HAL.L Regulatory News (HAL)

27 September 2018

HaloSource Corporation

("HaloSource" or the "Company")

Interim results for the six months ended 30 June 2018

HaloSource Corporation (HAL.LN, HALO.LN), the global clean water technology company trading on London Stock Exchange's AIM market, today announces its unaudited interim results for the six months ended 30 June 2018 (H1 2018" or the "Period").

Highlights

· Revenue from continuing operations of $0.9 million (H1 2017: $0.9 million),

· First orders received for the Company's lead reduction technology under its astreaTM brand, with product shipments beginning this month

· Operating expenses from continuing operations increased by 10% to $3.6 million (H1 2017: $3.2 million) largely resulting from non-recurring expenses arising from the Company's re-domicile to the British Virgin Islands ("BVI")

· Net loss of $3.9 million (H1 2017: $3.2 million)

· Net cash and short-term investments at period end of $0.1 million ($1.2 million as at 31 December 2017) before completion of $2.0 million financing (before professional fees incurred) on 10 September 2018

James Thompson, CEO of HaloSource, said:

"HaloSource has always been an innovation company at its core. With world-class technologies we partner with global consumer product companies to provide innovative drinking water purification products. However, since focusing solely on our drinking water business in the last two years, we have recognized the commercial limitations of this go-to-market strategy. As a result, we have augmented our commercial strategy to better leverage our technologies and generate greater returns for our shareholders by launching our own line of drinking water products targeting the US and European hydration markets (bottles and pitchers) while continuing to grow our OEM business in China. With the new astreaTM line of one-of-a-kind heavy metal removal (specifically lead) hydration products, we now believe that we can have greater control over our technology and improve the likelihood of commercial success.

During H1 2018, we announced the successful completion of the first commercial production of our new heavy-metal reduction media in conjunction with our supply chain partner, Chematek SpA. Also, in Q1, we received our first orders from this new strategy via the Indiegogo crowdfunding platform. On World Water Day 2018 (March 22) we launched this crowdfunding campaign in the US targeting health-conscious consumers with our new astreaOne daily filtering water bottle. In a few weeks, we received orders for 1,300 bottles to consumers, with interest from consumers in Europe and Asia in addition to the US. We expect these orders to be fulfilled by mid-October. We followed up this effort by signing our first specialty retail partner, Sur La Table, Inc. a premium retailer selling kitchen and housewares products in over 130 stores in 30 states nationwide, as well as through their website and catalogs. Product to Sur La Table commenced shipping last week.

The market for hydration products in the US is $2 billion and is projected to grow by 25% through 2024 according to Snovus Consulting's analysis published in 2016. Drivers of this growth include; the role of water in health, the backlash against single use plastics and the rising awareness of deteriorating infrastructure first witnessed in Flint, Michigan. The Flint lead poisoning incident was a catalyst for heightened awareness of the issue of deteriorating infrastructure and cities across the US are struggling to provide clean, safe drinking water to their residents. Awareness of the problem of lead in drinking water continues to grow with regular coverage in news outlets across the US and we believe this rising awareness of lead leaching into our drinking water via antiquated piping will increase the demand for daily-use reusable filtering bottles.

As evidenced by our progress in H1 2018, the response to our new, branded hydration product has been positive. AstreaOne is the world's only daily-use filtering water bottle expected to be certified to the NSF53 standard for the removal of lead, thereby clearly differentiating it from other products available in the market category. 

As a management team we can't do any of this without outstanding, experienced people. In 2017, we formed the Astrea Advisory Board, a group of highly accomplished consumer product professionals from companies including Nike, Starbucks, LuLuLemon, Philips and Soma Water. In conjunction with our highly competent and motivated commercial team, this advisory board has been invaluable in providing guidance in areas including design, promotion, brand, strategy, supply chain and business development.

Going forward we will accelerate our strategic pivot by building out further distribution for the AstreaOne line of products. Whether online (at Amazon and our own digital store-front) or additional retail partners, we expect our pipeline to grow significantly over the next year and beyond."

Market Abuse Regulation

The information communicated in this Announcement is inside information for the purposes of Article 7 of Market Abuse Regulation 596/2014 ("MAR"). For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of the Company by Craig Crowell, Chief Financial Officer. 

