EGI.L Regulatory News (EGI)

Electrical Geodesics, Inc.

Results for the year ended 31 December 2014

EUGENE, OREGON, US, 24 March 2015 - Electrical Geodesics, Inc. ("EGI" or the "Company"), a leading neurodiagnostic medical technology company, today announces its audited results for the year ended 31 December 2014.

Operating Highlights

· Development and launch of Net station 5 software

· Award of two major research grants, each worth ~$1.8m over 3 years

· Showcasing of GTEN in June 2014 and award of Investigational Device Exemption (IDE) for non-invasive neuromodulation studies in epilepsy in February 2015

· Expanded commercial collaborations

o Agreement to distribute Soterix Medical products for transcranial stimulation (tDCS)

o Agreement to supply GES 400 systems for use with ElMindA's Brain Network Activation platform

· Placing of 3.1m new shares raising £2.0m ($3.0m) before expenses in March 2015

Financial Highlights

· Revenues up 14% to $13.2m (2013: $11.6m)

· North American sales of $5.5m (2013: $5.6m) with small increase in US offset by lower Canadian sales

· Good international growth to $7.7m (2013: $6.0m) with strong performances in Europe and Asia

· 139 dEEG systems and upgrades shipped at an average $58k (2013: 99 systems at $59k)

· Slight increase in gross margins to 60% from 59% in 2013 and gross profits rose $1.1m to $7.9m

· Loss before tax $3.4m (2013:$3.0m)

· Net cash at year end $1.2m (2013: $4.9m)

Don Tucker, CEO of EGI, commented: "We are pleased to have delivered good revenue growth for the year and to have secured the funding needed to enable us to execute the next phase of our plans. Over the coming months, we will release a series of new and improved diagnostic and imaging products for the research and clinical markets which we expect to drive further growth. With receipt of the IDE from the FDA, we are preparing to commence our feasibility study for our GTEN product in mid-year. We remain excited by the opportunity which offers EGI access to the large and rapidly growing neuromodulation market, initially as a driver of research sales and later as an important clinical tool."

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Notes to Editors

Electrical Geodesics, Inc. in Summary

Founded in 1992, EGI designs, develops and commercialises a range of non-invasive neurodiagnostic and neuromodulation products used to monitor, interpret and modulate brain activity, based on its proprietary dense array electroencephalography ("dEEG") platform technology. The Company's technology uses up to 256 sensors, providing much higher resolution brain activity data compared to conventional 8 or 16 channel EEG and is used in medical, clinical and research settings in a diverse range of applications including important areas such as the diagnosis and monitoring of epilepsy, neurosurgical planning, sleep assessment, and many others.

EGI's dEEG systems, available in the GES 300 and now the GES 400 lines, capitalise on the Company's unique Hydrocel Geodesic Sensor Net which allows faster, easier, and more convenient placement of many EEG sensors in an even distribution over the entire scalp, providing more accurate and precise diagnosis and measurement. EGI's technology is now widely used in neuroscience research laboratories and is becoming more commonly used in clinics, care centers, and hospitals around the world. Data is measured and visualised using EGI's proprietary amplifier technology and software, providing a complete, advanced, high-resolution EEG platform. The Company's products are compatible with multiple diagnostic and imaging technologies, including magnetic resonance (MR) imaging, functional MRI (fMRI), and magneto-encephalography (MEG).

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Glossary

Business Review

EGI designs, develops and commercialises a range of non-invasive neurodiagnostic products used to monitor and interpret brain activity based on its proprietary dense-array electroencephalography (''dEEG'') platform technology. The Group's technology uses up to 256 sensors, providing much higher resolution brain activity data compared to conventional 8 or 16 channel EEG, and is used in medical, clinical and research settings in a diverse range of applications, including important areas such as the diagnosis and monitoring of epilepsy, neurosurgical planning, sleep assessment, and many others.

Founded in 1992, and based in Eugene, Oregon, USA, the Company has operations in the UK, India, China, the Netherlands and Switzerland and has some 90 employees. Sales are driven by EGI's sales team of 17 employees who are supported by a strong international network of distributors. Over 1,000 EGI systems have been installed in some 740 laboratories at over 600 customer sites and in over 50 countries, generating revenues from the initial sale of equipment and from sales of on-going services and consumables. In addition, EGI has received over $28m of US government grant funding since inception, working alone and in conjunction with certain of its customers to deliver numerous research publications which in turn help attract further interest in the Company's technology.

EGI's dEEG systems, available in the GES 300 and the new GES 400 lines, capitalise on the Company's unique Hydrocel Geodesic Sensor Net (the ''Sensor Net'') which allows faster, easier and more convenient placement of many EEG sensors in an even distribution over the entire scalp, providing more accurate and precise diagnosis and measurement. EGI's technology is now widely used in neuroscience research laboratories and is becoming more commonly used in clinics, care centres and hospitals around the world. Data is measured and visualised using EGI's proprietary amplifier technology and software, providing a complete, advanced, high-resolution EEG platform.

At the time of the Company's IPO, the stated aims were to deliver the Company's understanding of brain physiology and advanced dEEG technology to a wider range of customers as a diagnostic and monitoring tool, and to expand into new therapeutic areas as both an imaging technology to map brain activity for use in areas such as the planning of brain surgeries and ultimately as a therapeutic intervention. Through continued innovation, the Company believes it can retain its strong position in the research market whilst delivering products with regulatory clearance for medical and clinical use that take it into the much larger clinical markets for EEG monitoring and neuromodulation.

The Company seeks strategic partnerships in order to build its geographic and market reach. Examples include relationships with Hitachi to co-sell their NIRS products with the Company's dEEG, Soterix in tDCS and, as recently announced, ElMindA Ltd where EGI's dEEG systems are sold alongside their FDA cleared BNATM brain analysis system that is being used in the assessment of concussion.

Building on its proprietary technology base, the Company is now poised to move into the fast growing neuromodulation market through use of its brain imaging technologies and the development and planned commercialisation of GTEN for a range of indications, initially selling as a research tool for use in experimentation and clinical evaluation and later as a therapeutic intervention.

EGI's dEEG systems

Dense-array EEG, using up to 256 electrodes, can provide significantly greater levels of information and accuracy about the brain's function and electrical activity than lower-channel count EEG systems. Alone or in combination with other imaging technologies such as MRI, PET and NIRS, EGI can build accurate estimations of the activity and function of certain parts of the brain or, for example, the likely sites causing seizures in epilepsy patients.

