TIDMEGI
RNS Number : 5592T
Electrical Geodesics, Inc
30 March 2016
Electrical Geodesics, Inc.
Results for the year ended 31 December 2015
EUGENE, OREGON, US, 30 March 2016 - Electrical Geodesics, Inc.
("EGI" or the "Company"), a leading neurodiagnostic medical
technology company, today announces its audited results for the
year ended 31 December 2015. The results are reported under US GAAP
rather than IFRS as in previous periods.
Operating Highlights
-- Development and launch of its flagship next generation Net Station 5.2 software
-- Significant software enhancements on track to be released in Q2 of 2016
-- Receipt of IDE from the FDA for feasibility studies using GTEN for treatment of epilepsy
-- Agreement with EB Neuro of Italy to distribute their clinical
neurology products, including an advanced MRI-registered
Transcranial Magnetic Stimulation (TMS) system for noninvasive
neuromodulation
-- Agreement with Northern Digital Imaging for exclusive
distribution of their computer vision technology for EEG sensor
location, labeled by EGI as Geoscan
-- Agreement to supply GES 400 systems for use with ElMindA's
Brain Network Activation platform
-- Placing of 3.1m new shares raising GBP2.0m ($2.9m) before expenses in March 2015
Financial Highlights
-- Revenues up 3.2% to $13.6m (2014: $13.2m)
o North American sales $7.7m (2014: $5.5m)
o International sales decreased to $6.0m (2014: $7.7m)
-- Grant income increased to $1.5m (2014: $0.6m)
-- 170 dEEG systems and upgrades shipped at an average $42k (2014:139 systems at $58k)
-- Decrease in gross margins to 55% from 58% in 2014 as a result
of a shift in product mix to lower channel count systems
-- Strong cost controls led to a reduced net loss of $2.8m (2014:$4.3m)
-- Net cash at year end $1.2m (2014: $1.2m)
Don Tucker, CEO of EGI, commented: "The funding secured in March
of 2015 enabled us to make significant progress on a series of new
and improved diagnostic and imaging products destined for launch to
the research and clinical markets in 2016. The planned introduction
of the Geodesic Transcranial Electrical Neuromodulation (GTEN)
system for research has led to immediate sales interest from both
existing and new research customers. The clinical recognition of
the importance of our dense array EEG systems for epilepsy
diagnosis is evidenced not only by an increasing number of
publications, but also by growing sales to advanced epilepsy
neurosurgery centers. As we near completion of the diagnostic phase
of our clinical trial for GTEN treatment of epilepsy at Harborview
Hospital in Seattle and begin the treatment phase, we are extending
this trial to Huashan Hospital in Shanghai. As international
research laboratories integrate GTEN studies with their studies
utilizing our dense array EEG systems, we believe it is becoming
clear that an increasing number of neurological disorders will be
able to be treated with noninvasive neuromodulation
technology."
For more information contact:
EGI
Ann Bunnenberg +1 541 687 7962
Peel Hunt LLP (NOMAD and Broker)
James Steel, Oliver Jackson +44 (0) 20 7418 8900
Notes to Editors
Electrical Geodesics, Inc. in Summary
Founded in 1992, EGI designs, develops and commercialises a
range of non-invasive neurodiagnostic and neuromodulation products
used to monitor, interpret and modulate brain activity, based on
its proprietary dense array electroencephalography ("dEEG")
platform technology. The Company's technology uses up to 256
sensors, providing much higher resolution brain activity data
compared to conventional 8 or 16 channel EEG and is used in
medical, clinical and research settings in a diverse range of
applications including important areas such as the diagnosis and
monitoring of epilepsy, neurosurgical planning, sleep assessment,
and many others.
EGI's dEEG systems, available in the GES 300 and now the GES 400
lines, capitalise on the Company's unique Hydrocel Geodesic Sensor
Net which allows faster, easier, and more convenient placement of
many EEG sensors in an even distribution over the entire scalp,
providing more accurate and precise diagnosis and measurement.
EGI's technology is now widely used in neuroscience research
laboratories and is becoming more commonly used in clinics, care
centers, and hospitals around the world. Data is measured and
visualised using EGI's proprietary amplifier technology and
software, providing a complete, advanced, high-resolution EEG
platform. The Company's products are compatible with multiple
diagnostic and imaging technologies, including magnetic resonance
(MR) imaging, functional MRI (fMRI), and magneto-encephalography
(MEG).
See our Website www.egi.com
Glossary
EEG Electroencephalography
Dense-array EEG
dEEG Geodesic transcranial electrical
GTEN neuromodulation
MRI Magnetic resonance imaging
fMRI Functional MRI
PET Positron emission tomography
MEG Magneto encephalography
NIRS Near-infra-red spectroscopy
Trans-cranial direct current electrical
tDCS stimulation
TES Trans-cranial electrical stimulation
TMS Trans-cranial magnetic stimulation
Repetitive Trans-cranial magnetic
rTMS stimulation
Operating Review
Our mission is to transform advances in neuroscience into
efficient, cost--effective tools for the research and treatment of
disease and the promotion of brain health to meet the increasing
awareness of the need for better diagnostics and treatments.
Revenues for the year ended 31 December 2015 were $13.6m, an
increase of 3.2% over the $13.2m reported for 2014. In addition, we
recognised grant income of some $1.5m for 2015 (2014: $0.6m).
Following a somewhat disappointing first half performance when
revenues of $5.2m were recorded (10% down on the prior year),
revenues in the second half of 2015 were strong at $8.4m,
representing a 14% increase over the same period in 2014. The
Company closed the year with approximately $1.0m of unfilled
orders, around half of which should be fulfilled in the first half,
with the balance being pre-orders for GTEN (Geodesic Transcranial
Electrical Neuromodulation) systems likely to be filled in the
second half of 2016. The balance ($1.4m) of the ElMindA supply
contract should also be filled during 2016.
The Company's cash reserves as at 31 December 2015 were $1.2m
($1.4m at 30 June 2015) and an invoice-factoring facility is in
place to help manage cash flows. The Company expects the recent
pattern of revenues being materially second half weighted to be a
feature of the current financial year. The Directors are carefully
managing the Company's cash flows whilst also reviewing options to
increase the working capital available to the Group so that growth
opportunities can be exploited.
Our product development activities include the following
highlights:
-- Product development is on track for a Q3 2016 research
release of the Company's flagship source imaging program GeoSource
3.0, which will feature both individual head modeling capabilities
and expanded "atlas" modeling. This product will be a companion
product to GTEN which is also expected to be released to the
research market in Q3 2016. During 2016, the Company intends to
seek FDA 510(k) approval of Geosource 3 for clinical
applications.
-- The clinical trial for dense array EEG localisation and GTEN
treatment of focal epilepsy is under way. At the US site,
Harborview Hospital University of Washington (Seattle), 15 patients
have been evaluated in the diagnostic phase and the intervention
phase is planned to start in April 2016. The diagnostic phase is
now underway at the China site, Huashan Hospital, Fudun University
(Shanghai).
-- The release in Q4 2015 of a range of Geodesic Sensor Nets
targeted at the particular needs of the underserved neonatal
intensive care market.
-- The submission of an Investigational Device Exemption (IDE)
for the study of dense array EEG localisation and rTMS (repetitive
Transcranial Magnetic Stimulation) treatment of focal epilepsy. The
study will take place at Stanford University Hospital.
