class-leading HaloPure(R) Drinking Water technology has the highest
global certifications, including registration with the US EPA.
Founded in Seattle, Washington, HaloSource has grown to become
an influential leader in drinking water purification. HaloSource is
headquartered in the US with operations in China and in India.
Learn more about the Company's research and development and future
cutting edge technologies by visiting www.halosource.com.
HaloPure(R) is a registered trademark of HaloSource, Inc.
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 decreased by 36%
to $0.9 million compared to the prior year, but were 32% higher
than revenues in H2 2016. Revenue during the period came primarily
from established customers including Perfect, Lonsid, Strauss,
Pentair and Midea. We expect revenues to accelerate in H2 2017,
with continued sales to established customers as well as through
our e-commerce partnership with JiuBan in China announced on 21
June 2017.
Gross margin from continuing operations was -12%, down from -10%
for the same period last year, primarily due to revenues not
covering the Company's fixed manufacturing expenses. Operating
expenses from continuing operations for H1 2017 totaled $3.2
million, down significantly from $5.2 million in H1 2016, as we
have substantially cut our US headcount, reduced the size and
number of our office facilities and focused our business solely on
drinking water purification. We expect operating expenses to
continue to be lowered in H2 2017, albeit not to the same degree as
they have been reduced over the past twelve months.
Consolidated net loss was $3.2 million for the period, down from
a net loss of $4.5 million in H1 2016. The reduced loss was driven
primarily by the aforementioned reductions in operating expenses,
as well as lower fixed production expenses arising from the closure
of our Indian manufacturing facility late in 2016. The income from
discontinued operations for H1 2017 included a combined gain on the
2016 sale of our Recreational Water and Environmental Water
businesses of $0.1 million arising primarily from the earn-out on
the sale of the Environmental Water business exceeding the amount
previously expected.
Net cash used in operations by the Company was $2.1 million in
H1 2017, a 58% reduction from net cash used in operations of $5.0
million in H1 2016. After completion of an equity financing in H1
2017 that raised $1.9 million net of offering costs, the Company
ended the period with $2.1 million of cash and cash equivalents and
short-term investments, compared with $2.1 million in total as at
31 December 2016.
After consultation with institutional shareholders during H1
2017, the Company is currently contemplating changing its
jurisdiction of incorporation from the United States to another
jurisdiction.
Operational Review
H1 2017 revenues were generated primarily through sales to our
two largest customers in China, Perfect and Lonsid. Perfect
continues to focus on promotional activities to improve replacement
rates for HaloPure cartridges in the more than 720,000 devices
installed in homes in China. As noted previously, we also continue
to work with Perfect's technical staff on the next generation of
the JWL purifier and this initiative is expected to significantly
grow sales to Perfect in 2018 and beyond.
Lonsid remains our second largest Drinking Water revenue
contributor behind Perfect in H1 2017. They have deployed
HaloPure(R) water purification technology in three of their reverse
osmosis systems, including a reverse osmosis "smart" device, with
an integrated digital monitor and they expect to grow sales
significantly in the second half of 2017 and beyond as their
business grows both in China and elsewhere in the world.
From a manufacturing perspective, the Company completed the
closure of its Indian production facility in early 2017 and has now
consolidated the manufacturing of HaloPure in China, resulting in
significantly reduced production overheads as well as an
expectation for improved gross margins in future periods. As noted
in our 18 July 2017 release, the Company also has chosen an
exclusive supplier in Italy, Chematek SpA, to manufacture the
Company's lead reduction media. Manufacturing scale up of lead
reduction media is in progress and we continue to expect commercial
quantity batches to be produced before the end of 2017.
People
The Company's headcount at 30 June 2017 was 48, versus 93 at 30
June 2016. Headcount in the United States was reduced from 22 to
12, where we expect it to remain relatively stable going forward.
At 30 June 2017, 75% of the Company's headcount is located in India
and China, consistent with the prior year.
Outlook
Our focus in the short term continues to be on growing our
Drinking Water business, primarily in Asia, where the problems are
most acute and emerging middle class is seeking out solutions that
deliver great tasting, safe water. Having sharply reduced operating
expenses, we now expect to improve our gross margins through
consolidation of our disinfection technology manufacturing and
supply chain in China as well as introducing our own branded
hydration products to both India and China in the next few
months.
