TIDMHAL TIDMHALO
RNS Number : 1322R
HaloSource Inc
09 September 2014
9 September 2014
HaloSource, Inc.
("HaloSource" or the "Company")
Interim results for the six months ended 30 June 2014
HaloSource, Inc. (HALO.LN), the global clean water technology
company trading on London's AIM, today announces its unaudited
interim results for the six months ended 30 June 2014.
Financial Highlights
-- Overall revenue for H1 2014 increased to $7.3 million, up 24% from H1 2013:
- Drinking Water revenues increased to $2.0 million, up 124% from H1 2013
- Environmental Water revenues increased to $1.2 million, up 29% from H1 2013
- Recreational Water revenues increased to $4.0 million, up 1% from H1 2013
- Antimicrobial Coatings revenue were $0.1 million, versus $0.1 million in H1 2013
-- Gross margins increased two percentage points (from 37% to
39%) representing approximately $0.7 million of margin improvement
versus the same period a year ago.
-- Operating expenses fell by more than 7% to $8.4 million,
versus the same period a year ago, representing a $0.7 million
reduction, as a result of a continued focus on cost management
across the Company.
-- The Company ended the period with $8.3 million in cash,
comprising $2.3 million of cash and cash equivalents, $4.5 million
of short-term investments and $1.5 million of restricted cash,
compared with $13.0 million in total cash as at 31 December 2013.
Cash flows used in operations of $4.7 million decreased by 34%, or
$2.3 million, compared to H1 2013.
Operational Highlights
-- Drinking Water momentum continues to build rapidly as orders
with strategic partners accelerate in line with expectations for
our class leading differentiated disinfection technology with a
succession of successful launches in China, India and most
recently, Latin America.
-- Revenues in our Environmental Water business for H1 2014
increased as we continue to expand relationships with key strategic
players such as Rain for Rent, one of the largest US industrial
water solutions providers to the construction industry. Growth in
the segment was also driven by Stormtec in Canada (primarily in
construction) and Nalco (in coal mining applications) in the US, as
well as a new application in oil production where our unique
chemistry is enabling oil well operators to realize increased oil
recovery from existing wells.
-- Our SeaKlear Recreational Water business grew modestly in H1
2014 despite a decline in the entire US recreational water
specialty chemicals segment in the face of adverse weather
conditions particularly in the northeast of the US. We saw improved
industry performance toward the end of H1 2014 and expect continued
market expansion in H2 2014.
-- Post balance sheet events include the strategic partnership
alliance with Rain for Rent to provide customers with enhanced
water filtration solutions announced on 16 July 2014; and
HaloSource entering a strategic supply agreement with Fluidra,
S.A., to accelerate the delivery of HaloSource's enhanced
recreational water solutions into the European and Australian pool
and spa markets, announced 8 September 2014.
Martin Coles, President and Chief Executive Officer of
HaloSource, said:
"As envisaged, we continued to see accelerated revenue growth in
H1 2014 driven by increasing orders from existing and new partners
across our portfolio of water solutions. The inherent scalability
of our operating and financial model enables us to expand revenue
and gross margin with minimal increases in administrative expense.
As a result, we expect continued decreases in cash burn in line
with current market expectations.
"Our strategy, put in place almost three years ago, is yielding
significant and increasingly positive results as we continue to
take our differentiated technology to market in partnership with
leading multi-national companies in the rapidly growing
multi-billion dollar global market for water purification and
remediation solutions.
"With three clearly defined and relevant platform technologies
in place for water disinfection, turbidity removal and dissolved
solids absorption (Lead, Arsenic, Selenium etc.) we have achieved
progress across all sectors. We are ideally positioned for growth
into the second half of 2014 led by the critical Drinking Water
segment.
"We remain confident that our focus on what we do best,
innovation in the chemistry of water purification, coupled with
strategic partnerships with key players in each segment, will
deliver continued rapid sector and geographic growth in revenue,
margins and profitability."