We believe that our dEEG technology provides a strong basis for
EGI's continuing growth in the neuroscience research market and see
significant growth opportunities in the clinical market,
particularly in the diagnosis and treatment of epilepsy, and the
use of our technology for therapeutic neuromodulation for which we
are seeking FDA approval. In the clinical market, our products
offer ease of use, more precise data acquisition and visualization,
and faster recording times than conventional EEG products. Our
growth opportunity within the clinical market is "three
dimensional," with the primary facets being: 1) deeper sales
penetration of the market for epilepsy diagnosis and surgical
planning where we have existing high profile customers, 2) the
addition of newly--maturing clinical opportunities in areas such as
autism, and 3) providing other companies with a platform technology
on which they can build their own application--specific products
and software.
In the longer term, we also intend to pursue neuromodulation
opportunities that leverage our existing dEEG products for
therapeutic uses with our GTEN product. This neuromodulation
opportunity will build upon our existing GES, source imaging and
Sensor Net technologies in order to target electrical stimulation
to the brain and disrupt, reset or modify the brain's functioning.
We expect to release GTEN for non--therapeutic uses to our existing
research market customers in 2016.
We are pleased to welcome Gary Weber who has joined EGI as its
CFO on an interim basis. Gary has extensive experience with
American publicly traded companies and recently served as CFO for
the fine chemicals company, Synthetech Inc. Christine Soden, the
Company's former CFO remains on the Board as a non-executive
Director.
Financial Review
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Basis of Accounting; Reconciliation between IFRS and US
GAAP:
The accompanying 2015 and 2014 consolidated financial statements
are prepared in conformity with accounting principles generally
accepted in the United States of America (US GAAP). In previous
years EGI's financial statements were presented under IFRS
accounting principles. The principal differences between the two
methods of accounting as they impact EGI relate to the accounting
for research and development expenses and deferred tax assets.
Under US GAAP substantially all development costs are expensed
as incurred whilst IFRS requires the capitalization and related
amortization of certain development costs. Within EGI's activities,
no costs met the US GAAP criteria for capitalization and as such no
assets relating to product development costs are included in the
balance sheet as at either 31 December 2014 or 2015. The basis of
recognition of deferred tax assets also varies between the two
accounting conventions.
The balance sheet as at 31 December 2014 under US GAAP does not
reflect $2.7m of capitalized development projects which were
reported as non-current assets on the 2014 balance sheet under IFRS
accounting. Additionally, under IFRS accounting, the 31 December
2014 balance sheet included a net deferred tax asset of $0.8m
(being a non-current deferred tax asset of $1.9m and a non-current
deferred tax liability of $1.1m) whilst the comparable US GAAP
reporting has established a reserve for the full amount of the net
deferred tax asset, reporting no deferred tax assets or
liabilities.
Within the income statement, revenue for the year ended 31
December 2014 under both US GAAP and IFRS reporting was $13.2m. The
net loss for the year ended 31 December 2014 as reported under IFRS
was $3.3m, compared to a net loss of $4.3m reported under US GAAP
based financial statements. The difference of $1.0m between the two
reporting methods is primarily explained by the difference in the
accounting for development costs (under IFRS $1.5m of development
costs were capitalized and $0.6m of amortization expense charged)
and some minor timing and recognition differences.
Consolidated Statements of Operations:
Revenues increased by 3.2% to $13.6m for the year ended 31
December 2015 compared to $13.2m in 2014. A total of 170 GES
systems and upgrades were shipped in 2015, compared to 139 GES
systems in 2014.
Revenues from sales in North America increased to $7.7m in 2015
from $5.5m in 2014, primarily due to organic growth within the US,
shipments under the ElMindA supply contract and increased activity
in Canada. Revenues from international sales decreased by $1.7m, or
22.6%, to $6.0m in 2015. Sales in each of Europe and Asia were
$2.6m in 2015, compared to $4.6m and $2.9m, respectively, for 2014.
Revenues from sales to both Europe and Asia were constrained in
2015 by the strengthening of the US dollar against the Euro and
Chinese yuan, respectively. The market for our products was further
adversely impacted by a cautious spending environment in China.
Sales by product type were as follows:
For the year ending 31 2015 2014
December,
$m $m
Systems & upgrades 8.0 8.0
Sensor Nets 2.0 2.5
Major peripherals 1.4 0.7
Software 1.1 1.3
Support and other 1.1 0.7
----- -----
13.6 13.2
----- -----
Cost of revenues were $6.1m in 2015, compared to $5.5m in 2014,
resulting in gross profits of $7.5m in 2015 and $7.7m in 2014. The
gross margin was 55.2% in 2015 compared to 58.2% in 2014. The
decrease in gross margin between the two periods was largely a
factor of product mix, particularly the number of lower-channel
count systems sold.
EGI has been awarded research grants in support of various
EEG--related projects and grant and contract revenue was recognized
to the extent of $1.5m in 2015 and $0.6m in 2014. Direct grant
related expenses totaled $1.2m in 2015 and $0.4m in 2014 including
subcontractor costs of $0.6m in 2015 and $0.3m in 2014.
Selling and marketing expense remained relatively constant at
$4.0m in 2015 compared to $4.1m in 2014 and as a percent of total
revenue improved to 29.1% in 2015, compared to 30.8% in 2014.
General and administrative expense decreased approximately $0.3m,
or 8.3%, to $3.8m in 2015, from $4.1m in 2014. This decrease is
primarily due to cost control measures implemented during the
period. General and administrative expense as a percent of total
revenue decreased to 27.5% in 2015, compared to 31.0% in 2014.
Research and development expenses decreased approximately $1.0m, or
24.6%, to $2.9m in 2015, compared to $3.9m in 2014. The decrease
was primarily due to allocation in 2015 of resources to grant
related activities due to higher grant activity. Research and
development expense as a percent of total revenue decreased to
21.6% in 2015, compared to 29.6% in 2014.
Overall the business generated a net loss of $2.8m for 2015
compared to a net loss of $4.3m in 2014. The basic and diluted net
loss per share was $0.10 and $0.17 for 2015 and 2014,
respectively.
Balance Sheet:
Cash and cash equivalents totaled $1.2m at both 31 December 2015
and 2014.
Overall, working capital remained reasonably consistent
increasing $0.1m to $2.9m as at 31 December 2015 compared to $2.8m
at the previous year-end. Trade accounts receivable increased $0.4m
to $3.3m at 31 December 2015 compared to $2.9m at 31 December 2014
and deferred revenue increased by $0.3m to $1.9m at 31 December
2015 compared to $1.6m at 31 December 2014, each broadly in line
with the timing of customer shipments and related payment terms.
Inventories increased $0.3m to $2.0m at 31 December 2015 compared
to $1.7m at 31 December 2014 reflecting the backlog of unshipped
orders at the year-end. Accounts payable and accrued expenses
increased $0.5m to $1.6m at 31 December 2015 compared to $1.1m at
the prior year-end.
In the year ended 31 December 2015 capital expenditure was $0.3m
and depreciation for the year was $0.5m resulting in a net decrease
in property and equipment between the two periods of $0.2m.
Our fundraising in March 2015 resulted in the receipt of $2.9m
with expenses of $0.4m and the issue of 3,076,923 new shares of
common stock at GBP0.65, increasing the number of shares in issue
to 27,525,709 at the year-end.