We continue to make progress in completing commercialization of
our heavy metal reduction technology, and expect to offer lead
removal technology for partners in North America and Europe in
2018, thereby allowing us to address a much greater spectrum of
global drinking water contaminants than we have historically. With
the difficult exercise of reducing headcount and cutting expenses
now largely complete, we believe that the Company is poised for
increased revenues, improved margins and profitability.
HaloSource, Inc. and Subsidiaries
Interim Consolidated Statements of
Operations and Comprehensive Loss
Six months Six months
ended ended
June 30, June 30,
2017 2016
(US $000's, except per share data) (unaudited) (unaudited)
--------------------------------------------- ------------- -------------
Revenue - net $906 $1,368
Cost of goods sold 1,012 1,507
--------------------------------------------- ------------- -------------
Gross loss (106) (139)
Operating expenses
Research and development 592 941
Selling, general, and administrative 2,652 4,289
Total operating expenses 3,244 5,230
--------------------------------------------- ------------- -------------
Operating loss (3,350) (5,369)
Other income (expense), net 53 (67)
--------------------------------------------- ------------- -------------
Loss before income taxes (3,297) (5,436)
Income taxes - -
--------------------------------------------- ------------- -------------
Loss from continuing operations (3,297) (5,436)
Income from discontinued operations,
net of tax 70 892
Net loss $(3,227) $(4,544)
--------------------------------------------- ------------- -------------
Other comprehensive loss
Unrealized gain on available-for-sale
investments - 3
Foreign currency translation adjustments (2) (3)
--------------------------------------------- ------------- -------------
Other comprehensive loss (2) -
--------------------------------------------- ------------- -------------
Comprehensive loss $(3,229) $(4,544)
--------------------------------------------- ------------- -------------
Loss per share from continuing operations
- basic and diluted $(0.01) $(0.02)
Income (loss) per share from discontinued
operations - basic and diluted 0.00 (0.00)
--------------------------------------------- ------------- -------------
Basic and diluted net loss per share $(0.01) $(0.02)
--------------------------------------------- ------------- -------------
Shares used to compute basic and
diluted loss per share (000's) 224,830 220,278
--------------------------------------------- ------------- -------------
See accompanying notes to interim consolidated financial
statements
HaloSource, Inc. and Subsidiaries
Interim Consolidated Balance Sheets June 30, December
31,
2017 2016
(US $000's) (unaudited) (audited)
----------------------------------------- ------------- -----------
Assets
Current assets
Cash and cash equivalents $2,121 $1,117
Short-term investments - 968
Accounts receivable, less allowance
for doubtful
accounts of $301 and $302, respectively 692 1,016
Inventories - net 1,107 1,388
Prepaid expenses and other current
assets 959 971
Total current assets 4,879 5,460
Property and equipment - net 1,031 1,201
Deposits and other noncurrent
assets 147 233
Other noncurrent receivables - 149
Deferred rent asset 49 -
----------------------------------------- ------------- -----------
Total assets $6,106 $7,043
----------------------------------------- ------------- -----------
Liabilities and stockholders'
equity
Current liabilities
Accounts payable $1,083 $619
Accrued expenses 448 441
Salaries and benefits payable 153 202
Current portion of capital lease
obligations - 6
Total current liabilities 1,684 1,268
Deferred rent and sublease liability 750 819
----------------------------------------- ------------- -----------
Total liabilities 2,434 2,087
----------------------------------------- ------------- -----------
Stockholders' equity
Common stock, no par value 143,596 141,651
Accumulated other comprehensive
income 16 18
Accumulated deficit (139,940) (136,713)
----------------------------------------- ------------- -----------
Total stockholders' equity 3,672 4,956
----------------------------------------- ------------- -----------
Total liabilities and stockholders'
equity $6,106 $7,043
----------------------------------------- ------------- -----------
See accompanying notes to interim consolidated
financial statements
HaloSource, Inc. and Subsidiaries Six months Six months
Interim Consolidated Statements ended ended
of Cash Flows
June 30, June 30,
2017 2016
(US $000's) (unaudited) (unaudited)
-------------------------------------------- ------------- -------------
Operating activities
Net loss $(3,227) $(4,544)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 149 299
Allowance for inventory, sales returns
and bad debts (274) (161)
Share-based compensation 36 102
Loss on disposal of property, equipment
and other assets 29 3
Gain on sale of discontinued operations (53) (1,581)
Changes in operating assets and
liabilities:
Accounts receivable 294 3,595
Inventories 590 (485)
Prepaid expenses and other assets 116 769