Enquiries:

About HaloSource

HaloSource Corporation innovates and integrates technologies to deliver clean drinking water solutions to partners with trusted brands around the world. The Company works with scientists and industry experts across the globe in search of new ways to improve drinking water quality and has been awarded more than 30 patents for its ground-breaking chemistries, which provide safe drinking water for more than 10 million consumers globally. The Company's class-leading HaloPure® 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® is a registered trademark of HaloSource, Inc. astreaTM is a new brand in progress of registration for consumer products. All other trademarks, brand names or product names belong to their respective holders.

This document contains certain forward-looking statements relating to the Company. The Company considers any statements that are not historical facts as "forward-looking statements". They relate to events and trends that are subject to risk and uncertainty that may cause actual results and the financial performance of the Company to differ materially from those contained in any forward-looking statement. These statements are made by management in good faith based on information available to them and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

Financial Review

Total revenues from continuing operations in H1 2018 were flat at $0.9 million compared to the prior year. Revenue during the period came primarily from established customers including Perfect and Lonsid. We expect considerably higher revenues in H2 2018, with the full launch of the astreaOne lead bottle in e-commerce channels and at Sur La Table (as previously announced on 18 July 2018), as well as continued sales to established customers in our HaloPure® business in China.

Gross margin from continuing operations was -25%, down from -12% for the same period last year, primarily due to revenues not covering the Company's fixed manufacturing expenses arising from its manufacturing facility in China and a write-down of inventory in China totaling approximately $0.1 million. Operating expenses from continuing operations for H1 2018 totaled $3.6 million, up 10% from $3.2 million in H1 2017. These expenses were higher in the current period as a result of non-recurring legal and regulatory costs associated with the move of the Company's domicile from the US to the BVI, along with marketing, website and design costs associated with the launch of the astreaTM brand in the United States.

Consolidated net loss was $3.9 million for the period, an increase from the net loss of $3.2 million in H1 2017. The increased loss was driven primarily by the increases in operating expenses discussed above. The income from discontinued operations for H1 2018 arose from the final earn-out payment on the sale of the Company's Environmental Water business exceeding the amount previously expected.

Net cash used in operations by the Company was $3.7 million in H1 2018, a 79% increase from net cash used in operations of $2.1 million in H1 2017, primarily as a result of the increased net loss, a build in accounts receivable that were recovered subsequent to the end of H1 2018 and slowing reductions in the size of our inventory compared to the prior year.

After completion of the equity financing, as announced on 10 September 2018, that raised $2.0 million before professional fees the Directors anticipate that the Company has sufficient working capital until approximately the end of 2018. As previously announced, the Directors are continuing to explore means of raising additional capital.

Operational Review

H1 2018 revenues were generated primarily through sales to our two largest customers in China, Perfect and Lonsid. Perfect has been actively promoting their JWL water purification device using HaloPure® cartridges throughout the first half. Perfect also recently confirmed that the next generation JWL device will launch in Q1 2019 and continue to use HaloPure® as the primary technology within. The new device is expected to include an automatic shutoff once the HaloPure® powered cartridge requires replacement, which should drive considerably improved cartridge replacement and sales in following years. As noted previously, we expect to significantly grow sales to Perfect with the launch of the second generation device beginning in 2019.

Lonsid remains our second largest Drinking Water revenue contributor and our technology is now used in five of their reverse osmosis devices, an increase from three devices in previous years. Sales to this customer would have been larger during H1 2018, however we struggled to meet sales demand due to quality issues with plastic parts purchased from third party manufacturers needed to make the Lonsid HaloPure® cartridges. These quality issues were resolved subsequent to 30 June 2018, with plastics now being sourced from a new supplier at a lower cost than the previous, inferior product.

With respect to our astreaTM product, our lead reduction media is now fully scaled at Chematek SpA in Italy, and ready to meet both expected and future demand for the astreaONE bottle. The media will be packaged into cartridges for the bottle at our own facility, while the stainless-steel bottle itself along with other bottle components, are being sourced from a responsible, high quality third party manufacturer in China. This supplier is the same one used by many other high quality hydration brands and we expect them to be fully capable of scaling up their manufacturing to meet astreaONE demand for the remainder of 2018 and beyond, as needed.

People

The Company's headcount at 30 June 2018 was 49, versus 48 at 30 June 2017. Headcount in the United States remained steady, at 12, year over year and we expect it to remain relatively stable going forward. At 30 June 2018, 76% of the Company's headcount is located in India and China, compared to 75% in the prior year.