Growth Strategy
Our goal is to become a leading provider of dEEG solutions
across both the research and clinical market by capitalizing on our
technology platform and continuing to develop, manufacture and
commercialize novel diagnostic and interventional products. The key
components of our growth strategy include:
-- Grow sales in our already established research market. Since
inception we have primarily targeted our products toward the
strategically important neuroscience research market. We have grown
annual sales to this market from $9.6 million in 2013 to $11.2
million in 2015. With additional sales and marketing efforts, we
believe we can continue to achieve solid and steady sales growth in
this market. As we continue to grow our sales of GES 400 systems,
we can expect to see corresponding growth in recurring sales of our
Sensor Nets and other related peripheral products.
-- Pursue opportunities to sell our products as an OEM. We
intend to expand our efforts in identifying OEM (original equipment
manufacturer) sales opportunities to customers that bundle EGI
products with their own products or services and sell them into
different market verticals. In October 2015, we received an order
to supply 100 GES 400 units to ElMindA, Inc. for use as part of
their Brain Network Activation software platform, which is being
used to assess concussion risks in high school and college athletes
across the US. Customers who purchase our products on an OEM basis
and integrate them with their own products or services take on the
responsibility and costs for any regulatory clearances necessary
for their integrated product offering to go to market. This allows
our products to reach new markets and new medical indications
outside our already established research market with limited
additional development and regulatory costs to us. We believe that
expansion of our OEM sales efforts will lead to additional sales of
our products into new clinical and research markets that we would
not otherwise target with direct sales.
-- Expand commercialization opportunities for our dEEG solutions
in the clinical and neurosurgical markets. The clinical and
neurosurgery markets represent an opportunity that we estimate is
over ten times the size of our current core research market. In
2015, our sales to these non--research markets represented
approximately 18% of our revenues. We believe our products offer
potential diagnostic and clinical utility in multiple areas of
neurology, including epilepsy, depression, autism, planning brain
surgery, traumatic brain injury, schizophrenia, stroke, tinnitus
and concussion. Compared to standard low--channel EEG products,
which are already widely in use in clinical settings, we believe
our products offer greater ease of use, more precise data
acquisition and visualization, and faster recording times. Our
strategy for growth in the clinical market includes three
dimensions:
-- Expand our market penetration in our existing vertical
markets in epilepsy diagnosis and pre--surgical planning by
enhancing our marketing and sales capabilities and continuing to
expand our product offerings, particularly with respect to epilepsy
monitoring units. We believe this expansion will allow us to grow
our network of customers to include mid--market hospitals and
neurology practices.
-- Adaptation of our products, through additional software
offerings or specialized diagnostic add--ons, for specific new
clinical opportunities within clinical neurology, neurosurgery,
psychiatry and psychology, for indications such as autism, tinnitus
and stroke rehabilitation.
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-- Apply our technology to develop new products in therapeutic
neuromodulation. We believe that our technology could be
successfully adapted to offer clinicians the ability to perform
therapeutic neuromodulation interventions to treat a variety of
diseases such as epilepsy and depression. Our GTEN software, when
integrated with our GES 400 system and a Sensor Net, will allow a
user to accurately deliver electrical stimulation to targeted parts
of the brain while at the same time recording EEG measurements. In
June 2015, we received our IDE from the FDA for feasibility studies
using GTEN for treatment of epilepsy and we intend to pursue
further clinical trials using GTEN in the therapeutic treatment of
epilepsy.
We believe that GTEN may also offer potential utility in
therapeutic treatment of other diseases, disorders and chronic
conditions, such as depression, schizophrenia, tinnitus, chronic
pain, Parkinson's disease, stroke, limb transplant, Alzheimer's
disease, Attention Deficit Hyperactivity Disorder, insomnia, autism
and migraine. We believe the most effective path toward adapting
our products to treatment of these conditions is to continue our
research and development efforts and to partner with other, larger
companies pursuing neuromodulation treatments for these
conditions.
Key Performance Indicators Outlook & Strategic Goals
The Board set a number of key performance indicators (KPIs) and
targets for the business in 2015.
Sales growth achieved for 2015 was lower than the target, with
actual sales growth of 3.2%. Although overall sales growth was
lower than the target, the strong growth in the second half (14%
over H2 2014) together with the order backlog at the end of 2015,
indicate that increased sales growth in 2016 should be achievable.
The Company closed 2015 with approximately $1.0m of unfilled orders
and the balance ($1.4m) of the ElMindA supply contract which should
be shipped during 2016.
A gradual improvement in gross margins was targeted for 2015.
This target was not met, largely as a result in delays to the
launch of GTEN and GeoSource 3 with their expected attendant
higher-margin software sales. The Board believes that increased
sales of higher-margin software and other products and efficiencies
of scale will lead to gross margin percentages being maintained and
gradually increased, although the overall goal is to target
increases in gross profits through revenue growth and cost
management.
The target of controlling costs was strongly met with operating
expenses for 2015 some 12% lower than those for 2014. Cost controls
will be maintained for 2016, balanced against increased revenues.
However, some increases will be necessary in order to deliver the
planned increase in sales and customer base.
Key performance indicators for 2016 include a target of
double-digit sales growth with increased sales to the research
market supported by organic growth and the planned launch of GTEN,
and increased sales to the clinical market supported by both new
and enhanced products. Current expectations are for operating
expenses to remain tightly controlled with increases being in
support of increased sales.
Product development goals for 2016 include the research launch
of GTEN in H2 2016 and the release of major software enhancements
to Net Station, GeoSource and NOLIS.
Clinical trials for GTEN treatment of epilepsy at Harborview
Hospital in Seattle and a similar trial at Huashan Hospital in
Shanghai will also be an area of focus for 2016.
The Directors intend to develop the value of the underlying
diagnostic and monitoring business and to deliver and retain value
in GTEN, bringing the feasibility study to completion during 2016
whilst assessing options to develop the product fully, including
assessing relevant grant funding and strategic industrial
partnerships.
EGI's strategic goals for the near to mid-term are as
follows:
-- to maintain EGI's position as the leading provider of EEG
solutions and tools to the neuroscience research community;
-- to provide clinical customers with a full range of
compatible, upgradeable solutions for their EEG imaging and
neuromodulation needs and build market share;
-- to establish EGI's technology as the leading solution for
targeting and imaging brain activity to map and guide brain surgery
in epilepsy and general neurosurgery using dEEG and GTEN;
-- to establish GTEN as a leading neuromodulation tool in
research and deliver effective, targeted non-invasive
neuromodulation in epilepsy to build clinical utility;
-- to improve market share through OEM services, strengthening
of sales channels, strategic alliances, continued product
improvement and innovation.
ELECTRICAL GEODESICS, INC.
Consolidated Balance Sheets
December 31
-----------------------------------------------------------
2015 2014
---------------------------- -----------------------------
ASSETS
Current assets: $'000 $'000
Cash and cash equivalents 1,181 1,232
Trade accounts receivable, net of allowance for
doubtful accounts of $14,000 for 2014/15 3,271 2,885
Grants and contracts receivable 323 107
Inventories 1,993 1,651
Prepaid expenses and other assets 361 353
Deferred stock issuance costs 368 116
Total current assets 7,497 6,344
Property and equipment, net 1,642 1,832
Goodwill 210 210
Other intangible assets, net 67 82
Total assets 9,416 8,468
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses 1,554 1,057
Accrued payroll and related liabilities 941 986
Product warranty reserve 136 163
Customer deposits 224 160
Deferred revenue 1,512 1,102
Recourse debt on factoring agreement 216 -
Note payable - 43
Total current liabilities 4,583 3,511
Deferred revenue - noncurrent 423 534
Total liabilities 5,006 4,045
COMMITMENTS AND CONTINGENCIES (SEE NOTE 8)
STOCKHOLDERS' EQUITY
Common Stock - $0.001 par value, 75,000,000 shares
authorized, 27,525,709 and 24,448,786 shares
issued and outstanding at December 31, 2015 and
2014, respectively 27 24
Additional paid--in capital 13,069 10,323
Accumulated deficit (8,686) (5,924)
Total stockholders' equity 4,410 4,423
Total liabilities and stockholders' equity 9,416 8,468
See accompanying notes to consolidated financial statements.
