TIDMHAL TIDMHALO
RNS Number : 3523R
HaloSource Inc
08 March 2016
8 March 2016
HaloSource, Inc.
("HaloSource" or the "Company")
Preliminary Results for the year ended 31 December 2015
HaloSource Inc. (HAL.LN, HALO.LN), the global clean water
technology company traded on London's AIM, today announces its
preliminary results for the financial year ended 31 December
2015.
Financial Highlights
-- Consolidated revenues from continuing operations (the
Company's Drinking Water and Recreational Water segments) were
$13.9 million (2014: $17.9 million), comprising:
o Drinking Water revenue of $4.2 million (2014: $6.3
million)
o Recreational Water revenue of $9.7 million (2014: $11.5
million)
-- Operating expenses from continuing operations of $14.8 million (2014: $15.1 million)
-- Loss from discontinued operations, the Company's
Environmental Water segment, was $1.9 million (2014: $1.1 million)
on revenues of $2.4 million (2014: $3.0 million)
-- Net loss of $11.4 million (2014: net loss of $8.6 million)
-- Total net cash at year end, including short-term investments, of $4.6 million
Operational Highlights
-- New Drinking Water partners added during the year, including
Panasonic and Luminous Water Technologies in India and Lonsid
Healthy Drinking Water Equipment in China
-- The Company is accelerating plans to focus exclusively on the
growth of its Drinking Water segment
-- HaloSource India senior management team strengthened with appointment of Tamal Chaudhuri
-- Movement to a commission based agency sales mode for the Recreational Water business
-- Post period end: Disposal of Environmental Water business to
Dober Chemical Corporation for an initial cash consideration of
$550,000
Martin Coles, President and CEO of HaloSource, said:
"We are implementing our plans to focus exclusively on the
growth of HaloSource's Drinking Water business, whilst continuing
to aggressively reduce our cost of goods and operating expenses. We
remain committed to delivering our class-leading HaloPure(R)
Drinking Water technology through current and future strategic
partnerships with some of the world's leading brands and
retailers.
The sale of our Environmental Water business facilitates much
sharper management focus on growth in the Drinking Water segment as
we accelerate our plans to move key resources closer to our
customers and operations in our key markets of India and China.
We continue to explore strategic opportunities to strengthen our
balance sheet and improve cash reserves to allow the Company to
fund the growth of our Drinking Water business."
Enquiries:
HaloSource, Inc.
Martin Coles, Chief Executive Via Newgate below
Officer
James Thompson, Chief Financial
Officer
Susan Brown, Director Corporate
Communications
Liberum Capital (NOMAD and
Joint Broker)
Richard Bootle
Jill Li
Steve Pearce +44 20 3100 2222
Newgate (PR Adviser)
James Benjamin +44 20 7680 6550
Alex Shilov halosource@newgatecomms.com
Lydia Thompson
Allenby Capital (Joint Broker)
Chris Crawford
Kat Perez +44 20 3328 5656
About HaloSource
HaloSource, Inc. creates innovative solutions for water
purification that serve people and protect our most valuable
resource. The Company works with scientists and industry experts
across the globe in search of new ways to improve water quality and
its patented groundbreaking chemistries provide effective and
environmentally responsible solutions to the growing issue of water
stress.
HaloSource was founded in Seattle, Washington and has operations
in China and in India. Learn more about the Company by visiting
www.halosource.com.
HaloPure and SeaKlear are either trademarks or registered
trademarks of HaloSource, Inc. All other trademarks, brand names or
product names belong to their respective holders.
JOINT STATEMENT BY THE CEO AND CHAIRMAN
As announced on 23 February, we have chosen to accelerate plans
to focus exclusively on the growth of the Drinking Water business.
The Company is making structural changes to the Drinking Water
business to place key resources in our two major markets, China and
India, which will result in significant headcount reductions in the
United States. Additionally, we are transitioning non-core assets
of the Company to new ownership. We expect that these will reduce
operating expenses, strengthen our balance sheet and accelerate
growth in the Drinking Water business.
Drinking Water
We faced certain challenges in our Drinking Water business in
2015 which impacted revenues, namely delays in key customer rollout
plans and operating issues associated with increasing manufacturing
capacity at our Chinese facility (which have now been resolved).