For further information:
HaloSource, Inc.
Martin Coles, Chief Executive Officer via Newgate
James Thompson, Chief Financial Officer
Newgate Communications (Financial PR)
James Benjamin +44 20 7680 6550
Madeleine Palmstierna halosource@newgatecomms.com
Georgia Lewis
Liberum Capital (NOMAD)
Simon Atkinson
Richard Bootle +44 203 100 2222
About HaloSource
HaloSource, Inc. designs solutions that serve people, preserve
the planet, and protect our most valuable resource - water. The
company works with scientists and industry experts in search of new
ways to improve water quality around the globe. The team of
HaloSource chemists, biochemists and microbiologists hold more than
100 patents, giving the company the power to provide
environmentally conscious solutions. The company's mission is to
make water better and help return previously contaminated water
into the environment in the most clean, natural pure state.
Founded in Seattle, Washington, HaloSource has grown to become
an influential leader in three key sectors: drinking water,
recreational water, and environmental water treatment and
remediation. HaloPure(R), HaloKlear(R) and SeaKlear(R) are the
distinct brands that optimize the unique chemistry platforms across
these primary sectors. Learn more about these cutting edge
technologies by visiting HaloSource.com
Financial and Operational Review
The Company increased revenues in each key segment during H1
2014, with consolidated revenue increasing by 24% to $7.3 million.
Within this, the Drinking Water and Environmental Water segments
grew significantly during the first half of 2014.
Drinking Water revenue for the period increased 124% to $2.0
million (H1 2013: $0.89 million), driven by growth with key
strategic partners in China and in India. Perfect, China's largest
direct-seller of household products and a trusted consumer brand,
has taken delivery of 370,000 cartridges powered by HaloSource's
class leading HaloPure(R) disinfection technology over the past 12
months. The cartridges are deployed in Perfect's newly launched
pressure-fed water purification device, which is building momentum
in the burgeoning Chinese water purification market. We expect to
see continued acceleration in sales of Perfect's device, as well as
revenues from subsequent replacement cartridges for the device.
Environmental Water revenue grew 29% to $1.22 million (H1 2013:
$0.95 million) as the Company focused its efforts on partnering
with established solution providers in North America in two key
segments: mining and construction sediment removal.
Recreational Water revenue grew 1% to $4.01 million (H1 2013:
$3.96 million) in a challenging period for the North American
Specialty Chemicals market that shrank in the first half of the
year, driven by a difficult start to the 2014 season as a result of
adverse weather impacting much of the seasonal pool and spa
industry.
Gross margin was 39%, up from 37% for the same period last year,
representing $0.7 million in incremental margin. This increase
occurred primarily as a result of decreased raw material costs in
our Recreational Water business and increased economies of scale
related to higher sales volumes in our Drinking Water and
Environmental Water segments.
Operating expenses for H1 2014 totaled $8.4 million, decreasing
by 7%, or $0.7 million, compared to the first half of the prior
year. The decline was driven largely by reduced legal expenses and
travel costs, offset in part by severance payments incurred during
the period. The Company reduced its executive team wages costs by
approximately 13% compared to the same period in 2013. The
litigation settlement with Molycorp Minerals in 2013 has led to
reduced legal expenses going forward.
The consolidated net loss was $5.7 million for the period, down
from a net loss of $7.0 million for the same period a year ago,
driven by a combination of both improved gross margins and
decreased operating expenses as detailed above.
The Company ended the period with $8.3 million of cash and cash
equivalents, short-term investments and restricted cash, of which
$1.5 million is restricted in its use, as compared to $13.0 million
in total as at 31 December, 2013. Cash used in operations for the
first half was $4.7 million; down from $7.1 million during the same
period in 2013 resulting from a decrease in operating expenses
incurred during the period as well as improved gross margins and a
$1.3 million reduction in non-cash working capital employed during
the period. The Company expects to continue to reduce cash flows
used in operations in the second half of 2014.