ELECTRICAL GEODESICS, INC.
Consolidated Statements of Operations
2015 2014
----------- -----------
$'000 $'000
Revenues 13,619 13,200
Cost of revenues 6,105 5,519
Gross margin 7,514 7,681
Grant and contract revenues 1,497 566
Less direct grant and contract expenses 1,162 439
7,849 7,808
Operating expenses:
Selling and marketing expenses 3,966 4,071
General and administrative expenses 3,750 4,091
Research and development 2,944 3,903
Total operating expenses 10,660 12,065
Operating loss (2,811) (4,257)
Other income (expense):
Interest expense, including factoring fees (11) (4)
Loss on disposal of property and equipment - (40)
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Other Income (expense) 69 (60)
Other income (expense), net 58 (104)
Loss before income taxes (2,753) (4,361)
Income tax expense (benefit) 9 (96)
Net loss (2,762) (4,265)
Basic and diluted weighted--average number
of common shares outstanding 26,918,754 24,448,786
Net loss per share:
Basic and diluted $ (0.10) $ (0.17)
See accompanying notes to consolidated financial statements.
ELECTRICAL GEODESICS, INC.
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2015 and 2014
Common Stock
----------------------------------------------------------------- ---------------------------------------------
Shares Amount Additional Accumulated
Paid--In Capital Deficit
----------------------------------- ---------------------------- ---------------------------- ---------------
$'000 $'000 $'000
Total
Stockholders'
Equity
---------------
Balance at
December 31,
2013 24,448,786 24 10,191 (1,659) $'000
Share--based
compensation - - 132 - 8,556
Net loss - - - (4,265) 132
Balance at
December 31,
2014 24,448,786 24 10,323 (5,924) (4,265)
Stock issued
for cash,
net of
issuance
costs of
$440,000 3,076,923 3 2,509 - 4,423
Share--based
compensation - - 237 - 2,512
Net loss - - - (2,762) 237
Balance at
December 31,
2015 27,525,709 27 13,069 (8,686) (2,762)
See accompanying notes to consolidated financial statements.
ELECTRICAL GEODESICS, INC.
Consolidated Statements of Cash Flows
For Years ended December
31,
----------------------------------------------------
2014
2015
----------------------------- ---------------------
$'000 $'000
Cash flows from operating activities:
Net loss (2,762) (4,265)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 546 495
Loss on disposal of property and equipment - 40
Share--based compensation 237 132
Changes in operating assets and liabilities:
Trade accounts receivable (386) 210
Grants and contracts receivable (216) 10
Inventories (342) 436
Prepaid expenses and other assets (8) 21
Accounts payable and accrued expenses 376 (239)
Accrued payroll and related liabilities (45) 143
Product warranty reserve (26) 35
Customer deposits 64 (28)
Deferred revenue 299 247
Net cash used in operating activities (2,263) (2,763)
Cash flows from investing activities:
Acquisition of property and equipment (342) (814)
Acquisition of intangible assets - (9)
Net cash used in investing activities (342) (823)
Cash flows from financing activities:
Proceeds from stock issued 2,952 -
Stock issuance costs (571) (116)
Proceeds from factoring agreement 430 -
Repayments under factoring agreement (214) -
Principal payments on debt (43) (111)
Net cash provided by (used in) financing activities 2,554 (227)
Net decrease in cash (51) (3,813)
Cash and cash equivalents at beginning of year 1,232 5,045
Cash and cash equivalents at end of year 1,181 1,232
Non-Cash Financing Activities
Accrued deferred stock issuance costs 121 -
Supplemental disclosure of cash flow information:
Cash paid during the year for interest and factoring
fees 9 6
Income taxes paid 11 -
See accompanying notes to consolidated financial statements.
Note 1 -- Nature of Business
Electrical Geodesics, Inc., a Delaware corporation, is a
developer and manufacturer of hardware and software for dense
sensor array methods of human electroencephalographic and
event--related research. Revenues are derived from sales of
neuroimaging/neuro--monitoring equipment and evaluative software to
research and clinical organizations worldwide and from Small
Business Innovation Research (SBIR) grants, and grants or grant
sub--contracts from various federal agencies. In January 2005, the
Company established Geomedica, Inc., an Oregon corporation, and it
is a wholly owned subsidiary of EGI. In January 2006, Cerebral Data
Systems, Inc., an Oregon corporation ("CDS"), was formed and it is
a 93% owned subsidiary of EGI. Geomedica, Inc. and CDS are
currently dormant. On September 30, 2013, EGI acquired 100% of the
shares of Avatar EEG Solutions Incorporated, a Canadian corporation
("Avatar"), and it remains a wholly-owned subsidiary of EGI.
Note 2 -- Summary of significant accounting policies
Accounting principles. The consolidated financial statements are
prepared in conformity with accounting principles generally
accepted in the United States of America (US GAAP).
Principles of consolidation. The accompanying consolidated
financial statements include the accounts of Electrical Geodesics,
Inc., Geomedica, Inc., CDS, and Avatar (collectively, "EGI" or the
"Company"). All significant intercompany balances and transactions
have been eliminated in consolidation.
Use of estimates. The preparation of the consolidated financial
statements in accordance with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. Such estimates include allowances for potentially
uncollectible accounts receivable, valuation of inventory,
intangible assets, goodwill, share-based compensation, deferred
income taxes, reserve for warranty obligations and the provision
for income taxes among others. Actual results could differ from
those estimates.
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Cash and cash equivalents. Cash and cash equivalents are
comprised of cash in banks, certificates of deposits, and money
market funds. EGI considers deposits that can be redeemed on demand
and investments that have original maturities of less than three
months, when purchased, to be cash equivalents. At times, EGI's
cash balances may exceed amounts insured by the Federal Deposit
Insurance Corporation.
Fair value of financial instruments. The carrying amounts of
financial instruments, including cash, recourse debt on factoring
agreement and notes payable, approximate fair value due to the
short maturity of these instruments.
Receivables. The majority of EGI's trade accounts receivable
arise from sales to universities, research hospitals and other
clinical institutions. Credit is extended based on evaluation of a
customer's financial condition and, generally, collateral is not
required. Trade accounts receivable are due within 30 days and are
stated at amounts due from customers net of an allowance for
doubtful accounts, if any. Accounts outstanding longer than the
contractual payment terms are considered past due. EGI determines
its allowance by considering a number of factors, including the
length of time trade accounts receivable are past due, previous
loss history, the customer's current ability to pay its
obligations, and the condition of the general economy and the
industry as a whole. EGI's grants and contracts are receivable from
the U.S. government and are considered to be fully collectible.
