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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Halosource CP S | LSE:HAL | London | Ordinary Share | VGG425271126 | ORD USD0.0001 (REG S) (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.55 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
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.
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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
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(END) Dow Jones Newswires
September 11, 2017 02:00 ET (06:00 GMT)
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