As filed with the Securities and Exchange Commission on April 30,20187, 2021
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
☐ Registration Statement Pursuant to Section 12(b) or (g) of the Securities Exchange Act of REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934,
OrOR
☒Annual Report Pursuant to Section ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange Act ofOR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 20172020
OrOR
☐ Transition Report Pursuant to Section TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange Act ofOR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
OrOR
☐ Shell Company Report Pursuant to Section SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange Act ofOR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of the event requiring this shell company report_______________________
000-29374
(Commission file number)
EDAP TMS S.A.
(Exact name of registrant as specified in its charter)
France
(Jurisdiction of incorporation or organization)
Parc d’Activites la Poudrette-Lamartine
4/6, rue du Dauphiné
69120Vaulx-en-Velin, France
(Address of principal executive offices)
Mrs.Ms. Blandine Confort -Tel. +33 +334 72 15 31 50, E-mail: bconfort@edap-tms.com
Parc d’Activites la Poudrette-Lamartine, 4/6, rue du Dauphiné, 69120Vaulx-en-Velin, France
(Name, Telephone, E-mail and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | |
American Depositary Shares, each representing | |||
one Ordinary Share | |||
(Ordinary Shares, nominal value €0.13 per | EDAP | NASDAQ Global Market | |
Securities registered or to be registered pursuant to Section 12(g) of the Act:None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None
Outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2017: 28,997,8662020: 29,165,316 Ordinary Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes __ No_X
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes __ No _X
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 12��months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.days.Yes _X No __
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter ) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)..Yes _X No __
This filing includes an auditor attestation to our management’s assessment of the effectiveness of our internal control over financial reporting Yes _X No __
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer __ Accelerated filer _X Non-accelerated filer __ Emerging growth company __
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. _________
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP _X International Financial Reporting Standards as issued by the International Accounting Standards Board __ Other __
If "Other" has been checked in response to the previous question indicate by check mark which financial statement item, the registrant has elected to follow. Item 17 __ Item 18 __
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
.Yes __ No _X
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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Unless the context otherwise requires, references herein to “we,” “us,” “our” or “group” are to EDAP TMS S.A. and its consolidated subsidiaries and references herein to the “Company,” “EDAP” or “EDAP TMS” are to EDAP TMS S.A.
We prepare our consolidated financial statements in conformity with United States generally accepted accounting principles (‘‘U.S. GAAP’’). In this annual report, references to ‘‘euro’’ or ‘‘€’’ are to the legal currency of the countries of the European Monetary Union, including the Republic of France, and references to ‘‘dollars,’’ ‘‘U.S. dollars’’ or ‘‘$’’ are to the legal currency of the United States of America. Solely for the convenience of the reader, this annual report contains translations of certain euro amounts into dollars at specified rates. These translations should not be construed as representations that the euro amounts actually represent such dollar amounts or could be converted into dollars at those rates. See Item 3, ‘‘Key Information—Exchange Rates’’ for information regarding certain currency exchange rates and Item 11, ‘‘Quantitative and Qualitative Disclosures about Market Risk’Risk’’ for a discussion of the effects of fluctuations in currency exchange rates on the Company.
The following are registered trademarks of the Company in the United States: EDAP TMS® & associated logo, EDAP®, Technomed®, Ablatherm®, Ablasonic®, Ablapak®, Sonolith i-sys®, Sonolith i-move®, Focal.One®. This annual report also makes references to trade names and trademarks of companies other than the Company.
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This annual report includes certain forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 (the “Securities Act”) or Section 21E of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”), which may be identified by words such as ‘‘believe,’’ ‘‘plan,’’ ‘‘intend,’’ “should,” ‘‘estimate,’’ ‘‘expect’’ and ‘‘anticipate’’ or similar expressions, which reflect our views about future events and financial performance. Forward-looking statements involve inherent known and unknown risks and uncertainties including matters not yet known to us or not currently considered material by us. Actual events or results may differ materially from those expressed or implied in such forward-looking statements as a result of various factors that may be beyond our control. Factors that could affect future results or cause actual events or results to differ materially from those expressed or implied in forward-looking statements include, but are not limited to:
- | risks associated with the current uncertain worldwide economic, political and financial environment, in particular with respect to the COVID-19 pandemic and its related impact on our business operations; |
- | the success of our |
- | |||
the uncertainty of market acceptance for our HIFU devices; |
- | the clinical and regulatory status of our devices in various geographical territories; |
- | the uncertainty in the |
- | |||
the impact of government regulation, particularly relating to public healthcare systems and the commercial distribution of medical devices; |
- | effects of intense competition in the markets in which we operate; |
- | the uncertainty of reimbursement status of procedures performed with our products and their level of reimbursement; |
- | the market potential for our HIFU devices; |
- | dependence on our strategic |
- | difficulties to attract and recruit high-level experts in software, design, and development of high technology devices such as our HIFU products |
- | any event or other occurrence that would interrupt operations at our primary production facility; |
- | reliance on patents, licenses and key proprietary technologies; |
- | cybersecurity risks and incidents, |
- | product liability risk; |
- | risk of exchange rate fluctuations, particularly between the euro and the U.S. dollar and between the euro and the Japanese yen; |
- | fluctuations in results of operations due to the cyclical nature of demand for medical devices; |
- | |||
risks relating to ownership of our securities; and |
- | risks relating to securities litigations involving class actions. |
You should also consider the information contained in Item 3, ‘‘Key Information—Risk Factors’Factors’’ and Item 5, ‘‘Operating and Financial Review and Prospects,’’ or further discussion of the risks and uncertainties that may cause such differences to occur. Forward-lookingForward-
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looking statements speak only as of the date they are made. Other than required by law, we do not undertake any obligation to update them in light of new information or future developments.
PART I
Item 1. Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
Selected Financial Data
The following table sets forth selected consolidated financial data for the periods indicated. Following recent SEC rule changes on the presentation of selected financial data, we have chosen to present the information below to facilitate assessment of our financial condition and results of operations. This information is qualified by and should be read in conjunction with the consolidated financial statements and the Notes thereto included in Part III of this annual report, as well as Item 5, ‘‘Operating and Financial Review and Prospects.’’ The selected balance sheet data as of December 31, 20172020 and 20162019 and the selected statement of income statement(loss) data for the years ended December 31, 2017, 20162020, 2019 and 20152018 set forth below have been derived from our consolidated financial statements included in this annual report. These financial statements, together with ourOur consolidated financial statements have been prepared in accordance with U.S. GAAP. To date, we have not been required,As the Company has exceeded certain levels of revenues and presently are not requiredbalance sheet set under French law, to preparethe appointment of a joint-auditor, as well as the production of consolidated accounts under International Financial Reporting Standards, is required for the fiscal year 2020. On June 30, 2020, the shareholders appointed the audit firm of Agili(3F) as our independent joint-auditors starting with the 2020 fiscal year for the audit of the statutory consolidated financial statements under French GAAP or IFRS, nor have we done so.prepared in accordance with International Financial Reporting Standards.
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Year Ended and at December 31, | ||||||||||||||||||||
In thousands of euro, except per share data in euro |
2017 |
2016 | 2015 | 2014 | 2013 | |||||||||||||||
INCOME STATEMENT DATA | ||||||||||||||||||||
Total revenues | 35,746 | 35,611 | 32,253 | 26,785 | 24,080 | |||||||||||||||
Total sales | 35,686 | 35,579 | 32,218 | 26,252 | 24,065 | |||||||||||||||
Gross profit | 14,808 | 16,411 | 13,785 | 11,201 | 9,319 | |||||||||||||||
Operating expenses | (16,835 | ) | (16,019 | ) | (13,298 | ) | (12,937 | ) | (12,074 | ) | ||||||||||
Income (loss) from operations | (2,027 | ) | 392 | 488 | (1,736 | ) | (2,755 | ) | ||||||||||||
Basic Income (loss) from operations per common share | (0.07 | ) | 0.01 | 0.02 | (0.07 | ) | (0.13 | ) | ||||||||||||
Diluted Income (loss) from operations per common share | (0.07 | ) | 0.01 | 0.02 | (0.07 | ) | (0.13 | ) | ||||||||||||
Income (loss) before income taxes | (294 | ) | 4,444 | (907 | ) | (396 | ) | (4,886 | ) | |||||||||||
Income tax (expense) benefit | (388 | ) | (602 | ) | (759 | ) | (116 | ) | (135 | ) | ||||||||||
Net income (loss) | (681 | ) | 3,842 | (1,667 | ) | (512 | ) | (5,021 | ) | |||||||||||
Basic earnings (loss) per share | (0.02 | ) | 0.14 | (0.07 | ) | (0.02 | ) | (0.24 | ) | |||||||||||
Diluted earnings (loss) per share | (0.02 | ) | 0.13 | (0.07 | ) | (0.02 | ) | (0.24 | ) | |||||||||||
Dividends per share(1) | — | — | — | — | — | |||||||||||||||
Basic weighted average shares outstanding | 28,961,928 | 27,823,313 | 25,021,966 | 23,601,428 | 20,593,720 | |||||||||||||||
Diluted weighted average shares outstanding | 28,961,928 | 29,365,583 | 25,021,966 | 23,601,428 | 20,593,720 | |||||||||||||||
BALANCE SHEET DATA | ||||||||||||||||||||
Total current assets(2) | 39,574 | 40,502 | 32,992 | 26,575 | 22,103 | |||||||||||||||
Property and equipment, net | 3,682 | 2,770 | 2,123 | 2,122 | 1,655 | |||||||||||||||
Total current liabilities | 16,134 | 15,010 | 16,271 | 12,158 | 11,589 | |||||||||||||||
Total assets | 46,897 | 46,591 | 38,581 | 32,154 | 26,874 | |||||||||||||||
Capital lease obligations, less current portion | 528 | 313 | 294 | 355 | 378 | |||||||||||||||
Long-term debt, less current portion | 834 | 3,665 | 4,798 | 2,434 | 3,678 | |||||||||||||||
Total shareholders’ equity | 25,158 | 24,451 | 14,430 | 15,141 | 9,284 |
| | | | | | |
In thousands of euro, except per share data in euro |
| 2020 |
| 2019 |
| 2018 |
INCOME STATEMENT DATA |
|
|
|
|
|
|
Total revenues |
| 41,662 |
| 44,912 |
| 39,183 |
Total net sales |
| 41,649 |
| 44,859 |
| 39,163 |
Gross profit |
| 18,379 |
| 21,002 |
| 16,917 |
Operating expenses |
| (18,110) |
| (18,802) |
| (18,232) |
Income (loss) from operations |
| 269 |
| 2,201 |
| (1,315) |
Basic Income (loss) from operations per common share |
| 0.01 |
| 0.08 |
| (0.05) |
Diluted Income (loss) from operations per common share |
| 0.01 |
| 0.07 |
| (0.05) |
Income (loss) before income taxes |
| (1,188) |
| 2,191 |
| 20 |
Income tax (expense) benefit |
| (516) |
| (679) |
| (358) |
Net income (loss) |
| (1,704) |
| 1,512 |
| (338) |
Basic earnings (loss) per share |
| (0.06) |
| 0.05 |
| (0.01) |
Diluted earnings (loss) per share |
| (0.06) |
| 0.05 |
| (0.01) |
Dividends per share(1) |
| — |
| — |
| — |
Basic weighted average shares outstanding |
| 29,148,108 |
| 29,016,118 |
| 28,997,866 |
Diluted weighted average shares outstanding |
| 29,148,108 |
| 29,615,466 |
| 28,997,866 |
BALANCE SHEET DATA |
|
|
|
|
|
|
Total current assets |
| 45,393 |
| 42,097 |
| 40,376 |
Property and equipment, net |
| 3,704 |
| 4,069 |
| 4,208 |
Total assets |
| 55,193 |
| 53,068 |
| 48,740 |
Total current liabilities |
| 21,504 |
| 17,493 |
| 16,812 |
Financing lease obligations, less current portion(2) |
| 555 |
| 653 |
| 852 |
Long-term debt, less current portion |
| 1,143 |
| 957 |
| 1,339 |
Common stock, €0.13 par value; 29,457,744 and 29,433,994 shares issued and 29,165,316 and 29,141,566 shares outstanding; at December 31, 2020 and 2019 respectively |
| 3,830 |
| 3,826 |
| 3,818 |
Total shareholders’ equity |
| 26,248 |
| 27,359 |
| 24,964 |
(1) | No dividends were paid with respect to fiscal years |
(2) |
EXCHANGE RATES
Fluctuations in the exchange rate between the euro and the dollar will affect the dollar amounts received by owners of American Depositary Shares (‘‘ADSs’’) representing ordinary shares of the Company (‘‘Shares’’) on conversion by the Depositary of dividends, if any, paid on the Shares in the form of ADSs. Moreover, such fluctuations may affect the dollar price of our ADSs onNASDAQ.
