EGI.L Regulatory News (EGI)

Electrical Geodesics, Inc.

Interim Results

Turning the corner

EUGENE, OREGON, US, 10 September 2014 - Electrical Geodesics, Inc. ("EGI" or the "Company"), a leading neurodiagnostic medical technology company, today announces its unaudited interim results for the six months ended 30 June 2014.

Operating Highlights

Ø GES 400 receives FDA clearance

Ø Launch of Net Station 5.0 and 5.1

Ø Show-casing of novel GTEN Geodesic Transcranial Electrical Neuromodulation technology

Ø Soterix tDCS distribution agreement secured for transcranial electrical stimulation products

Ø Low profile MicroCel 100 net launched for simultaneous recording of dEEG with TMS and MEG

Ø Improving grant position as reflected by recent $1.75m grant from NINDS/NIH

Financial Highlights

Ø H1 2014 revenues increased 7.4% to $5.8m (H1 2013: $5.4m, FY 2013: $11.6m)

- Strong growth from Europe, up 32% to $1.8m and Asia, up 23% to $1.4m

- North America down 7% to $2.6m (H1 2013: $2.8m) although outlook gradually improving

- 50% of revenues were from sales of complete dEEG systems (H1 2013: 52%) with the balance derived from Sensor Nets (21%) and accessories, software and support

Ø 58 GES dEEG systems sold at an average price of $48k (H1 2013: 43 at $67k)

- In addition 13 Avatar and 3 GEM lower-channel count systems sold

Ø Broadening customer mix

- 3 major clinical centres in the US added to customer base and expanding penetration of leading epilepsy surgery centres internationally

Ø Gross margins 59% (H1 2013: 62%, FY 2013 59%), operating loss widens to $2.3m as expected

Ø Net cash at period end $2.5m ($4.9m net cash at start of year)

_ $1.25m secured bank credit line agreed

Don Tucker, PhD, Chairman and CEO, said:

"We believe that our technology has a leading position in monitoring brain activity and that EGI is well-placed to build and retain a central role in the use of dEEG. Most excitingly, the launch of our GTEN product as a clinical intervention tool, promotes EEG into a fundamental part of disease management and we are developing our plans to position EGI to exploit this opportunity. With a growing respect for our technology amongst key opinion leaders, the completion and FDA clearance of our powerful GES 400 platform and the launch of our Net Station software packages, along with a series of targeted product launches and enhancements, EGI is set to accelerate growth in the second half of the year."

For more information contact:

Notes to Editors

Electrical Geodesics, Inc. in Summary

About EGI

Founded in 1992, 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 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, capitalize 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).

 See www.egi.com for more information on the Company.

Glossary

Overview

Strategy & Recent Activities

We have made strong progress in the first six months of 2014 with the delivery of our new, FDA cleared, GES 400 platform and Net Station 5 software as well as a range of product enhancements and agreements.

Last year, at the time of our IPO our stated aims were two-fold; to deliver our 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, we can retain our strong position in the research market whilst delivering products with regulatory clearance for medical and clinical use that take us into the much larger clinical market.

Our dEEG systems

We believe that 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. In combination with other imaging technologies such as MRI, PET and NIRS we can build accurate pictures of the locations of the function of certain parts of the brain or, for example, the likely sites causing seizures in epilepsy patients without the need for invasive surgery. In order for customers to accept the benefits of this enhanced accuracy, it was clear that we needed to provide an effective way of applying the electrodes, amplifiers that are powerful, adaptable and flexible and provide software that can process the large amounts of data rapidly and accurately and present data in formats which are easy to visualise and understand.

Our 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 the difficult to monitor patients and is a key differentiating factor for our products. We continue to develop our Sensor Net product range and have introduced several new sizes to meet customer demand. Our MicroCel 100 product is nearing full commercial launch. With its lower pedestals for the electrodes, the MicroCel allows simultaneous use of our dEEG with technologies such as MEG and transcranial magnetic stimulation ("TMS"). We are also looking to bring to market a Sensor Net that interlinks sensors from technologies such as NIRS allowing concurrent use of these technologies.