During the year, we continued to grow the list of respected
multinational corporations ("MNCs") deploying our unique
HaloPure(R) technology, signing three new partnership agreements,
with Lonsid in China and Panasonic and Luminous in India. We expect
to drive progress in 2016 as new and current partners continue to
drive product launches and regional rollouts to expand their market
presence and the size of the category as a whole.
Perfect, one of China's largest direct sales organisations,
continued the national roll-out of their pressure-fed water
purification device powered by HaloPure(R) water purification
technology and continues to be the largest revenue contributor to
Drinking Water, with more than 330,000 cartridges shipped in
2015.
Lonsid became the second largest Drinking Water revenue
contributor behind Perfect in 2015 and is deploying HaloPure(R)
water purification technology in three of their reverse osmosis
("RO") systems, including a new RO "smart" device, with an
integrated digital monitor. We expect to continue to build momentum
with this important new customer, which has more than 10,000
distributors in China and also exports to the US and Europe.
Panasonic continues its rollout of a range of gravity-fed water
purification devices powered by HaloPure(R) that target low and
middle-income consumers in urban and rural markets in India. We
expect continued progress as Panasonic expands its range and
implements microfinance initiatives to accelerate adoption by rural
consumers (as commonly done for other critical household items such
as mobile phones, sewing machines, bicycles and stoves).
Luminous, a leading manufacturer and distributor of batteries
for the Indian market has also entered the water purification
segment in India selecting HaloPure(R) water purification
technology for use in some of its gravity-fed water purification
systems marketed under the well-known Livpure brand. Two devices
containing HaloPure(R) water purification technology were launched
regionally in India in late 2015. Livpure is currently the third
largest water purification brand in India by market share and has a
potential distribution channel of approximately 10,000 retailers in
India.
Eureka Forbes Limited continues to be our largest Drinking Water
revenue contributor in India with a potential total distribution
network of 15,000 retail outlets and presence in 1,800 cities and
towns. We shipped over seven metric tons of HaloPure(R) media to
Eureka Forbes Limited during 2015.
Jarden experienced a delay of their planned South/Central
American pitcher rollout and, as a result, did not meet 2015
projected purchase quantities. Jarden expects their pitcher rollout
to be fully on track during 2016 as they look to further expand in
the three previously launched countries, Peru, Chile and Colombia,
as well as additional geographies in the region.
In October 2015, Tamal Chaudhuri was appointed as General
Manager for HaloSource India, further strengthening the management
team in one of our key geographies. Tamal brings extensive sector
expertise and was previously a Director at A.O. Smith; he has
already accelerated the growth of the new business development
pipeline of opportunities. The Company expects to be able to
announce the addition of a new senior leadership position in China
shortly.
We have continued development of innovative Drinking Water
technologies and have made strong progress with our advanced
applications to remove other highly toxic dissolved contaminants,
such as lead, to levels well below current EPA and NSF standards.
In 2015, we completed laboratory scale product development on this
new adsorption technology platform and have begun pilot production
scale up work in conjunction with existing and new partners.
Recreational Water
The Company moved to a commission-based agency sales model in
2015 and continues to make progress in increasing profitability
through margin expansion, reduced operating expenses and a more
diversified client base. This has been achieved primarily by
expanding the Company's SeaKlear(R) branded and private label
product presence in new distribution channels and geographies.
While our two largest customers did not reach projected purchase
quantities in 2015, we partially offset the revenue shortfall with
$1.3 million of revenue from new clients and new channels. During
the year, we entered new geographies including Canada, with a full
line of SeaKlear(R) products through a new partner, along with
Australia and expansion in Europe through our existing relationship
with Fluidra.
Environmental Water
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HaloSource restructured this business during 2015 to improve
gross margins and reduce expenses while focusing on growing
revenues with key accounts. In conjunction with its strategic
review, the Company received an approach from Dober Chemical
Corporation ("Dober") to acquire the Company's HaloKlear(R) branded
Environmental Water business and a purchase and sales agreement was
reached, as announced on 23 February 2016. The sale will reduce
direct operating expenses by over $1 million per annum and will
generate between $0.3 million and $1.1 million in proceeds to the
Company over the next two years. All cash received from Dober will
be used to fund the working capital requirements of the
Company.
