Interim Results

Electrical Geodesics, Inc.

Interim Results

15 September 2015

EUGENE, OREGON, US - 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 2015.

Financial Highlights

Ø As flagged in the trading update issued in July, H1 2015 revenues were below expectations. At $5.2m revenues were some 10% below the $5.8m achieved in H1 2014.

o Adverse impacts came from the effect of the strong US$ on European sales and uncertainties in the China market in particular as a result of new controls over contractual terms.

o In addition, partly as a result of delays in finalizing the Net Station 5.2 software and other product enhancements, some supplier issues and the naturally long buying cycle time in the research and hospital capital goods markets, some larger orders did not complete as scheduled by the period end.

o Strong grant income of $0.6m (H1 2014: $0.1m) brought total receipts (the aggregate of revenues and other income) in H1 2015 to $5.8m (H1 2014: $5.9m).

Ø Gross margins improved slightly to 60% (H1 2014: 59%), and with costs contained at the same levels as H1 2014 at $5.8m, net losses were slightly lower at $2.1m (H1 2014: $2.3m).

Ø Net cash at period end $1.4m ($1.2m net cash at start of year) after receipt in March of $2.5m net from the issue for cash of 3,076,923 new common shares

Ø Invoice factoring facilities in place to help manage cash flows.

Operating Highlights

Ø Net Station 5.2 has been well received by beta customers, solving many of the problems unique to research EEG studies.

Ø The US FDA granted an Investigational Device Exemption for the Geodesic Transcranial Electrical Neuromodulation (GTEN) for a safety and feasibility trial for treating epilepsy.

Ø A GTEN study with normal volunteers has shown significant suppression of cortical excitability with EGI's novel pulsed protocol, supporting the application to seizure suppression in epilepsy.

Ø EGI and EB Neuro, EGI's corporate partner in Italy, have collaborated on an Investigational Device Exemption application to the FDA for dense array EEG guidance of repetitive transcranial magnetic stimulation (rTMS) for the treatment of focal epilepsy.

Don Tucker, PhD, Chairman and CEO, said:

"Although we were surprised and disappointed with our poor financial performance in the first half of the year, we are encouraged by the strong customer response to the new products we are now bringing to market. We have made the necessary adjustments to manage resources, and are now confident of moving towards self-sustainability in the near term. The investments we have made in the last 3 years are now bearing fruit, yielding improving revenue prospects in clinical as well as research markets that give us grounds for increasing confidence for H2 2015 and for 2016. The evidence continues to be strong that non-invasive neuromodulation will be a significant new treatment modality in many neurological disorders."

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

Our clear areas of focus in the current year have been; firstly to ensure a steady stream of product enhancements and new features to our core research market; secondly to deliver a more complete product offering to our high-end clinical customers; and thirdly to advance the development and use of our dense-array technology and unique software and algorithms to deliver source localization, head modeling and neuromodulation.

The reciprocity between delivering precise electrical stimulation to the brain, either directly or through magnetic stimulation, and the immediate monitoring, visualization and measurement of the impact of that stimulation is being recognized as a truly useful medical tool with research underway at leading academic sites in multiple applications. Our own activities focus heavily in epilepsy, an area where we offer a comprehensive range of monitoring technologies and are developing potential treatment regimens. Important work by our customers in areas such as concussion assessment is also offering attractive near-term revenue opportunities for the Company.

Product Launches

Net Station 5.2, the next iteration of our operating software, has been well received by beta customers and has now been fully-launched, and solves many of the problems unique to research EEG studies including data-interchange with ancillary research tools. Adapting our software to constantly changing computer hardware and software and changes to third-party ancillary products remains a great challenge, given the extremely fine levels of accuracy required in capturing accurately the milli-second changes in tiny electrical currents. For example, in epilepsy monitoring, it is important to correlate the brain's electrical activity with the physical activity shown by high-resolution video cameras. We are pleased to now offer a high-resolution PTZ (point-tilt-zoom) camera to our customers.

In July we announced the launch of the new and improved Geodesic Photogrammetry System (GPS) 3.0 for EEG sensor localization. EGI's GPS technology is used to derive the 3D position of each EEG sensor on the scalp surface. The sensor coordinate map is important for increasing the accuracy of electrical source imaging, relative to the default positions, as it describes the true position of the EEG sensors relative to the whole head. This capability improves the accuracy of source localizations performed with EGI's GeoSource 2.0 source estimation software and will allow for even more powerful tuning of the head model in the upcoming releases of the new GeoSource 3.0 software.

The GPS 3.0 product uses EGI's photogrammetry technology to capture images of all the sensors on the head simultaneously with the click of a button, a great convenience for researchers, clinicians, and their research participants and patients. The photographs provide a permanent record of the sensor positions for a given exam, allowing for verification and analysis at any time after the exam is complete.

The GPS 3.0 software has been completely redesigned to make the workflow of determining sensor positions more intuitive and efficient. Coupled with improved machine vision methods that enable automatic identification of sensors from the images, users can quickly and more accurately derive 3D sensor positions.

