Halosource Inc : Preliminary Results

FOR IMMEDIATE RELEASE12th March 2014

HALOSOURCE, INC.

("HaloSource" or the "Company")

Preliminary results announcement

Seattle, U.S.A. - HaloSource, Inc. (HAL.LN, HALO.LN), the clean water technology company traded on London's AIM, today announces its preliminary results for the year ended 31 December 2013.

2013 Highlights

Continued progress in 2013 with several key achievements and milestones announced, all of which provides a solid foundation for future growth in line with the strategic plan:

o  Drinking Water:  As a key component of our strategic plan we further tightened our focus as innovation partner to global corporations such as Perfect, Tupperware, and Eureka Forbes.  In December 2013 we extended the stand-still agreement with the world's largest gravity-fed water purifier company for another year, continuing to ship cartridges in support of their test market and, ultimately, national launch.  We also completed a supply agreement for pitchers and pitcher cartridges with H2O International, a key conduit to one of the world's largest consumer product companies.

o  Recreational Water: Growth in the segment rebounded in 2013 as we expanded distribution, drove better sales force execution, and brought an exciting new line of consumer and service friendly water care products to market led by our SeaKlear® line of Mighty Pods™ products.  Sales of Mighty Pods products exceeded expectations by a significant margin in our first year of launch and with increasing uptake we are very excited for the future of this convenient form factor as we expand the line to include above-ground pool and hot tub applications in addition to our current in-ground pool line up.  We opened up new distribution channels and geographies with the largest pool and spa retailer in the US and the world's largest retailer.

o  Environmental Water: The business struggled during 2013; however, with most of the issues now behind us and a clear focus on forming strategic partnerships as the route to market, just as in other aspects of our business, we have been able to increase our sales with targeted major industry players. We will continue to focus on deployment of our class leading biopolymer chemistry and our innovation pipeline for this segment through these partners with a bias toward regulated and environmentally sensitive applications.

Joint Statement by the Chairman and CEO

"2013 was another year of great progress for our company as we continued to gain traction with the strategy put in place just under 2 years ago. This focuses our efforts against end user led innovation in water purification chemistry taken to market as components in the treatment solutions offered by strategic partners with significant market reach/reputation and ownership.

This focus in each segment of our business enables our engineers and scientists to create and continuously improve the application of our unique, class leading solutions to the challenges faced by end users and consumers in each aspect of the businesses we serve.

We are establishing ourselves as the innovation partner for a number of important strategic players who are already well established as market and channel leaders in their segments. While many of our solutions are impactful in themselves, they can often be used in conjunction with other chemistry or technologies to significantly improve "system" performance in terms of output, efficacy in contaminant kill and/or removal, as well as improving the safety and environmental footprint of the original technology deployed.

In Drinking Water, deployment of our unique bromine based HaloPure® purification technology not only meets and exceeds U.S. Environmental Protection Agency and China Ministry of Health standards, for germ kill but we are now developing advanced applications which remove other highly toxic water borne contaminants from solution such as lead, arsenic and fluoride.

In Environmental Water, our greener biopolymer solutions provide a far lower or even zero environmental impact footprint when compared with other chemical solutions now in use in applications such as construction, storm water management, simple mining, and oil and gas.  In addition, our solutions can be highly tailored according to each issue being faced and/or used in combination with other established technologies (reverse osmosis, for example) to create significant improvements in output, cost of operation, total cost of ownership and wastage.

Similarly, in the Recreational Water business our focus is on contaminant removal and ease of use/dosing led by our Mighty Pods products which provide crystal clear and clean water while reducing the need for excessive levels of harsh chemicals.  Consumer, Retail and Service industry reaction to our Mighty Pods products format tells us we are onto a real winner in this segment as simplicity, safety and effectiveness at a reasonable premium overcomes the complexity, mess and safety concerns of the backyard chemistry set. 

We are very encouraged by our progress in 2013 and are only now scratching the surface of the huge opportunities that exist for commercial applications of our water purification technology in the global market place. We will continue to focus our approach through the creation of strategic partnerships as the route to market.

