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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Elec Geo(DI) | LSE:EGI | London | Ordinary Share | COM STK USD0.001 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 102.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMEGI
RNS Number : 1949I
Electrical Geodesics, Inc
26 August 2016
Electrical Geodesics, Inc.
Interim Report 2016
A Period of Strong Revenue Growth
___________________________________________________________________
EUGENE, OREGON, US, 26 August 2016 - 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 2016 (H1 2016).
Financial Highlights
-- Revenues up 27% to $6.6m (H1 2015: $5.2m) -- North American sales increased 45% to $3.2m (H1 2015: $2.2m) -- International sales increased 17% to $3.4m (H1 2015: $2.9m) -- Grant and contract revenue increased to $0.9m (H1 2015: $0.6m) -- Increased revenues and cost controls led to a reduced net loss of $1.9m (H1 2015: $2.3m) -- New revolving line of credit agreement in place to help manage cash flows
Operating Highlights
-- June 2016 research market launch of a beta version of EGI's ground breaking Geodesic Transcranial Electrical Neuromodulation system (GTEN)
-- Introduction to the market of GeoSource 3 (GS3) a sophisticated electrical source imaging software with a broad range of advanced head modeling features
-- Introduction of Net Station 5.3, EGI's flagship software with added clinical features
-- GTEN small-scale safety and feasibility clinical trial, being conducted at the University of Washington, for the treatment of focal epilepsy expected to progress from the diagnostic phase to the intervention phase
-- Receipt of IDE from the FDA for the study of dense array EEG localization and rTMS treatment of focal epilepsy. The study is being funded and administered by Stanford University Hospital
Don Tucker, CEO of EGI, commented: "We believe that dense-array EEG (dEEG) has gained a firm foothold in our core research markets. With this growing visibility we expect to see improving acceptance of dEEG in the much larger clinical markets for neurodiagnostics and pre-surgical planning where our source localization technology can play an important role." He added: "We expect that our research customers will assess the applicability of GTEN and GS3 across a broad range of indications which will highlight the potential of these technologies in the larger clinical markets both in diagnosis and treatment of important neurological conditions."
Glossary
Hot Features
Premium
EEG Electroencephalography
Dense-array EEG
dEEG Geodesic transcranial electrical
GTEN neuromodulation
Geodesic Transcranial Electrical
GTEN Neurmodulation System
GS3 GeoSource 3
MRI Magnetic resonance imaging
fMRI Functional MRI
PET Positron emission tomography
MEG Magneto encephalography
NIRS Near-infra-red spectroscopy
Trans-cranial direct current
tDCS electrical stimulation
TES Trans-cranial electrical stimulation
TMS Trans-cranial magnetic stimulation
Repetitive Trans-cranial magnetic
rTMS stimulation
This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No 596/2014 and is disclosed in accordance with the Company's obligation under Article 17 of those Regulations.
For more information contact:
EGI Ann Bunnenberg +1 541 687 7962 Peel Hunt LLP (NOMAD and Broker) James Steel, Oliver +44 (0) 20 7418 Jackson 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 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 imaging (MRI), functional MRI (fMRI), and magneto-encephalography (MEG).
The Company maintains a website that can be found at www.egi.com. Information on our website is not incorporated by reference or deemed a part of this report.
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. We design, develop and commercialize research, diagnostic and interventional medical products used to non--invasively monitor, interpret and modulate naturally occurring electrical activity in the brain. Our proprietary dense array electroencephalography, or dEEG, solutions provide industry--leading precision for recording of the brain's electrical activity.
Revenues for the six months ended 30 June 2016 (H1 2016) were $6.6 million, an increase of 27% over the $5.2 million reported for the same period of 2015 (H1 2015). In addition, we recognised grant income of some $0.9 million in H1 2016 (H1 2015: $0.6 million). The Company closed the period with a sales order book of $2.2 million, all of which is expected to ship in the second half of 2016.
The gross margin percentage for H1 2016 was 52%, compared to 58% in H1 2015. The decrease between the two periods related to the inclusion of sales of $0.9 million of distributed products which carry a lower margin, other sales product mix and slightly increased manufacturing costs.
Since joining AIM in April 2013, EGI has committed significant resources to the development of advanced dEEG and neuromodulation technology. We have an installed base of over one thousand systems and are continuing to grow our customer base. Our GES 400 system, supported by our Net Station software, represents breakthrough technology and can be found in many of the most prestigious research and clinical facilities around the world.