Concentration of credit risk. Financial instruments that
potentially subject EGI to concentrations of credit risk consist
primarily of cash and cash equivalents and accounts receivable. EGI
places its cash and cash equivalents with high quality financial
institutions and limits the amount of credit exposure with any one
institution. Concentrations of credit risk with respect to accounts
receivable are limited because a large number of geographically
diverse customers make up EGI's customer base, thus spreading the
trade credit risk. At December 31, 2015 one customer had an
accounts receivable balance of 12% of total accounts receivable. At
December 31, 2014 no single group or customer represents greater
than 10% of total accounts receivable. EGI controls credit risk
through credit approvals, credit limits, and monitoring procedures.
EGI performs credit evaluations of its commercial customers but
generally does not require collateral to support accounts
receivable.
Inventories. Inventories are stated at the lower of cost or
market. Cost is determined using the first-in, first-out (FIFO)
method for all inventories of the Company. EGI regularly evaluates
the technological usefulness and anticipated future demand for
various inventory components and the expected use of the inventory.
When EGI determines it is not likely the cost of inventory items
will be recovered through future sales, EGI writes-down the related
inventory to net realizable salvage value.
Property and equipment. Property and equipment is recorded at
cost and depreciated over the estimated useful lives (generally
three to seven years) of the assets, using the straight--line
method. Leasehold improvements are amortized over the lives of the
respective leases or the service lives of the improvements,
whichever is shorter. Repairs and maintenance are charged to
expense as incurred.
EGI reviews the carrying value of property and equipment for
impairment whenever events and circumstances indicate that the
carrying value of an asset may not be recoverable from the
estimated future cash flows expected to result from its use and
eventual disposition. In cases where undiscounted expected future
cash flows are less than the carrying value, an impairment loss is
recognized equal to an amount by which the carrying value exceeds
the fair value of assets. The factors considered by management in
performing this assessment include current operating results,
trends and prospects, the manner in which the property is used, and
the effects of obsolescence, demand, competition, and other
economic factors. Based on this assessment there was no impairment
at December 31, 2015 or 2014.
Goodwill and other intangible assets. Goodwill is not amortized,
but is tested annually for impairment. An impairment charge is
recognized if the carrying amount of a reporting unit exceeds its
fair value and the carrying amount of the reporting unit's goodwill
exceeds the implied fair value of that goodwill. The cost of other
intangible assets is amortized on a straight--line basis over the
asset's estimated useful life.
Product warranty reserve. EGI offers warranties of various
lengths to its customers depending on the specific product and
terms of the customer purchase agreement. The average length of the
warranty period is 12 months. EGI's warranties require it to repair
or replace defective products during the warranty period at no cost
to the customer. At the time product revenue is recognized, EGI
records a liability for estimated costs that may be incurred under
its warranties. The costs are estimated based on historical
experience and any specific warranty issues that have been
identified. Although historical warranty costs have been within
expectations, there can be no assurance that future warranty costs
will not exceed historical amounts. EGI periodically assesses the
adequacy of its recorded warranty liability and adjusts the balance
as necessary.
Share--based compensation. EGI measures compensation cost for
share--based payment awards at fair value and recognizes it as
compensation expense over the service period for awards expected to
vest. Share--based compensation expense is recognized for all
share--based payment awards, net of an estimated forfeiture rate.
Compensation cost is only recognized for those share--based payment
awards expected to vest on a straight--line basis over the
requisite service period of the award. Determining the appropriate
fair value model and calculating the fair value of share--based
payment awards requires subjective assumptions, including the
expected life of the share--based payment awards and stock price
volatility. EGI utilizes the Black--Scholes options pricing model
to value the stock options granted under its options plans. In this
model, the assumptions utilized relate to stock price volatility,
stock option term and forfeiture rates that are based upon both
historical factors as well as management's judgment. Stock options
awarded to EGI's employees have an exercise price denominated in
British Pounds Sterling (GBP), which is the currency of AIM, a
small company exchange operated by the London Stock Exchange, the
market in which EGI's securities trade.
Deferred stock issuance costs. Costs incurred to underwriters,
legal counsel, printers and advisors, and other costs directly
attributable to an identifiable offering of securities are deferred
until charged against the gross proceeds of the offering. If an
offering is terminated prior to funding, any related deferred costs
are immediately expensed.
Income taxes. EGI is treated as a C--corporation for purposes of
filing its federal income tax return. Income taxes consist of taxes
currently due or refundable plus deferred taxes arising from the
timing differences between financial and income tax reporting. EGI
recognizes deferred tax liabilities and assets for expected future
income tax consequences of events that have been recognized in
EGI'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. EGI is
subject to taxation in various jurisdictions. EGI continues to
remain subject to examination by various state and US federal
authorities for years 2012 through 2015.
Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and operating loss and tax credit carryforwards and are
measured using the enacted tax rates and laws that will be in
effect when the differences and carryforwards are expected to be
recovered or settled. A valuation allowance for deferred tax assets
is provided when we estimate that it is more likely than not that
all or a portion of the deferred tax assets may not be realized
through future operations. This assessment is based upon
consideration of available positive and negative evidence, which
includes, among other things, our recent results of operations and
expected future profitability. EGI considers its actual historical
results over several years to have stronger weight than other more
subjective indicators, including forecasts, when considering
whether to establish or reduce a valuation allowance on deferred
tax assets.
EGI continues to provide a full valuation allowance against its
deferred tax assets as the realization of such assets is not
considered to be more likely than not at this time. If EGI's
conclusion about the realization of its deferred tax assets and
therefore the appropriateness of the valuation allowance changes in
a future period, EGI could record a substantial tax provision or
benefit in its Consolidated Statements of Operations when that
occurs.
EGI recognizes the income tax benefit from a tax position only
if it is more likely than not that the tax position will be
sustained on examination by the applicable taxing authorities,
based on the technical merits of EGI's position. The tax benefit
recognized in the financial statements from such a position is
measured based on the largest benefit that has a greater than fifty
percent likelihood of being realized upon ultimate settlement.
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Estimated interest and penalties are recorded as a component of
interest expense and other expense, respectively. EGI has reviewed
potential tax uncertainties and determined that the exposure to
those uncertainties did not have a material impact on EGI's results
of operations or financial condition as of December 31, 2015 or
2014.
Revenue recognition. Revenues from product sales are recognized
in the period the product is shipped, title passes to the customer
and all obligations have been met or are deemed inconsequential,
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 or determinable.
The product includes both hardware and software to operate the
equipment. Shipping and handling charges to customers are included
in revenues. Shipping and handling costs incurred by EGI are
included in cost of revenues.
EGI enters into multiple--deliverable arrangements that include
a medical device, with embedded diagnostic software, and one or two
year(s) of post--contract customer support (PCS). The diagnostic
software and hardware function together to provide the device's
essential functionality. Arrangements generally do not include any
performance, cancellation, termination, or refund provisions.
Devices are generally delivered to customers upon arrangement
inception together with PCS provided over a one--year or two--year
service period. The medical device, including the diagnostic
software, is considered a single unit of accounting and PCS is the
second unit of accounting. Arrangement consideration allocated to
the device is recognized as revenue upon delivery. Consideration
allocated to PCS is recognized as revenue ratably over the agreed
service period.
Consideration is allocated to the deliverables at inception of
an arrangement using the relative selling price method. Selling
price is determined based on a selling price hierarchy. EGI has not
established vendor specific objective evidence of fair value (VSOE)
nor is it able to obtain sufficient third--party evidence of
selling price for any of its devices or related PCS. As a result,
selling price for the devices and PCS is determined using
management's best estimate of selling price.