As announced in July, in partnership with the Massachusetts General Hospital and with support from a $1.75 million SBIR grant from the US National Institute of Neurological Disorders and Stroke/National Institutes of Health, we are developing a revolutionary "Ink-Net" technology that would allow the performance of dense array EEG within high-field MRI environments. Simultaneous use of dense array EEG with MRI scanning is becoming increasingly important in both the scientific understanding of neurophysiology in managing conditions such as epilepsy and the non-invasive, pre-surgical planning for brain surgery. Currently, EEG electrodes are connected with metallic wires that interfere with the magnetic field within the MR scanners. This increases the risk of tissue heating, causing errors and artifacts in the highly sensitive dEEG recordings and MR images which could be resolved through the concept of "Ink-Net" wires - customized high-resistive conductive inks printed on polymer film.

Our GES 400 platform, launched in mid-2013 is now well-accepted. With on-board computing capability, these amplifiers offer both research and clinical customers a quick, powerful 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. We are also adding some lower-channel count amplifiers to our range, including the GEM mobile system and the Avatar 8-channel amplifier. Projects are under way to ensure compatibility between all our hardware and software, ensuring customers can acquire a range of products suitable to their needs each of which works seamlessly with the other.

Customers highly value the ease of use and speed of processing offered by Net Station 5.0, our significantly enhanced operating software for EEG acquisition and review. Net Station 5.1 has now been launched, adding important features such as full support of 32 auxiliary sensor channels plus pulse oximetry (SpO2) measurements through our recently launched Physio16 input box and full support for a new photic stimulator, features valued by researchers and clinicians alike. In the coming months, further software releases will 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.

Furthermore, our clinical customers require easy, secure and reliable storage of data. The ability to stream data from Net Station to network storage is vital and with interim measures already available, we have this feature planned in the software releases due around the end of the year, together with our NOLIS database product which would allow integration with hospital database systems.

The combination of all of these features together - 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 enables us to offer truly competitive solutions to epilepsy monitoring centres where the long-term monitoring of several patients simultaneously is a pre-requisite.

Brain Mapping & Visualisation

Historically, researchers and clinicians have studied brain activity through a number of invasive technologies, including intra-cranial electrodes and stimulators. Whilst our products are being adapted to work alongside intra-cranial grids to deliver enhanced information, we believe our 256 channel non-invasive monitoring can deliver similar levels of precision alone. When used in conjunction with our photogrammetry system and Geosource and GPS software, the exact position of the electrodes can be mapped onto a 3-D MRI image of the subject allowing precise identification and localisation of, for example, the focus of epileptic seizures.

The work involved in completing the major upgrade to our Net Station software platform has been immense. Following its launch, the development of our imaging tools is now receiving full attention including upgraded versions of our Geosource and GPS software, an improved photogrammetry system and additional head-modeling tools including our Electrical Anatomy Viewer (EAV) based on our Modal Image Engine (MIE) product.

We have 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 are core to our near-term strategy, but areas such as sleep monitoring, brain function mapping for general neurosurgery, intensive care monitoring and neo-natal care are all realistic targets for the mid-term, taking EEG away from being a simple monitoring tool into a fundamental part of disease management.

Therapeutic Intervention

Most excitingly, we are now making good progress in the development of EGI's newest platform technology, Geodesic Transcranial Electrical Neuromodulation ("GTEN"). GTEN integrates our GES 400 platform technology with our capabilities in matching anatomical and electrical features of the head and its proprietary computational simulations to deliver highly specific neuromodulation by the delivery of small amounts of electric current to excite or suppress the activity of neurons in specific areas of the brain. 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.

Neuromodulation is being increasingly accepted as a safe and effective method to treat and manage a number of neurological disorders in patients where pharmaceutical intervention is ineffective. These disorders include major areas of unmet medical need such as depression, schizophrenia, epilepsy, tinnitus, chronic pain and migraine and in rehabilitation following trauma or stoke. Competing technologies include TMS, already approved in the treatment of depression, and tDCS using a small number of larger electrodes, which is being researched in multiple areas of clinical use. In order to increase our knowledge and positioning in tDCS, EGI has entered into a one-year, renewable agreement to distribute Soterix Medical Inc's ("Soterix") products for transcranial stimulation and transcutaneous spinal stimulation. The distribution agreement brings EGI non-exclusive rights to market the Soterix tDCS-LTE, HD-tDCS and tsDCS stimulators globally (excepting China and Thailand) for use under investigational device exemption ("IDE") studies. The 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. 