The Company's proprietary Sensor Net allows the rapid and painless placement of the sensors or electrodes on a range of patients from premature babies through children, adults and difficult-to monitor patients, and is a key differentiating factor for EGI's products. EGI continues to develop its Sensor Net product range and has introduced several new sizes to meet customer demand. The MicroCel 100 Sensor Net (the ''MicroCel Net'') is nearing full commercial launch. With its lower pedestals for the electrodes, the MicroCel Net allows simultaneous use of dEEG with technologies such as MEG and TMS. The Company is also planning to develop a Sensor Net that interlinks sensors from technologies such as NIRS allowing concurrent use of these technologies.

The GES 400 platform was launched in mid-2013 and received FDA 510(k) approval in February 2014. With on-board computing capability, the powerful amplifiers offer both research and clinical customers a quick, powerful EEG system capable of modular upgrade, either to higher-channel count systems, as part of multiple linked systems, or multi-modal capability allowing the integration of sister tools and products. EGI's software, algorithms and electrode positioning tools together allow accurate pictures of the location of function of certain parts of the brain when used alongside MRI images of the subject's skull. This creates an ''image'' of electrical activity in the brain, with potential utility in multiple areas of neurology, including epilepsy, depression, autism, planning brain surgery, traumatic brain injury, schizophrenia, stroke, tinnitus and concussion.

Product enhancements

EGI continues to invest in producing the next generation of products for its customers. Projects are underway to ensure compatibility between all Company hardware and software, ensuring customers can acquire a range of EGI products suitable to their needs, each of which works seamlessly with the other. In the coming months, the Company intends to release further software packages and software upgrades which are expected to provide enhanced features such as the use with video cameras, important in areas such as epilepsy monitoring where physical signs can be linked to EEG activity with milli-second precision.

Clinical customers require easy, secure and reliable storage of data. The ability to stream data from the Company's Net Station product to network storage is vital and although interim measures are already available, EGI is planning to include this feature in its next software release to be followed by the launch of its NOLIS database product which would allow integration with database systems to international HL7 hospital standard.

Epilepsy monitoring centres are important users of EEG, with multiple patients monitored over extensive timeframes. EGI is now able to offer competitive solutions in this core market, with a range of easily applied Sensor Nets suitable for overnight monitoring; modular networkable amplifiers and portable, ambulatory systems; rapid intuitive software; database capabilities and integration with physical measurements.

Brain Mapping & Visualisation

Historically, researchers and clinicians have studied brain activity through a number of invasive technologies, including intra-cranial electrodes and stimulators. Whilst EGI products are being adapted to work alongside intra-cranial grids to deliver enhanced information, the Directors believe the Company's 256-channel non-invasive monitoring can localise the onset of seizures, reducing the need for invasive recording. When used in conjunction with EGI's photogrammetry system and GeoSource and GPS software tools, the exact position of the electrodes can be mapped onto a 3-dimensional MRI image of the subject's brain thus allowing, for example, the identification and localisation of the focus of epileptic seizures. Improved versions of the GeoSource and GPS source imaging software, an improved photogrammetry system and additional head-modelling tools are scheduled for launch within the coming months.

EGI has developed workflows that are now being used in several leading teaching hospitals and epilepsy centres to guide brain surgery for epilepsy. These have the potential to lead to compelling product offerings in the planning for general brain surgery through the non-invasive identification of motor areas of the cortex, currently identified through direct stimulation of the brain on patients who remain awake during surgery. Epilepsy monitoring and surgical planning products are core to EGI's clinical strategy.

Neuromodulation - therapeutic intervention

Neuromodulation, using electrical or magnetic stimulation to modify the brain's functioning, is increasingly being accepted as an adjunct to or replacement for pharmacological treatment of major neurological conditions and is an area of growing research interest with numerous and rapidly growing numbers of research papers and clinical studies. DBS technologies are in wide clinical use in areas such as Parkinson's disease and the treatment of depression using TMS technology has received clearance from the FDA. Neuromodulation, a market currently estimated to be worth around US$6bn, is a natural progression for EGI, building on the strength of EGI's products in neurosurgical planning and brain function mapping.

EGI's technology is already being used to identify or localise the position of the sources of epileptic seizures and to assist brain surgery. The enhanced GeoSource 3.0 software is nearing completion and launch is planned in mid 2015, with FDA submission for medical use soon after. Proprietary computational anatomy software captures head tissue properties from MRI and high performance computing is used to model the brain's electrical fields propagating through the conductive head tissues. EGI is able to achieve detailed mapping of cortical activity which the Directors believe will be a key driver of future clinical sales in general neurosurgical planning and neuromodulation.

The Company's novel neuromodulation technology, GTEN, integrates the GES 400 platform technology with capabilities in matching anatomical and electrical features of the head, and its proprietary computational simulations, to deliver highly specific neuromodulation. This is achieved by the delivery of small amounts of electric current to excite or suppress the activity of neurons in specific areas of the brain. Each of the 256 electrodes can be assigned either to modulate or to record electrical activity.

This integrated approach capitalises on EGI's intellectual property and knowledge of the physiology and conductivity of the skull and brain to potentially deliver very precise electrical currents to the targeted region of the brain with immediate feedback of results through simultaneous EEG recording. Subject to receiving CE-mark, EGI intends to launch GTEN for limited research use in mid 2015 and sees opportunities to build revenues through sales to researchers and for use in controlled clinical studies in multiple areas of poorly or unmet medical need including depression, schizophrenia, tinnitus, chronic pain, Parkinson's disease, neuro-rehabilitation with traumatic brain injury, stroke, limb transplant, Alzheimer's disease, Attention Deficit Hyperactivity Disorder, autism and migraine.

Competition

There are a number of established neuromodulation techniques dominated by invasive, implanted DBS technologies from companies such as Medtronic, Inc., Boston Scientific Corporation, St Jude Medical, Inc. and Cyberonics, Inc. and earlier stage technologies such as TMS and tDCS. DBS for the treatment of Parkinson's disease through implanted electrodes is the dominant technology in this market. The Directors believe that EGI's dEEG technology could in certain circumstances enhance DBS by guiding the optimal placement of the implanted electrodes.