The following significant advancements were achieved during the first half of 2016:
EGI achieved a critical milestone in June 2016 with the beta release to research customers of its GTEN product. The GTEN targeting software allows a user to compute the optimal patterns of electrical sources and sinks to stimulate a targeted area of the cortex. This information is then fed to the GTEN hardware within the GES 400 to deliver the treatment. A unique advantage of the GTEN targeting software is that the same Sensor Net used to record EEG can also be used to deliver the electrical stimulation allowing up to 256 electrodes to be used in multiple combinations to optimize the delivery of energy to the targeted location. The Directors believe the GTEN system could improve the treatment of a broad range of neurological diseases.
GeoSource 3 (GS3) software was introduced to the research community at the recent meeting of the Organization for Human Brain Mapping in Geneva, where Don Tucker, CEO was a featured speaker. GS3 will provide for three levels of precision in head modeling: individual head, conformal atlas head and 6 age-specific atlas head models. The advantage of having three head modeling options rather than the single atlas model provided by GS2 is that the user can balance the time and complexity of the model used to the nature of the work being performed. For simple diagnostic screening in epilepsy, especially where no MRI of the patient is available, a rapid easy--to--use atlas or conformal head model is ideal; for epilepsy neurosurgical planning, additional precision offered by the individual head model is preferred by neurologists and neurosurgeons. Later in 2016, the Company intends to seek FDA 510(k) approval of GS3 for clinical applications. GS2, the predecessor to GS3, is presently cleared by the FDA for clinical application and carries a medical CE mark.
GS3 is an imaging platform that allows brainwaves and other functional data to be displayed, analyzed and manipulated using high resolution individual MRI and atlas--based head models. When combined with the GTEN product, our GS3 platform provides the planning environment for our neuromodulation products.
EGI has also introduced to the market its next generation Net Station (NS) 5.3 software, which brings additional features and functionality to both research and clinical customers. A much awaited new feature of NS 5.3 is our Reciprocity Visualization Environment (RVE). RVE provides for visualization of acquisition data on a three dimensional head model. RVE also supports our new GS3 and GTEN software described above. NS 5.3 now provides enhanced workflow tools which enable the user to more easily manipulate their data. A variety of customer requested features have also been included in NS 5.3.
Our clinical trial activities are progressing as follows:
-- The small-scale clinical trial to assess safety and feasibility for dense array EEG localisation and GTEN treatment of focal epilepsy is progressing. At the US site, Harborview Hospital University of Washington (Seattle), 15 patients have been evaluated in the diagnostic phase and the intervention phase is expected to begin in the third quarter. The diagnostic phase is now underway at the China site, Huashan Hospital, Fudun University (Shanghai).
-- We received 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 is funded by and will take place at Stanford University Hospital.
The Directors intend to develop further the value of the underlying monitoring, neurodiagnostic and pre-surgical planning business. In addition, the Directors are strongly focused on developing the significant potential of the GTEN platform, including assessing the potential benefits of strategic industrial partnerships.
Financial Review
Basis of Accounting:
The accompanying condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP). Consolidated financial statements released by EGI in 2013, 2014 and the first six months of 2015 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 accompanying balance sheets. The basis of recognition of deferred tax assets also varies between the two accounting conventions. Pursuant to US GAAP, EGI has established a reserve for the full amount of the net deferred tax asset, reporting no deferred tax assets or liabilities in the accompanying balance sheets.
Condensed Consolidated Statements of Operations:
Revenues increased by 27% to $6.6 million for the six months ended 30 June 2016 (H1 2016) compared to $5.2 million in the comparable period of 2015 (H1 2015) and $13.6 million for the year ended 31 December 2015 (FY 2015) .
Sales by product type were as follows:
H1 2016 H1 2015 FY 2015
$million $million $million
Systems and upgrades 2.5 2.5 7.8
Sensor Nets 1.8 1.0 2.1
Major peripherals 0.3 0.3 0.8
Software 0.6 0.6 1.5
Distributed products 0.9 0.3 0.3
Support & other 0.5 0.5 1.1
6.6 5.2 13.6
Revenue from the sale of Sensor Nets increased 80% to $1.8 million in H1 2016 compared to $1.0 million in H1 2015, driven by the steady Increase in our installed systems base, coupled with a wider variety of Sensor Nets including the Micronets. Under average conditions Sensor Nets have a useful life of approximately two to three years.
