Final Results

Electrical Geodesics, Inc.

Results for the year ended 31 December 2013

EUGENE, OREGON, US, 26 February 2014 - Electrical Geodesics, Inc. ("EGI" or the "Company"), a leading neurodiagnostic medical technology company, today announces its audited results for the year ended 31 December 2013.

Operating Highlights

· Successful AIM listing raising $10.1m (net)

· Development and launch of GES 400 platform

- CE Marked

- Flexible system allowing multiple systems to network together

- In-built computing enables remote access for upgrades and support

- 510k clearance for US sale received in February 2014

· Net Station 5 (NS5) operating software completed beta-testing

- Commercial launch will start in March 2014

- Delivers significant increases in speed and ease of use

· Collaborations in place to expand on the GES 400 platform

- Premier Healthcare Group purchasing contract

- Hitachi marketing alliance

- In-licensing agreement with EBNeuro

- Acquisition of Avatar portable wireless EEG technology

· Direct and distributor sales channels enhanced

- Representative office established in Shanghai, China

Financial Highlights

· Revenues $11.6m, in line with latest guidance (2012: $12.5m)

- US & EU sales to research customers impacted by fiscal austerity measures

- North American sales over all decline to $5.6m (2012: $6.5m)

- International sales remained steady at $6.0m with strong growth seen in China

- 52% of revenues from systems and upgrades (2012: 54%)

· 99 dEEG GES systems sold (2012: 90) at an average price of $59,000 (2012: $68,000)

· Research customers dominated sales, representing 92% of sales in both 2013 and 2012

· Gross margins 59% impacted by product mix and higher distributor versus direct sales (2012: 62%)

· Loss before tax of $3.0m reflecting increases in infrastructure across the business (2012: $67k profit)

· Net cash at year end $4.9m (2012: net debt of $0.6m)

Don Tucker, PhD, Chairman and CEO of EGI, said:

"We made steady progress in our first months as a public company against a backdrop of austere fiscal conditions and technical challenges. With our GES 400 series now FDA cleared and NS5 software through beta-testing we are now poised for full commercial launch of this powerful platform. In the coming year, we plan to continue the roll-out of these products and complete a series of defined enhancements that will allow us both to retain our standing with the research customers and deliver robust products and solutions to the larger clinical customer base. There is a clear focus within EGI to deliver on the important product developments whilst maintaining tight cost control."

"We believe that our technology has a leading position in monitoring brain activity and that EGI can and will deliver competitive solutions in core areas of EEG such as sleep studies, long-term monitoring of epilepsy and the planning of neurosurgery. Looking further ahead we are increasingly excited about the potential application of dEEG and neuromodulation as a clinical intervention tool, promoting dEEG into a fundamental part of disease management."

For more information contact:

Notes to Editors

Electrical Geodesics, Inc. in Summary

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, 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).

See our website www.egi.com

Glossary

Business Review

Fundraising & AIM Admission

Following our Admission to AIM in April, where we raised $12.1m (£8.0m) in new capital and delivered $10.1m to the business after the expenses of the IPO, we welcome our new shareholders and thank them for their contribution to our Group.

Through the finances raised, we set out to:

· complete our next generation hardware platform product and operating software suite;

· deliver our technology to a wider range of both research and clinical customers; and

· expand into new therapeutic areas.

EEG has been used as a clinical diagnostic tool for many years, particularly in the area of epilepsy diagnosis and management. EGI's dense array EEG (dEEG) is now widely used by neuroscience researchers seeking to further the understanding of brain activity. Increasingly, neurologists and neuroscientists are building on this knowledge of the brain in forging new treatments for neurological conditions using trans-cranial magnetic and electrical stimulation (TMS and TES).

Standard EEG uses a small number of electrodes placed on the scalp and, whilst delivering useful information, can be somewhat basic and non-specific given the complex topography of each individual's brain. At EGI, 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. We believe our scientific and technology expertise positions us in a truly exciting place as researchers discover the value of a detailed understanding of the conductivity of individual's brain tissues, in mapping, interpreting and impacting the electrical activity to deliver real therapeutic knowledge and benefit.

Success in capitalising on the scientific basis underpinning our dEEG technology to move the technology from a monitoring tool to a valuable therapeutic intervention using dense array TES will open a significant potential market for our products.

The year in focus

Our first year as a quoted company has been eventful. Since IPO, we have been focused not only upon expanding our commercial infrastructure, but also on the completion of our next generation dEEG system including a new hardware platform and upgraded software package.