TMS, which delivers electrical neuromodulation through a magnetic coil held near to the skull, is an established technology cleared by the FDA in the treatment of depression in certain patient groups. EGI's research has demonstrated that EGI's dEEG and MicroCel Net will allow the simultaneous recording of the impact of TMS as it is delivered, enhancing the precision and effectiveness of the technology.

tDCS is being researched in multiple areas of clinical use. Currently marketed tDCS devices typically use a smaller number of larger electrodes than EGI's GTEN product to deliver electrical stimulation to the brain. As announced in June 2014, EGI has entered into a one year, renewable agreement to distribute certain tDCS products manufactured by Soterix Medical Inc. (Soterix) for transcranial stimulation and transcutaneous spinal stimulation for use under investigational device exemption (IDE) studies. Soterix's products are being used in a number of clinical studies at leading medical research centres in the study of the non-invasive neuromodulation for treatment of major depression, attention disorders, chronic pain and brain injury rehabilitation.

Commercial strategy

The GTEN product (comprising small hardware adaptors and the GTEN targeting software) is nearing completion and is expected to be available for sale to customers for use in research and controlled clinical studies from mid-2015. The Directors believe that GTEN should then deliver an immediate revenue stream from new and existing research customers. GTEN will be offered as an upgrade module to existing customers with GES 400 systems where hardware changes, if any, are expected to be minor and to new customers as part of an entire integrated EEG/GTEN system. The GES 400 EEG platform was designed as an upgradeable, multi-functional product and customers can benefit from its modular nature, choosing to upgrade lower-channel count products to higher density or adding modules such as GTEN to allow greater functionality.

Once approved for clinical use, EGI expects that it will be able to generate significant revenues from the sale of dEEG systems, including GTEN software and consumables and will evaluate the options of providing remote head modelling, targeting services or side effect monitoring, or providing GTEN on a SAAS model. Moreover, the Directors intend to evaluate opportunities to collaborate with technology partners to maximise the commercial value of GTEN in epilepsy and other indications.

Neuromodulation for the treatment of epilepsy

Epilepsy arises in infants from developmental abnormalities in brain tissue, whilst trauma is a major cause among both children and adults. There is a high prevalence of epilepsy (~85 million patients globally) with significant levels of unmanaged or poorly managed patients from infants through to adults and large numbers of drug-resistant or drug-refractory patients. Research studies have indicated the potential for neuromodulation to reduce the incidence and severity of seizures. Evidence from international research centres shows that even somewhat crudely targeted tDCS and TMS can suppress spikes and seizures for a period of days or even weeks. Moreover, EGI has an established position in epilepsy. Its dEEG systems are now used in leading epilepsy centres worldwide, and are being applied by leading epileptologists to identify the position of the sources of epileptic seizures to assist in brain surgery. The Company's global presence has provided access to key opinion leaders (''KOLs'') willing to participate in clinical trials aimed at an FDA-approved treatment. These factors have encouraged the Company to choose epilepsy as the first area in which to evaluate GTEN.

Potential use of GTEN in the treatment of epilepsy

GTEN delivers precise electrical currents to a specific region of the brain through EGI's core GES 400 technology platform and can deliver targeted electrical modulation with immediate feedback of results via dEEG recording. GTEN uses the brain's natural electrical fields to plan transcranial electrical neuromodulation. A computational model calculates the optimal pattern of ''sources'' and ''sinks'' in the 256 dense array, and the patient's individual head model shows the specifics of electrical pathways. Precision targeting of treatment is expected through EGI's Proprietary Discriminative Cortical Surface Vector (DCSV) targeting which seeks to maximise current to target, and minimise current to non-targets.

Pre-clinical testing with the GTEN prototype system has shown that conventional tDCS manipulations, such as of the excitability of areas of the motor cortex using GTEN, work as expected from published literature. GTEN has been demonstrated to modulate cortical activity noninvasively, and if successful and subject to regulatory clearance, the Directors believe that the Company's existing sales channel would be able to market a successful GTEN epilepsy treatment to clinical customers.

Clinical development plan

The Company proposes to conduct a feasibility and safety study at two sites to demonstrate the effectiveness of GTEN in the temporary suppression of seizures in drug-resistant epilepsy. This study will seek to establish that GTEN is safe in not increasing the number of seizures and effective in reducing the incidence of interictal epileptiform discharges (spikes) as a primary endpoint. The patient numbers will vary depending on the level of treatment effect but the initial expectation will be to recruit and treat 20-30 patients over the next 12 to 18 months.

Support and interest in study participation has been received from leading epilepsy research centres, including Harborview Medical Center University of Washington, Beth Israel Deaconess Medical Center, Harvard Medical School, and Stanford Hospital Epilepsy Center in the U.S., and Huashan Hospital, Shanghai, China. The feasibility study will be conducted at Harborview and at EGI's own facility under the direction of an outside neurologist although the other centres remain keen to be involved in the assessment of the technology. EGI plans to develop reimbursement strategies as the study progresses.

If successful, a review of the design of pivotal studies with the FDA and potential trial investigators will follow on from safety and feasibility results with the same primary endpoint of the reduction of spikes and a possible secondary endpoint of the reduction in seizures. At that point, the Company will review the options available to it in order to run pivotal studies, based on the success of the study, the uptake of GTEN in research, the availability of relevant grant funding, partner support and other finance.

Regulatory status

As potentially the first non-invasive neuromodulation device under development to reduce seizure incidence, understanding the pathway to approval as a clinical treatment is important. EGI has engaged with the FDA over the last nine months in relation to the design of the upcoming feasibility and pivotal studies. The FDA has advised that whilst tDCS is generally a technology designated with no significant risk, given the special concerns of delivering any neuromodulation to patients with epilepsy, that the feasibility study requires an Investigational Device Exemption (IDE) which has now been received. In the longer term, the Company interprets the feedback from the FDA pre-submission meeting to indicate a de novo 510(k) is the likely path for regulatory approval.

Total costs for the feasibility study are expected to be around $0.5m, depending on a number of factors, including the speed of patient recruitment, patient numbers, treatment effect and length of treatment.

Neuromodulation for the treatment of depression and other areas

Depression is an attractive market for neuromodulation given its high incidence, poorly-treated patient population and proven relationship to abnormal neuronal activity. 25-30% of all patients with major depression are still refractory after trying two drugs. Data from the US Center for Disease Control state that at any given point in time 4.1% of the population has major depression and another 5.1% has some other form of depression. TMS is already cleared as a neuromodulation treatment in severe depression, and the Directors believe there are opportunities to improve TMS and also DBS through the simultaneous use of dEEG to guide the treatment and monitor its effect. Furthermore, the Directors believe GTEN itself could be an effective tool in treating depression.

