Halosource Inc : - PRELIMINARY RESULTS

?

FOR IMMEDIATE RELEASE11th March 2013

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 2012.

2012 Highlights

·      Group revenue of $13.3 million, an increase of 10% year-on-year (2011: $12.0 million);

-      Recreational water revenue of $8.8 million (2011: $9.2 million)

-      Environmental water remediation revenue of $2.1 million (2011: $0.8 million)

-      Drinking water revenue of $2.2 million (2011: $1.3 million)

-      Antimicrobial coatings revenue of $0.2 million (2011: $0.7 million)

·      Net loss of $12.4 million, a decrease of 16% (2011: net loss of $14.7 million)

·      Cash used in operating activities of $11.2 million, a decrease of 31% year-on-year (2011: $16.2 million), reflecting the Company's focus on cost control and optimising working capital.

·      Successful $25 million placing in October 2012 strengthened the Company's balance sheet enabling a maximization of the value of the core business segments. Total cash at year end, including restricted cash and short-term investments, was $26.8 million, providing resources to fund strategic growth.

·      Good progress was made in 2012 and several key achievements and milestones were announced, all of which provides a solid foundation for future growth in line with the strategic plan:

o  February 2012: An exclusive supply agreement with Servicios de Ingeniería Geosintética, S.A. ("SIGSA") for sales of certain environmental water products in Latin America and Spain.

o  April 2012: An exclusive partnership agreement with Perfect Water Purification Manufacturing Co. Ltd. ("Perfect"). HaloSource will provide HaloPure®cartridges for use in pressurized water purification devices sold by Perfect through its direct sales channels in China. In November 2012, the Chinese Ministry of Health (MOH) approved the Perfect multi-stage water purifier.

o  June 2012: A major supply agreement with PT. Basuki Water, Indonesia ("Basuki") for sales of the Company's environmental water products throughout the Indonesian market.

o  July 2012: An exclusive supply agreement with RST Environmental Solutions Limited ("RST") for sales of the Company's HaloKlear®environmental water products in New Zealand, and later expanded to include Australia.

o  September 2012: A supply agreement for HaloPure Water Pitchers with Pentair Hidrofiltros' ("Pentair") marking the Company's commercial entry into Brazil.

o  October 2012: Entered into a development and production agreement with Tupperware Brands Corporation ("Tupperware"), the U.S. based global direct selling company, to provide HaloSource's patented HaloPure technology in cartridges for Tupperware's new line of gravity-based water purifiers that will be initially launched through Tupperware India.

o  November 2012: A supply agreement with Enviroclin Bio Solutions ("Enviroclin"), a leading water solutions provider in Malaysia, to market and sell its unique environmental water remediation, dry blend concentrates in Malaysia, Singapore, Thailand and Brunei.

o  November 2012: HaloSource signed a Standstill Agreement and is in advanced testing and commercial planning with one of the world's largest consumer products companies, for deployment of HaloPure-powered gravity water dispensers in China.

o  November 2012: Unveiled a truly revolutionary new product line for treating swimming pool and hot tub water, new SeaKlear®Mighty Pods?. The new line launched with two products initially; "Weekly Pool Care" and "Cloudy Pool Care". Both are designed specifically to make the tasks of pool water cleanup related to cloudy water, phosphate control, and scummy build-up simple to execute with a user friendly dosing system that incorporates the necessary "chemistry" into one easy to use, single dose water soluble pouch.

Martin Coles, President and Chief Executive of HaloSource Inc, said:

"I am satisfied with our performance in 2012 which was a critical year for the company. We have completely overhauled our strategic plan refocusing our efforts and resources against driving consumer/end user led innovation in our technology applications. Additionally, we built our capacity to bring our technologies to market through fewer, deeper strategic relationships with expert partners.

With strong financial backing, solid deal flow, right people/partnerships now in place and a solid year of achievement behind us we are well positioned to accelerate our current growth.

We now have the building blocks for future success firmly in place and we will continue to strengthen this foundation going forward. We have solid momentum exiting 2012 and we expect to accelerate this path in 2013. We will transition our focus from laying the foundation to driving execution and achieving sustainable, profitable growth."