EGI plans to bring the first GTEN product to market for research use with CE marking early in 2015 once the development of the required software is complete and the system fully evaluated and the necessary safety tests have been performed. 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.

A first target for a clinical interventional product is in the suppression of seizures in epilepsy, where therapeutic effect through transcranial stimulation has recently been demonstrated by researchers. Epilepsy is an indication where the electrical activity of the brain is clearly implicated and where EGI has excellent contacts with leading specialists world-wide. Discussions are under way with a number of leading centres and with the FDA to establish a clear path to clinically validate GTEN for seizure suppression and further details will be announced in the near term. Additional areas of therapy that the Company intends to evaluate include the treatment of depression, where transcranial magnetic stimulation is already an approved treatment.

Financial Review

Revenues for the first six months of the year were $5.8m, some 7.4% higher than the $5.4m recorded in the same period last year. Revenues for the full year to 31 December 2013 were $11.6m. Good increases in revenues from European and Asian customers more than offset the 7% decrease seen in North America. Research institutions remain the core of EGI's customer base and throughout 2013, grant funding to universities and institutions was adversely impacted by the US federal budget sequestration and this overhang into 2014 resulting in delays in finalising grant awards. The environment for research funding appears to be improving as we move into the second half of 2014.

50% of the revenues in the first half of 2014 arose from sales of complete dEEG systems with the balance derived from sales of peripheral devices, software and support, including $1.2m from the sale of new and replacement Sensor Nets. 58 GES dEEG systems were shipped in the period at an average price of $48k (H1 2013: 43 at $67k) reflecting a move towards lower-channel count systems. Whilst EGI remains convinced of the benefits of 256-channel dEEG, the most important factor remains increasing the customer base for EGI products. The GES 400 is modular and upgradeable and as such customers will have the opportunity to upgrade systems to allow full use of products such as GTEN when available.

Gross margins for the period were 59%, in line with those seen for the full year in 2013. Operating expenses were $5.8m after capitalization of $0.8m of development expenses (H1 2013: $4.6m), with the major increase arising in sales and marketing and general and administrative costs. Grant income fell significantly as a number of long-term projects came to an end. A new three-year award for the Ink-Net project plus other prospective awards indicate that grant revenues will increase in the second half of the year and into 2015.

Overall, the business generated a pre-tax operating loss of $2.3m for the period compared to a loss of $0.8m in H1 2013. No tax credits have been applied, given the losses incurred in 2013 and this period, although the directors remain confident that future profits will be available to offset the losses incurred to date.

Within the balance sheet, intangible assets increased by $0.5m during H1 2014 to $2.7m, the majority of which relates to the development of the GES400 products and Net Station 5 software. Inventory have decreased in the period by $0.1m as the Company no longer requires such large buffer stocks of components to meet the ongoing sales and support needs of the earlier generation GES 300 products. Trade receivables fell $1.2m in the period from the high levels seen at 31 December 2013.

Cash outflow in the period was $2.4m, with operating losses of $2.3m offset by working capital reductions of $0.6m and capital expenditure on tangible and intangible assets of $1.2m offset by $0.5m depreciation and amortisation. Cash balances as at 30 June 2014 were $2.6m. A $1.25m credit line has been agreed with the Company's bankers secured on the fixed and current assets of the business.

Share Trading

At the time of Admission of EGI's Common Stock to trading on AIM in April 2013, restrictions on transfer under the United States securities laws required that the Shares had to be held in certificated form for a period of at least 12 months following Admission. We are working with our registrars to dematerialise certain shares such that these unrestricted shares can be settled, by means of Depositary Interests, through the CREST electronic settlementsystem and sold in the US if the holders so elect. Further details will be announced in the near future.