At this stage, the Company is not intending to finance clinical studies in depression but will look for partnering opportunities to demonstrate the utility of its products. The Company's GES 400 and GeoSource products are being already being used by researchers alongside DBS treatments to improve accuracy and effect. EGI is in negotiations to gain distribution rights to TMS devices and neuro-navigator software systems, which EGI might then seek to clear for clinical use through a predicate device FDA 510(k) process. Compatibility of EGI's GES 400 system with TMS devices and EGI's new MicroCel Net is expected to drive revenues from both research and clinical markets in 2015.

Financial Review

Revenues for the year were $13.2m, an increase of 14% over 2013. In addition, the Company recognised grant income of $0.6m in the period. Orders valued at $0.3m were received before the year end but were not able to be shipped and further orders for $0.5m were received immediately after the year end, delivering a strong start for 2015.

A total of 139 GES EEG systems and upgrades were shipped in 2014 (2013: 99), an increase of 40% and 15 Avatar portable EEG devices were also sold (2013: 4), delivering a very solid increase in the Group's customer base. Our GES systems are now installed in 740 laboratories or clinics, an increase of 92 in the year. Our installed base in translational and clinical sites rose by 36 to 185 clinics.

Increased sales were seen across the entire dEEG product range, with average system prices in the second half of the year higher than seen in the first half. North American sales were $5.5m (2013: $5.6m) with US sales slightly ahead of the prior year but with a reduction in Canadian orders. International sales were strong with Europe contributing revenues of $4.6m (2013: $3.5m) and Asia $2.9m (2013: $1.9m).

The change in balance between direct sales and sales through distributors also impacted on sales pricing and gross margins as did sales mix. Gross margins for the year were 60%, a slight increase over 2013.

Sales by product type were as follows:

Grant income at $0.6m ($0.3m net of third party costs) was similar to that seen in 2013, although the receipt of two major, three-year grants which became effective from Q4 2014 should deliver increases in 2015 and 2016.

Gross operating expenses were $13.2m before capitalisation of $1.4m of development costs (2013: $11.8m gross before capitalised development of $1.3m). Internal R&D expenses rose from $3.7m to $4.3m as activities increased. General and administrative costs rose from $3.8m last year to $4.3m this year, $0.4m of this increase related to increases in non-cash charges being amortisation and share-based payments. Sales, marketing and support costs increased 17% from $3.8m in 2013 to $4.3m, slightly ahead of the increase in revenues.

Overall the business generated a pre-tax operating loss of $3.4m for the period compared to a loss of $3.0m in 2013. Tax credits of $0.1m have been applied (2013: $0.7m) and the loss per share is 13.7c (2013: 9.7c).

Within the balance sheet, intangible assets increased by $0.8m during 2014 to $3.0m, the majority of which relates to the development of the GES 400 products and Net Station 5 software plus the intangible assets of $0.3m arising on the acquisition of Avatar EEG Solutions, Inc. in 2013. The net book value of fixed assets rose $0.2m to $1.8m, mostly in additional demonstration devices for sales and marketing.

Inventory reduced by $0.5m to $1.7m as the requirement to maintain stocks of components for multiple product lines reduced as the GES 400 systems and Net Station 5 received FDA clearance.

Trade receivables reduced slightly by $0.1m to $3.0m and trade and other liabilities were broadly steady, although deferred revenue for warranty and support contracts yet to be delivered increased by $0.2m to $1.6m.

Cash balances at 31 December 2014 were $1.2m (2013: $5.0m) and the $1.25m bank debt facility remained undrawn at the year-end. The funds are generally held in a series of short-term certificates of deposit spread amongst a range of banks at levels protected by federal guarantees. Following a successful placing of shares in March 2015, the Group raised a further £2.0m of funds ($3.0m) before expenses.

Outlook & Strategic Goals

EGI's strategic goals for the near to mid-term are as follows:

· to maintain EGI's position as the leading provider of EEG solutions and tools to the neuroscience research community;

· to provide clinical customers with a full range of compatible, upgradeable solutions for their EEG imaging and neuromodulation needs and build market share;

· to establish EGI's technology as the leading solution for targeting and imaging brain activity to map and guide brain surgery in epilepsy and general neurosurgery using dEEG and GTEN;

· to establish GTEN as a leading neuromodulation tool in research and deliver effective, targeted non-invasive neuromodulation in epilepsy to build clinical utility;

· to improve market share through strengthening of sales channels, strategic alliances, continued product improvement and innovation.

The recently raised funds will be deployed to meet the Directors intent to drive the business towards profitability and sustainable value.

In particular, the Company has set a number of key performance indicators, which include a target of 20%-25% sales growth over the near term, supported by the current sales momentum, the planned launch of GTEN for research use and a number of new and improved products that have been financed by the IPO proceeds and are now scheduled for in mid 2015. The Directors are also targeting a gradual improvement in gross margins, driven by increased sales of higher-margin software and other products and efficiencies of scale and a tight control of costs, looking to keep increases at around 15% p.a. in order to leverage the sales growth to an increase in operating margins. Increases are expected in sales, marketing and support costs in order to deliver the planned increase in sales and customer base. Underlying research & development costs are expected to increase by a small amount and the Company also intends to finance a feasibility study for its GTEN device in the treatment of epilepsy.

The Directors intend to develop the value of the underlying diagnostic and monitoring business and to deliver and retain value in GTEN, bringing the feasibility study to completion by early 2016 whilst assessing options to develop the product fully, including assessing relevant grant funding and strategic industrial partnerships.

Consolidated statement of comprehensive income for the year ended 31 December 2014

The notes on pages 13 to 27 are an integral part of these financial statements.

Consolidated statement of financial position as at 31 December 2014

The financial statements on pages 9 to 27 were approved and authorised for issue by the Board of Directors on 23 March 2015 and were signed on its behalf by Christine Soden, Chief Financial Officer

The notes on pages 13 to 27 are an integral part of these financial statements.

Consolidated statement of changes in equity for the year ended 31 December 2014

Note: 100% of equity is attributable to equity owners of the parent company

The notes on pages 13 to 27 are an integral part of these financial statements.

Consolidated statement of cash flows for the year ended 31 December 2014

The notes on pages 13 to 27 are an integral part of these financial statements.