The following table sets forth, for each of the years indicated, the high, low, average and year-end Noon Buying Rates expressed in euro per $1.00. The rate is derived from the noon buying rate in The City of New York for cable transfers in euro as certified for customs purposes by the Federal Reserve Bank of New York (the ‘‘Noon Buying Rate’’).
Year ended December 31, | High | Low | Average(1) | End of Year | ||||||||||||
€ | € | € | € | |||||||||||||
2013 | 0.78 | 0.72 | 0.75 | 0.73 | ||||||||||||
2014 | 0.83 | 0.72 | 0.75 | 0.83 | ||||||||||||
2015 | 0.95 | 0.83 | 0.90 | 0.92 | ||||||||||||
2016 | 0.96 | 0.87 | 0.90 | 0.95 | ||||||||||||
2017 | 0.96 | 0.83 | 0.89 | 0.83 |
The following table sets forth, for each of the previous six months, the high and low Noon Buying Rates expressed in euro per $1.00.
High | Low |
Average(1) |
End of Month | |||||||||||||
€ | € | € | € | |||||||||||||
2017 | ||||||||||||||||
September | 0.85 | 0.83 | 0.84 | 0.85 | ||||||||||||
October | 0.86 | 0.84 | 0.85 | 0.86 | ||||||||||||
November | 0.86 | 0.84 | 0.85 | 0.84 | ||||||||||||
December | 0.85 | 0.83 | 0.84 | 0.83 | ||||||||||||
2018 | ||||||||||||||||
January | 0.84 | 0.80 | 0.82 | 0.80 | ||||||||||||
February | 0.82 | 0.80 | 0.81 | 0.82 | ||||||||||||
March | 0.82 | 0.80 | 0.81 | 0.81 |
On March 30, 2018, the Noon Buying Rate was U.S.$1.00 = €0.81
RISK FACTORS
In addition to the other information contained in this annual report, the following risk factors should be carefully considered in evaluating us and our business. These statements are intended to highlight the material risk factors that may cause actual financial, business, research or operating results to differ materially from expectations disclosed in this annual report. See also factors disclosed under “Cautionary statement on forward-looking information”.
Risks Relating to Our Business
Worldwide contagious, epidemic diseases may impact our international activities and could have a material adverse effect on our business, results of operations and financial condition.
Epidemic, contagious and even pandemic diseases, such as the current COVID-19 virus, is expected to impact the development of our business worldwide. Since the occurrence in 2020 of the COVID-19 virus which represented a new challenge to us, we have taken steps to require the majority of our employees to work remotely, maintain minimum supply chain and development activity and curtail most business travels. These measures are still in place as of the date of filing. During 2020, we also (i) implemented partial unemployment, (ii) temporarily closed certain sites and (iii) used certain mechanisms to limit the impact on cash flow (such as deferral of social security or tax payments, deferral of lease payments). The pandemic has resulted in further postponement and/or cancelation of the sale and installation of new devices and disposables in hospitals or clinics as investment decisions are put on hold or their resources are refocused on COVID-19. These occurrences could also prevent us from servicing our installed base of devices and we have experienced cancellations of treatments in certain circumstances, which had some impact on our recurring business. We may continue to experience further postponements, cancellation of sales or significant reduction in the demand for our products, as hospitals and clinics are diverting their priorities towards handling the COVID-19 crisis. In addition, the pandemic could also result in the postponement of clinical trials using our devices and may continue to impact the performance of clinical trials and recruitment of patients. Such outbreak of a contagious disease has also negatively affected hospital admission rates and disrupted our global business,
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and it may continue to negatively impact our activities, including our ability to manufacture and distribute our devices, for example due to potential quarantine measures. Although we are constantly monitoring the impact across our businesses of the coronavirus pandemic which already caused disruption of our activities in 2020, the severity of the operational and financial impact will depend on how long and widespread the disruption lasts. Furthermore, worldwide economies and capital markets have been negatively impacted by the COVID-19 pandemic, and the impact may cause an extended local and/or global economic recession. Such economic disruption could have a material adverse effect on our business as clinics and hospitals curtail and reduce capital and overall expenditures. Finally, we cannot predict the impact that COVID-19 will have on our customers, suppliers and other business partners, and the financial conditions of these actors; however, any material effect on these parties could adversely impact us. The impact of COVID-19 may also exacerbate other risks discussed in this section, any of which could have a material effect on us. As of the date of filing of this report, the global economy remains heavily impacted by the outbreak of the coronavirus and the extent to which the COVID-19 pandemic may materially adversely affect the Company’s financial condition, liquidity, or results of operations is uncertain. We believe that the recently emerged variants of the COVID-19 are not likely to modify the risks as described above.
We have a history of operating losses and although we achieved profitability in 2019, it is uncertain whether we can maintain profitability.
profitability in the future.
Although we achieved operational profitability in 2015 and 2016,2019, we have incurred operating losses in 2020, 2018 and 2017 and in each previous fiscal year prior to 2015, since 1998. We expect that our marketing, selling and research and development expenses will increase as we attempt to further develop and commercialize our lithotripsy and particularly our High Intensity Focused Ultrasound (“HIFU”)HIFU devices. We may not, however, generate a sufficient level of revenue to offset these expenses and may not be able to adjust spending in a timely manner to respond to any unanticipated decline in revenue. We cannot guarantee that we will realize sufficient revenue to remain profitablesustain profitability in the future. See Item 5, ‘‘Operating and Financial Review and Prospects.’’
Our future revenue growth and income depend, among other things, on the success of our HIFU technology.
Our Extracorporeal Shockwave Lithotripsy (“ESWL”) line of products competes in a mature market that has experienced overall declining unit sales prices in recent years. We depend on the success of our HIFU technology for future revenue growth and net income. In particular, we are dependent on the successful development and commercialization of other product lines, such as medical devices based on HIFU particularly but not limited to the Ablatherm and the Focal One, to generate significant additional revenues, and achieve, and sustain profitability in the future. The Ablatherm and the Focal One are commercialized in the European Union, Canada, United States (except for the Focal One which is still under FDA review) and other countries.
Further, even if we do receive the required approvals, we may not receive them on a timely basis and we may not be able to satisfy the conditions of such approval, if any. The failure to receive product approval by the FDA for our Focal One device, or any significant delay in receipt thereof, will have a material adverse effect on our business, financial condition or results of operations. See “—Our clinical trials for products using HIFU technology may not be successful” and Item 4, “Information on the Company—HIFU Division—HIFU Division Clinical and Regulatory Status.” Although we are particularly dependent on the success of our HIFU technology to grow our business through our HIFU (“HIFU”) division, other revenues, generated by our Urology Devices and ServicesExtracorporeal ShockWave Lithotripsy (“UDS”ESWL”) division and our Distribution (“Distribution”) division directly linked to the distribution of other complementary products on behalf of urologythird party medical companies, continue to increase significantly and contribute to our revenue growth. While we believe that our UDSDistribution division can successfully pursue the marketing of its worldwide distribution platform, any termination of distribution commitments from such medical third parties could have a material adverse effect on our business, financial condition or results of operations. See “—Item 4, “Information“Information on the Company—UDSDistribution Division— UDSDistribution Division ServicesSales and Distribution.Distribution of Products.”
We utilize distributors for our sales abroad, which subjects us to a number of risks that could harm our business.
We have developed strategic relationships with a number of distributors for sales and service of our devices in certain foreign countries where we are not directly represented by a subsidiary. If these relationships are terminated and not replaced, our revenues and/or ability to market or service our devices in the related territories could be adversely affected. Our clinical trialsdistributors’ actions may affect our ability to effectively market our devices in certain foreign countries if, for products using HIFU technologyexample, a distributor holds the regulatory authorizations in such countries and causes, by action or inaction, the suspension of such regulatory authorizations or sanctions for non-compliance. It may not be successfuldifficult, expensive, and time consuming for us to re-establish reputation, market access or regulatory compliance in such case. Moreover, our distributors must be in compliance with anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, and other local laws prohibiting corrupt payments to governmental officials or to customers and we may not be able to obtain regulatory approvals necessary for commercializationtrace or be kept informed of all ofsuch corruption. In addition, we may be named as a defendant in lawsuits against our HIFU products.
Before obtaining regulatory approvals for the commercial sale of anydistributors related to sales or service of our devices under development, we must demonstrate through preclinical testing and clinical trialsperformed by these distributors. See our risk factor below: “We face a significant risk of exposure to product liability claims in the event that the device is safe and effective for use in each indication. Product development, including pre-clinical studies and clinical trials is a long, expensive and uncertain process, and is subject to delays and failures at any stage. The results from preclinical testing and early clinical trials may not predict the results that will be obtained in large scale clinical trials. Companies can suffer significant setbacks in advanced clinical trials, even after promisingof our products results in earlier trials. Furthermore, data obtained frompersonal injury or death.”
New device developments and introductions may adversely impact our financial results.
From time to time, we develop and introduce new devices with enhanced features and extended capabilities, targeting new clinical applications or improving existing approaches. The success of new device introductions depends on a trial can be insufficient to demonstrate that our products are safe, effective, and marketable. The commencement, continuation or completionnumber of any of our clinical trials may be delayed or halted, or inadequate to support approval of an application to regulatory authorities for numerous reasonsfactors including, but not limited to:
Additionally, certain regulatory authorities may disagree with our interpretation of the data from our pre-clinical studiesclearances or approvals, pricing, competition, market and clinical trials, or may find the clinical trial design, conduct or results inadequate to prove safety or efficacy,consumer acceptance, manufacturing and may require us to pursue additional pre-clinical studies or clinical trials, which would increasesupply costs, and could further delay the approvalrisk that new devices may have quality or other defects.
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We invest in various research and development projects to expand our products. If weproduct offerings. Our research and development efforts are unablecritical to demonstrate the safetyour success, and efficacy of our products in our clinical trials, we willresearch and development projects may not be successful. We may be unable to obtain regulatory approval todevelop and market our products. The datanew products successfully, and the products we collect from our current clinical trials, our pre-clinical studiesinvest in and other clinical trialsdevelop may not be sufficientwell received by customers or meet our expectations. Our research and development investments may not generate significant operating income or contribute to support requestedour future operating results for several years, and such contributions may not meet our expectations or even cover the costs of such investments.
If we fail to effectively develop new products, obtain regulatory approval. Discussions with regulatory authorities to improve our clinical protocols may prove difficultclearances or approval and lengthy. We ormanage new product introductions in the relevant regulatory authorities may suspend or terminate clinical trials at any time and regulating agencies may even refuse to grant exemptions to pursue clinical trials.
We may also be required to abandon previous strategies for regulatory approval, despite having made significant financial and time investments, or refocus our efforts on alternative regulatory strategies, resulting in increased costs and efforts of management, without any guarantee of success, which could materially adversely affectfuture, our business, financial condition, and results of operations.
Our HIFU devices that have not received regulatory approval may not prove to be effective or safe in clinical trials or may not be approved by the appropriate regulatory authorities. If our HIFU devices do not prove to be effective and safe in clinical trials to the satisfaction of the relevant regulatory authorities, our business, financial condition and results of operations, or cash flows could be materially and adversely affected.impacted.
We operate in a highly regulated industry and our future success depends on obtaining and maintaining government regulatory approval of our products, which we may not receive or be able to maintain or which may be delayed for a significant period of time.
Government regulation significantly impacts the development and marketing of our products, particularly in the United States, EU and Japan. We are regulated in each of our major markets with respect to preclinical and clinical testing, manufacturing, labeling, distribution, sale, marketing, advertising and promotion of our products. To market and sell products, we are required to obtain approval or clearance from the relevant regulatory agencies, including the FDA with respect to the United States. In that respect, the FDA may not act favorably or quickly in its review of our submissions, or we may encounter significant difficulties in our efforts to obtain FDA clearance or approval, all of which could delay or preclude the sale of new products in the U.S. The process of applying for regulatory approval or clearance is unpredictable, often lengthy and requires the expenditure of substantial resources.
Further, there can be no assurance that we will receive the required approvals or clearance for our products from the required regulatory authorities or, if we do receive the required approvals, that we will receive them on a timely basis, on the conditions and for the indications we seek, or that we will otherwise be able to satisfy the conditions of such approval, if any.
The regulatory agencies may not act favorably or quickly in their review of our submissions, or we may encounter significant difficulties in our efforts to obtain their clearance or approval, or to maintain our existing approvals, all of which could delay or preclude the sale of new or existing products in the related territories. In the European Union, the regulation of medical devices is being updated by the European Medical Device Regulation (“MDR”) effective as of May 26, 2021, following the expiration of the four-year transition period, imposing stricter requirements on the conformity assessment and the commercialization of our products. An MDR compliance action plan is currently being performed in preparation of MDR enforcement within the expected timelines. We are implementing regulatory actions to ensure our devices may be distributed on the European and international market after May 2021.