Sales of distributed third party products increased by $0.6 million to $0.9 million in H1 2016 from $0.3 million in H1 2015. EGI distributes a line of products which are complimentary to EGI's products, including the Hitachi NIRS systems. EGI's strategic market objective is to bundle our proprietary products with core third-party products to meet market needs.
Revenues from sales in North America increased by $1.0 million or 45%, to $3.2 million in H1 2016 from $2.2 million in H1 2015. For H1 2016, sales to Asia and Europe were up 33% and 28%, respectively over H1 2015, for a combined increase of $0.8 million. In H1 2015 the Company was buffeted by unfavorable currency fluctuations in Europe and encountered a cautionary spending environment in China. These international headwinds have not been as pronounced in the first half of 2016 and we are expecting this environment to continue through the remainder of 2016.
Cost of revenues were $3.2 million in H1 2016 compared to $2.2 million H1 2015, delivering a gross margin percentage of 52% for H1 2016, compared to 58% for H1 2015 and 55% for the full year in 2015. The decrease in the gross margin percentage related to an increase in sales of lower-margin distributed product sales, other sales product mix and slightly increased manufacturing costs.
EGI has been awarded research grants in support of various EEG--related projects and grant and contract revenue recognized in H1 2016 was $0.9 million and $0.6 million in H1 2015. Direct grant related expenses totaled $0.7 million and $0.5 million during the first six months of 2016 and 2015, respectively, including subcontractor costs of $0.2 million in each of H1 2016 and H1 2015.
Selling and marketing expenses remained increased slightly to $2.1 million in H1 2016 (31% of revenue) compared to $1.9 million in H1 2015 (38% of revenue). General and administrative expenses were also contained increasingly only $0.1 million from $1.8 million in H1 2015 (34% of revenue) to $1.9 million in H1 2016 (29% of revenue). Research and development expenses decreased $0.2 million to $1.5 million, or 22% of revenues for H1 2016, compared to $1.7 million, or 33% of revenues for H1 2015, primarily as a result of an increased allocation of science resources to grant supported projects.
No deferred tax asset has been recognized nor has credit been taken for the benefits of the accumulated tax losses. As at 30 June 2016 net operating losses amounted to approximately $11 million and the Company had an unrecognized deferred tax asset of approximately $5 million.
Overall the business generated a net loss of $1.9 million for H1 2016 compared to a net loss of $2.3 million H1 2015. The basic and diluted net loss per share was $0.07 and $0.09 for H1 2016 and H1 2015, respectively.
Balance Sheet:
The Company has entered into a new one-year revolving credit and security agreement with a finance company, establishing an asset-based senior secured credit facility bearing interest at the prime rate plus 6.0%, with a minimum rate of 9.5%. As at 30 June 2016, EGI had outstanding borrowings of $1.0 million and a remaining borrowing availability of approximately $0.6 million under the credit facility. On 31 December 2015, EGI had $0.2 million outstanding under its accounts receivable factoring agreement. No amounts were outstanding under the factoring agreement as at 30 June 2016.
Cash and cash equivalents were $1.1 million at 30 June 2016 compared to $1.2 million at 31 December 2015. As a result of the net loss incurred during H1 2016, working capital decreased from $2.9 million at 31 December 2015 to $1.1 million at 30 June 2016.
Trade accounts receivable of $3.3 million at 31 December 2015, decreased to $2.0 million at 30 June 2016. Revenues have historically been heavily weighted towards the second half of the year, principally the fourth quarter, which accounts for the change in receivables between the two period ends. In preparation for projected second half shipments, inventory at 30 June 2016 was $2.5 million compared to $2.0 million at 31 December 2015. Accounts payable increased to $2.2 million at 30 June 2016 from $1.6 million at 31 December 2015 as the Company sought to manage its liquidity position.
Capital expenditures in H1 2016 were $0.4 million compared to $0.2 million for the same period of 2015. The expenditures were primarily for manufacturing equipment and demonstration equipment in support of EGI's sales and marketing efforts.
Outlook
EGI continues to target double-digit revenue growth for 2016 this is based on the strong performance in H1 2016, the strong order book at the period end and the release for sale of our new products and features, including GTEN. The Company expects the recent pattern of revenues being materially second half weighted to be a feature of the current financial year. Current expectations are for operating expenses to remain tightly controlled with increases being in support of increased sales. The Directors are carefully managing the Company's cash flows whilst also reviewing options to increase the working capital available to the Company so that growth opportunities can be exploited.
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 neurodiagnostic and pre-surgical planning business. In the clinical market, our products offer ease of use, more precise data acquisition and visualization, and faster recording times than conventional EEG offerings.