Statement by the Chairman and CEO

2012 was a year of significant change and investment in our people and processes as we execute against our new strategy:

·      Driving fewer, deeper and more meaningful strategic relationships

·      Ensuring we have the right people with the right skills in the right places at the right time

·      Driving a far deeper understanding of consumer/end user needs

·      Innovation against our core technologies

We now have building blocks for future success firmly in place and we will continue to strengthen this foundation going forward. We have solid momentum exiting 2012 and we expect to accelerate this path in 2013. We will transition our focus from laying the foundation to driving execution and achieving sustainable, profitable growth. To this end, in 2013 we will be supporting launch plans for new and existing drinking water devices in both India and China with continuing development of the opportunities in South East Asia and Brazil.

We anticipate the continued adoption and global expansion of our "green" environmental water remediation product line as we expand application through strategic partners into new industries and geographies.

In our recreational water business we will capitalize on the launch and retail/consumer excitement around our new and innovative line-up of Mighty Pod products which will be launched in time for the 2013 pool and spa season. Additionally, we will continue our work in developing the breadth of our offering in this innovative and consumer friendly form.

Our people are truly our most important asset and we will continue to invest in the development and breadth of our talent base in line with the growth of our business.

As an organization, we are committed to delivering against our financial and growth commitments across the exciting segments in which we operate. Further, we are committed to being the kind of company which is worthy of our people and our consumers while making a critical difference in the world by bringing clean water to those we serve.

Jerry Wetherbee	Martin Coles
Chairman	Chief Executive Officer
7 March 2013	7 March 2013

Overview and financials

Group revenue for 2012 increased 10% year-on-year to $13.3 million, driven by significant growth in the Company's environmental water revenue (up 160% from 2011) and drinking water revenue (up 58% from 2011). The Company signed several new supply and development agreements specific to its environmental water and drinking water businesses which opened up new geographies and created rapid global expansion and awareness of the Company's products in these two segments. The Company's recreational water (pool & spa) segment was 4% lower compared with 2011 which management believes is due primarily to inventory optimization efforts related to some of its largest distributors. However, the Company launched its new Mighty Pods late in 2012 and is optimistic about the excitement in the market and Group revenue contributions it will make in the future. The Company's antimicrobial coatings revenue was $0.2 million, $0.5 million lower than the previous year. We believe this decline is temporary and the result of both packaging changes and a reduction in partner distribution outlets during the year. We saw volumes begin to rebound late in 2012 and expect to see modestly increasing volumes in the near future.

Gross margin for the year was 33%, down slightly from 2011. Gross margins came in below expectations due largely to slower than anticipated realization of executed supply contracts in the second half 2012 as well as increased costs for certain raw material inputs which are key to the Company's environmental and recreational water products. Operating expenses totaled $16.6 million, down from $18.7 million in 2011, representing a decrease of more than 10%. The net loss for the year was $12.4 million, down from $14.7 million in 2011, which includes the impact of non-cash costs related to share based compensation of $0.7 million in 2012 and 2011. Absent these non-cash costs, the Company's non-GAAP net loss would have been $11.7 million, down 16% year-on-year.

The Company was successful in raising more than $25.0 million in a secondary offering of its common stock in October 2012. As a result, at 31 December 2012, the Company had cash and cash equivalents, restricted cash and short-term investments totaling $26.8 million. The Company's cash used by operating activities was reduced by over 30% from 2011 and down 24% in the second half of 2012 compared with the same period in 2011. The Company believes it has sufficient capital to fund its plans for future growth and execute against its strategy in the near future.

Business Review

The Company made a number of major changes in its global Sales, Marketing, Business Development and other operating functions around the world. These changes were initiated in order to get closer to customers and end users and allow the Company to react more quickly to local needs and opportunities in the markets in which it operates. As a result of these changes, the Company successfully executed several new partnerships, launched new products, and revived partnerships with key players in certain markets.

HaloKlear (Environmental Water Remediation)

The HaloKlear business saw significant growth in 2012 (160%) driven largely by new partnerships with SIGSA (Latin America and Spain), RST (New Zealand and Australia) and Stormtec (Canada). Additionally, the Company continues to find new partners and new applications for its environmental water solutions in the United States. Innovation continues to be a factor as the Company remains focused on "green" technologies which, in many instances, are higher performing and more cost effective than existing applications. Management is encouraged with the marketplace response to HaloKlear as there is currently over $20 billion spent annually on alternative synthetic, and often toxic, water treatment chemicals.

In 2012, the Company signed four new supply agreements for its HaloKlear products, including the Company's first supply arrangement for the use of HaloKlear in the treatment of municipal water in Malaysia. HaloSource sees significant opportunities for further growth in a variety of industries, including municipal water treatment, construction, oil and gas and mining, each of which produces significant amounts of water requiring remediation before recycling or returning it to the environment.

