8 Mar 2016 07:00
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® 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 Officer | Via Newgate below |
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 Alex Shilov Lydia Thompson | +44 20 7680 6550 halosource@newgatecomms.com |
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® 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® 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® 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® 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® 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® 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® 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® 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® products through a new partner, along with Australia and expansion in Europe through our existing relationship with Fluidra.
Environmental Water
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® 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® 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)
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Years ended December 31, | 2015 US$000 | 2014 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. | |||||||||||
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HaloSource, Inc. and Subsidiaries Consolidated Balance Sheets |
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As of December 31, | 2015 | 2014 |
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US$000 | US$000 |
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(Unaudited) | (Audited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents | 3,052 | 3,295 |
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Restricted cash | - | 1,552 |
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Short-term investments | 1,504 | 9,985 |
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Accounts receivable, less allowance for doubtful |
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accounts of $23 in 2015 and $294 in 2014 | 7,897 | 8,388 |
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Inventories - net | 2,757 | 2,481 |
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Prepaid expenses and other current assets | 1,274 | 1,528 |
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Current assets held for sale | 463 | 706 |
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Total current assets | 16,947 | 27,935 |
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Property and equipment - net | 1,866 | 2,597 |
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Noncurrent assets held for sale | 150 | 563 |
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Goodwill | 2,007 | 2,180 |
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Other intangible assets - net | 602 | 724 |
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Deposits | 214 | 210 |
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Total assets | 21,786 | 34,209 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable | 3,210 | 2,986 |
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Accrued expenses and other current liabilities | 1,443 | 1,573 |
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Salaries and benefits payable | 415 | 508 |
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Current portion of debt and capital lease obligations | 19 | 1,050 |
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Total current liabilities | 5,087 | 6,117 |
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Long-term portion of debt and capital lease obligations | 6 | 25 |
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Deferred rent | 960 | 1,167 |
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Deferred tax liabilities | 174 | 138 |
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Total liabilities | 6,227 | 7,353 |
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Commitments and contingencies |
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Stockholders' equity |
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Common stock, no par value; 400,000,000 shares authorized; |
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220,278,404 and 220,230,404 issued and outstanding at |
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December 31, 2015 and 2014, respectively | 141,493 | 141,219 |
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Accumulated other comprehensive income | 72 | 225 |
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Accumulated deficit | (126,006) | (114,588) |
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Total stockholders' equity | 15,559 | 26,853 |
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Total liabilities and stockholders' equity | 21,786 | 34,209 |
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See accompanying notes to consolidated financial statements. |
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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 assurance that these efforts will be successful. This situation indicates the existence of an uncertainty which may cast doubt about the Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.
Note 2 - Litigation
As of 31 December 2015 and through to 7 March 2016, the date this press release was approved by the Board of Directors for distribution, we were not involved in any material pending litigation, claims or assessments.
Cautionary Statement:
This press release contains certain forward-looking statements. All statements contained in this press release that do not relate to matters of historical facts should be considered forward-looking statements. Forward-looking statements include statements with respect to the operations, performance and financial condition of the Company, including, but not limited to, cash consumption and sufficiency of capital, the available opportunities, markets for and benefits of its products and services, the Company's innovation and deployment of new products, the improvements to and expanded deployment of existing products, the potential benefits of business relationships with third parties, and the Company's plans and strategies for and expected future growth. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this press release and the Company undertakes no obligation to update these forward-looking statements. Nothing in this press release should be construed as a profit forecast. These statements about future events are subject to risks and uncertainties that could cause HaloSource's actual results to differ materially from those that might be inferred from the forward-looking statements. HaloSource can make no assurance that any forward-looking statements will prove correct.
General Information:
The Company is incorporated and domiciled in the State of Washington, USA. The address of its registered office is 1725 220th Street SE, Suite 103, Bothell, WA 98021, USA.
The Company has its primary listing on the Alternative Investment Market ("AIM"), a sub-market of the London Stock Exchange.
The 2015 unaudited preliminary results announcement was prepared under U.S. GAAP and was approved for issue on 7 March 2016.
The Company anticipates its 2015 audited consolidated financial statements and 2016 Annual Report will be available to shareholders the week of 21 March 2016.
HaloPure, SeaKlear are either trademarks or registered trademarks of HaloSource, Inc. All other trademarks or brand names belong to their respective holders.