EGI determines its best estimate of selling price through a
weighting of several factors including market competition,
manufacturing costs, and gross profit margin objectives, and level
of technical complexity of the product. The gross profit margin is
initially obtained from an average of historic sales of
arrangements with bundled elements, segregated by device model and
geographic area. EGI considers several other factors in adjusting
the profit margin, including the device's enhanced technological
features as compared to its competitor's products, the expected
remaining life of the device and customer demand. Selling price for
PCS is determined using a similar cost plus margin approach. EGI
considers its employee staffing costs required to provide support
for its devices, research, and development costs related to
upgrades for the diagnostic software while considering other inputs
such as PCS renewal rates for similar services.
Revenues from sales of standalone items of hardware and software
where there are no further performance obligations on the Company
are recognized when shipped.
Grant and contract revenues are recognized as qualified expenses
are incurred. Unreimbursed expenses are recognized as grants and
contracts receivables at year end. Receipts in excess of qualified
expenses, if any, are deferred until earned.
Research and development. All research and development
expenditures are expensed as incurred. Research and development
costs include costs of all basic research activities as well as
other research, engineering, and technical effort required to
develop a new product or service or make significant improvement to
an existing product or manufacturing process. However, the costs
incurred for the development of computer software that will be
sold, leased, or otherwise marketed are capitalized when
technological feasibility has been established. Once technological
feasibility is established, all software costs are capitalized
until the product is available for release to customers. Judgment
is required in determining when technological feasibility of a
product is established. To date, management has determined that
technological feasibility of software products is reached shortly
before the products are released. Costs incurred after
establishment of technological feasibility have not been material,
and therefore, management has expensed all research and development
costs as incurred.
Advertising. All advertising costs are expensed as incurred.
Advertising expense totaled $12,000 and $30,000 in 2015 and 2014,
respectively.
Taxes collected from customers and remitted to governmental
authorities -- net basis. EGI's policy is to present taxes
collected from customers and remitted to governmental authorities
on a net basis. EGI records the amounts collected as a current
liability and relieves such liability upon remittance to the taxing
authority without impacting revenues or expenses.
Foreign currency transaction. EGI uses the U.S. dollar as its
functional and reporting currency. Wherever possible, EGI transacts
in U.S. dollars although a small number of sales are denominated in
foreign currency. EGI minimizes foreign currency risk by requiring
its overseas customers to adhere to strict payment terms or to
operate through letters of credit.
Net loss per share. Basic net income (loss) per share is
computed by dividing net income (loss) by the weighted average
number of shares of common stock outstanding during the period.
Diluted net income (loss) per share is computed by dividing net
income (loss) by the weighted average number of shares of common
stock and common stock equivalents outstanding during the period,
calculated using the treasury stock method. Common stock
equivalents (common stock options only) are not used to calculate
diluted loss per share because their effect would be
anti-dilutive.
Subsequent Events. Management of EGI has evaluated subsequent
events through the date these financial statements were available
to be issued, which was March 28, 2016.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or FASB,
issued Accounting Standards Update No. 2014--09, Revenue from
Contracts with Customers: Topic 606 (ASU 2014--09), to supersede
nearly all existing revenue recognition guidance under GAAP. The
core principle of ASU 2014--09 is to recognize revenues when
promised goods or services are transferred to customers in an
amount that reflects the consideration that is expected to be
received for those goods or services. ASU 2014--09 defines a five
step process to achieve this core principle and, in doing so, it is
possible more judgment and estimates may be required within the
revenue recognition process than required under existing U.S. GAAP
including identifying performance obligations in the contract,
estimating the amount of variable consideration to include in the
transaction price and allocating the transaction price to each
separate performance obligation. ASU 2014--09 is effective for the
fiscal and interim reporting periods beginning after December 15,
2016 using either of two methods: (i) retrospective to each prior
reporting period presented with the option to elect certain
practical expedients as defined within ASU 2014--09; or (ii)
retrospective with the cumulative effect of initially applying ASU
2014--09 recognized at the date of initial application and
providing certain additional disclosures as defined per ASU
2014--09.
In August 2015, FASB issued Accounting Standards Update No.
2015--14, Revenue from Contracts with Customers -- Deferral of the
Effective Date: Topic 606 (ASU 2015--14) that deferred the
effective date of ASU 2014--09 by one year. Application of the new
revenue standard for public business entities is permitted for
fiscal and interim reporting periods beginning after December 15,
2016 and required for fiscal and interim reporting periods
beginning after December 15, 2017. EGI is currently evaluating the
potential impact of the pending adoption of ASU 2014--09 and
2015-14 on its consolidated financial statements.
In July 2015, FASB issued Accounting Standards Update No.
2015--11, Simplifying the Measurement of Inventory: Topic 330 (ASU
2015--11). Topic 330 currently requires an entity to measure
inventory at the lower of cost or market. Market could be
replacement cost, net realizable value, or net realizable value
less an approximately normal profit margin. ASU 2015--11 requires
that inventory measured using either first--in, first--out (FIFO)
or average cost method be measured at the lower of cost and net
realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation.
Adoption of ASU 2015--11 for public business entities is required
for fiscal reporting periods beginning after December 15, 2016,
including interim reporting periods within those fiscal years. EGI
does not expect adoption of ASU 2015--11 to have a material impact
on its consolidated financial statements.
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In February 2016, the FASB issued ASU 2016-02, Leases ("ASU
2016-02"). This update requires that lessees recognize assets and
liabilities on the balance sheet for the rights and obligations
created by all leases with terms of more than 12 months. ASU
2016-02 also will require disclosures designed to give financial
statement users information on the amount, timing, and uncertainty
of cash flows arising from leases. These disclosures include both
qualitative and quantitative information. The effective date for
ASU 2016-02 for public business entities is for fiscal years, and
interim periods within those fiscal years, beginning after December
15, 2018 with earlier adoption permitted. EGI is still evaluating
the impact of ASU 2016-02 on its financial position and results of
operations
Note 3 -- Inventories
Inventories consist of the following:
December 31
-------------------------------------------------------
2015 2014
--------------------------- --------------------------
$'000 $'000
Materials 1,899 1,517
Work in process 7 15
Finished products and merchandise 87 119
Total inventories 1,993 1,651
Note 4 -- Property and equipment
Property and equipment consist of the following:
December 31
----------------------------------------------------
2015 2014
------------------------- -------------------------
$'000 $'000
Furniture and fixtures 147 144
Leasehold improvements 308 308
Computer software 214 230
Demonstration and loaned equipment 1,124 1,046
Equipment 2,430 2,163
Total property and equipment 4,223 3,891
Accumulated depreciation (2,581) (2,059)
Property and equipment, net of accumulated
depreciation 1,642 1,832
Note 5 -- Other intangible assets
Other intangible assets subject to amortization consist of the
following:
December 31
------------------------------------------------------
2015 2014
-------------------------- --------------------------
$'000 $'000
Patents 110 110
Less accumulated amortization (43) (28)
Other intangible assets, net 67 82
Amortization expense for the years ended December 31, 2014 and
2013 was $14,000. Estimated annual amortization expense for
intangible assets approximates $14,000 for each of the next five
years.