HaloPure (Drinking Water Purification)

Water Purification revenues increased by 58% driven primarily by newly signed partnerships in China (Perfect), Brazil (Pentair) and India (Tupperware) as well as reinitiating growth with Eureka Forbes in India. 2012 revenues also included a one-time fee of $500,000 related to a standstill agreement with a large multi-national corporation for exclusive rights to gravity-based water purification devices using HaloPure technology in China. HaloPure is the first drinking water technology in 30 years to be registered by the United States Environmental Protection Agency (USEPA), by China's Ministry of Health (MOH) and met or exceeded all appropriate Brazilian standards of the National Institute of Metrology, Standardization and Industrial Quality (INMETRO).

SeaKlear (Recreational Water)

Revenues in the U.S. pool and spa industry, sold primarily under the SeaKlearbrand, were 4% lower. However, the Company has made significant changes in 2012 in relation to its ability to market and sell its SeaKlear products. The Company has re-tooled its sales force adding industry and sales expertise, rebalanced its sales channels for improved focus on key customers, and introduced new and innovative products.

The Company will continue to drive deeper, more meaningful partnerships in this segment while focusing on consumer and end user needs and effectively building awareness for the SeaKlear brand and suite of offerings.

Technology and Product Development

The Company remains focused on innovation across its business segments and will continue to focus on development of next generation synthetic and bio-polymers. Additionally, we believe significant opportunities exist for development of new forms of delivery for our products which could result in significant cost savings for the Company and our customers.

Our synthetic polymer chemistry (HaloPure technology) is continuing to be recognized as world-class in performance and versatility. This is evidenced in 2012 by the partnerships announced in Brazil, China and India and our continued progress in regulatory approvals. Our unique bio-polymer technologies (SeaKlear and HaloKlear technologies) continue to attract global attention given the effectiveness of the product(s) and the environmentally friendly nature of our technology. We continue to focus on enhancing this technology for use in new applications within a broad range of industries such as oil and gas, mining, construction, and municipal water, among others.

Overall, the Company's relentless focus on innovation in its business has resulted in, and will continue to provide, innovative new technologies, intellectual property and products which will provide the Company with new channels, new markets and new partners. This would result in increased market presence and awareness for its products.

Employee Headcount

Employee headcount at the beginning of the year was 138 and as of 31 December 2012 stood at 118. The decrease from the prior year is due primarily to reduced headcount associated with manufacturing personnel in the Company's facility in Bangalore, India. We expect headcount to increase in our Asia Pacific markets in 2013 as we gain traction from new supply agreements and growth opportunities in these markets.

Outlook

We made significant progress in 2012, successfully executing in a number of areas under our strategic initiatives, including the addition of new world-class global partners and the introduction of new, innovative products in, for example, our recreational water segments with the launch of "Mighty Pods?". Our pipeline for growth continues to expand through acquisition of new customers, entry into new markets and a continuing focus on end user led innovation allowing us to attract new users to our unique line-up of water technology products.

Our accomplishments in 2012, together with strong financial backing, solid deal flow, the right people and partnerships in place, and a solid year of achievement behind us, position us well for 2013. We now expect to transition from laying the foundation to driving execution and delivering improved financial performance in the upcoming year.

Enquiries

HaloSource Martin Coles, Chief Executive Officer James Thompson, Chief Financial Officer	http://ir.halosource.com [phone] [phone]
Buchanan Charles Ryland/Clare Akhurst	[phone]
Liberum Capital (NOMAD) Simon Atkinson/Richard Bootle	[phone]

Notes to Editors

About HaloSource

HaloSource (www.halosource.com) is a global clean water technology company headquartered near Seattle in Bothell, Washington, U.S.A. We design solutions to protect people, preserve the planet and celebrate our most valuable resource-water that is safer, cleaner and more accessible for people everywhere.

HaloSource is committed to relentless innovation, industry-leading products and ongoing support for water-related philanthropy. Our proprietary technologies for drinking and recreational water, textile coatings, and environmentally friendly wastewater recycling, enable our partners to rid the world's water of impurities and return it responsibly to the earth.

HaloSource Technologies that Protect Water and Textiles:

·      HaloPure mediais the most flexible, price-competitive disinfection solution for clean drinking water in the industry. In 2009, it became the first drinking water technology in 30 years to be registered by the United States Environmental Protection Agency (USEPA), widely recognized as having the world's most stringent performance requirements for water purification. In 2010, HaloPure media was approved by China's Ministry of Health (MOH) and recognized for meeting the world's most stringent water purification requirements, a key differentiator for our multi-national partners.In Brazil, the use of HaloPure media has met or exceeded all appropriate standards of the National Institute of Metrology, Standardization and Industrial Quality (INMETRO).