People
HaloSource is a technology business, and the quality of its team
is critical to stay on the leading edge of innovation. In this
regard the Company continues to attract very high quality talent
with critical skills. Management believes the ability to attract
high performing candidates is a direct result of offering workplace
challenge and excitement, while providing the opportunity to make a
direct impact on improving the environment as well as the lives of
others around the world.
The Company's headcount at 30 June 2014 was 119, versus 124 at
30 June 2013. As we continue to narrow our cash-burn, headcount is
a critical metric, representing approximately 60% of total
operating expenses. While not reflected directly in the total
employee headcount, we have shifted our talent base in the last 12
months to focus to a larger degree on scientific innovation, local
execution and strategic account management. This shift will
continue to be a focus of management as we progress toward the cash
flow break-even point.
Outlook
We are pleased to see the strategy that was implemented three
years ago continue to drive operational and financial improvement
in our company. By focusing on "innovation in the chemistry of
water purification" we provide a value-proposition that is
unmatched in the markets we serve. Our customers consider us to be
their water technology partner, bringing key innovation insights to
address specific water contamination challenges and, most
importantly, to enable them to differentiate their products in the
rapidly growing, multi-billion dollar market for water purification
and remediation solutions.
We believe the Drinking Water business is poised for continued
growth as major partners are actively expanding sales activity for
new, HaloPure(R) powered, water purification devices in emerging
markets. During 2013 we added several significant partners that now
are driving order volumes in the current year, giving us confidence
in our forecasts for continued growth. As we advance our technology
platform we expect growth in orders from existing partners as well
as select new partners in new geographies who are looking to
address increased water contamination, regulation and health
challenges.
We also expect growth to continue in our Environmental Water
segment, as the benefits of our unique green solutions are
increasingly recognised in this highly regulated sector. We provide
cleaner, greener and more effective water treatment solutions for
water recycle and discharge unmatched in cost and performance.
Partners like Rain-4-Rent, Stormtec and Nalco are pioneering the
use of these polymers in mining, construction and oil and gas
applications.
In our Recreation Water segment we continue to launch innovative
new products, as evidenced by our development and introduction of
SeaKlear(R) Mighty Pods(TM) products, where we have received
industry acclaim for making water chemistry easier for pool and spa
owners. While weather will always play a role in this segment's
outcomes, we expect to drive growth in this business through
harnessing technical insights gained in other areas of our water
portfolio to bring additional product innovation to market. As with
our other segments, we will effectively continue to expand our
presence in the market with partners that bring marketing and
distribution expertise to the industry.
We remain confident that our relentless focus on innovation
across all segments will yield robust, sustainable growth in
revenue, margins and profitability.
HaloSource, Inc. Financial Statements
Unaudited Interim Condensed Consolidated Statements of Comprehensive
Loss
------------------------------------------------------------------------------------------------------
Six months Six months
ended ended
(US$000's, except per share data) June 30, 2014 June 30,
2013
---------------------------------------------- ----------------------------- -----------------------------
Revenue - net $ 7,302 $ 5,882
Cost of goods sold 4,435 3,696
---------------------------------------------- ----------------------------- -----------------------------
Gross profit 2,867 2,186
Operating expenses
Research and development 1,295 1,578
Selling, general, and administrative 7,094 7,462
-----------------------------
Total operating expenses 8,389 9,040
---------------------------------------------- ----------------------------- -----------------------------
Operating loss (5,522) (6,854)
---------------------------------------------- ----------------------------- -----------------------------
Other expense, net (143) (153)
---------------------------------------------- ----------------------------- -----------------------------
Loss before income taxes (5,665) (7,007)
Income taxes - (6)
---------------------------------------------- ----------------------------- -----------------------------
Net loss $ (5,665) $ (7,013)
---------------------------------------------- ----------------------------- -----------------------------
Other comprehensive income (loss)
Unrealized gain (loss) on available-for-sale
investments 4 (33)
Reclassification adjustment of net
realized loss on
available-for-sale investments included
in net loss - (13)
Foreign currency translation adjustments (46) 88
---------------------------------------------- ----------------------------- -----------------------------
Other comprehensive income (loss) (42) 42
---------------------------------------------- ----------------------------- -----------------------------
Comprehensive loss $ (5,707) $ (6,971)
---------------------------------------------- ----------------------------- -----------------------------
Basic and diluted net loss per share $ (0.04) $ (0.04)
---------------------------------------------- ----------------------------- -----------------------------
Shares used to compute basic and diluted
loss per share (000's) 156,518 156,301
---------------------------------------------- ----------------------------- -----------------------------
See accompanying notes to unaudited interim condensed consolidated
financial statements.