Outlook

Going forward our keen focus is on the successful launch of the AstreaOne line of hydration products as well as supporting Perfect in the Chinese launch of their new JWL device containing HaloPure® technology (having sold $10 million in cartridges to Perfect with the first generation JWL product). We have a team that is highly focused on the deliverables that matter - growing sales and striving for profitability as soon as possible. For the AstreaOne line, the technology is developed, with NSF 53 certification expected to be received in the very near future; the product is designed, the supply chain is functioning, and the Company has initial orders in hand. Going forward we will expect to accelerate our distribution efforts both online and in traditional retail channels to achieve a profitable scale.

Notes

1. General information

HaloSource Corporation and its subsidiaries (together, the "Company" or "HaloSource") is a global clean water technology company, headquartered in the British Virgin Islands, with subsidiaries in the United States, India and China and operations in other markets around the world through its relationships with partners with trusted brands. The Company's proprietary technologies enable the Company's partners to provide safe drinking water to their customers. HaloSource markets its products under its brand names, HaloPure® and astreaTM.

The Board of Directors approved this interim report on 26 September 2018

2. Basis of preparation

The consolidated financial information as of June 30, 2018 and December 31, 2017 and for the six-month periods ended June 30, 2018 and 2017 has been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). References to U.S. GAAP issued by the Financial Accounting Standards Board ("FASB") in the Company's notes to its consolidated financial statements are to the FASB Accounting Standards Codification, sometimes referred to as the "Codification" or "ASC". They do not include all disclosures that would otherwise be required in a complete set of financial statements and the consolidated financial information should be read in conjunction with the audited annual financial statements for the year ended December 31, 2017, which have also been prepared in accordance with U.S. GAAP and were made available on June 15, 2018. The independent Auditors' Report on that Annual Report and Financial Statements for the year ended 31st December 2017 was unqualified but did include a reference to the uncertainty surrounding going concern, to which the auditors drew attention by way of emphasis. The financial information for the six-month periods ended June 30, 2018 and June 30, 2017 is unaudited.

The same accounting policies, presentation and methods of computation are followed in these interim consolidated financial statements as were applied in the Company's 2017 annual audited financial statements, with the exception of those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2018 and will be adopted in the 2018 financial statements. The new standard impacting the Group that will be adopted in the annual financial statements for the year ended 31 December 2018, and which have given rise to changes in the Group's accounting policies is:

• ASC 606: Revenue from Contracts with Customers

ASC 606 is a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, noting that the Company has adopted the modified retrospective approach. There is no material impact on the adoption of this standard on any revenue stream for the Group, further information is detailed in note 3.

Other new and amended standards and interpretations issued by the FASB that will apply for the first time in the next annual financial statements are not expected to have a material impact on the Group.

Principles of consolidation

The consolidated financial statements include the accounts of HaloSource and its wholly owned subsidiaries: HaloSource, Inc., HaloSource International, Inc., HaloSource Asia, Inc., HaloSource Hong Kong Ltd., HaloSource China, Inc., HaloSource Technologies Pvt. Ltd., and HaloSource Water Purification Technology (Shanghai) Co. Ltd. Intercompany transactions and balances have been eliminated.

Liquidity and capital resources

The Company has incurred net losses and negative operating cash flows since inception, and as of June 30, 2018, the Company had an accumulated deficit of approximately $146.3 million. For the six months ended June 30, 2018, the Company's net loss was $3.9 million and cash used in operating activities was $3.7 million. As of June 30, 2018, the Company has $0.1 million of cash and cash equivalents. Subsequent to June 30, 2018, the Company raised an additional $2 million in equity financing to fund its operations.

The Company has continued to implement certain cost savings measures and implemented other plans that are expected to reduce net loss and cash used by operations compared to prior periods and expects to continue to do so. In order to generate sufficient revenue to achieve profitability, the Company must successfully maintain its existing relationships and build new relationships with its customers to develop the reach and application of the Company's technologies. There can be no assurance that these efforts will be successful. The Company continues to face significant risks associated with successful execution of its strategy. These risks include, but are not limited to, technology and product development, introduction and market acceptance of new products and services, changes in the marketplace, liquidity, competition from existing and new competitors which may enter the marketplace, and retention of key personnel. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. Management believes current funding will be sufficient to finance the Company's operations through the remainder of 2018; however, sufficient funds are not currently available to fund operations for 12 months from the issuance of these financial statements and the Company anticipates raising additional funds in the next 12 months. If adequate funds are not available, the Company may be required to reduce the scope, delay or eliminate some or all of its planned commercial activities. Given that securing additional funds is an uncertain event, management has determined that these conditions raise substantial doubt as to the Company's ability to continue as a going concern.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The financial statements for the period ended June 30, 2018 do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company's ability to continue as a going concern.