Even if regulatory approval to market a product is granted, it may include limitations on the indicated uses for which the product may be marketed. Failure to comply with regulatory requirements can result in fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecutions. Regulatory policy may change and additional government regulations may be established that could prevent or delay regulatory approval of our products. Any delay, failure to receive regulatory approval or the loss of previously received approvals could have a material adverse effect on our business, financial condition and results of operations. For more information on the regulation of our business, see Item 4, ‘‘Information on the Company—Government Regulation’Regulation’’ and “Information“Information on the Company—HIFU Division—HIFU Division Clinical and Regulatory Status.”
Moreover, we may also be required to abandon previous strategies for regulatory approval or clearance, despite having made significant financial and time investments, or refocus our efforts on alternative regulatory strategies, resulting in increased costs and efforts of management, without any guarantee of success, which could materially adversely affect our business, financial condition and results of operations.
Furthermore,weOur manufacturing operations must comply with regulations established by regulatory agencies in the United States, the European Union and other countries, and in particular with the Current Good Manufacturing Practices (‘‘CGMP’’) and other standards for quality assurance and manufacturing process control under applicable regulatory authorities. Since such standards may change, we may not, at all times, comply with all applicable standards and, as a result would be unable to manufacture our products for commercial sale or for clinical trial supply. Our manufacturing facilities are also subject to healthcare laws and regulations pertaining to physician payment transparency, privacy and regulations. These regulations include, but are not limited to (i) the U.S. federal Health Insurance Portability and Accountability Act (“HIPAA”) of 1996, as amendedinspection by regulatory authorities at any time. If any inspection by the Health Information Technology for Economicregulatory authorities reveals deficiencies in manufacturing, we could be required to take immediate remedial actions, suspend production or close the current and Clinical Health Act,future production facilities, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; (ii) the U.S. federal Physician Payment Sunshine Act (the “Sunshine Act”), which requires manufacturers of medical devices for which payment is available under Medicare, Medicaid, to report annually to the Centers for Medicare & Medicaid Services (“CMS”) information related to payments or other “transfers of value” made to physicians, (iii) two main sets of laws enacted in France about transparency requirements: “The French Anti-Gift Law” which regulates the provision of gifts, discounts and other incentives to physicians and the “Loi Bertrand” which imposes disclosure obligations on companies relating to benefits and remunerations granted to, and agreements concluded with, physicians. Anywould disrupt our manufacturing processes. Accordingly, failure to comply with these regulations maycould have a material adverse effect on our business, financial condition and results of operations.
Furthermore,Finally, changes to regulatory policypolicies or the adoption of additional statutes or regulations that affect our business could impose substantial additional costs or otherwise have a material adverse effect on our business, financial condition and results of operations.
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Our clinical trials related to products using HIFU technology may not be acceptedsuccessful and adopted by the medical community.we may not be able to obtain regulatory approvals necessary for commercialization of all of our HIFU products.
Our HIFU devices represent new therapiesBefore obtaining regulatory approvals or clearance for the conditionscommercial sale of any of our devices under development, we must demonstrate through preclinical testing and clinical trials that they are designedthe device is safe and effective for use in each indication. Product development, including pre-clinical studies and clinical trials is a long, expensive and uncertain process, and is subject to treat. Notwithstandingdelays and failures at any positivestage. We or the relevant regulatory authorities may suspend or terminate clinical trials at any time and regulating agencies may even refuse to grant exemptions to pursue clinical trials. The results from preclinical testing and early clinical trials may not predict the results that will be obtained in large-scale clinical trials. Companies can suffer significant setbacks in later-stage clinical trials, even after promising results in earlier trials. Furthermore, data obtained from a trial can be insufficient to demonstrate that our products are safe, effective, and marketable. The commencement, continuation or completion of any of our clinical trials may be delayed or halted, or inadequate to support approval of an application to regulatory authorities for numerous reasons including, but not limited to:
The data we collect from our current clinical trials, our preclinical studies and other clinical trials may have achievednot be sufficient to support requested regulatory approval. Additionally, certain regulatory authorities may disagree with our interpretation of the data from our preclinical studies and clinical trials, or may achieve infind the future in termsclinical trial design, conduct or results inadequate to prove safety or efficacy, and may require us to pursue additional preclinical studies or clinical trials, which would increase costs and could further delay the approval of our products. If we are unable to demonstrate the safety and efficacy and any marketing approvalsof our products in our clinical trials, we will be unable to obtain regulatory approval to market our products.
Our robotic HIFU devices that we have obtainednot received regulatory approval may not prove to be effective or safe in clinical trials or may obtain innot be approved by the future, there can be no assurance that such products will gain acceptance in the medical community. Physician acceptance depends, among other things, on evidence of the cost effectiveness of a therapy as compared to existing therapies and on adequate reimbursement from healthcare payers. Furthermore, acceptance by patients depends in part on physician recommendations, as well as other factors, including the degree of invasiveness, the rate and severity of complications and other side effects associated with the therapy as compared to other therapies.
appropriate regulatory authorities. If our HIFU devices do not achieve an adequate level of acceptance by physicians, patients, health care payersprove to be effective and the medical community, we may not generate or maintain positive cash flows and we may not become profitable or be able to sustain profitability. If we do achieve market acceptance of our products, we may not be able to sustain it or otherwise achieve it to a degree which would support the ongoing viability of our operations.
Our cash flow is highly dependent on demand for our products.
Our cash flow has historically been subject to significant fluctuations over the course of any given financial year due to cyclical demand for medical devices, and the resulting annual and quarterly fluctuations in trade and other receivables and inventories. This has in the past resulted in significant variations in working capital requirements and operating cash flows. Although in 2015 and 2016, our operating cash flow was positive, in 2017 our operating cash flow was negative due to the operating loss and working capital cash requirements, to expand our worldwide activities. Since we anticipate relying on cash flow from operating activities to meet our liquidity requirements, a decrease in the demand for our products, or the inability of our customers to meet their financial obligations to us, would reduce the funds available to us. In the future, our liquidity may be constrained and our cash flows may be uncertain, negative or significantly different from period to period. Our future cash flow will be affected by increased expensessafe in clinical trials sales efforts as well as marketing campaigns and promotional tools, particularly to implement our expanded U.S. and global strategy following the FDA clearance of Ablatherm, and Focal One when or if approved, while there is no assurance that this will result in the increase in the demand for our products and services.
Competition in the markets in which we operate is intense and is expected to increase in the future.
Competition in the markets in which we operate is intense and is expected to increase in the future. In each of our main businesses, we face competition both directly from other manufacturers of medical devices that apply the same technologies that we use, as well as indirectly from existing or emerging therapies for the treatment of urological disorders.
We believe that because ESWL has long been the standard treatment for urinary tract calculus disease, competition in that market comes principally from current manufacturers of lithotripters, including Wolf, Storz and Dornier. In the markets that we target for our HIFU products, competition comes from new market entrants and alternative therapies, as well as from current manufacturers of medical devices. In the HIFU market, our devices, in particular the Ablatherm and the Focal One, compete with all current treatments for localized tumors, including surgery, external beam radiotherapy, brachytherapy and cryotherapy. Other energies addressing prostate cancer ablation are also currently being developed such as electroporation and microwave. Other companies working with HIFU technology for the minimally invasive treatment of tumors include SonaCare Medical, a U.S. company that markets a device called the Sonablate for the ablation of prostatic tissue. Sonablate was approved by the FDA for commercialization in the U.S. in October 2015. Profound Medical, a Canadian company, is developing transurethral ultrasound therapy for prostate cancer. Profound Medical recently acquired Philips Healthcare’s HIFU activity, integrating the development of HIFU devices addressing uterine fibroids, breast tumors and drug delivery activated by HIFU. Insightec, an Israeli company owned mainly by General Electric and Elbit Medical Imaging, has developed a device using HIFU technology to treat uterine fibroids, painful bone tumors and brain disorders. Theraclion, a French company licensed by EDAP to use of some of our HIFU patents, is currently marketing the Echopulse HIFU device to treat thyroid tumors and benign breast tumors. Haifu, a Chinese company, is developing HIFU products addressing various types of cancers. See Item 4, ‘‘Information on the Company—HIFU Division— HIFU Competition’’ and Item 4, ‘‘Information on the Company—UDS Division.’’
Many of our competitors have significantly greater financial, technical, research, marketing, sales, distribution and other resources than we have and may have more experience in developing, manufacturing, marketing and supporting new medical devices. In addition, our future success will depend in large part on our ability to maintain a leading position in technological innovation, and we cannot assure investors that we will be able to develop new products or enhance our current ones to compete successfully with new or existing technologies. Rapid technological development by competitors may result in our products becoming obsolete before we recover a significant portionsatisfaction of the research, development and commercialization expenses incurred with respect to those products.
We also face competition for our maintenance and service contracts. Larger hospitals often utilize their in-house maintenance departments instead of contracting with equipment manufacturers like us to maintain and repair their medical equipment. In addition, third-party medical equipment maintenance companies increasingly compete with equipment manufacturers by offering broad repair and maintenance service contracts to hospitals and clinics. This increased competition for medical devices and maintenance and service contracts could have a material adverse effect onrelevant regulatory authorities, our business, financial condition and results of operations.operations could be materially adversely affected.
The commercial success of our products depends on whether procedures performed by those products are eligible for reimbursement which depends on the decisions ofapproved by national health authorities and third-party payers.
Our success depends, among other things, on the extent to which reimbursement can be obtained from healthcare payers for procedures performed with our products. In the United States, we are dependent upon favorable coverage and benefit decisions by CMSCenters for Medicare and Medicaid Services (CMS) for Medicare reimbursement, state Medicaid agencies, individual managed care organizations, private insurers and other payers. TheseWith the support of the American Urological Association, and the American Association of Clinical Urologists, the American Medical Association (AMA) established a new Category 1 CPT code for the ablation of malignant prostate tissue with HIFU technology, effective January 1, 2021. In late 2020, CMS published its final rules for ambulatory payment classification (APC) procedures and physician fee schedule established reimbursement rates that recognize both facility or hospital payment and physician professional service payments for HIFU procedures. For private insurers, policy coverage decisions supporting coverage and reimbursement related to HIFU procedures are limited given that HIFU is a new technology. To further support and raise awareness as to the use of HIFU as an alternative to more traditional treatments, we engaged Medical Technology Partners (MTP) and Argenta Advisors, two leading reimbursement consultancies, to assist in navigating reimbursement analysis and strategies, including technology feasibility and assessment needs, payor advisory panels, outcome studies and understanding manufacturer billing education resources. With expanded third party coverage decisions, our Focal One HIFU procedure will have broader market access in the United States. However, public or private payors may decide to limit coverage or reimbursement of HIFU technologies that are available to individuals, including potentially modifying existing guidance to further limit available coverage. Changes to coverage decisions, which may be revised from time to time, which could affectnegatively impact reimbursement for procedures performed using our devices. In May 2017, CMS granteddevices and may result in a C-code for the usematerial adverse effect on our business, financial conditions and results of HIFU for prostate tissue ablation, effective July 1st, 2017. This C-code covers hospital practical fees. We are currently in discussion with private insurers to advance on the reimbursement of HIFU procedures for prostate tissue ablation.operations. Outside the United States, and in particular in the European Union and Japan, third-party reimbursement is generally conditioned upon decisions by national health authorities. In the European Union, there is no harmonized procedure for obtaining reimbursementauthorities and consequently, we must seek regulatory approval in each Member State. Procedures performed with our HIFU devices are not reimbursed in the European Union with the exception
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we cannot guarantee that a definitive reimbursement code will be granted.
See Item 4, ‘‘Information on the Company——HIFU Division—HIFU Reimbursement Status.”
Lithotripsy procedures currently are reimbursed by public healthcare systems in the European Union, in Japan and in the United States. However, a decision in any of those countries to modify reimbursement policies for these procedures could have a material adverse effect on our business, financial conditions and results of operations. For example, in April 2016, the Japanese authorities decided to stop reimbursing lithotripters’ disposables (electrodes) necessary to perform a lithotripsy procedure. This decision had and will have a material effect on our current and future sales of lithotripsy disposables in Japan.
We cannot assure investors that expanded coverage decisions or additional reimbursement approvals will be obtained in the near future. If payor coverage or reimbursement for procedures related to our products is unavailable, limited in scope or amount, or if pricing is set at unsatisfactorycertain levels and if we fail to establishof public or maintainprivate payor reimbursement from healthcare payers or governments and private healthcare payers’coverage policies change, it could have a material adverse effect on our business, financial condition and results of operations.