HaloSource, Inc. and Subsidiaries
Unaudited Interim Condensed Consolidated Balance Sheets
-------------------------------------------------------------------------------------
June 30, December
31,
(US$000's) 2014 2013
---------------------------------------- ------------------- ----------------------
ASSETS
Current assets
Cash and cash equivalents $ 2,262 $ 1,762
Restricted cash 1,552 1,941
Short term investments 4,483 9,314
Accounts receivable, less allowance
for doubtful
accounts of $20 and $20, respectively 4,643 6,085
Inventories, net 4,114 3,626
Prepaid expenses and other current
assets 981 1,539
---------------------------------------- ------------------- ----------------------
Total current assets 18,035 24,267
Property and equipment, net 3,576 4,018
Goodwill 2,180 2,180
Other intangible assets, net 785 846
Deposits 280 276
---------------------------------------- ------------------- ----------------------
Total Assets $ 24,856 $ 31,587
---------------------------------------- ------------------- ----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,924 $ 2,549
Accrued expenses 880 1,257
Salaries and benefits payable 470 603
Current portion of debt and capital
lease obligations 1,113 1,082
---------------------------------------- ------------------- ----------------------
Total current liabilities 4,387 5,491
Long-term portion of debt and capital
lease obligations 35 45
Deferred rent 1,114 1,167
Deferred tax liability 49 104
---------------------------------------- ------------------- ----------------------
Total liabilities 5,585 6,807
---------------------------------------- ------------------- ----------------------
Stockholders' equity
Common stock, no par value 130,863 130,665
Accumulated other comprehensive
income 31 73
Accumulated deficit (111,623) (105,958)
---------------------------------------- ------------------- ----------------------
Total stockholders' equity 19,271 24,780
---------------------------------------- ------------------- ----------------------
Total liabilities and stockholders'
equity $ 24,856 $ 31,587
---------------------------------------- ------------------- ----------------------
See accompanying notes to unaudited interim condensed consolidated
financial statements.
HaloSource, Inc. and Subsidiaries
Unaudited Interim Condensed Consolidated Statements of Stockholders'
Equity
----------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other Total
Common Stock Comprehensive Accumulated Stockholders'
(US$000's, Shares Amount Income (Loss) Deficit Equity
except shares
in 000's)
--------------- -------------- --------------------- ---------------------------- -------------------------- ----------------------
Balance,
December 31,
2012 156,193 $ 130,097 $ 4 $ (93,495) $ 36,606
--------------- -------------- --------------------- ---------------------------- -------------------------- ----------------------
Exercise of
common stock
options 8 1 - - 1
Issuance of -
shares upon
vesting
of restricted
stock 182 - - -
Share-based
compensation - 288 - - 288
Other
comprehensive
income - - 42 - 42
Net loss - - - (7,013) (7,013)
Balance, June
30, 2013 156,383 $ 130,386 $ 46 $ (100,508) $ 29,924
--------------- -------------- --------------------- ---------------------------- -------------------------- ----------------------
Balance,
December 31,
2013 156,383 $ 130,386 $ 6 $ (100,508) $ 29,924
--------------- -------------- --------------------- ---------------------------- -------------------------- ----------------------
Exercise of
common stock
options 10 1 - - 1
Issuance of 100 - - - -
shares upon
vesting
of restricted
stock
Share-based
compensation - 197 - - 197
Other
comprehensive
loss - - (42) - (42)
Net loss - - - (5,665) (5,665)
--------------- -------------- --------------------- ---------------------------- -------------------------- ----------------------
Balance, June
30, 2014 156,493 $ 130,584 $ 4 $ (106,173) $ 24,415
--------------- -------------- --------------------- ---------------------------- -------------------------- ----------------------
See accompanying notes to unaudited interim condensed consolidated financial
statements.