Electrical Geodesics, Inc.

Notes to the consolidated financial statements for the year ended 31 December 2014

1. General Information

Electrical Geodesics Inc. (the "Company" or "EGI") was initially incorporated in Oregon, USA on 12 May 1992 and on 18 March 2013 was reincorporated and merged into a Delaware corporation formed on 30 January 2013 for the purpose of effecting the reincorporation merger. The principal address of EGI is 500 East 4th Street, Suite 200, Eugene Oregon 97401 and the principal activity of the company is the design, manufacturing, sale and support of research and medical devices and instrumentation. On 3 April 2013 the Company issued 6,666,667 new ordinary shares raising $10.1million in net cash and was admitted to AIM.

In assessing performance and making resource allocation decisions, the Company's Executive Committee (its chief operating decision-making body) considers the business as a single operating unit, being the development and sale of equipment and embedded software for high-density electro encephalography to customers worldwide either directly or through distributors. The business is managed on an integrated basis. Accordingly no segmental analysis is presented in these financial statements.

2. Significant Accounting Policies & Basis of Preparation

(a) Basis of preparation

These consolidated financial statements have been prepared in accordance with applicable International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs) and International Financial Reporting Interpretations Committee (IFRIC) interpretations (collectively IFRSs) as adopted for use in the European Union and as issued by the International Accounting Standards Board.

These consolidated financial statements have been prepared under the historical cost convention, unless otherwise stated in the accounting policies.

Having considered uncertainties under the current economic environment, and after making enquiries, the directors have a reasonable expectation that the Company and Group have adequate resources to continue in operation for the foreseeable future. Accordingly, they have adopted the going concern basis in preparing the financial statements.

The following Standards and Interpretations, relevant to the Group's operations that have not been applied in the consolidated financial statements, were in issue but not yet effective or endorsed (unless otherwise stated):

The directors anticipate that the adoption of these Standards and Interpretations as appropriate in future periods will have no material impact on the financial statements of the Group.

(b) Fiscal year

 EGI's accounting period ends on 31 December annually.

(c) Currency

The consolidated financial statements are presented in US dollars, which is the functional currency of the Company and are rounded to the nearest ($'000) except when otherwise indicated.

(d) Presentation of financial statements

The consolidated financial statements are presented in accordance with IAS 1 Presentation of Financial Statements (Revised 2007). The Company has elected to present the 'Statement of comprehensive income' in one statement: the 'Consolidated statement of comprehensive income '.

(e) Basis of consolidation

The accompanying consolidated financial statements include the accounts of Electrical Geodesics, Inc., and its subsidiary companies (the "Group") as detailed in note 11. All significant intercompany balances and transactions have been eliminated on consolidation.

The acquisition method of accounting is used in accounting for the acquisition of subsidiary undertakings. Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity to obtain economic benefits from its activities. The cost of an acquisition is measured as the fair value of the assets, equity instruments issued and liabilities incurred or assumed at the date of exchange. Costs directly attributable to the acquisition are expensed as incurred. On acquisition, the assets and liabilities of a subsidiary, including identifiable intangible assets, are measured at their fair value at the date of acquisition. The results and cash flows relating to the business are included in the consolidated financial statements from the date of combination. Acquisitions of entities that do not meet the definition of a business are accounted for as asset acquisitions rather than business combinations. On an asset acquisition, the consideration paid is allocated to the assets acquired.

(f) Revenue recognition

Revenue is derived from the sale of goods and the rendering of services. The Group follows the principles of IAS 18, "Revenue Recognition", in determining appropriate revenue recognition policies. Revenue from commercial product sales is recognised in the period the product is shipped, title passes to the customer, and all substantive obligations have been met, the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists, and the sales price is fixed and determinable. Shipping and handling charges to customers are included in revenues and related costs incurred by the Group are included in cost of sales.

EGI enters into commercial contractual arrangements that include the delivery of multiple elements, including a medical device, with embedded diagnostic software and one or two year of post contract customer support (PCS). The software and hardware function together to provide the device's essential functionality. Contracts generally do not include any performance, cancellation, termination, or refund provisions. Devices are generally delivered to customers upon inception of the contract with PCS provided over a one or two year service period. Consideration allocated to the device including the diagnostic software is recognised as revenue upon delivery and consideration allocated to PCS is recognised as revenue ratably over the service period.

Amounts receivable under grants are recognised as other income on a systematic basis over the periods in which the Group recognises as expenses, the related costs for which the grants are intended to compensate. Government and other grants are recognised only when there is a reasonable assurance that the Group will comply with the conditions attaching to them and that the grant income will be received.

(g) Operating expenses

Operating expenses are recognised in profit or loss upon utilisation of the service or at the date of their origin. Expenditure relating to warranties on products sold is recognized and charged against the associated provision when the related revenue is recognised.

(h) Borrowing costs

Borrowing costs are expensed in the period in which they are incurred and reported in finance costs.

(i) Research and development expenditures

Expenditure on research is recognised as an expense in the period in which it is incurred. Costs that are directly attributable to the development phase of new products are recognised as intangible assets provided they meet the following recognition requirements:

· completion of the intangible asset is technically feasible so that it will be available for use or sale;

· the Company intends to complete the intangible asset and use or sell it;

· the Company has the ability to use or sell the intangible asset;

· the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;

· there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

· the expenditure attributable to the intangible asset during its development can be measured reliably.

Development costs not meeting these criteria for capitalisation are expensed as incurred. Costs directly attributable to a project may include certain employee costs incurred on product development along with an appropriate portion of relevant overheads and borrowing costs. The costs are amortised over their expected commercial life from the point of full commercialisation, usually five to seven years.

(j) Impairment of assets

The Group assesses at each reporting date whether there is an indication that the value of an asset may be impaired. If any such indication of impairment exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. The recoverable amount of an asset or cash-generating unit is the higher of its fair value less costs to sell, and its value in use, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets or cash-generating units. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognised in the income statement in those expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have diminished. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior periods. Such reversal is recognised in the income statement. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. 

(k) Trade and other receivables

Trade receivables, which generally have payment terms of 30 days, are recognised and carried at the original invoice amount less an allowance for any uncollectible amounts. Exceptions to the Group's standard payment terms occur in some markets. Accounts that remain outstanding longer than the contractual payment terms are considered past due. The Group determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, the Group's previous loss history, the customer's current ability to pay its obligation to the Group, and the condition of the general economy and the industry as a whole.