Note 6 - Recourse debt on factoring agreement
On September 24, 2015, EGI entered into a factoring agreement
for up to $1 million of qualifying receivables, with recourse to
the lender. EGI will receive 98.05% of the face value of such
customer invoices and will pay interest of 4% per year on invoice
balances that exceed 90 days from the invoice date. Under the
agreement, EGI provided a security interest in accounts receivable,
inventory and, property and equipment of EGI. Factoring fees and,
if applicable, any interest expense, are reported as interest
expense in the Consolidated Statements of Operations. The lender
may terminate the factoring agreement at any time. As of December
31, 2015, EGI reported $216,000 in borrowings outstanding under the
agreement and has $784,000 in availability.
Note 7 -- Note payable
EGI had an equipment loan with a bank, collateralized by assets
of the Company. The loan with the bank included a tangible net
worth requirement of not less than $1.75 million (measured
quarterly) and a minimum debt service coverage ratio of 1.30 : 1.00
(measured on a rolling four quarter basis). The note payable
matured and was paid in accordance with its terms in 2015 and was
outstanding as follows:
December 31
---------------
2015 2014
------- ------
$'000 $'000
Note payable to bank, due in 36
monthly installments of $9 including
interest at 4.25%, due June 2,
2015. - $ 43
Note 8 -- Commitments and contingencies
Operating lease commitments. EGI has entered into operating
leases for office and warehouse space. Total rent expense under
these leases amounted to $529,000 and $560,000 for the years ended
December 31, 2015 and 2014, respectively. The aggregate minimum
future lease payments under all of these operating leases are as
follows:
Year ending December
31, Amount
--------------
$'000
2016 530
2017 528
2018 496
--------------
1,554
Litigation or contingencies. From time to time, EGI is subject
to various legal proceedings that arise in the ordinary course of
business, none of which are currently material to the Company's
business.
Grant revenue. Under the terms and conditions of the grants with
the U.S. government, the granting agency may elect to audit the
grant expenses reported by EGI. An adjustment as a result of an
audit, if any, could result in a liability to EGI.
Note 9 -- Income taxes
2015 2014
------------------------- --------------------------
Current: $'000 $'000
Federal - (96)
State and local 9 -
Total current provision (benefit) 9 (96)
Deferred provision (benefit) - -
Income tax provision (benefit) 9 (96)
The income tax provision (benefit) is comprised of the following
for the years ended December 31:
The provision (benefit) for income taxes for the years ended
December 31, 2015 and 2014 differs from the amount obtained by
applying the US Federal statutory income tax rate to pretax income
due to the following:
2015 2014
--------------------------- -------------------------
$'000 $'000
Tax on book income at federal statutory
rate, net of state tax benefit (936) (1,395)
State income tax (117) (305)
Nondeductible expenses 36 45
Current year federal research credit (161) (213)
Current year state research credit (50) (73)
Differences in actual graduated tax rates
vs. flat deferred tax rates (205) 69
Change in valuation allowance for deferred
tax assets 1,442 1,776
Total provision (benefit) for income
taxes 9 (96)
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The components of deferred tax assets at December 31 are as
follows:
2015 2014
--------------------------- ---------------------------
Current: $'000 $'000
Assets:
Net vacation, commissions, and stockholder
accrual adjustments 60 47
Warranty reserve 53 63
Bad debt reserve 5 5
263A Inventory capitalization adjustments 31 69
Deferred revenue adjustments 163 212
Stock option compensation adjustments 170 75
Less valuation allowance (482) (471)
Net current deferred tax asset - -
Noncurrent:
Assets:
Research credit carryforwards 1,009 798
Net operating loss carryforwards 3,815 2,615
Charitable contribution carryforwards 16 10
Liabilities:
Excess tax over book depreciation (8) (22)
Less valuation allowance (4,832) (3,401)
Net noncurrent deferred tax asset - -
(liability)
EGI's federal and Oregon research credit carry forwards as of
December 31, 2015 are approximately $754,000 and $254,000
respectively. The federal research credit carry forwards expire in
varying amounts through 2035. The Oregon carry forwards expire in
varying amounts through 2020. EGI's federal and Oregon net
operating loss carry forwards as of December 31, 2015 are
approximately $9,500,000 and $8,300,000. The federal net operating
loss carry forward expires in varying amounts in 2033 through 2035.
The Oregon net operating loss carry forwards expire in varying
amounts in 2027 through 2030. Realization of the benefit of tax
losses is dependent on generating sufficient taxable income prior
to expiration of the credit carry forwards.
Note 10 -- Product warranty reserve
Changes in EGI's product warranty liability are as follows:
December 31
----------------------------
2015 2014
------------- -------------
$'000 $'000
Balance at beginning of year 163 128
Warranty expense 113 133
Settlements of warranty claims (140) (98)
------------- -------------
Balance at end of period 136 163
============= =============
Note 11 -- 401 (k) savings plan
EGI has adopted a 401 (k) savings plan for all eligible
employees. All employees are eligible to participate in the plan
after reaching age 18 and completing six months of service.
Employees may defer compensation up to the limits prescribed by the
Internal Revenue Code. The plan provides a discretionary employer
matching contribution and a discretionary employer profit sharing
contribution. Effective January 1, 2013, EGI amended the plan to
include safe harbor provisions. EGI makes safe harbor matching
contributions of 100% of the first 3% of elective employee
deferrals and 50% for the 4th and 5th percent of elective
deferrals. Safe harbor contributions and earnings are 100% vested.
The value of profit sharing contributions and earnings vest 20% per
year over five years. EGI's matching contributions to the plan were
$150,000 and $162,000 in 2015 and 2014, respectively. There were no
employer discretionary profit sharing contributions made in 2015 or
2014.
Note 12 - Equity incentive plan
Description of the Plan
EGI's 2013 Equity Incentive Plan (the Plan), which is
stockholder--approved, permits the grant of stock options,
restricted stock and stock appreciation rights (SARS) to its
employees for up to 1,711,415 shares of common stock. Option awards
are generally granted with an exercise price equal to the market
price of EGI's stock at the date of grant; those option awards
generally vest based on three years of continuous service and have
10--year contractual terms. No grants of restricted stock or SARS
have been made under the plan. As of December 31, 2015, 728,915
shares were available for issuance under the Plan.
EGI's common stock is listed and trades on AIM, a small company
exchange operated by the London Stock Exchange. All trades on AIM
are transacted in British Pounds Sterling (GBP). Accordingly, EGI
has granted all of its stock options with an exercise price
denominated in GBP.
Stock Option Activity
A summary of the changes in stock options outstanding under
EGI's Plan for the two years Ended December 31, 2015 is presented
below:
Weighted
Weighted Average
Number Average Remaining Aggregate
Of Exercise Contractual Intrinsic
Options Price Term (years) Value
Options outstanding, December
31, 2013 631,988 GBP 1.29
Granted 302,500 1.38
Exercised - -
Forfeited (59,500) 1.35
Expired - -
----------
Options outstanding, December
31, 2014 874,988 1.32
Granted 295,000 0.80
Exercised - -
Forfeited (187,488) 1.33
Expired - -
----------
Options outstanding, December
31, 2015 982,500 GBP 1.16 8.2 -
==========
Options vested at December
31, 2015 535,625 GBP 1.30 7.7 -
==========
Valuation Information
The fair value of each option award is estimated on the date of
grant using the Black--Scholes option valuation model that uses the
assumptions noted as follows.
Dividend Yield
EGI has not made any dividend payments nor does it have plans to
pay dividends in the foreseeable future. An increase in the
dividend will decrease compensation expense.
Expected Price Volatility
Expected price volatility is a measure of the amount by which
the price of a security has fluctuated or is expected to fluctuate.