Accounts payable 403 (2,085)
Accrued expenses and other liabilities 60 (683)
Salaries and benefits payable (55) (184)
Deferred rent and sublease liability (123) (89)
-------------------------------------------- ------------- -------------
Net cash used in operating activities (2,055) (5,044)
-------------------------------------------- ------------- -------------
Cash flows from investing activities
Proceeds on disposal of discontinued
operations 172 4,662
Proceeds on disposal of property
and equipment 36 13
Purchase of property and equipment (32) (63)
Sale of short-term investments 969 -
Purchase of short-term investments - (1,356)
-------------------------------------------- ------------- -------------
Net cash provided by investing activities 1,145 3,256
-------------------------------------------- ------------- -------------
Cash flows from financing activities
Proceeds from public offering, net 1,909 -
of offering costs of $321
Repayments of capital lease obligations (6) (10)
-------------------------------------------- ------------- -------------
Net cash provided by (used in) financing
activities 1,903 (10)
-------------------------------------------- ------------- -------------
Effect of exchange rate changes
on cash 11 (17)
-------------------------------------------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents 1,004 (1,815)
Cash and cash equivalents, beginning
of period 1,117 3,052
-------------------------------------------- ------------- -------------
Cash and cash equivalents, end of
period $2,121 $1,237
-------------------------------------------- ------------- -------------
See accompanying notes to interim consolidated financial
statements
Notes
1. General information
HaloSource, Inc. and its subsidiaries (together, the "Company"
or "HaloSource") is a global clean water technology company,
headquartered near Seattle in Bothell, WA, U.S.A., with
subsidiaries in 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) .
2. Basis of preparation
The consolidated financial information as of June 30, 2017 and
December 31, 2016 and for the six month periods ended June 30, 2017
and 2016 has been prepared in accordance with generally accepted
accounting principles in the United States of America ("U.S. GAAP")
which is appropriate given the Company is incorporated in the State
of Washington in the United States. 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, 2016, which have also been prepared
in accordance with U.S. GAAP and were made available on June 28,
2017. The independent Auditors' Report on that Annual Report and
Financial Statements for the year ended 31(st) December 2016 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, 2017 and June 30, 2016 is unaudited;
further, all periods presented have been updated to reflect the
disposal of the Recreational Water and Environmental Water
reporting segments within discontinued operations.
The same accounting policies, presentation and methods of
computation are followed in these interim consolidated financial
statements as were applied in the Group's 2016 annual audited
financial statements. In addition, the FASB have issued a number of
recent accounting pronouncements. It is not expected that any of
these will have a material impact on the Group. The Board of
Directors approved this interim report on 8(th) September 2017.
Principles of consolidation
The consolidated 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., HaloSource Technologies Pvt. Ltd.,
HaloSource Water Purification Technology (Shanghai) Co. Ltd., and
HASO Corporation. 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, 2017, the Company had an
accumulated deficit of approximately $140.0 million. For the six
months ended June 30, 2017, the Company's net loss was $3.23
million and cash used in operating activities was $2.06 million. As
of June 30, 2017, the Company has $2.12 million of cash and cash
equivalents.
The Company's consolidated financial statements have been
presented on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. During 2016, the Company restructured
its operations and reduced its workforce by 48% of its employee
base. 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 in 2017 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 2017; 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.
There can be no assurance, however, that such financing would be
available when needed, if at all, or on favorable terms and
conditions. If results of operations for 2017 do not meet
management's expectations, or additional capital funding is not
available, management believes it may be required to reduce the
scope, delay or eliminate some or all of its planned commercial
activities. Management has determined that these conditions raise
substantial doubt as to the Company's ability to continue as a
going concern.
The financial statements for the period ended June 30, 2017 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. Accounting policies
The accounting policies applied are consistent with those of the
annual financial statements for the year ended December 31, 2016,
except as disclosed below.