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.
Don Tucker Ann Bunnenberg Chairman & CEO President & COO
26 August 2016
Electrical Geodesics, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
June 30, December
31,
------------------------------------------------
2016 2015 2015
------------------------- -------------------------- -------------------------
unaudited unaudited audited
Assets
Current assets:
Cash and cash equivalents $ 1,061 $ 1,353 $ 1,181
Trade accounts receivable,
net of allowance for
doubtful accounts 1,989 1,894 3,271
Grants and contracts
receivable 193 205 323
Inventories 2,540 2,006 1,993
Prepaid expenses and
other assets 418 388 361
Deferred stock issuance
costs 437 - 368
-------------------- ---------------------- ---------------------
Total current assets 6,638 5,846 7,497
Property and equipment,
net 1,770 1,738 1,642
Goodwill 210 210 210
Other intangible assets,
net 60 75 67
-------------------- ---------------------- ---------------------
Total assets $ 8,678 $ 7,869 $ 9,416
=== ==================== ====================== =====================
Liabilities
Current liabilities:
Accounts payable and
accrued expenses $ 2,211 $ 763 $ 1,554
Line of credit 1,048 - -
Recourse debt on factoring
agreement - - 216
Accrued payroll and
related liabilities 930 775 941
Product warranty reserve 146 161 136
Customer deposits 97 164 224
Deferred revenue 1,103 779 1,512
-------------------- ---------------------- ---------------------
Total current liabilities 5,535 2,642 4,583
Deferred revenue - noncurrent 487 534 423
-------------------- ---------------------- ---------------------
Total liabilities 6,022 3,176 5,006
-------------------- ---------------------- ---------------------
Stockholders' equity
Common Stock - $0.001
par value, 75,000,000
shares authorized and
27,525,709 shares outstanding
at June 30, 2016, 2015
and December 31, 2015 27 27 27
Additional paid-in-capital 13,171 12,922 13,069
Accumulated deficit (10,542) (8,256) (8,686)
-------------------- ---------------------- ---------------------
Total stockholder's
equity 2,656 4,693 4,410
-------------------- ---------------------- ---------------------
Total liabilities and
stockholder's equity $ 8,678 $ 7,869 $ 9,416
=== ==================== ====================== =====================
The accompanying notes are an integral part of these condensed consolidated financial statements
Electrical Geodesics, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)
For the
year
For the six months ended
ended June 30, December
31,
-----------------------------------------------------------------------------------
2016 2015 2015
---------------------------- --------------------------------------- -------------------------------------------
unaudited unaudited audited
Revenues $ 6,614 $ 5,170 $ 13,619
Cost of revenues (3,207) (2,162) (6,105)
--- ----------------------- ------------ ------------------------- ------------------ -----------------------
Gross margin 3,407 3,008 7,514
Grant and contract
revenue 904 588 1,497
Direct grant and contract (1,162
expenses (666) (474) )
--- ----------------------- ------------ ------------------------- ------------------ -----------------------
Gross margin
and
net grant
revenue 3,645 3,122 7,849
Operating expenses:
Selling and marketing
expenses (2,076) (1,942) (3,966)
General and administrative
expenses (1,895) (1,772) (3,750)
Research and Development (1,468) (1,700) (2,944)
--- ----------------------- ------------ ------------------------- ------------------ -----------------------
Total operating
expenses (5,439) (5,414) (10,660)
--- ----------------------- ------------ ------------------------- ------------------ -----------------------
Operating loss (1,794) (2,292) (2,811)
Other income (expenses):
Interest expense,
including factoring
fees (45) (4) (11)
Other income (expense) (6) (32) 69
--- ----------------------- ------------ ------------------------- ------------------ -----------------------
Loss before income
taxes (1,845) (2,328) (2,753)
Income tax expense (11) (4) (9)
--- ----------------------- ------------ ------------------------- ------------------ -----------------------
Net loss $ (1,856) $ (2,332) $ (2,762)
================= ======================= ============ ========================= ================== =======================
Basic and diluted weighted
average number of common
shares outstanding 27,525,709 26,247,859 26,918,754
=== ======================= ============ ========================= ================== =======================
Net loss per share:
Basic and diluted $ (0.07) $ (0.09) $ (0.10)
=== ======================= ============ ========================= ================== =======================
The accompanying notes are an integral part of these condensed consolidated financial statements
Electrical Geodesics, Inc.