HaloSource, Inc. and Subsidiaries
Unaudited Interim Condensed Consolidated
Statements of Cash Flows
-------------------------------------------------- --------------------------- ---------------------------
Six months Six months
ended ended
(US$000's) June 30, June 30,
2014 2013
-------------------------------------------------- --------------------------- ---------------------------
Operating activities
Net loss $ (5,665) $ (7,013)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 505 533
Allowance for inventory, sales returns,
and bad debts (90) 88
Share-based compensation 197 288
Realized loss on sale of short-term investments - 13
Loss on disposal of property, equipment 14 -
and other assets
Deferred income taxes - (4)
Changes in operating assets and liabilities:
Accounts receivable 1,446 12
Inventories (365) (674)
Prepaid expenses and other assets 565 (217)
Accounts payable (712) 129
Accrued expenses and other current liabilities (394) 31
Salaries and benefits payable (167) (168)
Deferred rent (57) (87)
-------------------------------------------------- --------------------------- ---------------------------
Net cash used in operating activities (4,723) (7,069)
-------------------------------------------------- --------------------------- ---------------------------
Cash flows from investing activities
Proceeds on disposal of property and equipment 110 -
Purchase of property and equipment (86) (223)
Purchase of short-term investments (415) (8,078)
Sale of short-term investments 5,250 1,740
Decrease (increase) in restricted cash 390 (16)
-------------------------------------------------- --------------------------- ---------------------------
Net cash provided by (used in) investing
activities 5,249 (6,577)
-------------------------------------------------- --------------------------- ---------------------------
Cash flows from financing activities
Borrowings under short-term debt - 64
Repayments of debt and capital lease obligations (28) (25)
Proceeds from exercise of stock options
and warrants 1 1
-------------------------------------------------- --------------------------- ---------------------------
Net cash (used in) provided by financing
activities (27) 40
-------------------------------------------------- --------------------------- ---------------------------
Effect of exchange rate changes on cash 1 (11)
-------------------------------------------------- --------------------------- ---------------------------
Net increase (decrease) in cash and cash
equivalents 500 (13,617)
Cash and cash equivalents, beginning of
period 1,762 15,635
-------------------------------------------------- --------------------------- ---------------------------
Cash and cash equivalents, end of period $ 2,262 $ 2,018
-------------------------------------------------- --------------------------- ---------------------------
Supplemental disclosures of noncash investing
and financing activities:
Increase in accrued property and equipment
purchases $ 29 $ 295
See accompanying notes to unaudited interim condensed consolidated
financial statements.
Notes to Condensed Consolidated Financial Statements
1. General information
HaloSource, Inc. and its subsidiaries (together, the "Company"
or "HaloSource") are 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 distributors and
other third parties. HaloSource is committed to relentless
innovation, industry-leading products and ongoing support for
water-related philanthropy. The Company's proprietary technologies
for drinking and recreational water, textile coatings, and
environmentally friendly wastewater recycling, enable our partners
to rid the world's water of impurities and return it responsibly to
the earth. HaloSource markets its products under its brand names of
HaloPure(R) , HaloShield, SeaKlear(R) , AquaPill, PoolMark,
HaloKlear(TM), StormKlear and Mighty Pods(TM).