Financial Review
Company revenue from continuing operations for the year to 31
December 2015 was $13.9 million (2014: $17.9 million). The decrease
related to the Company's Drinking Water segment, which reported
revenues of $4.2 million (2014: $6.3 million), driven by delayed
customer rollouts and certain operational challenges related to our
manufacturing capacity in China. Consequently, almost $0.8 million
of Drinking Water orders were carried over to the first quarter of
2016. Revenue from the Company's Recreational Water segment was
$9.7 million (2014: $11.5 million) as a result of reduced sales to
two of our larger customers and shipment delays in the fourth
quarter, resulting in a backlog of orders of more than $1 million
delayed to the first quarter of 2016.
Gross margins from continuing operations were 40% (2014: 45%).
Whilst the Company's gross margins remained similar in our
Recreational Water business in 2015 as compared to 2014, our
Drinking Water gross margin was impacted by lower production and
the absence of $0.5 million in standstill fee revenue at 100% gross
margin in 2015. Operating expenses from continuing operations
totaled $14.8 million (2014: $15.2 million). Operating expenses in
2015 include a non-cash goodwill impairment charge of $0.2 million
related to the termination of the patent license for our
anti-microbial coatings business during the year.
The loss from discontinued operations, comprising our
Environmental Water business, was $1.9 million (2014: $1.1
million). Revenue was $2.4 million (2014: $3.0 million), impacted
by drier than average weather in the western United States
throughout 2015. The loss from discontinued operations includes a
non-cash impairment of assets related to the closure of our pilot
plant facility of $0.8 million. Excluding this impairment the loss
from discontinued operations was flat compared to 2014 even with
lower revenues.
The net loss for the year increased to $11.4 million (2014: $8.6
million) and includes the impact of non-cash costs related to
share-based compensation of $0.3 million in both 2015 and 2014,
respectively as well as the $1.0 million in non-cash impairment
charges in 2015 as described above.
As at 31 December 2015, the Company had a total of $4.6 million
in cash, comprised of cash and cash equivalents ($3.1 million), and
short-term investments ($1.5 million). The Company expects to
significantly reduce operating expenses in 2016 as a result of the
structural changes in our Drinking Water business as outlined in
our update on 23 February 2016. The Board continues to explore
strategic alternatives to strengthen the Company's balance sheet
and increase cash reserves.
Employee headcount at the beginning of 2015 was 116 and as of 31
December 2015 stood at 110. The decrease in headcount from the
prior year is primarily due to a 20% reduction in our US-based
corporate headquarters team, offset in part by additions to our
teams in India and China.
Market
The global residential water treatment market was valued at over
$11 billion in 2014 and is expected to see a growth rate of over 9%
over the next five to seven years (Source: 2015 Verify Markets
Report).
The residential water treatment market in China was valued at
over $2.5 billion in 2014 and the market is expected to grow at a
double-digit rate over the next seven years. The key drivers in the
Chinese residential water treatment market include rising customer
awareness, growing health concerns, rising disposable incomes and
the rise in China's middle class (Source: 2015 Verify Markets
Report).
The Indian residential water treatment market was valued at over
$600 million in 2014. Poor water quality, rising disposable incomes
and improved customer awareness are the key drivers in the
residential water treatment market in India (Source: 2015 Verify
Markets Report).
With the Company's current product offering in both gravity-fed
and RO devices, the highest regulatory certifications, a stable of
strong strategic relationships and a pipeline of new products and
performance, we expect to be well positioned to capitalise on this
rapidly growing opportunity.
Outlook
As we accelerate our focus on growing our Drinking Water
business, we continue to be encouraged by the calibre of MNCs with
leading consumer brands that select our HaloPure(R) technology to
power their water purification devices and provide clean safe
drinking water to millions of people in some of the geographies
with the greatest water quality challenges.
We expect in excess of a further 20% reduction in US based
headcount before the end of 1Q 2016 while expanding modestly in
India and China as we shift our human resources to our two major
Drinking Water markets and further our efforts to become the
"innovation partner" to our customers and drive revenue growth.