Whilst we have made good progress, without doubt we faced challenges during the year. As explained at our interim results, with the upgrades and technical requirements slowing the completion of our product offering, coupled with the severity of fiscal austerity measures in both the US and Europe, our revenues of $11.6m were below those expected at the time of our IPO and the $12.5m achieved in 2012 but in line with guidance issued in November 2013.

As announced on 21 February 2014, we have now received FDA clearance to sell our GES 400 platform for clinical use in the US market and our Net Station 5 (NS5) enhanced software platform has completed beta-testing and will be launched in March 2014.

In our GES 400 product range, we now have a powerful platform that is designed to be flexible and to work according to our customers' needs. The GES 400 has in-built computing power which allows multiple products or systems to operate together and can be accessed remotely for upgrades and support. These processors are powerful and fast, but the technical challenge of building products capable of managing multiple technologies with milli-second accuracy was significant. Following constructive consultation with our customers and implementation of enhancements, our product is now ready for commercial use.

A further challenge came with obtaining FDA 510k clearance to allow us to launch the GES 400 for clinical use. The FDA review process has changed somewhat, and we faced delays from those changes and enhanced requirements.

Despite the level of programming required to complete the "firmware" on the GES 400 diverting software development effort, we have now completed NS5, the major upgrade to our operating software for the acquisition, review and interpretation of EEG data. The enhanced NS5 has been beta-tested and approved by our customers and is compatible with currently available hardware and software on Mac systems. This software will be rolled out as a series of versions, NS5.0 to 5.4 over the next few months, with NS5.0 providing the standard functionality and the upgraded versions delivering increasing levels of sophistication.

Sales Drivers

In addition to FDA cleared GES 400 devices with the complete NS5 software suite, our near-term goals for EGI are to seek quick wins in making available complete solutions for a range of customer groups.

Research customers increasingly seek to integrate research tools and we have scheduled the release of software allowing two-way interface with the standard MATLAB open research software. Data management is important for both research and clinical customers. Hospital and clinical customers require medical devices to be compatible with their existing, compliant networked systems and we are on track, through recent strengthening of our software team, to link NS5 into appropriate database systems for the automated management of patient data.

Both research and clinical customers are now using multiple techniques to assess and monitor patients. In the coming months, we will launch new versions of our Sensor Net that, with the use of smaller sensors, are compatible for use alongside MEG and TMS, are capable of use in long-term monitoring and can inter-connect with intracranial electrodes. For customers undertaking long-term epilepsy monitoring, the tools that will be available in the GES 400 system and NS5.1 and NS5.2 include:

· assessment of physical symptoms;

· automated links with video monitoring;

· the ability to network multiple systems through the GES 400;

· compatibility with intracranial electrodes; and

· the protocol we have already completed for unattended, overnight use.

Our latest Sensor Net should present a very strong offering for our customers. Later in the year, planned solutions for automated pattern recognition around inter-ictal spikes (small spikes of electrical activity seen between epileptic seizures) will offer clinicians valuable tools in assessing, predicting and managing their epilepsy patients.

The addition of the Avatar wireless, low-channel count product and the ambulatory GEM product we in-license from EBNeuro, allows us to target markets such as sleep research and some non-medical uses of EEG such as gaming.

Pipeline

EGI has a strong reputation for delivering innovative solutions to the research market and it is this level of innovation that helps us retain our leading position in that market. Our understanding of and ability to work within the MRI setting has allowed us to sell systems to leading neuroscience centres in the US, Asia and Europe.

The next versions of our GPS photogrammetry software that allows precise images of the physical location of sensors to be linked to electrical activity patterns is near completion. In the coming months we will be marketing a suite of products and workflows to allow visualisation of electrical activity on to MRI images. This will enable clinicians to pinpoint the source of abnormal electrical activity (e.g. a seizure) within the 3-D image of the patient's brain. Initially these will be based on model or atlas brain images but individual head models are a near term goal for EGI.

These products should offer researchers unparalleled opportunities in furthering brain research. 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, taking EEG away from being a simple monitoring tool into a fundamental part of disease management.

Therapeutic Interventions

Whilst the research markets and clinical markets for dEEG as a monitoring tool are strong, it is clear that the delivery of medical treatments, from disease modifying technologies, rehabilitation solutions or better surgical guidance offer a far greater market opportunity.

There is increasing use of neuromodulation and brain stimulation technologies, including TMS and transcranial direct current stimulation (tDCS), in clinical uses such as the treatment of depression or even tinnitus. TMS is already an approved methodology in a number of areas of medicine, typically delivered through a magnetic "wand" being passed over TMS compatible electrodes. Due for launch in the coming months, our new TMS compatible Nets will allow not just the delivery of TMS but also detailed feedback of the impact of that TMS on the brain's electrical activity.