The new GPS 3.0 enhancements dovetail with a major upgrade to EGI's GeoSource source estimation software, which adds advanced 3D head model visualization, the ability to conform head models to individual head geometry, and the capability for using individual MR images to create an individual head model. The new GeoSource 3.0 Basic software is planned for release later this month with the Intermediate (conformal atlas) and Advanced (individual head) versions expected to be available in Q4 2015.

GTEN & Neuromodulation

Our IDE approved safety and feasibility study to evaluate the impact of electrical neuromodulation in suppressing epilepsy will commence shortly with three sites preparing to commence studies. The hardware and software elements of GTEN are in late-stage evaluation. Our confidence in moving forward in this area is based on compelling research in China where real benefits were seen from TMS in the temporary suppression of seizures. We have now evaluated GTEN using a pulsed protocol (rather than a constant current flow), similar to that used in the TMS study, and in normal volunteers we have seen significant suppression of cortical excitability which gives us confidence that this might translate into the sought-after suppression of epilepsy spikes.

We also see true benefits from using our comprehensive dEEG monitoring and visualization tools to guide other neuromodulation treatments. To that end we, have collaborated with EB Neuro, our corporate partner in Italy, on an Investigational Device Exemption application to the FDA for dense array EEG guidance of repetitive transcranial magnetic stimulation (rTMS) for the treatment of focal epilepsy.

Looking forward we see neuromodulation as an exciting and profitable business area for EGI, both in providing hardware and software to researchers and, eventually, medical professionals and through the provision of on-line head-modelling services, allowing the physicians to focus on delivery of treatment without the need for high-levels of technical expertise in EEG assessment. The alpha-testing of GTEN is well-advanced and interest from research customers continues to be strong.

Financial Review

Revenues for the first six months of the year were $5.2m, some 10% lower than the $5.8m recorded in the same period last year. Revenues for the full year to 31 December 2014 were $13.2m. Strong growth in grant revenues from $0.1m in H1 2014 to $0.6m in H1 2015 and tight cost management saw losses reduce to $2.1m from the $2.3m in H1 2014.

Gross margins for the period were 60%, slightly above those seen in H1 2014. Operating expenses were $5.8m in the period after capitalization of $0.6m of development expenses (H1 2014: $5.8m after capitalization of $0.8m development expense.)

Overall, the business generated a pre-tax operating loss of $2.1m for the period compared to a loss of $2.3m in H1 2014. No tax credits have been applied, given the losses incurred in 2014 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, inventory increased by $0.3m from the low levels seen at the year end to more normalized levels. Receivables were high at the beginning of the year following strong December 2014 sales and these reduced by some $1.1m in the period to June 2015 in line with performance in H1 2014.

Cash outflow from operations was $1.5m in the period (H1 2014 $1.2m) and capital expenditure on tangible and intangible assets was $0.9m, some $0.3m lower than in H1 2014. The receipt of $2.5m from the issue of 3.1m new common shares brought the net cash inflow for the period to $0.1m (H1 2014 net cash outflow of $2.4m. Cash balances as at 30 June 2015 were $1.4m. Receivables-backed financing facilities are in place to manage cashflows over the coming months.

Outlook

We continue to believe that our technology has a leading position in monitoring brain activity. We are increasingly encouraged by the advances we are seeing in acceptance and understanding of the utility of dense-array EEG and our imaging software in understanding brain function. Feasibility studies on our GTEN product as a clinical intervention tool are scheduled to commence in the coming months, promoting EEG into a fundamental part of disease management.

Indicative orders for the second half of the year remain strong and we believe the longer-term outlook for the Company is positive. The Board therefore remains confident of achieving significantly increased sales in the second half compared to the first half.

14 September 2015

Consolidated statement of comprehensive income for 6 months ended 30 June 2015

Consolidated statement of financial position as at 30 June 2015

Consolidated statement of changes in equity for 6 months ended 30 June 2015

Consolidated statement of cash flows for 6 months ended 30 June 2015

Notes to the consolidated interim financial statements for the six months ended 30 June 2015

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 2014.

These condensed consolidated interim financial statements for the group for the six months ended 30 June 2015 were approved by the Board and authorised for issue on 14 September 2015.

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 2014 do not constitute the Group's statutory financial statements but have been extracted from the Group's 2014 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 2014 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 2014 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) Going Concern & Liquidity

Having considered uncertainties under the current economic environment 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 loss per ordinary share is calculated as follows: 

7: Taxation

Given the level of losses recognized within deferred tax assets and 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 a valuation provision has been agreed equivalent to the taxation benefit of the losses incurred in the six month period to 30 June 2015.

8: Share capital & Share premium

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

On 17 March 2015 the Company issued 3,076,923 ordinary shares for a gross consideration of $2,960,000 (£2,000,000) a premium of $2,957,000. The costs of the issue amounted to $449,000 resulting in a share premium of $2,508,000 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, Non-executive director

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