2007 - Correction - Earnings Release Q4 and FY2007 - Published 2008.03.31:18:23:07

Correction: English text added.

Highlights of the Consolidated Financial Statements of Flaga Group hf.

Q4 2007:

•  Revenue was $9.19m a reduction of $460k or 5% from prior year.

•  EBITDA was negative $334k compared to positive $828k in the prior
   year.

•  Net income was a loss of $11.545k

Year 2007:

•  Revenue was $33.16m, an increase of $687k or 2% from prior year

•  EBITDA was $127k compared to $1,001k in the prior year

•  Net income was negative $12,631k

The Flaga Group hf. Annual Consolidated Financial Statements for 2007 were
approved at a meeting of the Board of Directors on March 31st 2008. The
statements, prepared in compliance with the  International Financial Reporting
Standards (IFRS), have been audited and endorsed by the  Company's auditors. 

Key figures from the consolidated accounts: See attachment.

Summary of Activity
The Company made strides in 2007 despite its shortcomings in sales and the
necessity to write off part of its goodwill. The Company continues to move
forward and has at the end of the year a strategic and stronger position to
grow profitably in the future. 

Embla Systems
In November of 2007 the Company announced a major exclusive distribution
contract with the Beth Israel Deaconess Medical Center (BIDMC). The
distribution contract relates to a new sleep algorithm developed by the BIDMC
for measuring Sleep Quality, as opposed to the conventional sleep event
history. The technology called Cardio Pulmonary Coupling or CPC, is unique and
creates, for the first time in the industry, an automatic tool for physicians
to evaluate sleep quality and phenotype different forms of Sleep disorder. The
algorithm will initially be developed in the existing Embla sleep analysis 
systems but will subsequently be developed into low cost screening and
diagnostic tools that could be  extended to over-the-counter type applications.
The potential market for the device is as a diagnostic tool for individuals who
suffer from a sleep disorder (estimated at over 60m in the United States alone)
and to patients who currently have a CPAP (Sleep Apnea therapy device) machine
(estimated at 13m in the United States alone) but who are either sporadically
tracked, or not tracked at all for a true measure of Sleep Quality and
therefore  compliance. The device offers the Company an opportunity to redefine
the way the industry measures Sleep Quality and the Company believes this
exclusive contract will offer significant new opportunities. 

Also in November 2007 the Company concluded a non-exclusive distribution
agreement with Fisher & Paykel to distribute the Company's home study Embletta
device in the United States. This followed a draft decision by the Centers for
Medicare and Medicaid (CMS) that has been subsequently confirmed, to approve
home testing as an acceptable diagnosis for Sleep Apnea. The Company is a
leading  provider of home testing equipment in Europe and this decision will
open the door for our product in the US. The final details of the reimbursement
for the home testing have to still to be determined but  this will be a
significant opportunity for the Company. 

The Company started negotiations for the sale of the ResMed distribution in
Iceland in Q4 that has  now been concluded. It was decided that after the
Company closed the head office in Iceland and  significantly reduced its
presence there that the Companies ability to distribute the ResMed products  in
Iceland would not be as effective as a local presence. As a result the Company
initiated a search and concluded the sale to Vistor, a fully integrated
marketing and distribution company for health care  products and
pharmaceuticals in Iceland. 

SleepTech
After initiating the strategic change in direction at the beginning of the year
SleepTech has been successfully developing its strategy of growth with a number
of new facilities. In the Tri-State area SleepTech continues to expand its
operation with expanding existing programs and several proposals in place for
new partnerships. Outside the Tri-State area Sleeptech has opened a new
Physician partnership in California, completed a partnership for a new facility
in Mississippi and it is in the closing phase of a new SleepTech owned operation
in another state. These together with several other initiatives have broadened
SleepTech's presence in North America and the Company will continue to 
expand taking advantage of the continued growth in sleep medicine.

The Company believes that the new reimbursement for home testing will grow the
opportunities in the sleep lab as the dramatically underserved sleep disorder
patient population will gain more access to sleep diagnosis through their
primary care physicians and home care companies and the number of patient
referrals that will not be satisfactorily served by the home testing will be
directed to the sleep labs. As a result, SleepTech is embracing the home study
model in all our facilities as an adjunct to our services.

Operations in 2007
Consolidated revenues for the year 2007 were lower than expected which resulted
in a higher than expected consolidated net loss. As a result the Board of
Directors of Flaga Group announced the impairment of goodwill which had a
significant negative impact on the fourth quarter results and the  annual
accounts for the year 2007. An impairment of approximately USD 10.8 million was
made on goodwill associated with the Company's acquisition of Medcare Systems
U.S. in 2002 (now known as Embla Systems). The impairment is not related to the
goodwill associated with the acquisition of  Sleeptech in 2004. 

In addition to this impairment test a number of other assets have been
re-evaluated which have led to an additional set of adjustments associated with
its Bad debt reserve, loaner equipment depreciation and inventory. These
adjustments have impacted both the Revenue and Asset value of the Company  in
2007. 

Balance Sheet
Total assets at the end of Q4 2007 were $47.9m, a decrease of $14.2m from the
end of the year 2006.

Shareholders' equity was $27.4m at December 31, in comparison to $40.2m at the
beginning of the year. Equity ratio was 57% in comparison to 65% at year¬end
2006. 

Cash Flow
Working capital provided by operating activities in the year was negative $1.2m
compared to working capital of $1.4m the previous year. 

Future Prospects
The market for sleep diagnostic products remains highly competitive. The
Company expects to continue improving its competitive position in the US
market, with the regulatory changes regarding reimbursement for home studies
and the introduction of the CPC technology in 2008. The Company also expects to
continue building relationships with distributors around the world for Embla to
increase the Company's sales and reputation as the “gold standard” of sleep
diagnostic systems.
 
The Company expects to further build a presence for SleepTech outside of the
United States Tri¬State area with a successful integration of its disciplined
standards, as well as moving out of the “hospital only” relationships to build
business relationships with physicians directly for their own practices or 
have SleepTech owned facilities.

The near future will continue to fluctuate, although it is the firm belief of
the Management team of  Flaga Group that the future prospect for the Company
remains solid. 

Reporting Schedule

Estimated dates of publication of financial statements in 2008:

Annual General Meeting 2007 April 17 2008

First Quarter May 8, 2008
Second Quarter August 21 2008
Third Quarter November 13 2008
Fourth Quarter February 19 2009

For further information, please contact:
David Baker, CEO, tel: +1 480 236 4705 
Criss Sakala, CFO, tel: +1 303 962 1781