EGI has developed significant intellectual property in understanding the conductivity and electrical impedance of the skull and brain tissue. The precision with which small levels of electrical current can be delivered by EGI's technology is immense and our technology allows us to simultaneously understand the impact of that treatment. Conventional tDCS uses just two large sponge electrodes, however our research indicates that combining tDCS with carefully patterned multiple electrodes using EGI's dense array Net can target focal sites both at the outer surface of the cortex of the brain as well as deep sites. Integration of the individual's cortex model through MRI could then allow highly unique targeting patterns to be fitted to that person's brain.

With our products for the research market to be rolled out in 2014, this opportunity is, for EGI, very real. We will work with our customers to refine the technology and build development plans for clinically approved products in the near term.

Financial Review

Revenues for the year were $11.6m, some 7% lower than the $12.5m recorded in 2012. Actual contracts secured were $12.0m with $0.4m (2012: $0.1m) being deferred for recognition in future periods. This reduction in revenues reflected the levels of cutback seen in many government or research funded markets and delays in delivering our new products as discussed above.

Almost all the $0.9m fall in revenues arose in the North American market, where sales fell from $6.5m to $5.6m. International sales were steady at $6.0m, although European sales were lower at $3.5m (2012: $4.4m) whilst sales in Asia, particularly China, were strong at $1.9m (2012: $1.0m). Research institutions remain the core of EGI's customer base and throughout 2013, grant funding to universities and institutions has been impacted by the US federal budget sequestration and similar cuts were seen in Europe. In order to better serve the growing market in China we have now established a representative office in Shanghai.

The change in balance between direct sales and sales through distributors also impacted on sales pricing as did sales mix. Actual shipments of systems increased in the year, from 90 GES systems in 2012 to 99 in 2013, although much of that increase came from sales of the lower-priced 32 channel systems. Average prices per GES system were some $59,000 compared to $68,000 in 2012. 64 of the new GES 400 model systems were sold in 2013. We also sold three system upgrades (2012: 7) and one (2012: 2) GEM ambulatory systems. The number of MR compatible systems within the GES sales increased from 10 to 14, with customers for the lower channel count 32 and 64 sensor systems also now choosing this additional capability. Nine of these systems (8%) were for clinical use, in line with 2012.

Sales by product type were as follows:

As can be seen, shortfalls arose in systems sales as a result of geographic and sales mix and in software, where we sold fewer proprietary and third party software packages.

The impact of our Premier Healthcare Alliance in the US was minimal in the year, with just one system sold to a Premier customer. This reflected the delays in obtaining FDA approval of our GES 400 product. Now we have received clearance, we expect to see greater benefit from our alliance with Premier Healthcare.

Gross margins for the year were 59%, compared with 62% in 2012. The largest influence on this reduction was the mix between direct sales and lower priced distributor sales plus the introduction of the medical device tax in the US.

As expected, grant income at $0.7m ($0.2m net of third party costs) was much lower than in the $1.5m received in 2012 ($0.6m net of third party costs) as resources were focused on delivering the broad range of new and upgraded products.

Gross operating expenses were $11.8m before capitalisation of $1.3m of development costs (2012: $9.6m gross before capitalised development of $0.5m). Internal R&D expenses rose from $3.1m to $3.8m as activities increased. General and administrative costs rose from $2.2m last year to $3.7m this year, much of the increase relating to the costs that inevitably arise on becoming a public company. Sales, marketing and support costs increased from $3.4m in 2012 to $3.8m with some additional hires in each area.

Overall the business generated a pre-tax operating loss of $2.9m for the period compared to a profit of $0.1m in 2012. Tax credits of $1.4m have been applied bringing the net loss to $1.5m and the loss per share to 9.7c (2012 earnings per share of 1.2c).

Within the balance sheet, intangible assets increased by $1.2m during 2013 to $2.2m, 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. The net book value of fixed assets rose $0.9m to $1.6m, reflecting investments of $0.3m in leasehold improvements as we moved into new premises, $0.5m of machinery and equipment for building and testing devices and $0.4m in demonstration devices for sales and marketing.

Inventory increased by $0.9m to $2.1m as the Group readied for the launch of GES 400, whilst maintaining buffer stocks of components to meet the ongoing sales and support needs of the earlier generation products.

Increasingly sales are becoming year-end weighted, and consequently trade receivables rose $0.8m to $3.2m and trade and other liabilities increased to $4.0m from $2.4m. Of this $1.4m (2012: $1.0m) relates to deferred revenue for warranty and support contracts yet to be delivered.