Outlook

We believe that our technology has a leading position in monitoring brain activity. EGI is well-placed to build and retain a central role in the use of dEEG and, most excitingly, our GTEN product, as a clinical intervention tool, promoting EEG into a fundamental part of disease management.

With a growing respect for the Company's technology amongst key opinion leaders, the completion and FDA clearance of our powerful GES400 platform and the launch of our Net Station 5.0 and 5.1 software packages along with a series of targeted product launches and enhancements, EGI is set to accelerate growth in the second half of the year and we believe the longer term outlook for the Company is increasingly exciting.

The Board remains confident of achieving market expectations for the full year, but to exploit fully the potential of our technologies in the management of disease, the Directors believe additional financial and other resources will be required. Plans are being formulated to progress the clinical development of GTEN in epilepsy and further details will be announced in due course.

9 September 2014

Consolidated statement of comprehensive income for 6 months ended 30 June 2014

Consolidated statement of financial position as at 30 June 2014

Consolidated statement of changes in equity for 6 months ended 30 June 2014

Consolidated statement of cash flows for 6 months ended 30 June 2014

Notes to the consolidated interim financial statements for the six months ended 30 June 2014

1. Authorisation of financial statements and statement of compliance

These condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the group for the year ended 31 December 2013.

These condensed consolidated interim financial statements for the group for the six months ended 30 June 2014 were approved by the Board and authorised for issue on [ 10] September 2014.

2. Significant Accounting Policies & Basis of Preparation

(a) Basis of preparation

The condensed consolidated interim financial statements have been neither audited nor reviewed. The comparative figures shown for the year ended 31 December 2013 do not constitute the Group's statutory financial statements but have been extracted from the Group's 2013 audited financial statements which have been reported on by the Group's auditor, as adjusted to present the information in accordance with IFRS as adopted by the EU. The Independent Auditors' Report on the Group's 2013 financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

The condensed consolidated interim financial statements are presented in US dollars and all values are rounded to the nearest $1,000 unless otherwise indicated.

The accounting policies adopted in the preparation of the condensed consolidated interim financial statements are consistent with those used and set out in the Group's financial statements for the year ended 31 December 2013 which were prepared under International Financial Reporting Standards as adopted by the European Union.

(b) Presentation of financial statements

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

(c) New Standards & Interpretation

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

IFRS 9 'Financial Instruments' (effective for annual periods beginning on or after 1 January 2015).

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

(d) Going Concern & Liquidity

Having considered uncertainties under the current economic environment[ and secured a $1.25m credit line] and after making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these condensed consolidated interim financial statements. 

3: Revenue Analysis

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

No single customer contributed more than 10% of Group revenues in any period.

4: Other Income

The Group 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. There are no unfulfilled conditions or other contingencies in respect of these grants.

5: Expenses

The loss before taxation is stated after charging:

6: Loss per share

Basic earnings per share amounts are calculated by dividing the profit or loss after taxation for the period by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the profit or loss after taxation for the period by the weighted average number of ordinary shares outstanding during the period (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 in 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.

The loss per ordinary share is calculated as follows: 

7: Taxation

The charge 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 effective rate applied for the periods to June 2014 are broadly similar to the rates expected to apply to the Group's results for the full year.

The income tax benefits applied were;

As at the period end the Group recognised in the balance sheet deferred tax assets and liabilities as follows;

The net deferred tax assets relate primarily to the benefit of the Group's historic 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 these losses and timing differences will be recoverable in the foreseeable future.

8: Cash and cash equivalents

Cash and cash equivalents consist of the following:

The short term deposits include funds in overnight money market accounts and short-dated certificates of deposit.

9: Financial Liabilities

The Company has available bank finance facilities secured against the current and non-current assets of the business. All borrowings are denominated in US$.

10: Share capital & Share premium

The Company has one class of ordinary share which carries no rights to fixed income. In 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.

On 3 April 2013 the Company issued 6,666,667 ordinary shares 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.

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

Raymond 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

Auditor

Registered Office

National Registered agents Inc

160 Greentree Drive, Suite 101

Dover, Kent, DE 19904 USA

Principal Address