·      SeaKlearPool and Spa treatment products bring both natural biopolymers and antimicrobial applications for treating recreational water.

·      HaloShield®products consist of antimicrobial coatings solutions that employ unique technology that binds chlorine-based bleach to textiles such as sheets, lab coats and towels for use as a non-toxic biocide.

HaloSource Technologies that Preserve the Environment:

·      HaloKlearproducts use natural biopolymers providing industrial water clarification with dramatic reductions in ecological impact.

HaloSource Initiatives that Celebrate Clean Water:

·      HaloSource supports organizations dedicated to sustainable clean water projects. Earlier this year, we were proud to be a presenting sponsor in the 2012 Carry5 awareness and fundraising event benefiting Water 1st International. In 2013, the company is working to provide clean water to a village in the Mdolo region of Malawi with their partnerA Barefoot MileFoundation.

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

HaloSource, Inc. and Subsidiaries Consolidated Statements  of Comprehensive Loss
Years ended December 31,	2012	2011
	US$000 (Unaudited)	US$000 (Audited)
Revenue - net	$   13,271	$   12,032
Cost of goods sold	8,900	7,839
Gross profit	4,371	4,193
Operating expenses
Research and development	2,541	2,999
Selling, general, and administrative	14,087	15,738
Total operating expenses	16,628	18,737
Operating loss	(12,257)	(14,544)
Other income (expense)
Other income, net	2	232
Interest income	61	225
Interest expense	(130)	(8)
Foreign exchange loss	(39)	(557)
Total other expense	(106)	(108)
Loss before income taxes	(12,363)	(14,652)
Income taxes	(38)	(44)
Net loss	(12,401)	(14,696)
Other comprehensive income (Loss)
Unrealized loss on available-for-sale investments	(2)	(4)
Foreign currency translation adjustments	15	31
Comprehensive loss	$   (12,388)	$   (14,669)
Net loss per share - basic and diluted	$       (0.14)	$       (0.20)
Shares used to compute basic and diluted loss per share (in 000s)	91,853	74,302

HaloSource, Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 31,	2012	2011
	US$000 (Unaudited)	US$000 (Audited)
Assets
Current assets
Cash and cash equivalents	$           15,635	$           1,265
Restricted cash	1,871	1,842
Short-term investments	9,329	10,298
Accounts receivable, net of allowance for doubtful
accounts of $13 and $19, respectively	3,582	2,554
Inventories - net	3,702	4,152
Prepaid expenses and other current assets	1,090	1,096
Total current assets	35,209	21,207
Property and equipment - net	3,697	2,567
Goodwill	2,180	2,180
Other intangible assets - net	968	1,093
Deposits	264	251
Total assets	$          42,318	$         27,298
Liabilities and stockholders' equity
Current liabilities
Accounts payable	$          2,085	$          1,739
Accrued expenses and other current liabilities	543	647
Salaries and benefits payable	522	1,030
Current portion of debt and capital lease obligations	40	94
Total current liabilities	3,190	3,522
Long-term portion of debt and capital lease obligations	1,276	21
Deferred rent	1,172	36
Deferred tax liability	74	37
Total liabilities	5,712	3,616
Commitments and contingencies
Stockholders' equity
Common stock, no par value; 200,000,000 shares
authorized; 156,193,131 and 74,450,773 issued and
outstanding, respectively	130,097	104,785
Accumulated other comprehensive income (loss)	4	(9)
Accumulated deficit	(93,495)	(81,094)
Total stockholders' equity	36,606	23,682
Total liabilities and stockholders' equity	$        42,318	$        27,298