The proceeds received from the issue of 6.7m new shares in April were $12.1m and costs of the issue were $2.0m. After meeting investing, operating and working capital needs and repaying $1.1m of borrowings, cash balances at 31 December 2013 were $5.0m and the Group had net cash of $4.9m (2012: net borrowings of $0.6m). 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.

Outlook

We made steady progress in our first months as a public company against a backdrop of austere fiscal conditions and technical challenges. With our GES 400 series now FDA cleared and NS5 software through beta-testing we are now poised for full commercial launch of this powerful platform. In the coming year, we plan to continue the roll-out of these products and complete a series of defined enhancements that will allow us both to retain our standing with the research customers and deliver robust products and solutions to the larger clinical customer base. There is a clear focus within EGI to deliver on the important product developments whilst maintaining tight cost control.

We believe that our technology has a leading position in monitoring brain activity and that EGI can and will deliver competitive solutions in core areas of EEG such as sleep studies, long-term monitoring of epilepsy and the planning of neurosurgery. Looking further ahead we are increasingly excited about the potential application of dEEG and neuromodulation as a clinical intervention tool, promoting dEEG into a fundamental part of disease management.

25 February 2014

Consolidated statement of comprehensive income for the year ended 31 December 2013

The notes on pages 11 to 27 are an integral part of these financial statements.

Consolidated statement of financial position as at 31 December 2013

The financial statements on pages 7 to 10 were authorized for issue by the Board of Directors on 25 February 2014 and were signed on its behalf by Christine Soden, Chief Financial Officer.

The notes on pages 11 to 27 are an integral part of these financial statements.

Consolidated statement of changes in equity for the year ended 31 December 2013

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

The notes on pages 11 to 27 are an integral part of these financial statements.

Consolidated statement of cash flows for the year ended 31 December 2013

The notes on pages 11 to 27 are an integral part of these financial statements.

Electrical Geodesics, Inc.

Notes to the condensed consolidated financial statements for the year ended 31 December 2013

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 to account for the acquisition of subsidiary undertakings by the Company. 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 recognized 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 utilization 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 recognized as an expense in the period in which it is incurred. Costs that are directly attributable to the development phase of new products are recognized 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 capitalization 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 realizable 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 improvements are amortised 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 recognised 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, historical experience and knowledge of the market.

Capitalization of internally developed software

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

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. 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)/profit before taxation is stated after charging:

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

The Executive Directors and employees were entitled to participate in a discretionary bonus plan in 2013 and a new stock option plan which was implemented in 2013. No bonuses were awarded in 2012 or 2013.

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 2012 has been restated 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 $620,000 has been made against the deferred tax asset representing 50% of the net operating losses carried forward. This amount is 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 recognized 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 these losses and timing differences will be recoverable in the foreseeable future.

9: Intangible Assets

During the year the Group capitalised $1.3m (2012: $0.5m) of expenditure incurred on intangible assets, principally on the GES 400 and Net Station 5 platform products and acquired intangible assets of $298k (2012: Nil) as part of the business combination described below. 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.

On 1 October 2013 the Company acquired 100% of the share capital of Avatar EEG Solutions, Inc. for $325,000 being the fair value of the net assets and liabilities acquired at that date.

10: Property, Plant, & Equipment

Assets with a book value of $4,000 (2012: $6,000) were held under finance leases and the depreciation charge relating to those assets was $2,000 in 2013 and 2012.

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 2012 and 2013. Geomedica Inc. is currently dormant and was dormant throughout 2012 and 2013 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 which was drawn in 3 tranches (Sep 2010, Nov 2011 and May 2012), amortising over 3 years. 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 annual rental is $480,000 and is subject to annual inflation-based increases.

19: Capital commitments

The Group had no material capital commitments as at 31 December 2013 or 31 December 2012.

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.

During the year options were granted to employees over 631,988 shares of which 244,488 were awarded on 3 April 2013 at an exercise price of £1.20 and expire on 2 April 2023 and 387,500 on 30 September 2013 at an exercise price of £1.35 and which expire on 30 September 2023. All 631,988, granted at a weighted average price of £1.29, were outstanding as at 31 December 2013 and none were exerciseable at that date. The total fair value of the options granted was $260,000.

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 2.64%, the assumed dividend yield was nil and the expected volatility was 39%.

The charge recognised from equity-settled, share-based payment transactions for employee services received during the year ended 31 December 2013 is $58k (2012: NIL) with a charge of $3k (2012: NIL) 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 $210k in 2013 and $194k in 2012.

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 31 December 2013. 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. 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:

Acquisition related costs of $30,000 were charged within general & administrative expenses.

24: 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 minimizes 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 net investment on 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.

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 summarizes the maturity profile of the Group's financial liabilities at each period end based on contractual undiscounted payments:

Floating Rate Obligations

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