(l) Liabilities

The Group's liabilities include borrowings, trade, and other payables. Liabilities are measured at amortised cost using the effective interest method except for liabilities held for trading or designated at fair value through profit or loss, that are carried subsequently at fair value with gains or losses recognised in profit or loss. Notes payable are measured at fair value, being net proceeds after deduction of directly attributable issue costs, with subsequent measurement at amortised cost. Notes payable are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowing costs are expensed in the income statement within finance costs. Arrangement and facility fees together with bank charges are charged to the income statement within administrative expenses.

(m) Inventories

Inventories are stated at the lower of cost or net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Cost of raw materials is determined using the first-in, first-out (FIFO) method for all inventories of the Company. Inventory is written down on a case-by-case basis if the anticipated net realisable value declines below the carrying value of the items. Work in Progress is carried in inventory at the cost of materials used in the work.

(n) Deferred Taxation

The Group recognises deferred tax liabilities and assets for expected future income tax consequences of events that have been recognised in the Group's financial statements, which will either be taxable or deductible when the assets and liabilities are recovered or settled and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Group is subject to taxation in various jurisdictions in the U.S, Canada and the UK. Deferred tax assets and liabilities arising in the same tax jurisdiction are offset. The carrying value of the amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all, or part, of the tax asset to be utilised in the reasonably foreseeable future. In making this assessment the Directors review the expected trading over the ensuing three years.

(o) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

(p) Property, Plant, and equipment

Property, plant and equipment is recorded at cost and depreciated over the estimated useful lives of the assets, using the straight-line method. Leasehold improvement costs are written off over the life of the underlying lease or the service life of the improvements, whichever is shorter. Repairs and maintenance expenses are charged to the income statement as incurred. The Group reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Gains or losses arising on the disposal of property, plant, and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognized in profit or loss within other income or other expenses. Property, plant, and equipment are recorded at cost. Depreciation, using a component-based approach, is calculated using the straight-line method to allocate the cost over the assets' estimated useful life as follows:

(q) Intangible assets

Intangible assets include development expenditures (see note (i) above Research and development expenditures) acquired technologies and patents. Development expenditure is capitalised until initial commercialisation of the product and, thereafter, amortised on a straight-line basis over 5 years which is the estimated useful commercial life of the product. The cost of acquired patents is amortised on a straight-line basis over their estimated useful lives, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date. Patents are amortised generally over 15 years or the remaining patent life if shorter. Acquired technologies are amortised over their expected useful commercial life. The technologies acquired with the Acquisition of Avatar EEG Technologies, Inc will be amortised over seven years. The gain or loss arising on the disposal of an intangible asset is determined as the difference between the proceeds and the carrying amount of the asset, and is recognised in profit or loss within other income or other expenses.

(r) Leased Assets

Assets held by the Group under finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the item or, if lower, at the present value of the minimum future lease payments.

Assets acquired under finance leases are depreciated over the estimated useful life of the asset or where there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, over the lease term if shorter. Payments on operating lease agreements, being leases where the lessor retains a significant portion of the risks and benefits of ownership, are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.

(s) Employee Benefits

The Company has adopted a 401(k) savings plan for all eligible employees. All US resident employees are eligible to participate in the plan after reaching age 18 and completing six months of service with the Company. Employees may defer compensation up to the limits prescribed by the U.S. Internal Revenue Code. The plan provides a discretionary employer matching contribution and a discretionary, employer profit sharing contribution.

(t) Significant Accounting Estimates and Key Sources of Estimation Uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below together with the management judgments made in applying the accounting policies of the Group that have the most significant effect on the financial statements.

Recognition of revenues

Determining when to recognise revenues from multiple-component transactions requires an understanding of the customer's use of the related products, experience and market knowledge..

Capitalisation of internally developed software

Distinguishing the research and development phases of a new product and determining whether the recognition requirements for the capitalisation of development costs are met requires judgment. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired (see note j).

Useful lives of assets

The expected lives of intangible assets is estimated based on operational experience and the expectation that any major software or hardware upgrade will be commercially viable for around 5 years before being replaced by future upgrades. Should any asset prove to have a shorter or longer commercial life then the carrying value of that asset may require adjustment.

Recognition of deferred tax assets

The recognition of deferred tax assets is based on an assessment of the probability of the Company's future taxable income against which the deferred tax assets can be utilised. In addition, significant judgment is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions (see note 8).

Deferred tax

The company believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Company to change its judgment regarding the adequacy of existing tax liabilities, such changes to tax liabilities will impact tax expense in the period that such determination is made.

Recognition of revenue and other income

The amount recognised as other income under grants may not be collected from the funding bodies if they disagree with the Company's view that the underlying performance criteria have been met.

Going Concern

The accounts have been prepared on the going concern basis based on the Director's assessment of expected future trading and available cash resources, including the proceeds of the equity financing completed in March 2015. Where the Director's conclude the Group has sufficient funds to continue trading for the reasonably foreseeable future (at least 12 months from the date of the review) the going concern basis is deemed an appropriate basis upon which to prepare the financial statements.

3: Revenue Analysis

Revenues from external customers were generated from the US and were derived from customers in the following geographical areas:

4: Other Income

The Company has secured a series of grants from the US Departments of Health and Human Services and the Department of Defense in support of various research projects in the field of EEG. Grant income based on cost reimbursement and contract revenue is recognised as the relevant qualified expenses are incurred and when there is a reasonable assurance that the revenue will be received. Unreimbursed expenses are recognised as grant and contract receivables at year-end. Cost reimbursement grant and contract revenue is recognised as the relevant qualified expenses are incurred.

5: Expenses

The loss before taxation is stated after charging:

* Of the 2013 charge of $262k, $254k was deducted against the share premium arising on the issue of ordinary shares in April 2013.

Of the total employment costs, $1,210k (2013: $999k) were capitalised into intangible assets. The Executive Directors and employees were entitled to participate in a discretionary bonus plan in both 2013 and 2014 and the stock option plan. No bonuses were awarded under the plan in 2013 or 2014.