Condensed Consolidated Statements of Shareholders' Equity
(in thousands, except share amounts)
Common Stock Additional Accumulated Total
Paid-in Stockholders'
Shares Amount Capital Deficit Equity
----------- ------------------------------ ------------------ ------------------
Balance at
December
31, 2014 -
Audited 24,448,786 $ 24 $ 10,323 $ (5,924) $ 4,423
Stock issued
for
cash, net of
issuance
cost of $440 3,076,923 3 2,509 - 2,512
Share-based
compensation - - 90 - 90
Net loss - - - (2,332) (2,332)
----------- -------------------------- ---- ------------ ------------ ---------------------- ---- ------------
Balance at
June
30, 2015 -
Unaudited 27,525,709 27 12,922 (8,256) 4,693
Share-based
compensation - - 147 - 147
Net loss - - - (430) (430)
----------- -------------------------- ---- ------------ ------------ ---------------------- ---- ------------
Balance at
December
31, 2015 -
Audited 27,525,709 27 13,069 (8,686) 4,410
Share-based
compensation - - 102 - 102
Net loss - - - (1,856) (1,856)
----------- -------------------------- ---- ------------ ------------ ---------------------- ---- ------------
Balance at
June
30, 2016 -
Unaudited 27,525,709 $ 27 $ 13,171 $ (10,542) $ 2,656
=========== ========================== ==== ============ ============ ====================== ==== ============
The accompanying notes are an integral part of these condensed consolidated financial statements
Electrical Geodesics, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
For the
year
ended
For the six
months ended December
June 30, 31,
----------------------------------------------------------------------
2016 2015 2015
---------------------------- -------------------------- --------------------------
unaudited unaudited audited
Cash flows from operating activities:
Net loss $ (1,856) $ (2,332) $ (2,762)
Adjustments to reconcile to net
cash used in operating activities
Depreciation and amortization 278 276 546
Loss on disposal of property
and equipment - - -
Share-based compensation 102 90 237
Changes in operating assets
and liabilities:
Trade accounts receivable 1,282 991 (386)
Grants and contracts receivable 130 (98) (216)
Inventories (547) (355) (342)
Prepaid expenses and other
assets (57) 81 (8)
Accounts payable and accrued
expenses 778 (280) 376
Accrued payroll and related
liabilities (11) (211) (45)
Product warranty reserve 10 (16) (26)
Customer deposits (127) 5 64
Deferred revenue (345) (323) 299
-------------- ------------ ------------ ------------ ------------ ------------
Net cash used in operating (2,172)
activities (363) (2,172) (2,263)
-------------- ------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Acquisition of property and
equipment (399) (175) (342)
-------------- ------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities (399) (175) (342)
-------------- ------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from stock issued - 2,949 2,952
Stock issuance costs (190) (437) (571)
Proceeds from line of credit,
net 1,048 - -
Proceeds (repayments) from
factoring agreement, net (216) - 216
Principal payments on debt - (44) (43)
-------------- ------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities 642 2,468 2,554
-------------- ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in
cash (120) 121 (51)
Cash and cash equivalents at
beginning of year 1,181 1,232 1,232
-------------- ------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
end of year $ 1,061 $ 1,353 $ 1,181
============== ============ ============ ============ ============ ============
Non-Cash Financing Activities:
Accrued deferred stock issuance
costs $ - $ - $ 121
============== ============ ============ ============ ============ ============
Supplemental disclosure or
cash flow information:
Cash paid for interest and
factoring fees $ 43 $ 4 $ 9
============== ============ ============ ============ ============ ============
Income taxes paid $ 4 $ 4 $ 11
============== ============ ============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statement
ELECTRICAL GEODESICS, INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2016 and 2015 and for the Year Ended December 31, 2015
(in thousands except share and per share amounts)
Note 1 -- Nature of Business
Electrical Geodesics, Inc., ("EGI" or the "Company") 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.
Note 2 - Accounting Policies
These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles for complete financial statements. In management's opinion, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. Certain prior year amounts have been reclassified in order to conform with the 2016 presentation. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2015 Annual Report. The results of operations for these interim periods are not necessarily indicative of the operating results for any future period. The December 31, 2015 financial information has been derived from the Company's audited consolidated financial statements.
Use of estimates The preparation of the consolidated financial statements in accordance with U.S. 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.
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 June 30, 2016, June 30, 2015 and December 31, 2015 one customer, a different customer for each period end, had an accounts receivable balance of 21%, 15% and 12%, respectively, 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.
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 the AIM, a small company exchange operated by the London Stock Exchange, the market in which a substantial portion of EGI's securities trade.