2. Basis of preparation
The condensed consolidated financial statements include the
accounts of HaloSource and its wholly owned subsidiaries.
Intercompany transactions and balances have been eliminated.
The principal accounting policies have been applied consistently
throughout the period in the preparation of these consolidated
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 periods have been included and
are of a normal, recurring nature.
The condensed consolidated financial information for the six
month periods ended June 30, 2013 and 2014 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
condensed consolidated financial statements are to the FASB
Accounting Standards Codification, sometimes referred to as the
"Codification" or "ASC". The condensed consolidated financial
information should be read in conjunction with the audited annual
financial statements for the year ended December 31, 2013, which
have also been prepared in accordance with U.S. GAAP and were made
available on March 26, 2014. The financial information for the
six-month periods ended June 30, 2014 and June 30, 2013 is
unaudited.
Liquidity and capital resources
The Company has generally incurred net losses and negative
operating cash flows since inception, and as of June 30, 2014, the
Company had an accumulated deficit of approximately $111.6million.
For the six months ended June 30, 2014, the Company's net loss was
$5.7 million and cash used in operating activities was $4.7million.
As of June 30, 2014, the Company has $2.3 million of unrestricted
cash and cash equivalents, $4.5 million of unrestricted short term
investments, and $1.5 million of restricted cash.
The Company has implemented certain cost savings measures and
implemented other plans that have reduced the net loss and cash
used by operations in 2014 as compared to 2013 and are expected to
continue to do so. In order to generate sufficient revenue to
achieve profitability, the Company must successfully maintain its
existing relationships and build significant 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. Management plans to continue to finance
the Company's operations with a combination of currently available
cash and short-term investments and may attempt to raise additional
funds in the near future. Management believes current funding will
be sufficient to finance the Company's operations through the
remainder of 2014; however, if necessary, the Company may seek
other financing options. 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. 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, 2014 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.
Use of estimates
The preparation of condensed consolidated 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 financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could materially differ from those estimates. Estimates include the
allowance for doubtful accounts, sales returns allowances,
inventory obsolescence, share-based compensation, and impairment
evaluations for goodwill and long-lived assets.
3. Accounting policies
The accounting policies applied are consistent with those of the
annual financial statements for the year ended December 31, 2013,
except as described below.
Recent accounting pronouncements
In July 2013, the FASB issued Accounting Standards Update
("ASU") 2013-11, Presentation of an Unrecognized Tax Benefit When a
Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax
Credit Carryforward Exists, to clarify the balance sheet
presentation of an unrecognized tax benefit when a net operating
loss carryforward, a similar tax loss, or a tax credit carryforward
exists. ASU 2013-11 is effective for fiscal years beginning after
December 15, 2013. The Company adopted the ASU effective January 1,
2014, with no material effect on the Company's consolidated
financial statements.
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 for its
financial year ending December 31, 2017, including interim periods
within that reporting period and early adoption is not permitted.
The Company is currently reviewing the provisions of this ASU to
determine if there will be any 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 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. 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, 2014 and 2013 was $435,000 and $423,000,
respectively.
5. Restricted cash
Restricted cash primarily 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. (See Note 12, below).
6. 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: Drinking Water,
Recreational Water, Environmental Water Remediation, and
Anti-microbial Coatings. Information on reportable segments and
reconciliation to condensed consolidated net loss for the six-month
periods ended June 30, 2014 and 2013 are presented below. Also
presented below are total assets by operating segment as of June
30, 2014 and December 31, 2013. The Company does not report to the
chief operating decision maker its capital expenditures or assets
for the Recreational Water or Environmental Water segments and does
not assign intangible assets to the segments.