Recently adopted accounting pronouncements
In July 2015, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) 2015-11, Simplifying the
Measurement of Inventory, which requires inventory within the scope
of the ASU (e.g., FIFO or average cost) to be measured using the
lower of cost and net realizable value. Inventory excluded from the
scope of the ASU (i.e., LIFO or the retail inventory method) will
continue to be measured at the lower of cost or market. If an
entity has previously written down inventory (within the scope of
the ASU) below its cost, the reduced amount is considered the cost
upon adoption. The Company adopted the provisions of this ASU as of
January 1, 2017 and there was no material effect on its
consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet
Classification of Deferred Taxes, which requires all deferred tax
liabilities and assets of the same tax jurisdiction or a tax filing
group, as well as any related valuation allowance, be offset and
presented as a single noncurrent amount in a classified balance
sheet. However, an entity should not offset deferred tax
liabilities and assets attributable to different tax-paying
components of the entity or to different tax jurisdictions,
consistent with the guidance under existing U.S. GAAP. Therefore,
for many reporting entities, deferred income taxes will be
presented in noncurrent assets and noncurrent liabilities. The
Company adopted the provisions of this ASU as of January 1, 2017
and there was no effect on its consolidated financial statements as
all deferred tax assets are offset by a full valuation allowance,
and there are currently no deferred tax liabilities.
In March 2016, the FASB amended the existing accounting
standards for stock-based compensation, with ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting. The ASU
introduces targeted amendments intended to simplify the accounting
for stock compensation. Specifically, the ASU requires all excess
tax benefits and tax deficiencies (including tax benefits of
dividends on share-based payment awards) to be recognized as income
tax expense or benefit in the income statement. The tax effects of
exercised or vested awards should be treated as discrete items in
the reporting period in which they occur. An entity also should
recognize excess tax benefits, and assess the need for a valuation
allowance, regardless of whether the benefit reduces taxes payable
in the current period. That is, off balance sheet accounting for
net operating losses stemming from excess tax benefits would no
longer be required and instead such net operating losses would be
recognized when they arise. Existing net operating losses that are
currently tracked off balance sheet would be recognized, net of a
valuation allowance if required, through an adjustment to opening
retained earnings in the period of adoption. Entities will no
longer need to maintain and track an "APIC pool." The ASU also
requires excess tax benefits to be classified along with other
income tax cash flows as an operating activity in the statement of
cash flows. In addition, the ASU elevates the statutory tax
withholding threshold to qualify for equity classification up to
the maximum statutory tax rates in the applicable jurisdiction(s).
The ASU also clarifies that cash paid by an employer when directly
withholding shares for tax withholding purposes should be
classified as a financing activity. The ASU provides an optional
accounting policy election (with limited exceptions), to be applied
on an entity-wide basis, to either estimate the number of awards
that are expected to vest (consistent with existing U.S. GAAP) or
account for forfeitures when they occur. The Company adopted the
provisions of this ASU as of January 1, 2017 and there was no
effect on its consolidated financial statements. The Company has
not elected the optional accounting policy to account for
forfeitures as they occur, but instead continues to estimate the
number of awards that are expected to vest.
Accounting Pronouncements Not Yet Adopted
In June 2014, the FASB issued ASU 2014-09, Revenue from
Contracts with Customers. The update gives entities a single
comprehensive model to use in reporting information about the
amount and timing of revenue resulting from contracts to provide
goods or services to customers. The ASU, which applies to any
entity that enters into contracts to provide goods or services,
will supersede current revenue recognition requirements and most
industry-specific guidance throughout the Industry Topics of the
Codification. The update is effective for the Company as of January
1, 2018. The Company's analysis of the impact of the provisions of
this ASU is incomplete and we have currently not identified any
provisions that will have a material effect on its consolidated
financial statements.
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 is
currently reviewing the provisions of this update to determine if
there will be any material effect on its consolidated financial
statements. Operating and capital lease obligations are disclosed
in footnote 4.
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 and capital leases
The Company has entered into operating lease agreements for its
various office and manufacturing facilities worldwide and capital
lease agreements for certain equipment. These leases are in effect
through 2023.
Total rent expense under operating lease agreements for the six
months ended June 30, 2017 and 2016 was $242,000 and $422,000,
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
-- a contingent cash payment of up to $500,000 payable on or
before March 1, 2017 subject to the Recreational Water business
achieving revenues between $9,684,000 and $13,073,000 for the
12-month period ending December 31, 2016. In the event that revenue
for the Recreational Water business for the 12-month period ending
December 31, 2016 was less than $9,684,000, no deferred
consideration would be payable. During the six months ended June
30, 2017 it was determined that no deferred consideration was
payable to the Company based upon the 2016 revenues of the
Recreational Water business.