We will continue to explore strategic opportunities to
strengthen our balance sheet and improve cash reserves to allow the
Company to fund the growth of our Drinking Water business.
HaloSource, Inc. and Subsidiaries
Consolidated Statements of Operations
and Comprehensive Loss
(US $000's, except per share data)
--------------------------------------------------- ------------ -----------
Years ended December 31, 2015 2014
US$000 US$000
(Unaudited) (Audited)
--------------------------------------------------- ------------ -----------
Revenue - net 13,935 17,933
Cost of goods sold 8,328 9,904
--------------------------------------------------- ------------ -----------
Gross profit 5,607 8,029
Operating expenses
Research and development 1,691 1,585
Goodwill impairment 173 -
Selling, general, and administrative 12,946 13,610
--------------------------------------------------- ------------ -----------
Total operating expenses 14,810 15,195
--------------------------------------------------- ------------ -----------
Operating loss (9,203) (7,166)
Other expense, net (229) (349)
--------------------------------------------------- ------------ -----------
Loss before income taxes (9,432) (7,515)
Income taxes (86) (50)
--------------------------------------------------- ------------ -----------
Loss from continuing operations (9,518) (7,565)
Loss from discontinued operations,
net of tax (1,900) (1,065)
--------------------------------------------------- ------------ -----------
Net loss (11,418) (8,630)
Other comprehensive income (loss)
Unrealized loss on available-for-sale
investments (27) (13)
Foreign currency translation adjustments (126) 165
--------------------------------------------------- ------------ -----------
Other comprehensive income (loss) (153) 152
--------------------------------------------------- ------------ -----------
Comprehensive loss (11,571) (8,478)
--------------------------------------------------- ------------ -----------
Continuing operations (0.04) (0.05)
Discontinued operations (0.01) (0.00)
--------------------------------------------------- ------------ -----------
Basic and diluted net loss per share (0.05) (0.05)
--------------------------------------------------- ------------ -----------
Shares used to compute basic and diluted
loss per share (000's) 220,260 164,053
See accompanying notes to consolidated
financial statements.
HaloSource, Inc. and Subsidiaries
Consolidated Balance Sheets
------------------------------------------------------------------ -----------
As of December 31, 2015 2014
US$000 US$000
(Unaudited) (Audited)
-------------------------------------------- --- ------------- -----------
ASSETS
Current assets
Cash and cash equivalents 3,052 3,295
Restricted cash - 1,552
Short-term investments 1,504 9,985
Accounts receivable, less allowance
for doubtful
accounts of $23 in 2015 and $294
in 2014 7,897 8,388
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Inventories - net 2,757 2,481
Prepaid expenses and other current
assets 1,274 1,528
Current assets held for sale 463 706
---------------------------------------------------- ------------ -----------
Total current assets 16,947 27,935
Property and equipment - net 1,866 2,597
Noncurrent assets held for sale 150 563
Goodwill 2,007 2,180
Other intangible assets - net 602 724
Deposits 214 210
---------------------------------------------------- ------------ -----------
Total assets 21,786 34,209
---------------------------------------------------- ------------ -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable 3,210 2,986
Accrued expenses and other current
liabilities 1,443 1,573
Salaries and benefits payable 415 508
Current portion of debt and capital
lease obligations 19 1,050
---------------------------------------------------- ------------ -----------
Total current liabilities 5,087 6,117
Long-term portion of debt and
capital lease obligations 6 25
Deferred rent 960 1,167
Deferred tax liabilities 174 138
---------------------------------------------------- ------------ -----------
Total liabilities 6,227 7,353
---------------------------------------------------- ------------ -----------
Commitments and contingencies
Stockholders' equity
Common stock, no par value; 400,000,000
shares authorized;
220,278,404 and 220,230,404 issued
and outstanding at
December 31, 2015 and 2014, respectively 141,493 141,219
Accumulated other comprehensive
income 72 225
Accumulated deficit (126,006) (114,588)
---------------------------------------------------- ------------ -----------
Total stockholders' equity 15,559 26,853
---------------------------------------------------- ------------ -----------
Total liabilities and stockholders'
equity 21,786 34,209
---------------------------------------------------- ------------ -----------
See accompanying notes to consolidated financial
statements.