Discontinued operations

A discontinued operation is a significant component of the Company that has either been disposed of, or is classified as held for sale, and represents a separate major line of business or is part of a plan to dispose of a separate major line of business. Results from discontinued operations that are clearly identifiable as part of the component disposed of and that will not be recognized subsequent to the disposal are presented separately as a single amount in the consolidated statements of operations and comprehensive loss. Results from discontinued operations are reclassified for prior periods presented in the financial statements so that the results from discontinued operations relate to all operations that have been discontinued as of the balance sheet date for the latest period presented.

3. Recently adopted accounting pronouncements and accounting pronouncements not yet adopted

Recently adopted accounting pronouncements

In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, and has subsequently issued several supplemental and/or clarifying ASUs (collectively, "ASC 606"). The new accounting standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The new standard requires a company to recognize revenue as control of goods or services transfers to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. It defines a five-step approach for recognizing revenue, which may require a company to use more judgment and make more estimates than under the current standard. The Company adopted ASC 606 on January 1, 2018 using the modified retrospective transition method.

The Company determines revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation. The adoption of ASC 606 was applied to all contracts and did not have a significant impact on the Company's accumulated deficit as of the adoption date as the timing of Company's revenue recognition under the new standard coincides with the way the Company previously recognized revenue. There was no impact on the opening accumulated deficit balance as of January 1, 2018 due to the adoption of ASC 606 using the modified retrospective method.

The Company's customer contracts, which may be in the form of purchase orders, contracts or purchase agreements, contain performance obligations for delivery of agreed upon products. Delivery of all performance obligations contained within a contract with a customer typically occurs at the same time. Transfer of control typically occurs at the time of shipment as that is the point at which there is a present obligation to pay and legal title and the risks and rewards of ownership has transferred which outweighs the physical possession or acceptance of the asset by the customer. Thus, the Company will generally recognize revenue upon shipment of the product.

Because all the Company's performance obligations relate to contracts with a duration of less than one year, the Company elected to apply the optional exemption practical expedient provided in ASC 606 and, therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

The Company adjusts the transaction price for variable consideration. Variable consideration is not typically significant and primarily results from volume rebates provided to our customers. As a practical expedient, the Company is recognizing the incremental costs of obtaining a contract, specifically commission expenses that have a period of benefit of less than twelve months, as an expense when incurred. The Company has elected to recognize shipping costs incurred after control transfers to a customer as a fulfillment activity.

The Company's contracts with customers do not typically include extended payment terms. Payment terms vary by contract type and type of customer and generally range from 30 to 60 days from shipment. Additionally, the Company has right to payment upon shipment.

The Company records revenue net of sales tax, value added tax, excise tax and other taxes collected concurrent with product sales. The impact of such taxes on product sales is immaterial. The Company has also elected to recognize the cost for freight and shipping when control over the products sold passes to customers and revenue is recognized.

The Company's revenue for the six months ended June 30, 2018 is derived entirely from sales of drinking water purification products. Substantially all of the Company's revenue is derived from sales of the Company's products to manufacturers who use our products in their drinking water purification devices, representing approximately 95% of net revenue for the six months ended June 30, 2018. Details on the magnitude of sales revenues from the Company's largest customers is disclosed in footnote 9.

Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-2, Leases. The new standard in this update requires that any entity that is a lessee record, for all leases with a term exceeding 12 months, an asset representing its right to use the underlying asset for the lease term and a liability to make lease payments. The update is effective for the Company as of January 1, 2019. The Company's analysis of the impact of the provisions of this ASU is incomplete and is currently in the process of determining if there will be any material effect on its consolidated financial statements. Operating lease obligations are disclosed in footnote 4.

In June 2018, the FASB issued ASU No. 2018-7, Improvements to Nonemployee Share-Based Payment Accounting. Under the revised guidance, the accounting for awards issued to nonemployees will be similar to the accounting for employee awards under ASC 718. This includes allowing for the measurement of awards at the grant date and recognition of awards with performance conditions when those conditions are probable - both of which are earlier than under current guidance for nonemployee awards. The update is effective for the Company as of January 1, 2019. The Company's analysis of the impact of the provisions of this ASU is incomplete but it is not expected that adoption of the revised guidance will have a material effect on its consolidated financial statements.