EGI has experienced a limited volume of trading activity and has
not been publicly traded for a period that is commensurate with the
expected term of the stock grants. To determine the expected
volatility, EGI utilized peer company data to supplement its own
trading activity. An increase in the expected price volatility will
increase compensation expense.
Risk-Free Interest Rate
For the risk-free interest rate, EGI uses the U.S. Treasury rate
for the week of the grant having a term approximating the expected
life of the option. An increase in the risk-free interest rate will
increase compensation expense.
Expected Term
Expected term is the period of time over which the options
granted are expected to remain outstanding. EGI utilizes the
simplified method in determining the expected term of options. The
simplified method is an average of the vesting period and the term
of the option. The simplified method is used due to the fact that
we do not have adequate history of option activity to provide a
reasonable basis to estimate option lives. Options granted have a
term of ten years. An increase in the expected term life will
increase compensation expense.
Forfeitures
EGI expects limited forfeitures over the remaining grant vesting
periods. Stock-based compensation expense is adjusted as
forfeitures occur during the vesting period. An increase in the
forfeiture rate would decrease compensation expense.
The fair value of stock options granted in 2015 and 2014 were
determined using the weighted-average assumptions below:
2015 2014
------ ------
Expected annual dividend yield None None
Expected price volatility 36.1% 45.0%
Risk free interest rate 1.6% 1.9%
Expected term (in years) 6 6
The weighted--average grant--date fair value of options granted
during 2015 was $0.44 and for options granted in 2014 was
$0.94.
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The fair value of each option is amortized into compensation
expense on a straight-line basis over the vesting period (the
requisite service period). As of December 31, 2015, there was total
unrecognized compensation cost of $232,000 related to unvested
stock options granted under the Plan to be recognized over a
weighted average period of approximately 1.8 years.
Note 13 -- Concentrations
Significant customer: During 2015, one customer accounted for
approximately 11.8% of revenue. No customers accounted for more
than 10% of revenue in 2014.
Grant and contract revenue: Grant and contract revenue
principally consists of Small Business Innovation Research (SBIR)
grants sponsored by the U.S. Department of Health and Human
Services.
A substantial number of the materials EGI uses in manufacturing
its products are available from multiple sources and in sufficient
supply; however, certain suppliers and contract manufacturers have
been qualified to EGI standards. In the short-term any disruption
or termination of these arrangements could adversely affect our
operating results pending the qualification of replacement
suppliers.
Note 14 -- Segment information: Geographic Revenue
Distribution
EGI operates in a single operating segment that includes the
sales of neuroimaging/neuro--monitoring equipment and evaluative
software to research and clinical organizations. Substantially all
long--lived assets are located in the U.S.
The following table reflects revenue and percent of total
revenues based on the geographic location of the customer:
For the year ended December 31,
-------------------------------------------
2015 2014
---------------------- -------------------
$'000 $'000
United States and Canada 7,658 56.2 % 5,501 41.6 %
Europe 2,601 19.1 4,619 35.0
Asia 2,614 19.2 2,914 22.1
Other 746 5.5 166 1.3
---------- --------
Total 13,619 100 % 13,200 100 %
========== ========
Note 15- Preliminary Results Announcement
The figures for the year ended 31 December 2015 and 2014 have
been extracted from the full accounts for that year on which the
Independent Registered Public Accounting Firm has issued an
unqualified audit opinion. This announcement was approved by the
Board of Directors on 29 March 2015 and authorized for issue on 30
March 2016.
Directors
Don Tucker, Chairman & Chief Executive Officer
Ann Bunnenberg, President & Chief Operating Officer
Christine Soden, Non-executive director, 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
Legal Advisers
K&L Gates LLP
London, UK Seattle, US
One New Change 925 Fourth Avenue, Suite
2900
London EC4M 9AF Seattle, Washington 98101
Independent Public Accounting Firm
Peterson Sullivan LLP
601 Union Street
Suite 2300
Seattle, Washington 98101
USA
Registered Office
National Registered Agents Inc
160 Greentree Drive, Suite 101
Dover, Kent, DE 19904 USA
Principal Address UK Branch
500 East 4(th) Ave 59-60, Thames Street
Suite 200 Windsor
Eugene OR 97401 USA SL4 1TX UK
Special Note Regarding Forward Looking Statements
This preliminary results announcement contains "forward looking
statements" that involve substantial risks and uncertainties. The
forward looking statements are contained principally in the
sections entitled "Operating Highlights," "Financial Highlights,"
"Operating Review," and "Directors' Report." In some cases, you can
identify forward looking statements by the following words: "may,"
"will," "could," "would," "should," "expect," "intend," "plan,"
"anticipate," "believe," "estimate," "predict," "project,"
"potential," "continue," "ongoing" or the negative of these terms
or other comparable terminology, although not all forward looking
statements contain these words. These statements relate to future
events or our future financial performance or condition and involve
known and unknown risks, uncertainties and other factors that could
cause our actual results, levels of activity, performance or
achievement to differ materially from those expressed or implied by
these forward looking statements. These forward looking statements
include, but are not limited to, statements about:
-- our expectations regarding the sales and marketing of our
products and product candidates;
-- the timing and likelihood of FDA approvals and regulatory
actions on our product candidates and product marketing
activities;
-- our expectations for market acceptance of our dEEG solutions
in the therapeutic market;
-- our ability to retain the continued service of our key
professional and to identify, hire and retain additional qualified
professionals;
-- the potential for adverse application of health and safety
and other laws and regulations on our operations;
-- our ability to establish and maintain intellectual property
on our products and our ability to successfully defend these in
cases of infringement;
-- the implementation of our business strategies;
-- the potential for exposure to product liability claims;
-- the potential for our marketed products to be withdrawn due
to recalls, patient adverse events or deaths;
-- our financial performance expectations;
-- our ability to compete in the development and marketing of
our products and product candidates with other competitors in the
industry;
-- difficulties or delays in the development, production,
manufacturing and marketing of new or existing products, including
difficulties or delays associated with obtaining requisite
regulatory approvals or clearances associated with those
activities;
-- changes in laws and regulations or in the interpretation or
application of laws or regulations, as well as possible failures to
comply with applicable laws or regulations as a result of possible
misinterpretations or misapplications;
-- actions of regulatory bodies and other government
authorities, including the FDA and foreign counterparts, that could
delay, limit or suspend product development, manufacturing or sales
or result in recalls, seizures, consent decrees, injunctions and
monetary sanctions;
-- the results, consequences, effects or timing of any
commercial disputes, patent infringement claims or other legal
proceedings or any government investigations;
-- interruption in our ability to manufacture our products or an
inability to obtain key components or raw materials or increased
costs in such key components or raw materials;
-- uncertainties in our industry due to government healthcare reform; and
-- competitive pressures in the markets in which we operate.
You should read this document completely and with the
understanding that our actual results may differ materially from
what we expect as expressed or implied by our forward looking
statements. In light of the significant risks and uncertainties to
which our forward looking statements are subject, you should not
place undue reliance on or regard these statements as a
representation or warranty by us or any other person that we will
achieve our objectives and plans in any specified timeframe, or at
all. These forward looking statements represent our estimates and
assumptions only as of the date of this Annual Report. Except as
required by law, we undertake no obligation to update or revise
publicly any forward looking statements, whether as a result of new
information, future events or otherwise after the date of this
Annual Report.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SDEFFSFMSESD
(END) Dow Jones Newswires
March 30, 2016 07:10 ET (11:10 GMT)
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