For the six months ended June 30, 2017 and 2016, respectively,
the Company recognized a gain (loss) of $(1,000) and $1,278,000 on
the sale of its Recreational Water business but does not anticipate
income taxes to arise from the gain.
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, 2017 and 2016, the
Company has received or accrued $123,000 and $113,000,
respectively, and retains the right to future minimum payments from
the buyer of not less than $68,000 and not more than $255,000 over
the remainder of the post-disposal period at June 30, 2017.
For the six months ended June 30, 2017 and 2016, respectively,
the Company recognized a gain of $71,000 and $303,000 on the sale
of its Environmental Water business 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, 2017
Recreational Environmental
(US $000's) Water Water Total
-------------------------------- ------------- -------------- -------
Revenue - net $ - $ 5 $ 5
Cost of goods sold - - -
------------- -------------- -------
Gross profit (loss) - - -
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
-------------------------------- ------------- -------------- -------
Six months ended June 30, 2016
Recreational Environmental
(US $000's) Water Water Total
------------------------- ------------- -------------- ----------
Revenue - net $ 2,165 $ 276 $ 2,441
Cost of goods sold 1,176 305 1,481
------------- -------------- ----------
Gross profit (loss) 989 (29) 960
Operating expenses 1,505 144 1,649
-------------- ----------
Net loss (516) (173) (689)
Gain on disposal 1,278 303 1,581
------------- -------------- ----------
Income from discontinued
operations, net of tax $ 762 $ 130 $ 892
------------------------- ------------- -------------- ----------
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, 2017 or December 31,
2016.
The Company's consolidated statement of cash flows for the six
months ended June 30, 2017 do not include any significant operating
and investing noncash items related to discontinued operations. For
the six months ended June 30, 2016 the Company's consolidated
statement of cash flows includes the following significant
operating and investing noncash items related to discontinued
operations:
Recreational Environmental
(US $000's) Water Water Total
------------------------------- ------------------- -------------- -----
Operating Activities
Depreciation and amortization $ 51 $ - $ 51
Allowance for inventory,
sales returns and bad debts (54) (16) (70)
Changes in operating assets
and liabilities:
Accounts receivable 2,561 563 3,123
Inventories (377) (50) (427)
Prepaid expenses and other
assets 150 - 150
Accounts payable (867) - (867)
Accrued expenses and other
current liabilities (80) - (80)
6. Common Stock
In June 2017, the Company announced the placing of 117,692,560
new common shares on the AIM. The new common shares were issued at
a price of 1.5 UK pence per share (equivalent to $0.02 US dollars
per share at the time of the placing) on AIM on June 23, 2017 for
total gross proceeds of $2.2 million (GBP1.8 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 400,000,000 to 600,000,000. 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
as well as an increase in the authorized shares of common
stock.
7. 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 7,655,000 and
5,706,000 of common stock were excluded from the calculations of
diluted loss per share for the six months ended June 30, 2017 and
2016, respectively.
8. Related party transactions
During each of the six months ended June 30, 2017 and 2016, the
Company paid royalties for certain patent rights of $225,000 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, as well as research and
development expenses in the accompanying consolidated statements of
operations and comprehensive loss. The Company had $112,500 and
zero outstanding accounts payable to the university at June 30,
2017 and December 31, 2016, respectively.
During the six months ended June 30, 2016, the Company was
provided with business development and investor relations services
in the amount of $10,000 by a member of the Company's Board of
Directors. These expenses are included in selling, general and
administrative expenses in the accompanying consolidated statements
of operations and comprehensive loss. The Company did not have an
amount payable to this Director at June 30, 2017 or December 31,
2016.
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, 2017 and 2016, two
and three of the Company's Drinking Water customers individually
accounted for greater than 10% of the Company's revenue,
respectively, as well as 77% and 76% in the aggregate,
respectively. Accounts receivable from these customers represented
50% and 66% of total accounts receivable at June 30, 2017 and
December 31, 2016, 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
37% and 25% of total accounts receivable at June 30, 2017 and
December 31, 2016, respectively
10. Subsequent events
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 company news service from the London Stock Exchange
END
IR LMMLTMBMBBLR
(END) Dow Jones Newswires
September 11, 2017 02:00 ET (06:00 GMT)
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