Our manufacturing operations are highly regulatedHIFU technology may not be adopted by the medical community and failure to comply with those regulations would harm our business.
may never become a standard of care.
Our manufacturing operations must comply with regulations established by regulatory agenciesrobotic HIFU devices represent new therapies for the conditions that they are designed to treat. Notwithstanding any positive clinical results that our HIFU devices may have achieved or may achieve in the United States,future in terms of safety and efficacy and any marketing approvals that we have obtained or may obtain in the European Unionfuture, there can be no assurance that such products will gain adoption by the medical community. Physician adoption depends, among other things, on evidence of the cost effectiveness of a therapy as compared to existing therapies and on adequate coverage policies supporting reimbursement from healthcare payers. Furthermore, acceptance by patients depends in part on physician recommendations, as well as other factors, including the degree of invasiveness, the rate and severity of complications and other countries,side effects associated with the therapy as compared to other therapies.
If our robotic HIFU devices do not achieve an adequate level of acceptance by physicians, patients, health care payers and the medical community and never become a standard of care, we may not generate or maintain positive cash flows and we may not become profitable or be able to sustain profitability. If we do achieve market acceptance of our products, we may not be able to sustain it or otherwise achieve it to a degree which would support the ongoing viability of our operations.
Our cash flow is highly dependent on cyclical demand for our products.
Our cash flow has historically been subject to significant fluctuations over the course of any given financial year due to cyclical demand for medical devices, and the resulting annual and quarterly fluctuations in trade and other receivables and inventories. This has in the past resulted in significant variations in working capital requirements and operating cash flows. Since we anticipate relying on cash flow from operating activities to meet our liquidity requirements, a decrease in the demand for our products, or the inability of our customers or distributors to meet their financial obligations to us, would reduce the funds available to us. In the future, our liquidity may be constrained and our cash flows may be uncertain, negative or significantly different from period to period. Our future cash flow will be affected by increased expenses in clinical trials, sales efforts and other market costs related to implementing our expanded U.S. and global strategy following the FDA clearance of Focal One and CMS CPT code which will require significant additional resources. However, there is no assurance that this will result in an increase in the demand for our products and services. Our future cash flow may also be affected by the decrease in revenues directly linked to delay and postponing of treatments and sales projects due to COVID-19 crisis and to the management by EDAP of the COVID-19 situation.
Competition in the markets in which we operate is intense and is expected to increase in the future.
Competition in the markets in which we operate is intense and is expected to increase in the future. In each of our main businesses, we face competition both directly from other manufacturers of medical devices that apply the same technologies that we use, as well as indirectly from existing or emerging therapies for the treatment of urological disorders.
In the markets that we target for our robotic HIFU products, competition comes from new market entrants and alternative therapies, as well as from current manufacturers of robotic medical devices. In the HIFU market, our devices, in particular with the Current Good Manufacturing Practices (‘‘CGMP’’) mandated byAblatherm and the FDA and European Union standards for quality assurance and manufacturing process control. Since such standards may change, wemay not, at all times, complyFocal One, compete with all applicable standardscurrent treatments for localized tumors, including surgery, external beam radiotherapy, brachytherapy and ascryotherapy. See Item 4, ‘‘Information on the Company—HIFU Division— HIFU Competition’’ and Item 4, ‘‘Information on the Company—ESWL Division.’’
Many of our competitors have significantly greater financial, technical, research, marketing, sales, distribution and other resources than we have and may have more experience in developing, manufacturing, marketing and supporting new medical devices. In addition, our future success will depend in large part on our ability to maintain a leading position in technological innovation, and we
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cannot assure investors that we will be able to develop new products or enhance our current ones to compete successfully with new or existing technologies. Rapid technological development by competitors may result would be unable to manufacturein our products becoming obsolete before we recover a significant portion of the research, development and commercialization expenses incurred with respect to those products.
We also face competition for commercial sale. Our manufacturing facilities are subjectour maintenance and service contracts. Larger hospitals often utilize their in-house maintenance departments instead of contracting with equipment manufacturers like us to inspectionmaintain and repair their medical equipment. In addition, third-party medical equipment maintenance companies increasingly compete with equipment manufacturers by regulatory authorities at any time. If any inspection by the regulatory authorities reveals deficiencies in manufacturing, we could be requiredoffering broad repair and maintenance service contracts to take immediate remedial actions, suspend production or close the currenthospitals and future production facilities, which would disrupt our manufacturing processes. Accordingly, failure to comply with these regulationsclinics. This increased competition for medical devices and maintenance and service contracts could have a material adverse effect on our business, financial condition and results of operations.
We depend on a single site to manufacture our products, and any interruption of operations could have a material adverse effect on our business.
Most of our manufacturing currently takes place in a single facility located in Vaulx-en-Velin, on the outskirts of Lyon, France. In the event of a significant interruption in the operations of our sole facility for any reason, such as fire, flood or other natural disaster or pandemic diseases such the COVID-19 virus necessitating quarantine implementation or a failure to obtain or maintain required regulatory approvals, we would have no other means of manufacturing our products until we were able to restore the manufacturing capabilities at our facility or develop alternative facilities, which could take considerable time and resources and have a material adverse effect on our business, financial condition and results of operations. Since mid-March 2020, we have taken the previously announced steps of requiring the majority of our employees to work remotely, maintaining minimum supply chain activity and curtailing most business travel. If we are unable to manufacture a sufficient or consistent supply of our products or products we are developing, or if we cannot do so efficiently, our revenue, business and financial prospects would be adversely affected.
For certain components or services, we depend on a single supplier who, due to events beyond our control may fail to deliver sufficient supplies to us or increase the cost of items supplied, which would interrupt our production processes or negatively impact our results of operations.
We purchase the majority of the components used in our products from a number of suppliers, but rely on a single supplier for some key components. In addition, we rely on single suppliers for certain services. If the supply of these components or services were interrupted for any reason, including COVID-19 pandemic and implied restrictions, our manufacturing and marketing of the affected products would be delayed. These delays could be extensive, especially in situations where a component substitution would require regulatory approval. In addition, such suppliers could decide unilaterally to increase the price of supplied items and therefore cause additional charges for the Company. We expect to continue to depend upon our suppliers for the foreseeable future. Failure to obtain adequate supplies of components or services in a timely manner and at the agreed price could have a material adverse effect on our business, financial condition and results of operations.
We may have difficulties in attracting and recruiting highly qualified experts in software, design and development of high technology devices such as our HIFU and ESWL products
Our devices require highly qualified individuals as well as high-level of expertise and experience in design, software, mechanics and electronics. We are highly dependent on our ability to attract and retain qualified personnel and engineers to develop our devices. In addition, the learning curve required to master our systems is lengthy and, if we do not find qualified experts and engineers, we may not be able to meet our development schedule and obtain market approval in due time, which in time may delay market introduction of new products. Failure to recruit and attract experts in a timely manner may have a material adverse effect on our development, business, financial condition and results of operations.
Intellectual property rights are essential to protect our medical devices, and any dispute with respect to these rights could be costly and have an uncertain outcome.
Our success depends in large part on our ability to develop proprietary products and technologies and to establish and protect the related intellectual property rights, without infringing the intellectual property rights of third parties. The validity and scope of claims covered in medical technology patents involve complex legal and factual questions and, therefore, the outcome of such claims may be highly uncertain. The medical device industry has been characterized by extensive patents and other intellectual property rights litigation. From time to time weWe may receive letters from third parties drawing our attention to their patent rights. rights, or patent grant contestations may be filed. Third parties also may challenge our patents before administrative bodies in the United States or abroad. Such mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation or cancellation of or amendment to our patents in such a way that they no longer cover our product candidates or provide any competitive advantage. For example, a patent
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granted to us by the European Patent Office (“EPO”), covering Visiotrack technology for lithotripsy products (patent EP 2340781), has been opposed by Storz Medical. The opposition was rejected by the EPO and Storz Medical has filed an appeal, which is currently pending. The outcome following such appeal is unpredictable. If Storz Medical were to prevail, we would lose patent protection for our Visiotrack technology, which could result in our competitors and other third parties using our technology to compete with us. Such a loss of patent protection could have a material adverse impact on our business, financial condition and result of operations.
Our products, including our HIFU devices, may be subject to litigation involving claims of patent infringement or violation of other intellectual property rights of third parties. The defense and prosecution of intellectual property suits, patent opposition proceedings and related legal and administrative proceedings are both costly and time consuming and may result in a significant diversion of effort and resources by our technical and management personnel. An adverse determination in any such litigation or proceeding to which we become a party could subject us to significant liability to third parties, require us to seek licenses from third parties and pay ongoing royalties, require us to redesign certain products or subject us to injunctions preventing the manufacture, use or sale of the affected products. In addition to being costly, drawn-out litigation to defend or prosecute intellectual property rights could cause our customers or potential customers to defer or limit their purchase or use of our products until the litigation is resolved. See Item 4, ‘‘Information on the Company—HIFU Division—HIFU Division Patents and Intellectual Property’Property’’ and Item 4, ‘‘Information on the Company—UDSESWL Division—UDSESWL Division Patents and Intellectual Property.’’
We own or co-own patents covering several of our technologies and have additional patent applications pending in the United States, the European Union, Japan and elsewhere. The process of seeking patent protection can be long and expensive and there can be no assurance that our patent applications will result in the issuance of patents. We also cannot assure investors that our current or future patents are or will be sufficient to provide meaningful protection or commercial advantage to us. Our patents or patent applications could be challenged, invalidated or circumvented in the future. The failureFailure to maintain or obtain necessary patents, licenses or other intellectual property rights from third parties on acceptable terms or the invalidation or cancellation of material patents could have a material adverse effect on our business, financial condition or results of operations. Litigation may be necessary to enforce patents issued to us or to determine the enforceability, scope and validity of the proprietary rights of others. Our competitors, many of which have substantial resources and have made substantial investments in competing technologies, may apply for and obtain patents that will interfere with our ability to make, use or sell certain products, including our HIFU devices and/or our ESWL medical equipment, either in the United States or in foreign markets.
We also rely on trade secrets and proprietary know-how, which we seek to protect through non-disclosure agreements with employees, consultants and other parties. It is possible, however, that those non-disclosure agreements will be breached, that we will not have adequate remedies for any such breach, or that our trade secrets will become known to, or independently developed by, competitors. Litigation may be necessary to protect trade secrets or know-how owned by us. In addition, effective copyright and trade secret protection may be unavailable or limited in certain countries.
The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and result of operations.
Our use of “open source” software could negatively affect our ability to sell our products and subject us to possible litigation.
Our products incorporate so-called “open source” software, and we may incorporate additional open source software in the future. Open source software is generally licensed by its authors or other third parties under open source licenses. If we fail to comply with these licenses, we may be subject to certain conditions, including requirements that we offer our products that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and/or that we license such modifications or derivative works under the terms of the particular open source license. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our products that contained the open source software and required to comply with the foregoing conditions, which could disrupt the distribution and sale of our products.
We face a significant risk of exposure to product liability claims in the event that the use of our products results in personal injury or death.
Our products are designed to be used in the treatment of severe affectionsafflictions and conditions. Despite the use of our products, patients may suffer personal injury or death, and we may, as a result, face significant product liability claims. We maintain separate product liability insurance policies for the United States and Canada and for the other markets in which we sell our products. Product liability insurance is expensive and there can be no assurance that it will continue to be available on commercially reasonable terms or at all. In addition, our insurance may not cover certain product liability claims or our liability for any claims may exceed our coverage
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limits. A product liability claim or series of claims brought against us with respect to uninsured liabilities or in excess of our insurance coverage, or any claim or product recall that results in significant cost to or adverse publicity against us could have a material adverse effect on our business, financial condition and results of operations. Also, if any of our products prove to be defective, we may be required to recall or redesign the product which could result in costly corrective actions and harm to our business reputation, which could materially affect our business, financial condition and results of operations.
We are exposed to risks related to cybersecurity threatsOur French and incidents.
In the conduct of our business, we collect, use, transmit and store data on information technology systems. This data includes confidential information belonging to us, our customers and other business partners, as well as personally identifiable information of individuals. We also store data related to our clinical trials on our information technology systems. We have experienced no significant nor material cybersecurity threats and incidents. We also rely in part on the reliability of certain tested third parties' cybersecurity measures, including firewalls, virus solutions and backup solutions. Cybersecurity incidents may result in business disruption, the misappropriation, corruption or loss of confidential information and critical data (ours or that of third parties), reputational damage, litigation with third parties, diminution in the value of our investment in research and development, data privacy issues and increased cybersecurity protection and remediation costs. Moreover, we devote significant resources to network security, data encryption and other measures to protect our systems and data from unauthorized access or misuse, including meeting certain information security standards that may be required by our customers, all of which increases cybersecurity protection costs. As these threats, and government and regulatory oversight of associated risks, continue to evolve, we may be required to expend additional resources to enhance or expand upon the security measures we currently maintain.