Six months ended June 30, 2014
Recreational Environmental Drinking Antimicrobial
(US $000's) Water Water Water Coatings Unallocated Consolidated
------------ ------------------ ----------------------- ------------------- ---------------------- ------------------ ----------------------
Revenue $ 4,010 $ 1,219 $ 1,996 $ 77 $ - $ 7,302
Gross profit 2,176 312 315 64 - 2,867
Operating
expenses - - - - (8,389) (8,389)
Other
expenses,
net - - - - (143) (143)
Net loss - - - - - $ (5,665)
----------------------
Assets - - $ 6,318 $ 17 $ 18,521 $ 24,856
------------ ------------------ ----------------------- ------------------- ---------------------- ------------------ ----------------------
Six months ended June 30, 2013, except assets as of December 31,
2013
Recreational Environmental Drinking Antimicrobial
(US $000's) Water Water Water Coatings Unallocated Consolidated
------------ ------------------ ----------------------- --------------------- ---------------------- ------------------ ----------------------
Revenue $ 3,961 $ 949 $ 890 $ 82 $ - $ 5,882
Gross profit
(loss) 1,895 244 (19) 66 - 2,186
Operating
expenses - - - - (9,040) (9,040)
Other
expenses,
net - - - - (159) (159)
Net loss - - - - - $ (7,013)
----------------------
Assets - - $ 5,822 $ - $ 25,765 $ 31,587
------------ ------------------ ----------------------- --------------------- ---------------------- ------------------ ----------------------
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, restricted stock grants and warrants. The Company
had a net loss for all periods presented herein; therefore, none of
the options, restricted stock grants 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 common stock of 7,186,000 and
6,426,000 were excluded from the calculations of diluted loss per
share for the six months ended June 30, 2014 and 2013,
respectively.
8. Inventories
Inventories at June 30, 2014 and December 31, 2013 consist of
the following:
June 30, December 31,
(US $000's) 2014 2013
----------------- ------------ ------------
Raw materials $ 2,491 $ 2,163
Finished goods 1,623 1,463
------------ ------------
Inventories, net $ 4,114 $ 3,626
----------------- ------------ ------------
During the six month periods ended June 30, 2014 and 2013, the
Company recorded cost of goods sold of $98,000 and $89,000,
respectively, to reduce certain inventory items from their recorded
cost to their estimated net realizable value. The inventory
reported in the condensed consolidated balance sheets as of June
30, 2014 and December 31, 2013 is net of write-downs of inventory
carrying values due to obsolescence of $537,000 and $443,000,
respectively.
9. Property and equipment
Property and equipment as of June 30, 2014 and December 31, 2013
consist of the following:
June 30, December 31,
(US $000's) 2014 2013
---------------------------------- ----------- ------------
Manufacturing equipment $ 3,068 $ 3,329
Furniture and fixtures 228 228
Office equipment 966 939
Leasehold improvements 2,707 2,710
Construction in process 18 10
----------- ------------
6,987 7,216
Less accumulated depreciation and
amortization (3,411) (3,198)
----------- ------------
Property and equipment, net $ 3,576 $ 4,018
---------------------------------- ----------- ------------
10. Related party transactions
During the six months ended June 30, 2014 and 2013, the Company
paid royalties for certain patent rights of $225,000 and $225,000,
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 condensed
consolidated statements of comprehensive loss. The Company had no
outstanding accounts payable to the university at June 30, 2014 or
December 31, 2013.
11. Business and credit concentration
For the six-month periods ended June 30, 2014 and 2013, one of
the Company's Recreational Water customers individually accounted
for 10% and 17% of the Company's revenue, respectively. Accounts
receivable from this customer represented 7% and 17% of the total
accounts receivable at June 30, 2014 and December 31, 2013,
respectively.
Essentially all of the Company's revenue from its Drinking Water
segment is generated in emerging market countries, including India
and China. During 2014 and 2013, the majority of Drinking Water
revenue was derived from one customer in India and one customer in
China. In addition, essentially all raw materials and manufacturing
facilities used in the Drinking Water segment are sourced from, or
located in, the same emerging market countries. These markets
represent varying political and regulatory environments that can
potentially affect Drinking Water operations.