HaloSource, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
-------------------------------------------------------------------------------
Years ended December 31, 2015 2014
US$000 US$000
(Unaudited) (Audited)
--------------------------------------------------- ------------ ----------
Operating Activities
Net loss (11,418) (8,630)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 836 1,013
Goodwill impairment 173 -
Impairment of long-lived assets 817 -
Allowance for inventory, sales returns
and bad debts 74 (369)
Share-based compensation 273 347
Loss (gain) on disposal of property,
equipment and other assets (7) 25
Deferred income taxes 36 34
Changes in operating assets and liabilities:
Accounts receivable 61 (2,077)
Inventories 96 514
Prepaid expenses and other assets 297 59
Accounts payable 427 517
Accrued expenses and other current
liabilities (46) 243
Salaries and benefits payable (137) (2)
Deferred rent (137) (107)
--------------------------------------------------- ------------ ----------
Net Cash Used in Operating Activities (8,655) (8,433)
--------------------------------------------------- ------------ ----------
Cash Flows From Investing Activities
Purchase of property and equipment (422) (175)
Purchase of short-term investments (46) (9,934)
Sales of short-term investments 8,500 9,250
Proceeds from sale of property and
equipment 8 105
Decrease in restricted cash 1,552 389
--------------------------------------------------- ------------ ----------
Net Cash Provided By (Used in) Investing
Activities 9,592 (365)
--------------------------------------------------- ------------ ----------
Cash Flows from Financing Activities
Proceeds from public offering, net
of offering costs of $686 - 10,206
Borrowings under short-term debt - 32
Repayments of debt and capital lease
obligations (1,042) (19)
Proceeds from exercise of stock options 1 1
--------------------------------------------------- ------------ ----------
Net Cash Provided by (Used In) Financing
Activities (1,041) 10,220
--------------------------------------------------- ------------ ----------
Effect of exchange rate changes on
cash (139) 111
--------------------------------------------------- ------------ ----------
Net (Decrease) Increase in Cash and
Cash Equivalents (243) 1,533
Cash and Cash Equivalents, beginning
of year 3,295 1,762
--------------------------------------------------- ------------ ----------
Cash and Cash Equivalents, end of
year 3,052 3,295
--------------------------------------------------- ------------ ----------
Supplemental disclosures of cash flow
information:
Cash paid for interest 29 134
Cash paid for income taxes 55 10
See accompanying notes to consolidated
financial statements.
Note 1 - Basis of Preparation
The financial information set out in this document does not
constitute the Company's financial statements for the years to 31
December 2015 and 2014. The results for 31 December 2015 are
unaudited. Financial statements for the year ended 31 December 2015
will be finalized based on the information presented in this
announcement. The independent auditor's report will be based on
those financial statements once they are complete.
Financial statements for the year ended 31 December 2014 have
been reported on by the Independent Auditor. The Independent
Auditor's report on the financial statements for 2014 was
unqualified and did not draw attention to any matters by way of
emphasis.
The financial information set out in these preliminary results
has been prepared using accounting principles generally accepted in
the United States of America ("U.S. GAAP"). The accounting policies
adopted in these preliminary results have been consistently applied
to all the years presented and are consistent with the policies
used in the preparation of the statutory accounts for the period
ended 31 December 2015. The principal accounting policies adopted
are unchanged from those used in the preparation of the statutory
accounts for the period ended 31 December 2014. The Company has
prepared a cash flow forecast covering a period extending beyond 12
months from the date of these financial statements. The Company has
implemented certain cost savings measures and implemented other
plans that are expected to reduce the net loss and cash used by
operations in 2016 as compared to 2015. In order to generate
sufficient revenue to achieve profitability, the Company must
successfully maintain its existing relationships and build new
relationships with its customers to develop the reach and
application of the Company's technologies. The Company continues to
face significant risks associated with successful execution of its
strategy. These risks include, but are not limited to, technology
and product development, introduction and market acceptance of new
products and services, changes in the marketplace, liquidity,
competition from existing and new competitors which may enter the
marketplace, and retention of key personnel. There can be no
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