We are very excited at the prospects for growth in all segments of our business in 2014 and beyond as we reach for cash flow breakeven and aggressive future growth funded from business operations. We will continue to focus on being a company worthy of our people, our partners, our customers and consumers while making a critical difference in the world by bringing clean water to those we serve."

Financial Review

Group revenue for 2013 increased 21% year-on-year to $16.1 million, driven by significant growth in the Company's Recreational Water revenue to $11.4 million (up 30% from $8.7 million in 2012) and Drinking Water revenue to $3.2 million (up 50% from $2.1 million in 2012). The Company signed several new supply agreements specific to its Recreational Water and Drinking Water businesses which opened up new distribution channels and created continued expansion and awareness of the Company's products in these two segments.

Revenue from the Company's Environmental Water segment of $1.3 million was 37% lower compared with $2.2 million in 2012, which management believes was driven primarily by difficulties in overcoming regulatory hurdles in international markets as well as adverse weather conditions in the western United States. With these issues now behind us and the right partnerships being put in place we anticipate a strong return to growth in 2014 and beyond.

The Company's antimicrobial coatings revenue was $0.2 million, no change from the previous year.

Gross margins, at 41%, improved from 2012, as the Company started to benefit from scale efficiencies across both our Drinking Water and Recreational Water businesses, as well as improved margins due to sales mix and lower raw material costs in our Recreational Water business. Operating expenses totaled $18.6 million, up from $16.6 million in 2012.  The net loss for the year was $12.4 million, essentially unchanged from 2012, which includes the impact of non-cash costs related to share based compensation of $0.6 million and $0.7 million in 2013 and 2012.   During the second half of 2013, the Company embarked on an even more aggressive cost management effort with the goal of lowering spending by 15% in 2014. Management believes improved margins and our cost reduction efforts should reduce cash consumption going forward.

At 31 December 2013, the Company had a total of $13.0 million in cash, comprised of cash and cash equivalents ($1.8 million), restricted cash ($1.9 million) and short-term investments ($9.3 million).  The Company believes it has sufficient capital to fund its plans for future growth and execute against its strategy.

Enquiries

Note 1 - Basis of Preparation

The financial information set out in this document does not constitute the Group's financial statements for years to 31 December 2012 and 2013. The results for 31 December 2013 are unaudited. Financial statements for the year ended 31 December 2013 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 2012 have been reported on by the Independent Auditor. The Independent Auditor's report on the financial statements for 2012 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 2013. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2012. New standards, amendments and interpretations to existing standards, which have been adopted by the Group, have not been listed since they have no material impact on the financial statements.

Note 2 - Litigation

In 2011, HaloSource was named as a defendant in a lawsuit, captioned Molycorp Minerals, LLC ("Molycorp") v. HaloSource, Inc., in the United States District Court for the District of Colorado. The complaint alleged that the Company breached certain provisions contained in non-disclosure agreements entered into in both 2009 and 2010, made fraudulent representations in the 2010 non-disclosure agreement, and misappropriated confidential information of the plaintiff. The plaintiff sought injunctions enjoining the Company from the alleged breaches of contract and control over certain patent applications, damages in an unspecified amount, and a declaration of ownership by the plaintiff in certain patent applications filed by the Company. During the year ended 31 December 2013 the Company and MolyCorp reached a mutually beneficial agreement to settle the claims.

Other than the matter noted above, as of 31 December 2013 and through to 7 March 2014, the date this press release was approved by the Board of Directors for distribution, we were not involved in any other material pending litigation, claims or assessments.

Note 3 - Reclassifications

Certain amounts in the prior period financial statements have been reclassified for comparative purposes to conform to current period presentation with no effect on the previously reported results of operations.

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 2013 unaudited preliminary results announcement was prepared under U.S. GAAP and was approved for issue on 7 March 2014.

The Company anticipates its 2013 audited consolidated financial statements and 2014 Annual Report will be available to shareholders the week of 24 March 2014.

HaloPure, SeaKlear and Mighty Pods are either trademarks or registered trademarks of HaloSource, Inc. All other trademarks or brand names belong to their respective holders.