12. 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 $1,166,000 at June
30, 2014. 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 Axis
Bank's base-rate as determined under guidelines issued by the
Reserve Bank of India, plus 1.85%, or approximately 12% annually as
of June 30, 2014. As of June 30, 2014, borrowings under this line
of credit totaled Rs. 65,670,000, or approximately $1,094,000. As
of June 30, 2014, the Company is in compliance with all terms and
conditions of this line of credit and the line of credit is payable
upon demand.
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 $1,282,000 at June 30,
2014; further, Wells Fargo Bank NA requires a restricted cash
balance of 105.3% of the standby letter of credit. The Company has
in turn restricted cash of $1,552,000 under the standby letter of
credit to serve as collateral for the outstanding borrowings under
the foreign line of credit. (See Note 5, above).
13. Forward exchange contracts
The Company is exposed to foreign currency exchange-rate
fluctuations in the normal course of its business, which the
Company manages from time to time through the use of forward
foreign exchange contracts. Forward foreign exchange contracts are
used to hedge the impact of fluctuations of foreign exchange on
certain assets or liabilities denominated in a currency other than
the functional currency of the Company or its subsidiaries. The
Company has chosen not to apply hedge accounting to these foreign
exchange contracts. The Company uses forward foreign exchange
contracts to mitigate risk and does not intend to engage in
speculative transactions. The forward foreign exchange contracts
are entered into by the Company and its subsidiaries primarily to
hedge intercompany payables denominated primarily in Indian Rupee.
These contracts do not contain any credit-risk-related contingent
features. Further, the Company seeks to manage the counterparty
risk associated with these forward foreign exchange contracts by
limiting transactions to counterparties with which the Company has
an established banking relationship. In addition, the contracts are
limited to a time period of less than one year, generally three
months or less.
For the six-month periods ended June 30, 2014 and 2013 these
forward foreign exchange contracts resulted in net realized gains
(losses) of $(162,000) and $67,000, respectively. The realized
gains and losses were partially offset by realized and unrealized
gains and losses on foreign denominated accounts receivable and
foreign intercompany payables during the same periods. Realized
gains and losses related to forward foreign exchange contracts are
recorded in foreign exchange gain (loss) on the condensed
consolidated statements of comprehensive loss and the assets and
liabilities for these contracts are recorded in prepaid and other
assets and accrued liabilities on the condensed consolidated
balance sheets. As of June 30, 2014 and December 31, 2013, the
Company had no outstanding forward foreign exchange contracts.
14. 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.
In conjunction with the Company's 2013 Annual General Meeting
which was held in April 2013, the Company included a proposal to
its shareholders to increase the number of shares of Common Stock
reserved for issuance under its 2010 Equity Incentive Plan (the
"2010 Plan") by 5,000,000, from 3,000,000 to 8,000,000. The Company
was successful in obtaining the required number of shareholder
votes to approve this proposal. During the six month periods ended
June 30, 2014 and 2013, the Company issued stock options and
restricted stock awards under its 2010 Plan totaling 1,555,000, and
1,988,000, respectively. As of June 30, 2014, the Company had
2,106,000 shares available for issuance under the 2010 Plan.
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, 2014 and 2013, the Company recorded stock based
compensation expense of $197,000 and $288,000, respectively. No
income tax benefit was recognized in the condensed consolidated
statements of comprehensive loss for share-based compensation
arrangements.
15. Common stock
Total authorized common shares are 200,000,000. As of June 30,
2014, the Company has 156,594,000 issued and outstanding shares of
common stock.
16. Subsequent events
The Company has evaluated subsequent events through the date on
which the financial statements were available to be issued. No
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 EAXNPELSLEFF
Halosource CP S (LSE:HAL)
Historical Stock Chart
From Sep 2024 to Oct 2024
Halosource CP S (LSE:HAL)
Historical Stock Chart
From Oct 2023 to Oct 2024