Future cybersecurity breaches or incidents or further increases in cybersecurity protection costs may have a material adverse effect on our business, financial condition or results of operations.
The expansion of social media platforms and new technologies present risks and challenges for our business and reputation.
We increasingly rely on social media and new technologies to communicate about our products and technologies. The use of these media requires specific attention. Unauthorized communications, such as press releases or posts on social media, purported to be issued by the Company, may contain information that is false or otherwise damaging and could have an adverse impact on our stock price. Negative or inaccurate posts or comments about the Company, our business, directors or officers on any social networking website could seriously damage our reputation. In addition, our employees and partners may use social media and mobile technologies inappropriately, which may give rise to liability for the Company, or which could lead to breaches of data security, loss of trade secrets or other intellectual property or public disclosure of sensitive information, including information about our employees, clinical trials or customers. Such uses of social media, mobile technologies, or information technology more generally could have a material adverse effect on our reputation, business, financial condition and results of operations.
Our international operations expose us to additional costs and legal and regulatory risks, which could have a material adverse effect on our business, results of operations and financial condition.
We have significant French and international operations. We have direct distribution channels in overalmost fifty countries outside of France, our country of incorporation, and through our foreign subsidiaries. Compliance with complex foreign and French laws and regulations that apply to our international operations increases our cost of doing business. These numerous and sometimes conflicting laws and regulations include, among others, data privacy requirements (particularly with respect to the recent invalidation of the U.S.-European Union safe harbor by the European Court of Justice), labor relations laws, tax laws, anti-competition regulations, import and trade restrictions, export requirements, U.S. laws such as the FCPAU.S. Foreign Corrupt Practices Act (FCPA) and other U.S. federal laws and regulations established by the Office of Foreign Asset Control, laws such as the UK Bribery Act 2010 or other local laws, which prohibit corrupt payments to governmental officials or certain payments or remunerations to customers. On November 8, 2016,We have adopted a Code of Ethics that requires employees to comply with applicable laws and regulations and particularly with the applicable provisions of the French Parliament passed a law targeting transparency, anti-corruption and the modernization of the economy, known as the Sapin II Law.law, and the related implementing decrees, and notably the requirements of Article 8 of the law which requires the establishment of a whistle-blowing policy. These numerous and sometimes conflicting laws and regulations include, among others, data privacy requirements, labor relations laws, tax laws, anti-competition regulations, “Know Your Customer” requirements, import and trade restrictions, export requirements.
We are also subject to healthcare laws and regulations pertaining to physician payment transparency, privacy and data protection regulations. These regulations include, but are not limited to (i) the U.S. federal Health Insurance Portability and Accountability Act (“HIPAA”) of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; (ii) the U.S. federal Physician Payment Sunshine Act (the “Sunshine Act”), which requires manufacturers of medical devices for which payment is available under Medicare, Medicaid, to report annually to the CMS information related to payments or other “transfers of value” made to physicians, (iii) two main sets of laws enacted in France about transparency requirements: “The French Anti-Gift Law” –updated in 2020- which regulates the provision of gifts, discounts and other incentives to physicians and the “Bertrand law” which imposes disclosure obligations on companies relating to benefits and remunerations granted to, and agreements concluded with, physicians and (iv) the provisions of the French Public Health Code relating to the processing and/or hosting of health-related personal data. Any failure to comply with these regulations may have a material adverse effect on our business, financial condition and results of operations.
Furthermore, in addition to HIPAA we are subject to other data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of personally identifying information, which among other things, impose certain requirements relating to the privacy, security and transmission of personal information. The provisionslegislative and regulatory landscape for privacy and data protection continues to evolve in jurisdictions worldwide, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. There are numerous European, French, U.S. federal and U.S. state laws and regulations related to the implementationprivacy and security of personal information. For example, in the European Union, the collection and use of personal data is governed by the provisions of the Sapin II Law, effective mid-2017, are applicable to any company (i) having at least 500 employees,General Data Protection Regulation (“GDPR”) which took effect in May 2018. The GDPR significantly increases the level of data protection and imposes a greater compliance burden on companies. In particular, it treats clinical data as personal data, requiring us or belonging to any group whose parent company's headquarters is located in France and which has at least 500 employees, and (ii) whose annual turnover is more than €100 million. Presidents and directors of such companies may be held liable for failureour subcontractors to implement compliance programs. We are not subjectmore extensive procedures in the collection and processing of clinical trial data. Furthermore, the GDPR significantly increases the level of sanctions for non-compliance. The European Union data protection authorities have the power to impose administrative fines of up to a maximum of €20 million or 4% of the Company’s consolidated revenues for the preceding financial year, whichever is higher. The GDPR is also supplemented by the provisions of Sapin II Law.
the French data protection act (law n°78 17 of 6 January 1978), in particular in respect of the processing of personal data in the field of healthcare. We believe that the GDPR did not have a material impact on our business or the way our technologies operate. However, due to the small size of the Company, we may not be able to adequately document all data collection, to obtain related consents in due time, to adequately protect personal data or to react in due time to address an individual request linked to the GDPR.
Given the high level of complexity of these laws, and the fact that we do business in regions where regulatory compliance is less robust, including in Russia and parts of Asia, there is a risk that we may inadvertently breach some provisions, for example, through fraudulent or negligent behavior of individual employees or business partners, our failure to comply with certain formal documentation requirements, or otherwise. Our success depends, in part, on our ability to anticipate these risks and manage these challenges. We have a disperseddecentralized international sales organization, and this structure makes it more difficult for us to ensure that our international selling operations comply with our global policies and procedures.
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Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, requirements to obtain export licenses, cessation of business activities in sanctioned countries and prohibitions on the conduct of our business. Violations of laws and regulations also could result in prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, or our business, results of operations and financial condition.
We have been and we may in the future be the target of securities class action or other litigation, which could be costly and time consuming to defend.
In the past, securities class action litigation has often been brought against companies following a decline in the market price of its securities. This risk is especially relevant for us because innovative life sciences and medical device companies have experienced significant stock price volatility in recent years.
On August 4, 2014, a purported class action lawsuit was filed in the United States District Court for the Southern District of New York asserting that the Company, Marc Oczachowski, and Eric Soyer (our former Chief Financial Officer) violated federal securities laws by issuing materially false and misleading statements that caused the price of our ADSs to be artificially inflated. An amended complaint alleges that the Company and Mr. Oczachowski breached their obligations under the Exchange Act in various ways, including by misrepresenting and failing to disclose allegedly material information about the safety and efficacy of treatment with Ablatherm-HIFU, and the Company’s interactions with the FDA. The complaint sought unspecified damages, interest, costs, and fees, including attorneys’ and experts’ fees. In February 2015, the defendants, including the Company, filed a motion to dismiss and on November 11, 2015, we announced the dismissal of the class action lawsuit and that no notice of appeal was subsequently filed by the plaintiffs.
Any additional litigation, if instituted, could cause us to incur substantial costs and our management resources may be diverted to defending such litigation, which could adversely affect our financial condition or results of operations.
We sell our products in many parts of the world and, as a result, our business is affected by fluctuations in currency exchange rates.
We are exposed to foreign currency exchange rate risk because the mix of currencies in which our costs are denominated is different from the mix of currencies in which we earn our revenue. In 2017, approximately 77%2020, 74% of our total costs of sales and operating expenses were denominated in euro, while approximately 45%51% of our sales were denominated in currencies other than euro (primarily the U.S. dollar and the Japanese yen). Our operating profitability could be materially adversely affected by large fluctuations in the rate of exchange between the euro and other currencies. For instance, a decrease in the value of the U.S. dollar or the Japanese yen against the euro would have a negative effect on our revenues, which may not be offset by an equal reduction in operating expenses and would therefore negatively impact operating profitability. From time to time we enter into foreign exchange forward sale contracts to hedge against fluctuations in the exchange rates of the principal foreign currencies in which our receivables are denominated (in particular, the U.S. dollar and the Japanese yen), but there can be no assurance that such hedging activities will limit the effect of movements in exchange rates on our results of operations. As of December 31, 2017,2020, we had no outstanding hedging instruments. In addition, since any dividends that we may declare will be denominated in euro, exchange rate fluctuations will affect the U.S. dollar equivalent of any dividends received by holders of ADSs. For more information concerning our exchange rate exposure, see Item 11. “Quantitative11, “Quantitative and Qualitative Disclosures about Market Risk.”
Our results of operations have fluctuated significantly from quarter to quarter in the past and may continue to do so in the future.
future, as we experience long and variable product sales cycles which are long and seasonal and are partly dependent on access to sufficient lease financing
Our results of operations have fluctuated in the past and are expected to continue to fluctuate significantly from quarter to quarter depending upon numerous factors, including, but not limited to, the timing and results of clinical trials, changes in healthcare reimbursement policies, cyclicality of demand for our products, changes in pricing policies by us or our competitors, new product announcements by us or our competitors, customer order deferrals in anticipation of new or enhanced products offered by us or our competitors, product quality problems and exchange rate fluctuations. Furthermore, because our main products have relatively high unit prices, the amount and timing of individual orders can have a substantial effect on our results of operations in any given quarter.
Our resultsThe sales cycle of operations and financial condition could be adversely affected by the adverse economic, geo-political and financial developments.
The current geo-political, economic and financial environment has affected the level of public and private spending in thehealthcaresector generally. A cautious or negative outlook may causeour products is lengthy as our products are high value capital items for our customers that purchase generally requires the approval of management or Boards of hospitals, purchasing groups and government authorities if applicable. In addition, some sales are subject to furtherpublic tender offer processes and approvals which could happen to be lengthy and as a result, hospitals may delay or cancel investment in medical equipment, which would adversely affecttheir purchase orders according to their timelines and budget allocation. It is difficult to predict the exact timing for closing product sales directly linked to the length of capital expenditure cycles. Historically, our revenues.
sales of products have tended to be stronger during the fourth quarter of each fiscal year.
In addition, we rely on the credit market to secure dedicated lease financings to fund the development of our RPPRevenue-Per-Procedure (“RPP”) business model related to the sale of treatments’ procedures.Due to the limited availability of lending, we may be unable to accesssufficientlease financing. Without lease financing, we may be unable to continue the development of our RPP model or we may need to fund such activity out ofour existing working capital. Similarly, some of our clients rely on lease financing to finance their purchases of equipment.Limited availability of lease financing facilities mayalso affect their purchasing decisions and may adversely impact our equipment sales.
The issuance of ADSs upon exercise of outstanding warrants will cause immediate and substantial dilution to our existing shareholders.
The issuance of ADSs upon exercise of the warrants issued in May 2013 (the “May 2013 Warrants”) and in April 2016 (the “April 2016 Warrants”) will result in dilution of other shareholders since the selling shareholders may ultimately sell the full amount of ADSs issuable on exercise. Based on the total number of outstanding warrants as of April 2, 2018, and on the total number outstanding options to subscribe to new shares, up to 5,870,784 ADSs are issuable upon exercise, representing approximately 20.3% of our issued and outstanding share capital. Although no single warrant holder may exercise its Warrants if such exercise would cause it to own more than 9.99% of our outstanding ordinary shares, this restriction does not prevent each holder from exercising a portion of its holdings and selling those securities. In this way, each holder could sell more than this limit while never holding more than such limit.
On April 22, 2014, we filed a Form F-3 registration statement with the SEC to register ordinary shares and warrants for a maximum amount of $50 million, hence providing for registration of any future new ordinary shares issued for the purpose of raising capital. This registration statement was declared effective by the SEC on May 5, 2014. We issued and registered shares under this registration statement on June 2, 2014 and on April 14, 2016, although we did not offer the maximum amount registered under this registration statement.
The sale of ADSs issued upon exercise of outstanding warrants could encourage short sales by third parties which could further depress the price of our ADSs.
Any downward pressure on the price of ADSs caused by the sale of ADS issued upon the exercise of the outstanding warrants could encourage short sales by third parties. In a short sale, a prospective seller borrows shares from a shareholder or broker and sells the borrowed shares. The prospective seller hopes that the share price will decline, at which time the seller can purchase shares at a lower price for delivery back to the lender. The seller profits when the share price declines because it is purchasing shares at a price lower than the sale price of the borrowed shares. Such sales could place downward pressure on the price of our ADSs by increasing the number of ADSs being sold, which could further contribute to any declinehad in the market price of our ADSs.