4. Commitments and contingencies

Litigation and other contingencies

The Company may be subject to a variety of legal proceedings that could arise in the ordinary course of business or from its shareholders. The Company evaluates its exposure to threatened or pending litigation on a regular basis. To the extent it was required, the Company would evaluate the potential amount of loss related to litigation as well as the potential range of outcomes related to such loss. Determining the amount of potential loss and the range of potential outcomes requires significant judgment. The Company will record a loss contingency if an amount becomes both probable and measurable. In addition, any such proceedings, whether meritorious or not, could be time consuming, costly, and result in the diversion of significant operational resources or management time.

Operating leases

The Company has entered into operating lease agreements for its various office and manufacturing facilities worldwide. These leases are in effect through 2022.

Total rent expense under operating lease agreements for the six months ended June 30, 2018 and 2017 was $138,000 and $242,000, respectively.

5. Discontinued operations

The Company disposed of its Recreational Water and Environmental Water businesses in May 2016 and February 2016, respectively. The results of operations for both Recreational Water and Environmental Water have been reported in discontinued operations for all periods presented.

Recreational Water

Under the terms of the disposition agreement, the Company sold its Recreational Water business for total consideration of:

· a cash payment at closing of the disposition of $4,000,000;

· a cash payment of $2,157,000 based upon $3,500,000 adjusted for uncollected receivables, non-saleable inventory and other working capital adjustments; and

For the six months ended June 30, 2018 and 2017, respectively, the Company recognized a gain (loss) of zero and ($1,000) on the sale of its Recreational Water business.

Environmental Water

Under the terms of the disposition agreement, the Company sold its Environmental Water business for total consideration of:

· a cash payment for the book value of inventory and certain capital assets in the amount of $662,000;

· a cash payment of not less than $303,000 and not more than $1,147,000 payable in quarterly instalments based upon revenues of the Environmental Water business for the two-year period post-disposal. For the six months ended June 30, 2018 and 2017, the Company has received or accrued $78,000 and $123,000, respectively.

For the six months ended June 30, 2018 and 2017, respectively, the Company recognized a gain of $67,000 and $71,000 on the sale of its Environmental Water business arising from earn-out payments received in excess of the minimum amounts payable under the terms of the disposition agreement but does not anticipate income taxes to arise from the gain.

The following table details selected financial information for Recreational Water and Environmental Water included in income (loss) from discontinued operations in the consolidated statements of operations and comprehensive loss:

Six months ended June 30, 2018

Six months ended June 30, 2017

The consolidated balance sheet of the Company had no assets or liabilities held for sale from the Recreational Water and Environmental Water segments at June 30, 2018 or December 31, 2017.

The Company's consolidated statement of cash flows for the six months ended June 30, 2018 and 2017 do not include any significant operating and investing noncash items related to discontinued operations.

6. Common Stock

The Company has 563,005,776 and 337,970,964 shares of common stock issued and outstanding as of June 30, 2018 and December 31, 2017, respectively.

In January 2018, the Company announced the placing of 225,034,812 new common shares. The new common shares were issued at a price of 1.25 UK pence per share (equivalent to $0.02 US dollars per share at the time of the placing) on AIM on January 3, 2018 for total gross proceeds of $3.8 million (£2.8 million) and net proceeds of $3.5 million, of which $0.9 million were received prior to December 31, 2017. In connection with the offering the Company sought a waiver from its shareholders since the Articles of Incorporation of the Company provide that each shareholder would have a pre-emption right to purchase its pro-rata share of these new common shares provided that the Pre-emptive Rights are subject to waiver by existing shareholders of the Company holding 75% of the Company's outstanding common shares and voting in person or by proxy at an annual or special meeting of shareholders. The Company was successful in obtaining this waiver.

In April 2018, the Company announced its successful re-domicile from Washington State, USA to the British Virgin Islands. The re-domicile was effected by means of a reverse triangular reincorporation merger, whereby shareholders were issued new shares in HaloSource Corporation, a BVI entity, in exchange for their existing shares in the Company. After the exchange, the Washington State entity, HaloSource, Inc. became a wholly owned subsidiary of HaloSource Corporation without change to the Company's status, for tax purposes, in the US. Accordingly, immediately upon the merger being effective, a shareholder in the Company has the same proportionate interest in the profits, net assets and dividends of the Company as they had before the merger.