HaloSource, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31,	2012	2011
	US$000 (Unaudited)	US$000 (Audited)
Operating activities
Net loss	$     (12,401)	$     (14,696)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,094	734
Allowance for inventory, sales returns and bad debts	(55)	151
Share-based compensation	665	655
Loss on disposal of property, equipment and other assets	1	6
Realized losses on short-term investments	18	23
Deferred income taxes	37	37
Changes in operating assets and liabilities:
Accounts receivable	(1,020)	(821)
Inventories	491	(1,868)
Prepaid expenses and other assets	(3)	(121)
Accounts payable	296	(340)
Accrued expenses and other liabilities	(125)	(398)
Salaries and benefits payable	(343)	578
Deferred revenue	-	(151)
Deferred rent	177	(21)
Net cash used in operating activities	(11,168)	(16,232)
Cash flows from investing activities
Purchase of property and equipment	(991)	(1,979)
Purchase of short-term investments	(7,552)	(10,220)
Sales of short-term investments	8,500	15,000
Increase in restricted cash	(25)	(1,842)
Net cash (used in) provided by investing activities	(68)	959
Cash flows from financing activities
Proceeds from common stock offering	25,666	-
Issuance costs associated with common stock offerings	(1,274)	(8)
Borrowings under long-term debt	1,240	-
Repayments of debt and capital lease obligations	(111)	(92)
Proceeds from exercise of stock options and warrants	100	66
Net cash provided by (used in) financing activities	25,621	(34)
Effect of exchange rate changes on cash	(15)	431
Net (decrease) increase in cash and cash equivalents	14,370	(14,876)
Cash and cash equivalents, beginning of year	1,265	16,141
Cash and cash equivalents,end of year	$        15,635	$        1,265

Note 1 - Basis of Preparation

The financial information set out in this document does not constitute the Company's financial statements for 2011 or 2012. The results for 2012 are unaudited. Financial statements for the year ended 31 December 2012 will be finalized based on the information in this announcement.

Financial statements for the year ended 31 December 2011 have been reported on by the Independent Auditor. The Independent Auditor's Report on the Financial Statements for 2011 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 2012. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2011. New standards, amendments and interpretations to existing standards, which have been adopted by the Company, have not been listed since they have no material impact on the financial statements.

Note 2 - Litigation

On 2 December 2011, HaloSource was named as a defendant in a lawsuit, captioned Molycorp Minerals, LLC v. HaloSource, Inc., in the United States District Court for the District of Colorado. The complaint alleges 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 seeks 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. We believe the lawsuit is without merit and intend to continue our defense against this matter vigorously during 2013. Accordingly, no accrual for loss related to this matter has been recorded.

Other than the matter noted above, as of 31 December 2012 and through 7 March 2013, 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 - Supplemental Information

As a supplement to our unaudited U.S. GAAP consolidated financial statements, we present certain non-GAAP adjustments which we believe will help investors evaluate the operating performance of the Company. These non-GAAP adjustments are not to be considered in isolation or as a substitute for U.S. GAAP measures. Their inclusion here is intended to provide additional insight into the operations of HaloSource, Inc.

Share-based compensation - U.S. GAAP requires the recognition of non-cash compensation expense for stock options based on certain accepted valuation models. The calculation depends on multiple estimates and subjective assumptions, especially for companies like HaloSource which have very limited share trading experience in public markets. Additionally, the non-cash adjustment related to share-based compensation for 2011 includes the impact of accelerated share-based compensation expense recognized in relation to the Company's CEO transition discussed in further detail below. These charges were unique given these circumstances during 2011. There are no similar expenses included in the adjustment for 2012.

Severance and related costs - during 2011, HaloSource took steps to reduce its overall operating expenses and other capital commitments including the evaluation and prioritization of capital expenditures, cost reduction opportunities in R&D and SG&A, as well as reductions in headcount. Additionally, in October 2011, the Company announced the resignation of its former Chief Executive Officer, John Kaestle, and simultaneously announced the appointment of its new Chief Executive Officer, Martin Coles. The operating results for 2011 include severance and other similar costs associated primarily with the reductions in headcount and the non-cash expense related to the accelerated vesting of options previously awarded to former CEO, John Kaestle, which the Company believes are of a unique nature. There were no similar expenses in 2012 other than those that would be considered routine in nature and therefore no adjustments have been made for this period.

	2012	2011
U.S. GAAP net loss	($12,401)	($14,696)
Non-GAAP adjustments
Share-based compensation expense	665	655
Severance and related costs	-	762
Non-GAAP net loss	($11,736)	($13,279)

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, the market for and benefits of its products and services, the Company's introduction and deployment of new products, the potential benefits of business relationships with third parties, and the Company's plans and strategies for 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 2012 unaudited preliminary results announcement was prepared under U.S. GAAP and was approved for issue on 7 March 2013.

The Company anticipates its 2012 audited consolidated financial statements and 2013 Annual Report will be available to shareholders the week of 25 March 2013.

This information is provided by RNS

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RNS news service provided by Hemscott Group Limited.