We havepast identified a material weaknessweaknesses in our internal controls over financial reporting, which are now fully remediated; however, we may, in the future, identify additional material weaknesses and if we fail to remediate thisadequately these material weaknessweaknesses and achieve an effective system of internal controls, we may not be able to report our financial results accurately. In addition, the trading price of our securities may be adversely affected by a related negative market reaction
reaction.
As a publicly traded company, we are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002. We have incurred, and expect to continue to incur, significant continuing costs, including accounting fees and staffing costs, to maintain compliance with the internal control requirements of the Sarbanes-Oxley Act of 2002. As described in Item 15, we have identified a material weakness inof December 31, 2020, based on its assessment of our internal control, over financial reporting with respect to the insufficient segregation of duties within the consolidation process directly linked to the limited size of our finance team. Our management has concluded that as a result, our internal control over financial reporting was not effective as of December 31, 2017. Nevertheless, we have concludedand that thisthe material weakness did not resultreported in a material misstatement of the consolidated financial statementsour annual report for the year ended December 31, 2017 or restatement2019, was fully remediated. During the course of any prior period previously reported by2020, the Company
Although we plan implemented a formal “Ticketing tool” in order to initiate remediation actionsstrengthen the change management process and documentation. The
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Company also strengthened its IT team to addressensure a better segregation of duties upon IT changes implementation. The Company therefore consider that this material weakness has been remediated as a small company,of December 31, 2020.
We may in the future identify new material weaknesses in our internal control and we may have insufficient personnelnot be able to allow us to segregate duties, and consistently execute the Company’s internal controls.
fully remediate these material weaknesses. Furthermore, the ongoing requirements of the Sarbanes-Oxley Act may place a strain on our systems and resources. Our management is required to evaluate the effectiveness of our internal control over financial reporting as of each year-end, and we are required to disclose management’s assessment of the effectiveness of our internal control over financial reporting, including any material weakness in our internal control over financial reporting.
Our internal control over financial reporting has been designed to provide our management and Board of Directors with reasonable assurance regarding the preparation and fair presentation of our consolidated financial statements. On an on-going basis, we are reviewing, documenting and testing our internal control procedures. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, and as our business develop,develops, additional resources and management oversight may be required.
In an effort to remediate the identified material weakness and to enhance our overall control environment, we plan to initiate, the following actions: hiring of a person who will be responsible for the consolidation process, so that our Chief Financial Officer can be the preliminary person responsible for performing the review control. As a small business, we may not be in a position to have that person to be hired and operational before the 2018-year end and may decide to engage a third party financial firm in the interim period to enhance segregation of duties and to help assemble robust documentation.
Any failure to complete our assessment of our internal control over financial reporting, to remediate any material weaknesses that we have identified or may identify in the future, any failure to implement new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any failure to maintain adequate internal controls over financial reporting and provide accurate financial statements may subject us to litigation, render future financings more difficult or expensive, and could cause the trading price of our common stock to decrease substantially. Inferior controls and procedures could cause investors to lose confidence in our reported financial information, which may give rise to a class action and have a negative effect on the trading price of our common stock. Any such failure could also adversely affect the results of the periodic management evaluations of our internal controls and, in the case of a failure to remediate any material weaknesses that we have identified or may identify in the future, would adversely affect the annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act.
Risks Relating to Ownership of Securities
Our securities may be affected by volume fluctuations, and may fluctuate significantly in price, causing you to lose some or all of your investment.
Our ADSs are currently traded on theThe NASDAQ Global Market. The average daily trading volume of our ADSs in 20172020 was 63,553,107,764, the high and low bid price of our ADSs for the last two financial years ended on December 31, 20172020 and December 31, 2016,2019, was $3.85$5.28 and $2.25,$1.46, and $4.80$5.42 and $2.43,$1.78, respectively. Our ADSs have experienced, and are likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our ADSs without regard to our operating performance. For example, average daily trading volume of our ADSs in December 20162019 was 40,560120,648 as opposed to 61,031126,839 for the same period of 2017.2020. The price of our securities and our ADSs in particular, may fluctuate as a result of a variety of factors, including changes in our business, operations and prospects, and factors beyond our control, including regulatory considerations, results of clinical trials of our products or those of our competitors, developments in patents and other proprietary rights, and general market and economic conditions.
conditions and results of operations being below analysts’ or investors’ expectations. Any downward pressure on the price of ADSs caused by the sale of ADS’s could also encourage short sales by third parties. In a short sale, a prospective seller borrows shares from a shareholder or broker and sells the borrowed shares. The prospective seller hopes that the share price will decline, at which time the seller can purchase shares at a lower price for delivery back to the lender. The seller profits when the share price declines because it is purchasing shares at a price lower than the sale price of the borrowed shares. Such sales could place downward pressure on the price of our ADSs by increasing the number of ADSs being sold, which could further contribute to any decline in the market price of our ADSs.
These broad market and industry factors may adversely affect the market price of our ADSs, regardless of our operating performance. If you invest in our ADSs, you could lose some or all of your investment.
In addition, following periods of volatility in the market price of a company'scompany’s securities, securities class action litigation has often been instituted. We are currently the subject of such litigation, and such litigation, regardless of its outcome, and anyAny additional litigation, if instituted, causes and could cause us to incur substantial costs and our management resources are and could be diverted to defending such litigation, which could adversely affect our financial condition or results of operations.
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We may issue additional securities that may be dilutive to our existing shareholders.
On February 18, 2016, our shareholders adopted a resolution allowing the BoardTable of Directors to issue 1 million new shares under the form of subscription options to motivate and reward teams dedicated to successfully implement our U.S. and worldwide expansion plans. As of April 2, 2018, the maximum number of shares available to be issued was 165,000.Contents
The issuance of additional ordinary shares, including any additional ordinary shares issuable pursuant to the exercise of preferential subscription rights that may not be available to all of our shareholders, would reduce the proportionate ownership and voting power of the then-existing shareholders.
We are subject to different corporate disclosure standards that may limit the information available to holders of our ADSs.
As a foreign private issuer, we are not required to comply with the notice and disclosure requirements under the Exchange Act relating to the solicitation of proxies for shareholder meetings. Although we are subject to the periodic reporting requirements of the Exchange Act, the periodic disclosure required of foreign private issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers. Therefore, there may be less publicly available information about us than is regularly published by or about other public companies in the United States.
We currently do not intend to pay dividends, and cannot assure shareholders that we will make dividend payments in the future.
We have never paid any dividend on our shares and do not anticipate paying any dividends for the foreseeable future. Thereafter, declaration of dividends on our shares will depend upon, among other things, future earnings, if any, the operating and financial condition of our business, our capital requirements, general business conditions and such other factors as our Board of Directors deems relevant. See Item 8, “Financial Information—Dividends and Dividend Policy.”
Judgments of U.S. courts, including those predicated on the civil liability provisions of the federal securities laws of the United States, may not be enforceable in French courts.
An investor in the United States may find it difficult to:
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Holders of ADSs have fewer rights than shareholders and must act through the Depositary to exercise those rights.
Holders of ADSs do not have the same rights as shareholders and accordingly, cannot exercise rights of shareholders against us. The Bank of New York Mellon, as Depositary (the “Depositary”), is the registered shareholder of the deposited shares underlying the ADSs, and therefore holders of ADSs will generally have to exercise the rights attached to those shares through the Depositary. We have used and will continue to use reasonable efforts to request that the Depositary notify the holders of ADSs of upcoming votes and ask for voting instructions from them. If a holder fails to return a voting instruction card to the Depositary by the date established by it for receipt of such voting instructions, or if the Depositary receives an improperly completed or blank voting instruction card, or if the voting instructions included in the voting instruction card are illegible or unclear, then such holder will be deemed to have instructed the Depositary to vote its shares and the Depositary shall vote such shares in favor of any resolution proposed or approved by our Board of Directors and against any resolution not so proposed or approved.
Preferential subscription rights may not be available for U.S. persons.
Under French law, shareholders have preferential rights to subscribe for cash issuances of new shares or other securities giving rights to acquire additional shares on apro rata basis. U.S. holders of our securities may not be able to exercise preferential subscription rights for their shares unless a registration statement under the Securities Act is effective with respect to such rights or an exemption from the registration requirements imposed by the Securities Act is available. We may, from time to time, issue new shares or other securities giving rights to acquire additional shares (such as warrants) at a time when no registration statement is in effect and no Securities Act exemption is available. If so, U.S. holders of our securities will be unable to exercise their preferential rights and their interests will be diluted. We are under no obligation to file any registration statement in connection with any issuance of new shares or other securities.
For holders of ADSs, the Depositary may make these rights or other distributions available to holders after we instruct it to do so and provide it with evidence that it is legal to do so. If we fail to do this and the Depositary determines that it is impractical to sell the rights, it may allow these rights to lapse. In that case, the holders of ADSs will receive no value for them.
Holders of our ADSs may be exposed to increased transaction costs as a result of proposed European financial transaction taxes.
On February 14, 2013, the EU Commission adopted a proposal for a Council Directive (the "Draft Directive") on a common financial transaction tax (the "FTT"). According to the Draft Directive, the FTT should have been implemented and should have entered into effect in 10 EU Member States (Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Spain, Slovakia, and Slovenia, each a “Participating Member State”). In March of 2016, Estonia indicated its withdrawal from enhanced cooperation. In February 2021, the Portuguese Presidency of the Council proposed an inclusive discussion among all Member States on tax design issues of the FTT at the EU level.
Pursuant to the Draft Directive, the FTT was to be payable on financial transactions provided at least one party to the financial transaction was established or deemed established in a Participating Member State and there was a financial institution established or deemed established in a Participating Member State which was a party to the financial transaction, or was acting in the name of a party to the transaction.Under the Draft Directive, the FTT should not have applied, however, to (inter alia) primary market transactions referred to in Article 5(c) of Regulation (EC) No 1287/2006, including the activity of underwriting and subsequent allocation of financial instruments in the framework of their issue. The rates of the FTT were to be fixed by each Participating Member State but for transactions involving financial instruments other than derivatives would have amounted to at least 0.1 per cent0.1% of the taxable amount. The taxable amount for such transactions would have been generally determined by reference to the consideration paid or owed in return for the transfer.The FTT would have been payable by each financial institution established or deemed established in a Participating Member State which was either a party to the financial transaction, or acting in the name of a party to the transaction or where the transaction had been carried out on its account. Where the FTT due had not been paid within the applicable time limits, each party to a financial transaction, including persons other than financial institutions, would have become jointly and severally liable for the payment of the FTT due.
The Draft Directive has not been adopted. Following Estonia's withdrawal, a proposal combining a broader scope and lower rates, as well as several specific rules, is currently being discussed between the ten other Participating Member States.
Prospective holders should therefore note, in particular, that any sale, purchase, or exchange of the Shares or ADSs could become subject to the FTT at a minimum rate of 0.1 per cent. The holder may be liable to itself pay this charge or reimburse a financial institution for the charge, and / or may affect the value of the Shares or ADSs.
The FTT proposal is still subject to negotiation between the Participating Member States and therefore may be changed at any time. In this respect, a new FTT proposal was submitted in December 2019. Under this new proposal, the FTT would be imposed at a 0.2% rate on the purchase of shares in domestically listed companies with a market capitalization in excess of €1.0 billion, and would also apply to depositary receipts issued domestically and abroad and which are backed by shares in these companies.
Moreover, once a final agreement on such FTT proposal will be reached (the "FTT Directive"), it will need to be implemented into the respective domestic laws of the Participating Member States and the domestic provisions implementing the FTT Directive might deviate from the FTT Directive itself. See Item 10, "Certain"Additional Information—Certain Income Tax Considerations."
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Prospective holders should therefore note, in particular, that any sale, purchase, or exchange of the Shares or ADSs could become subject to the FTT at a minimum rate of 0.1%. The holder may be liable to itself pay this charge or reimburse a financial institution for the charge, and / or may affect the value of the Shares or ADSs.
In any case, prospective holders should consult their own advisers in relation to the consequences of the FTT associated with subscribing for, purchasing, holding and disposing of ADSs.
Our investors may not realize the potential benefits of inspections under the PCAOB’s cooperative arrangement until a new cooperative arrangement with the French audit authority is entered into and inspections in France resume.
Our auditor, KPMG S.A., is registered with the Public Company Accounting Oversight Board, or PCAOB, in the United States. The PCAOB’s cooperative arrangement with the French audit authority expired in December 2019. The expiration of this cooperation arrangement prevents inspections of registered firms in France until a new arrangement is concluded. Such inspections assess a registered firm’s compliance with U.S. law and professional standards in connection with the performance of audits of financial statements filed with the SEC. As a result, our investors may not realize the potential benefits of such inspections until a new cooperative arrangement, which is currently under negotiation, is entered into and inspections in France resume. The current inability of the PCAOB to conduct inspections of auditors in France also makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside France that are subject to PCAOB inspections.