7. Income Taxes

Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

As a result of the Company's cumulative losses, management has concluded that a full valuation allowance against the Company's net deferred tax assets is appropriate. No income tax liabilities existed as of June 30, 2018 and December 31, 2017 due to the Company's continuing operating losses.

The U.S. signed into law, on December 22, 2017, tax reform legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act"). The 2017 Tax Act significantly revised the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The 2017 Tax Act also enhanced and extended through 2026 the option to claim accelerated depreciation deductions on qualified property. We completed our determination of the accounting implications of the 2017 Tax Act in conjunction with the 2017 annual report. The impact of the Act on the 2017 annual report was a $16,300,000 reduction in the net deferred tax assets to reflect the new statutory rate. The rate adjustment to the deferred tax assets, a discrete item for the year, was fully offset by a decrease in the valuation allowance so there was no rate impact to the Company. In addition, there was no impact to current or deferred taxes related to the one-time deemed repatriation, as our foreign subsidiaries do not have cumulative positive earnings and profits. No change in circumstances have occurred during the half year.

8. Net loss per share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common and potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of the incremental common shares issuable upon conversion of the exercise of common stock options and warrants. The Company had a net loss for all periods presented herein; therefore, none of the options or warrants outstanding during each of the periods presented have been included in the computation of diluted loss per share as they were antidilutive. Total potentially dilutive shares of 6,989,000 and 7,655,000 of common stock were excluded from the calculations of diluted loss per share for the six months ended June 30, 2018 and 2017, respectively.

9. Business and credit concentration

Essentially all the Company's revenue from continuing operations is generated in emerging market countries, primarily India and China. For the six-month periods ended June 30, 2018 and 2017, two of the Company's Drinking Water customers individually accounted for greater than 10% of the Company's revenue, as well as 81% and 77% in the aggregate, respectively. Accounts receivable from these customers represented 76% and 70% of total accounts receivable at June 30, 2018 and December 31, 2017, respectively. In addition, essentially all raw materials and manufacturing facilities used in continuing operations are sourced from, or located in, the same emerging market countries. These markets represent varying political and regulatory environments that can potentially affect the Company's continuing operations.

The Company also has an accounts receivable balance retained after the sale of its Recreational Water business that represents 10% and 9% of total accounts receivable at June 30, 2018 and December 31, 2017, respectively.

10. Subsequent events

In August 2018, the Company announced the placing of 158,570,498 new common shares. The new common shares were issued at a price of 1 UK pence per share (equivalent to $0.01 US dollars per share at the time of the placing) on AIM on September 11, 2018 for total gross proceeds of $2.0 million (£1.6 million). In connection with the offering the Company sought a waiver from its shareholders as well as an increase in the authorized shares of common stock of the Company from 600,000,000 to 1,000,000,000. The Articles of Association of the Company provide that each shareholder would have a pre-emption right to purchase its pro-rata share of these new common shares provided that the Pre-emptive Rights are subject to waiver by existing shareholders of the Company holding 75% of the Company's outstanding common shares and voting in person or by proxy at an annual or special meeting of shareholders. The Company was successful in obtaining this waiver as well as an increase in the authorized shares of common stock.

In connection with the placing, the Company issued 3,171,410 warrants to the Company's broker. Each warrant is exercisable to acquire one common share at an exercise price of 1 UK pence per share for a five year period commencing 12 September 2018.

At the Company's annual meeting held on 10 September 2018, shareholders approved the adoption of a new equity incentive plan, with 70,000,000 common shares reserved for future issuance.

The Company has evaluated subsequent events through the date on which the financial statements were available to be issued.

11. Cautionary statement

This Interim Report has been prepared solely to provide additional information to shareholders to assess the Company's strategies and the potential for these strategies to succeed. The Interim Report should not be relied on by any other party or for any other purpose. The Interim Report contains certain forward-looking statements with respect to the financial condition, results of operations and businesses of the Company. These statements are made in good faith based on the information available to them up to the time of their approval of this report. However, such statements should be treated with caution as they involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. The continuing uncertainty in global economic outlook inevitably increases the economic and business risks to which the Company is exposed. Nothing in this announcement should be construed as a profit forecast.