6: Finance income & finance costs

Finance costs and finance income for the reporting periods consist of the following:

7: Earnings per share

Basic earnings per share amounts are calculated by dividing the loss or profit after taxation for the year by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the profit after taxation for the period by the weighted average number of ordinary shares outstanding during the year (adjusted for the effects of dilutive options). In the case of a loss, no impact for further dilution is reflected as this would not have the effect of increasing the loss per share and is therefore not dilutive. The weighted average number of shares in issue for 2013 was adjusted to reflect the 17.5:1 share issue effective on the Company's merger into a new Delaware company in March 2013.

8: Taxation

The charge or credit to taxation consists of income taxes currently due or refundable plus deferred taxes arising from the timing differences between financial and income tax reporting. The income tax benefit is comprised of the following:

The provision for income taxes differs from the amount obtained by paying the US Federal income tax rate to pretax income as follows:

* Effective rate of 31.4%

A valuation provision of $1,460,000 (2013: $620,000) was made against the deferred tax asset in 2014, calculated in line with a policy set by the Board whereby provision is made where the benefit of the net operating losses underlying the deferred tax asset are not expected to be utilised within the next three years. The provision for deferred income taxes results from timing differences in the recognition of transactions for financial statement and tax purposes. The nature and tax effects of these differences were as follows:

As at the year ends, the Company recognised in the balance sheet deferred tax assets and liabilities as follows:

The net deferred tax assets relate primarily to the benefit of the Company's historical state and federal tax losses carried forward plus the tax effect of certain timing differences, on the basis that there is sufficient evidence in the form of projected future profitability to conclude that the recoverability of the losses and timing differences is probable.

9: Intangible Assets

During the year the Group capitalised $1.4m (2013: $1.6m) of expenditure incurred on intangible assets, principally on the GES 400 and Net Station 5 platform products and in 2013 acquired intangible assets of $0.3m as part of the business combination described below. There were no business combinations in 2014. The internally developed products are typically amortised over 5 years from the date of completion, determined by the expected useful life of the asset. The expected useful life of the assets acquired with Avatar EEG Solution, Inc. is 7 years. Amortisation charges are included in general and administrative costs.

10: Property, Plant, & Equipment

Assets with a book value of $Nil (2013: $4,000) were held under finance leases and the depreciation charge relating to those assets was $2,000 in 2014 and 2013. Depreciation charges are included in the expense category in which the relevant assets are utilized.

11: Investment in subsidiaries

The Company has three subsidiary companies, two incorporated in Oregon USA and one in Canada. The company owns 92.5% of the issued share capital of Cerebral Data Systems Inc. and 100% of the issued share capital of Geomedica Inc and Avatar EEG Solutions Inc. "Avatar"). Cerebral Data Systems' only assets are the rights to certain intellectual property, carried at $Nil within the consolidated balance sheet at each of 31 December 2013 and 2014. Geomedica Inc. is currently dormant and was dormant throughout 2013 and 2014 and has no assets or liabilities. Neither of these subsidiary companies traded in ether year and there were no inter-company transactions, loans or balances at either of the balance sheet dates and no guarantees have been given or received. On 1 October 2013 the Company acquired all of the issued share capital of Avatar for a cash consideration of $325,000. The trading of Avatar since acquisition has been recognised in EGI.

12: Inventories

All of the Company's inventories have been pledged as collateral security for certain of the Company's bank borrowings.

13: Trade and other receivables

The Directors consider that the carrying amounts of trade and other receivables approximate to their fair value and are not impaired. All balances receivable were denominated in US$.

14: Other current assets

15: Cash and cash equivalents

Cash and cash equivalents consist of the following:

16: Borrowings

The Company has three bank finance facilities secured against the current and non-current assets of the Group. The first is a $1.25m line of credit. The second is a 3-year term line of $750k, amortising over 3 years of which $44k is still outstanding. The third is a $200k facility supporting company credit cards. All borrowings are denominated in US$.

17: Trade and other payables

Trade and other payables principally comprise amounts outstanding for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Accounts payables are non-interest-bearing and are initially measured at fair value and thereafter at amortized cost using the effective interest method. The average credit period taken for trade purchases in each year was 30 days. Accrued expenses relate primarily to general and administrative expenses and certain payroll costs. Many products are sold with warranties and provision is made for the expected costs of meeting those warranties. Deferred revenues arise when the Group generates revenues from after-sales service and maintenance, and consulting. Consideration received for these services is initially deferred, included in other liabilities and is recognised as revenue evenly in the period (usually 12 months) over which the service is performed.

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

18: Operating lease commitments

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

The Group entered into a new 5-year property lease on 1 August 2013. The initial annual rental was $480,000 and is subject to annual inflation-based increases.

19: Capital commitments

The Group had no material capital commitments as at 31 December 2014 or 31 December 2013.

20: Share capital and share premium

The Company has one class of ordinary share which shares carry no rights to fixed income. On 18 March 2013 the Company merged into a new Delaware Corporation with shareholders receiving 17.5 shares of $0.001 par value in the new corporation for each ordinary share held in the Company. The comparative numbers above have been adjusted as if this 17.5 split had occurred in the earlier periods.

On 3 April 2013 the Company issued 6,666,667 ordinary shares at a placing price of £1.20 ($1.812) per share for a gross consideration of $12,078,000, a premium of $12,071,000. The costs of the share issue amounted to $1,989,000 resulting in a share premium balance of $10,082,000. The share premium account represents the excess consideration received for shares issued over their nominal value, net of transactional costs.

21: Share based payments

The Company implemented a discretionary share option plan upon its admission to the AIM in April 2013.

Options are exerciseable between 3 and 10 years from the date of grant. One third of the options typically will vest after 12 months and the remaining two-thirds vest over the following 24 months on a monthly basis. Option holders who cease to be employees of the Group are entitled to exercise their vested options in full for a period of either one month or six months following cessation of employment, depending on the reasons for leaving employment.

All option agreements contain provisions enabling the adjustment of the number of shares subject to option and the exercise price in the event of capitalisation issue, subdivision or consolidation of ordinary shares. All options are to be settled by way of equity with a maximum term of ten years from the date of grant. The total fair value of the options granted was in the year was $58k (2013: $260k).

In calculating the fair value of equity settled options as at the date of grant, the Black-Scholes formula is applied taking into account the terms and conditions upon which the options were granted. Both sets of options were granted at their fair value (market value) at the date of grant and were assumed to have an expected life of 5 years. The risk-free interest rate used was 2.0%, the assumed dividend yield was nil and the expected volatility was 7.6% for the options granted in 2014 (2013 grant: 39%) based upon daily share prices. The weighted average exercise price of the options is £1.32 (2013: £1.29)

The charge recognised from equity-settled, share-based payment transactions for employee services received during the year ended 31 December 2014 is $129k (2013: $58k) with a charge of $3k (2013: $3k) in respect of National Insurance.