General Risks Factors
Our results of operations and financial condition could be adversely affected by the adverse economic, geo-political and financial developments.
The current geo-political, economic and financial environment, and particularly the COVID-19 pandemic, has significantly impacted the global, worldwide economies and has affected the level of public and private spending in the healthcare sector generally. A cautious or negative outlook or a COVID-19 crisis which lasts may cause our customers to further delay or cancel investment in medical equipment, which would adversely affect our revenues. See “-- Worldwide contagious, epidemic diseases may impact our international activities and could have a material adverse effect on our business, results of operations and financial condition.”
We may issue additional securities that may be dilutive to our existing shareholders, in view of funding our new developments and accelerating our business expansion.
On June 28, 2019, our shareholders adopted resolutions allowing the Board of Directors to issue new shares in an aggregate maximum amount of 10 million shares in order to meet any fundraising opportunities that may be necessary to finance the Company’s development, which can be used to finance the acceleration of the roll out of our HIFU activities in the United States, given the CPT Code Category 1 approval for HIFU technology that was confirmed for execution in January 2021. On June 30, 2020, some of these financing resolutions were extended as they came to expiration. On June 28, 2019, our shareholders also adopted a resolution allowing the Board of Directors to issue 1 million new shares under the form of subscription options to motivate and reward the management teams dedicated to successfully implementing our U.S. and worldwide expansion plans. As of December 31, 2020, no additional shares were issued nor options allocated as authorized under the above Plan.
The issuance of additional ordinary shares, including any additional ordinary shares issuable pursuant to the exercise of preferential subscription rights that may not be available to all of our shareholders, would reduce the proportionate ownership and voting power of the then-existing shareholders.
We are subject to different corporate disclosure standards that may limit the information available to holders of our ADSs.
As a foreign private issuer, we are not required to comply with the notice and disclosure requirements under the Exchange Act relating to the solicitation of proxies for shareholder meetings. Although we are subject to the periodic reporting requirements of the Exchange Act, the periodic disclosure required of foreign private issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers. Therefore, there may be less publicly available information about us than is regularly published by or about other public companies in the United States.
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Judgments of U.S. courts, including those predicated on the civil liability provisions of the federal securities laws of the United States, may not be enforceable in French courts.
An investor in the United States may find it difficult to:
We may in the future be the target of securities class action or other litigation, which could be costly and time consuming to defend.
In the past, securities class action litigation has often been brought against companies following a decline in the market price of its securities. This risk is especially relevant for us because innovative life sciences and medical device companies have experienced significant stock price volatility in recent years.
Any litigation, if instituted, could cause us to incur substantial costs and our management resources may be diverted to defending such litigation, which could adversely affect our financial condition or results of operations.
We are exposed to risks related to cybersecurity threats and incidents.
In the conduct of our business, we collect, use, transmit and store data on information technology systems. This data includes confidential information belonging to us, our customers and other business partners, as well as personally identifiable information of individuals. We also store data related to our clinical trials on our information technology systems. We also rely in part on the reliability of certain tested third parties’ cybersecurity measures, including firewalls, virus solutions and backup solutions. Cybersecurity incidents, such as breaches of data security, disruptions of information technology systems and cyber threats, may result in business disruption, the misappropriation, corruption or loss of confidential information and critical data (ours or that of third parties), reputational damage, litigation with third parties, diminution in the value of our investment in research and development, data privacy issues and increased cybersecurity protection and remediation costs. Like many companies, we may experience certain of these incidents given that the external cyber-attack threat continues to grow in part due to a perceived increased vulnerability associated with current remote working conditions. As of the date of this annual report, we have received fraudulent invoices, purportedly from our suppliers, submitted to us using fraudulent email addresses and have made payments in connection with two such fraudulent invoices. While we have protocols in place to protect against such fraudulent transfers, we may fail to identify fraudulent payment requests that we may receive in the future and may inadvertently provide payment in connection with such requests, which may have a material adverse effect on our business, financial condition or results of operations.
We devote significant resources to network security, data encryption and other measures to protect our systems and data from unauthorized access or misuse, including meeting certain information security standards that may be required by our customers, all of which increases cybersecurity protection costs. As these threats and incidents, and government and regulatory oversight of associated risks, continue to grow, we may be required to expend additional resources to enhance or expand upon the security measures we currently maintain.
There can be no assurance that our efforts or those of our third-party service providers to implement adequate security and control measures would be sufficient to protect against breakdowns, service disruption, data deterioration or loss in the event of a system malfunction, or prevent data from being stolen or corrupted in the event of a cyber-attack, security breach, industrial espionage attacks or insider threat attacks which could result in financial, legal, business or reputational harm. Future cybersecurity breaches or incidents or further increases in cybersecurity protection costs may have a material adverse effect on our business, financial condition or results of operations.
The expansion of social media platforms and new technologies present risks and challenges for our business and reputation.
We increasingly rely on social media and new technologies to communicate about our products and technologies. The use of these media requires specific attention. Unauthorized communications, such as press releases or posts on social media, purported to be issued by the Company, may contain information that is false or otherwise damaging and could have an adverse impact on our stock price. Negative or inaccurate posts or comments about the Company, our business, directors or officers on any social networking website could seriously damage our reputation. In addition, our employees and partners may use social media and mobile technologies inappropriately, which may give rise to liability for the Company, or which could lead to breaches of data security, loss of trade secrets
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or other intellectual property or public disclosure of sensitive information, including information about our employees, clinical trials or customers. Such uses of social media, mobile technologies, or information technology more generally could have a material adverse effect on our reputation, business, financial condition and results of operations.
Item 4. Information on the Company
We develop and market the Ablatherm and Focal Onerobotic HIFU devices, advanced choices for HIFUthe treatment of localized prostate cancer. HIFU treatment is shown to be a minimally invasive and effective treatment option for localized prostate cancer (T1-T2) with a low occurrence of side effects. Ablatherm is generally recommended for patients with localized prostate cancer (stages T1-T2) who are not candidates for surgery or who prefer an alternative option. Focal One is a robot assisted HIFU device dedicated to the focal treatment of prostate cancer. BothOur HIFU devices are also used for patients who failed a radiotherapy treatment. In addition, we are developing a HIFU platform for the treatment of various types of tumors including rectal endometriosis, liver and pancreatic cancer, but also breast and gynecological tumors.cancer. We also produce and commercialize medical equipment for the treatment of urinary tract stones using ESWL and distribute other types of urology devices in certain countries.
History and Development of the Company
Our legal name is EDAP TMS S.A. and our commercial name is EDAP TMS. EDAP TMS S.A. was incorporated on December 3, 1979 as asociété anonyme organized under the laws of the Republic of France for a duration of 60 years from the date of incorporation. Our principal executive offices are located at Parc d’Activités la Poudrette- Lamartine, 4/6, rue du Dauphiné, 69120 Vaulx-en-Velin, France and our telephone number is +33 (0) 4 72 15 31 50. Corporation Service Company, 1090 Vermont Avenue, Suite 430, Washington, D.C. 20005,251 Little Falls Drive, Wilmington, DE19808-1674, United States, is our agent for service of process in the United States.
Founded in 1979, we originally specialized in The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding the manufacturing and distribution of lithotripters (devices which use shockwaves to disintegrate urinary calculi) and produced the first piezoelectric lithotripter (using electric shocks produced by a piezo-component) in 1985. In 1994, we acquired most of the assets of Technomed International S.A. (‘‘Technomed’’) out of liquidation, including the ownership of, and full distribution rights to, the Prostatron, the Sonolith series of lithotripters (Sonolith Praktis, Sonolith Vision) and the Ablatherm device.
On January 31, 2013, we submitted our PMA application to the FDA for our Ablatherm HIFU device for treatment of low risk, localized prostate cancer. Our submission included data from the ENLIGHT U.S. Phase II/III clinical trial, as well as data from our extensive worldwide database of treatment information and follow-up data from patients who have undergone HIFU therapy for prostate cancer. On June 3, 2013 we held our 100-day meetingCompany’s electronic filings with the FDA to discuss our PMA file and address questions and requests fromSEC. Such electronic filings can be found by visiting the FDA reviewing team.
On May 28, 2013, we issued 3,000,000 ordinary shares inSEC web site at http://www.sec.gov or the form of ADSs to certain institutional investors in a registered direct placement (the “May 2013 Placement”),Company’s web site at a price of $4.00 per share, with warrants attached that allow investors to purchase up to 1,500,000 shares in the form of ADSs, at an exercise price of $4.25 per share. We also issued warrants to purchase up to 180,000 shares to the placement agent, HC Wainwright and Co. LLC, at an exercise price of $5.00 per share. Following our May 2013 Placement, on June 14, 2013, we fully redeemed our $8.0 million outstanding long-term debt by using a portion of the net proceeds from the $12.0 million May 2013 Placement.
http://www.edap-tms.com, section “Investor Relations”.
On June 2, 2014, we issued 3,000,000 ordinary shares in the form of ADSs to certain institutional investors in a registered direct placement (the “June 2014 Placement”), at a price of $3.11 per share.
On March 9, 2015, we announced that based on our collaborative discussions with the FDA, we planned to seek clearance of Ablatherm HIFU by way of a direct de novo 510(k) application as opposed to the PMA application amendment we had been considering. The FDA indicated that while PMA approval would be required for specific claims regarding treatment of prostate cancer, a prostate tissue ablation claim could be cleared via a direct de novo 510(k) application.
On October 15, 2015, we announced the withdrawal of our de novo application and the submission of a 510(k) notice, in accordance with the FDA guidelines, following the FDA clearance of the Sonablate 450 for prostatic tissue ablation using HIFU.
On November 9, 2015, we announced the receipt of 510(k) clearance from the FDA to market Ablatherm Integrated Imaging HIFU in the U.S. for the ablation of prostate tissue.
On April 6, 2016, we submitted a 510(k) application for FDA clearance of our Focal One HIFU device.
On April 14, 2016, we issued 3,283,284 ordinary shares in the form of ADSs to certain institutional investors in a registered direct placement (the “April 2016 Placement”), at a price of $3.50 per share, with warrants attached that allow investors to purchase up to 3,283,284 shares in the form of ADSs, at an exercise price of $4.50 per share.
On July 17, 2017, we had to withdraw the 510(k) application for our Focal One HIFU device in order to submit a new file including new clinical data to support our file, which we did on September 11, 2017, in accordance with FDA guidance. Our new 510(k) file is still under FDA review.
On October 4, 2017,7, 2018, we obtained FDA clearance for our Ablatherm FusionFocal One device whichdedicated to the focal ablation of prostate tissue. It incorporates our proprietary fusion software, which merges MRI and ultrasound images, providing increased accuracy during planning and prostate treatment for physicians.
In May 2020, we signed an exclusive worldwide agreement with Exact Imaging to distribute their diagnostic micro ultrasound technologies. Their lead product, ExactVuTM, delivers diagnostic accuracy similar to MRI in identifying prostate cancer and supports real-time imaging for the prostate. The combination of ExactVu with our Focal One HIFU soft tissue ablation technology represents what we believe to be the most complete end-to-end solution for the focal management of prostate cancer.
In May 2020, we also initiated a strategic shift after an extensive review of our different businesses, including HIFU, ESWL and Distribution activities. We have decided to strengthen and refocus our development efforts towards HIFU for both prostate application and beyond and hence, to realign our activities and report our financial results in three segments: HIFU, ESWL and Distribution.
In July 2020, we received clearance from French health authorities to initiate a Phase II multi-centric clinical trial evaluating Focal One for the treatment of deep invasive rectal endometriosis. This is a truly debilitating condition for women suffering from this pathology, which is responsible for a significant decline in quality of life. We enrolled our first female subjects in September 2020 and enrollment is proceeding as planned.
Finally, in January 2021, U.S. CPT Code Category 1 reimbursement for HIFU became effective. CMS established, for the first time, a Category 1 CPT code including reimbursement to physicians performing ablation of malignant prostate tissue with HIFU in the United States.
Additional information regarding the principal capital expenditures and divestitures can be found in Item 5, ‘‘Operating and Financial Review and Prospects’’.
Business Overview & Strategy
EDAP TMS S.A. is a holding company and is responsible for providing common services to its subsidiaries, including preparation and consolidation of the financial statements for the group, complying with the requirements of various regulatory agencies and maintaining the listing of its publicly held securities and, in conjunction with its Board of Directors, directing the overall strategy of our group.