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 August 26, 2016.
Pending Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (FASB) issued new guidance to simplify employee share-based payment accounting. The areas for simplification in this guidance involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This new guidance is effective for the Company's 2018 year with early adoption permitted. The Company is currently evaluating the possible impact of this new guidance, but does not anticipate that it will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued new guidance on the accounting for leases. This new guidance will require that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with the result being the recognition of a right of use asset and a lease liability. The new lease accounting requirements are effective for the Company's 2020 year with a modified retrospective transition approach required, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In July 2015, the FASB issued changes to simplify the measurement of inventory valuation at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new inventory measurement requirements are effective for the Company's 2017 year, and will replace the current inventory valuation guidance that requires the use of a lower of cost or market framework. This change in the measurement of inventory does not apply to inventory valued on a LIFO basis, which is the accounting basis used for most of the Company's inventory. The adoption of these changes is not expected to have a material impact on the Company's consolidated financial statements.
In May 2014, the FASB issued changes to revenue recognition with customers. This update provides a five-step analysis of transactions to determine when and how revenue is recognized. An entity should recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one-year deferral of the effective date of this new guidance resulting in it now being effective for the Company beginning in 2019. The Company plans to adopt this accounting standard update using the modified retrospective method, with the cumulative effect of initially applying this update recognized in the first reporting period of 2019. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
Note 3 - Inventories
Inventories consist
of the following:
December
June 30, 31,
2016 2015 2015
-------------------------- --------------------- ---------------
unaudited unaudited audited
Materials $ 2,312 $ 1,563 $ 1,899
Work in process 9 15 7
Finished products
and merchandise 219 428 87
------------- ----------- ---------- --------- -----------
Total Inventories $ 2,540 $ 2,006 $ 1,993
============ =========== ========== ========= ===========
Note 4 - Line of credit
In June 2016, EGI entered into a credit facility with a finance company. The facility provides for borrowings of up to $2.0 million or the maximum available under the borrowing base, whichever is less. The borrowing base equals the sum of 85% of the value of eligible accounts receivable plus $0.2 million of eligible inventory limited to 15% of eligible accounts receivable. Interest is payable at the prime rate plus 6%, but not less than 9.5%. The prime rate at June 30, 2016 was 3.5%. The annual fee for the credit facility is $20 thousand. The facility contains no financial covenants and is collateralized by cash, cash equivalents, accounts receivable, inventories and property and equipment. The credit facility is scheduled to expire in June 2017. As of June 30, 2016, EGI had $1.0 million outstanding under the facility and approximately $0.6 million in availability. Availability is computed as the total commitment of $2.0 million less amounts which are utilized by borrowings, less amounts not supported by eligible accounts receivable and inventory.
Note 5 - 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 received 98.05% of the face value of such customer invoices and paid interest of 4% per year on invoice balances that exceed 90 days from the invoice date. Under the agreement, EGI provides a security interest in individually factored customer accounts. Factoring fees and, if applicable, any interest expense, is reported as interest expense in the Condensed Consolidated Statements of Operations. As of December 31, 2015, EGI reported $216 in borrowings outstanding under the agreement. No amounts were outstanding under the agreement as of June 30, 2016.
Note 6 -- Concentrations
Significant customer: For the six months ended June 30, 2016 no customer accounted for more than 10% of revenue. For the six month period ended June 30, 2015 one customer accounted for 10% of revenue. During the full year 2015, one customer accounted for approximately 12% of revenue.
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 7 -- 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
For the six months
ended June 30, December 31,
-----------------------------------------------------------------------------------------------------------------------
2016 2015 2015
-------------------------------------------------------- ------------------------------------------------------ ---------------------------------------------------------
unaudited unaudited audited
United
States 43
and Canada $ 3,244 49 % $ 2,240 % $ 7,658 56 %
Europe 1,669 25 1,309 25 2,601 19
Asia 1,630 25 1,229 24 2,614 19
Other 71 1 392 8 746 6
-------------------------- ------------ -------------------------- ------------ ---------------
100
Total $ 6,614 100 % $ 5,170 % $ 13,619 100 %
============== ========================== ============ ========================== ============ ===============
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) 59-60, Thames Street
Ave
Suite 200 Windsor
Eugene OR 97401 SL4 1TX UK
USA
Special Note Regarding Forward Looking Statements
This Interim Report and the accompanying press release contain "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," "Financial Review and "Outlook." 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
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 report.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR DGGDISSDBGLU
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