22: Related party transactions

In addition the CEO Don Tucker's father, sister and daughter were each employed by the Company. Each was employed on normal commercial terms similar to other employees of the Company. The amounts paid to these personnel in aggregate were $225k in 2014 and $210k in 2013.

No provisions have been made for doubtful debts in respect of the amounts owed by related parties and no amounts were written off in either year and no amounts were outstanding at either year end. The Company has three subsidiary companies, two of which did not trade in either year and there were no inter-company transactions, loans or balances at any of the balance sheet dates and no guarantees have been given or received.

23: Business Combinations

On 1 October 2013 the Group completed the acquisition of entire issued share capital of Avatar EEG Solutions, Inc. for $325,000, settled in cash. The assets acquired included the rights to technology, know-how and intellectual property and tangible current assets. The acquisition gave the Group access to a small, wireless EEG technology, devices in development and related software applications.

In the period from the date of acquisition to 31 December 2013, revenues related to the acquired products were $18,000 and for 2014 were $66,000. As the assets acquired have been fully integrated into the Group, including the Group sales and distribution channels, it is impractical to calculate a standalone profit or loss related to the acquired assets.

The details of the values of the net assets acquired at the acquisition date are as follows:

24: Post Balance Sheet Event

On 17 March 2015 the Group issued 3,076,923 new Common Shares in a placing, raising £2.0m ($3.0m) before expenses.

25: Financial instruments; disclosures

The Group's principal financial instruments comprise cash and loans. The main purpose of these financial instruments is to manage the Group's funding and liquidity requirements. The Group has other financial instruments, such as trade receivables and trade payables, which arise directly from its operations. The principal financial risks to which the Group is exposed are those relating to foreign currency, credit, interest rate and liquidity.

Foreign currency risk

The Group sells goods and services in currencies other than in the functional currency of its continuing operations. As a result, the Group's non-US dollar revenues, profits, assets, liabilities and cash flows can be affected by movements in exchange rates. Wherever possible the Group transacts in US dollars although a small number of sales are denominated in Euro or £ sterling. EGI minimises foreign currency risk by requiring its overseas customers to adhere to strict payment terms or to operate through letters of credit.

The Group monitors its non-US dollar foreign currency exposure and, when necessary would seek to minimise its transaction exposure by using forward foreign currency contracts to eliminate exposures on any committed significant transactions. It has not been necessary to use forward foreign currency contracts to date. It is Group policy not to engage in any speculative forward exchange transactions of any kind. The Group does not currently hedge currency exposure in its overseas operations.

Credit risk

The credit risk on liquid funds is limited because the funds are deposited over a number of counterparties who are banks with a mix of high quality balance sheets, high credit ratings assigned by international credit rating agencies or strong governmental support. The Group's credit risk is primarily attributable to its trade receivables. The Group is exposed to risk over a large number of customers and there is no significant concentration of risk. Creditworthiness checks are undertaken before entering into contracts with new customers. The amounts presented in the balance sheet are net of allowance for doubtful receivables. An allowance for impairment is made where there is an identifiable loss event which, based on previous experience, is evidence of a reduction in the recoverability of cash flows.

Fair values of financial assets and financial liabilities

The Group's financial instruments are principally comprised of cash and bank loans. Fair value of items, when calculated by discounting the expected future cash flows at prevailing interest rates, result in no differences between the carrying amount and fair value. The carrying amounts of all other financial instruments of the Group, i.e. short-term trade receivables and payables are a reasonable approximation of fair value. The carrying amount recorded in the balance sheet of each financial asset represents the Group's maximum exposure to credit risk. The financial assets of the Group are loans and receivables and the financial liabilities are at amortised cost.

Interest rate risk

Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. Interest on financial instruments classified as floating rate is re-priced at intervals of less than one year. All of the Group's borrowings are at floating rates of interest. Excess cash is placed on short-term interest-bearing deposit accounts. The other financial instruments of the Group are non-interest bearing and are therefore not subject to interest-rate risk.

Based on current levels of debt, interest rate risk is not considered to be material.

Capital management

The primary objective of the Group's capital management is to ensure that it maintains access to sufficient capital to continue to grow its business. The Group's capital comprises equity attributable to equity holders, and bank short-term deposits.

In addition to debt finance, the Group maintains cash at bank and on short-term deposits, where it seeks to optimize the rates of interest received whilst ensuring adequate levels of risk protection by spreading deposits amongst a wide range of banks through a series of short-dated certificates of deposit. Cash deposits are managed in parallel with levels of debt financing in order to provide sufficient levels of liquidity to settle its ongoing requirements for creditor payments. The Group tracks and manages its levels of net debt.

Liquidity risk

The Group aims to mitigate its liquidity risk by managing its cash resources and improving its credit rating to facilitate effective fund-raising. The Group's funding objective is to maintain continuity of funding and flexibility through the use of internally generated funds, equity capital and bank loan facilities, which it uses to fund the expansion of its business operations. Excess cash is placed on short-term interest-bearing deposit accounts.

The table below summarises the maturity profile of the Group's financial liabilities at each period end based on contractual undiscounted payments:

26: Preliminary Results Announcement

The figures for the year ended 31 December 2014 have been extracted from the full accounts for that year on which the auditor has issued an unqualified audit report. The figures for the year ended 31 December 2013 have been extracted from the full accounts for that year on which the auditor has issued an unqualified audit report. This announcement was approved by the board of directors on 23 March 2015 and authorised for issue on 24 March 2015.

Directors

Don Tucker, Chairman & Chief Executive Officer

Ann Bunnenberg, President & Chief Operating Officer

Christine Soden, Chief Financial Officer & Company Secretary

John Brown, Non-executive director

Ray Englander, Non-executive director

Broker & Nominated Adviser

Peel Hunt LLP

Moor House, 120 London Wall

London EC2Y 5ET

Registrars

Capita Registrars (Guernsey) Limited

Mont Crevelt House

Bulwer Avenue, St Sampson

Guernsey GY2 4LH

Auditors

Registered Office

National Registered Agents Inc

160 Greentree Drive, Suite 101

Dover, Kent, DE 19904 USA