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We recently implemented organizational changes in our structure and realigned our activity is organized in twointo three divisions: HIFU, and UDSESWL (including lithotripsy activities). and Distribution to better reflect how we view our businesses and how we measure our progress. Through these twothree divisions, we develop, produce, market and marketdistribute minimally invasive medical devices, mainly for urological diseases. The HIFU division includes sales of Focal One, Ablatherm and related consumables and services, the ESWL division includes revenues generated by the existing installed base of Sonolith range of lithotripters and, the Distribution division includes the sale of complementary products such as lasers, micro-ultrasound systems and other products from third parties.
We believe that these three divisions will help to better support the creationexpansion of these two divisions has allowed usour HIFU development and sales activities as well as to expandmaximize the potential of our market share by optimizing worldwide distribution capabilities, all of which is coordinated through our subsidiaries.
Distribution activities.
Our HIFU and UDSthree divisions operate in Europe, the Americas, Asia and the rest of the world. Total net sales for the HIFU division (in net contributions to total consolidated sales) were €9.5€11.4 million, €13.8€14.1 million and €8.4€11.0 million for 2017, 20162020, 2019 and 2015,2018, respectively. Those sales are generated in Europe, the United States and the rest of the world, excluding certain countries in Asia, (including Japan)such as Japan, where our HIFU devices are not approved yet. Total net sales for the UDSESWL division were €26.2€12.9 million (including €13.4€6.7 million in Asia and €12.8€6.2 million in Europe and the rest of the world), €21.8€14.1 million (including €7.1 million in Asia and €7.0 million in Europe and the rest of the world),) and €14.5 million (including €6.1 million in Asia and €8.3 million in Europe and the rest of the world),, each for 2020, 2019 and 2018, respectively. Total net sales for the Distribution division were €17.3 million (including €9.0 million in Asia and €8.3 million in Europe and the rest of the world), €16.6 million (including €10.3 million in Asia and €11.5€6.3 million in Europe and the rest of the world), and €23.8€13.7 million (including €10.7€7.8 million in Asia and €13.0€5.9 million in Europe and the rest of the world), each for 2017, 20162020, 2019 and 2015,2018, respectively.
See Note 2729 to our consolidated financial statements for a breakdown of total sales and revenue during the past three fiscal years by operating division and Item 5, “Operating“Operating and Financial Review and Prospects.”
HIFU Division
The HIFU division is engaged in the development, manufacturing and marketing of robotic medical devices based on HIFU technology for the minimally invasive treatment of urological and other clinical indications. Our HIFU business is quite cyclical and generally linked to lengthy hospital decision and investment processes. Hence, our quarterly revenues are often impacted and fluctuate according to these parameters, generally resulting in a higher purchasing activity in the last quarter of the year. The HIFU divisioncontributed €9.5€11.4 million to our consolidated net sales during the fiscal year ended December 31, 2017.2020.
HIFU Division Business Overview
The HIFU division currently develops, manufactures and markets robotic devices for the minimally invasive destructionablation of certain types of localized tumors using HIFU technology. HIFU technology uses a high-intensity convergent ultrasound beam generated by high power transducers to produce heat. HIFU technology is intended to allow the surgeon to destroy a well-defined area of diseased tissue without damaging surrounding tissue and organs, thereby eliminating the need for incisions, transfusions and general anesthesia and associated complications. The HIFU Divisiondivision markets three HIFU devices: the Ablatherm, the Ablatherm Fusion and the Focal One. The Ablatherm and Ablatherm Fusion are dedicated todirected at prostate tissue ablation in the treatment of localized organ-confined prostate cancer, referred to as T1-T2 stage. The Focal One high-end device is a HIFU fully robotic device fullyfor prostate tissue ablation dedicated to the focal therapy of localized prostate cancer of T1-T2 stage, thereby destroying targeted cancer cells only. The robotic features of our HIFU devices make the treatment procedure safer for the patient and less operator dependent. All three devices can be used for patients who are not candidates for surgery or who have failed a radiotherapy treatment.
In addition to selling HIFU devices, the HIFU division also records revenues driven from HIFU treatments performance (“HIFU Treatment Driven Revenues”) which include net sales of (i) consumables,disposables, (ii) leases (iii) revenue-per-procedure (“RPP”) and (iv) treatment related services. TheWe offer a HIFU mobile treatment option, which provides access to our HIFU devices without requiring hospitals and clinics to make an up-front investment in the equipment. Instead, hospitals and clinics perform treatments using these devices and remunerate us on a RPP basis (i.e., on the basis of the number of individual treatments provided). With this model, once the treatment is established in the medical community, a permanent installation may become more attractive, leading to the sale of the device in some of the larger locations.
In addition, the HIFU division also generates revenues from net sales of maintenance services associated to our installed HIFU devices installed base.devices. As of December 31, 2017,2020, the HIFU division had an active installed base of 108 Ablatherm machines, 25122 HIFU devices of which 61 Focal One machines and 476 certified trained clinical sites worldwide had access to this technology.machines.
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HIFU Division Business Strategy
The HIFU division’s business strategy is to capitalize on its expertise in HIFU and its position in urology to achieve long-term growth as a leader in the development, manufacturing, marketing and distribution of minimally invasive medical devices for urological and other indications, using HIFU technology, while preserving patient quality of life. The HIFU division believes that minimally invasive treatments using HIFU could provide an alternative to current invasive therapies on the basis of reduced cost and reduced morbidity for a number of different indications. The key elements of the HIFU division’s strategy to achieve that objective are:
Provide Minimally Invasive Solutions to Treat Localized Prostate Cancer using HIFU. Building upon our established position in the |
Achieve Long-Term Growth by Expanding HIFU Applications Beyond Prostate Cancer. The HIFU division’s long-term growth strategy is to apply our HIFU technology |
HIFU Products
Currently, we commercialize twothree products utilizing the HIFU technology. For both HIFU products, cellCell destruction by HIFU is accomplished by a combination of thermal and cavitation effects caused by focused application of piezoelectric-generated high-intensity ultrasound; HIFU procedures are performed under general or spinal anesthesia.
The Ablatherm is an ultrasound guided robotic HIFU device for ablation of prostate tissue and is used in the treatment of organ-confined prostate cancer. It consists of a treatment module, including a HIFU endorectal probe, a control table with a computer and a computer screen, and a diagnostic ultrasound device connected to the treatment module. After insertion of an endorectal probe, the physician visualizes the prostate using ultrasound imaging and defines the area to be treated. The computer automatically calculates the optimum treatment distribution of lesions. During the treatment, the probe automatically moves and fires HIFU beams at each predefined lesion until the entire targeted area has been treated. At the same time, the physician is able to control and visualize the treatment in real time due to the integrated imaging system. |
Ablatherm Fusion is an evolution of Ablatherm, and incorporates the Company’s proprietary fusion software which merges MRI and ultrasound images providing physicians with increased accuracy during planning and | ||
The Focal One is a HIFU fully robotic device |
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feedback on treatment efficacy utilizing Contrast-Enhanced Ultrasound Imaging. Focal One provides an effective and accurate ablative treatment of localized tumors with the capacities of being flexible and repeatable, while preserving patient quality of life. |
HIFU Division Patents and Intellectual Property
As of December 31, 2017,2020, the HIFU division’s patent portfolio contained 3433 granted owned or co-owned patents consisting of 9eight granted patents in the United States, 2011 patents in the European Union, andeight granted patents in Japan and foursix patents in both Israel and the rest of the world. TheyChina. These patents belong to 1712 groups of patents covering key technologies related to therapeutic ultrasound principles, systems and associated software.
During 2017, three U.S. patents have expired. They covered old endorectal probe design and treatment sequences that were no longer used. Two new patents have been delivered in the US. Both concern specific ultrasound transducer design. The first one allows the formation of large and deep lesions within biological tissue resulting from a toroidal transducer shape and crossing ultrasound beams. The second one covers a transducer consisting of different individual elements with different emitting surfaces in order to compensate acoustical tissue absorption. The latterAdditional owned or co-owned patent has been also delivered in Japan.
Nine additional patentsapplications covering certain other aspects of our HIFU technology, including two patent application in the United States, four patent applications in the European Union, two patent applications in Japan and Japan (five), the United States (two), and the rest of the world (two)two patent applications in China, are currently under review. Onepending before the relevant patent offices. During 2020, one such new patent covering specific transducer coolingapplication was filed in 2017.France, covering a new ultrasound dynamic focusing technology. Our ongoing research and development objectives are to maintain our leadership position in the treatment of prostate cancer and to extend the HIFU technology to new applications and minimally invasive systems. These research projects are conducted in cooperation with the French National Institute for Health and Medical Research (“INSERM”) which givecollaboration gives rise in some cases to the filing of patents,patent applications, followed by the grant of co-owned patents. We have entered into various license agreements with INSERM related to certain patents co-owned with INSERM whereby we commit to pay a fixedan amount of royalties to INSERM based on a fixed rate of the net revenues generated from the sales of HIFU devices using co-owned patents. Under these agreements, which last for the life of each co-owned patent, we have the exclusive right to the commercial use of the co-owned patents, including the right to out-license such commercial rights.
We have an option to obtain an exclusive license from INSERM relating to other patents co-owned with INSERM.
In AugustJuly 2004, we licensed our HIFU technology for the specific treatment of the ‘‘cervicofacial’’ lesions, including the thyroid, to Theraclion, a French company created by our former director of research and development. On January 11,10, 2011, we extended the above license by granting Theraclion exclusivity for the treatment of benign breast tumors and by granting a non-exclusive worldwide license for the treatment of malignant breast tumors. This license agreement provides for the payment of certain royalties calculated on the basis of Theraclion’s sales of devices. We determined that we could not invest in these specific applications at that time and this license agreement therefore allows Theraclion to pursue the development of HIFU for these applications. We own no interest in Theraclion. In December 2012, Theraclion obtained CE Marking for their HIFU device dedicated to the treatment of benign breast tumors.
Although we believe that our HIFU patents are valid and should be enforceable against third parties and that our patent applications should, if successfully pursued, result in the issuance of additional enforceable patents, there can be no assurance that any or all of these patents or patent applications, if issued, will provide effective protection for the HIFU division’s proprietary rights in such technology. HIFU devices, as they are currently or may in the future be designed, may also be subject to claims of infringement of patents owned by third parties, which could result in an adverse effect on our ability to market HIFU systems. See Item 3, “Risk Factors – “Risk Factors—Risks relating to Intellectual Property Rights.”
HIFU Division Clinical and Regulatory Status
Clinical and Regulatory Status in Europe
The HIFU division has conducted an extensive clinical trial for the Ablatherm in the European Union. This trial, the European Multicentric Study, involved a total of 652 patients diagnosed with localized prostate cancer and included six sites in France, Germany and The Netherlands. The primary goals of the trial were to assess the safety and effectiveness of the Ablatherm. An interim analysis performeddevices previously placed on the first 559 patients included 402 patients treatedmarket are maintained for use according to applicable regulation and any new placement of HIFU devices, in Europe or in territory covered by CE Marking, is being addressed with the Ablatherm device as a first-line therapy. Of these patients, 81.4% had a normal PSA and 87.2% had negative biopsies at the last follow-up and were considered cancer free. The trials also included 157 patients who underwent an Ablatherm treatment as a salvage therapy after a previous failed therapy (hormone therapy, radiation or prostatectomy). Of these patients, 80.7% and 67.9% had negative biopsies and normal PSA after treatment, respectively.
Focal One new generation device. Based on theseclinical study results, in May 1999, we obtained a CE Marking that allows us to market the Ablatherm in the European Union.
Clinical and Regulatory Status in France
In 2001, the French Urology Association (‘‘AFU’’) conducted an independent clinical trial to confirm the efficacy and safety results observed in the European Multicentric Study, and to evaluate the therapy-related costs. Patient recruitment was successfully performed at eight investigational sites. Patient enrollment was completed in an 11-month period with 117 patients included. Follow-up with these patients will continue to evaluate the long-term efficacy of the treatment.
In March 2004, we obtained CE Marking, which currently allows us to market Ablatherm for primary care patients and the treatment of patients who failed radiotherapy.
In 2005, a clinical trial was started in France to validate the efficacy and safety of Ablatherm as salvage treatment for patients who did not respond to brachytherapy. This clinical study was successfully completed in 2011 with satisfactory safety and efficacy results. Following the study, in January 2012, we submitted to the European certification body an application for an extension of Ablatherm CE marking addressing brachytherapy failures. Extension was granted in February 2012.
In 2007, a new clinical trial using Ablatherm and dedicated to the treatment of patients with high risk disease who are not candidates for radical surgery because of their age and/or co-morbidities was started in France. This clinical trial was terminated in March 2012 due to low patient enrollment.
Also in 2007, a clinical trial to evaluate the utility of Contrast-Enhanced UltraSound (“CEUS”) for the early diagnosis of local cancer recurrence after HIFU treatment was started in France. The preliminary results assessed that contrast-enhanced ultrasound is efficient in distinguishing residual viable prostate tissue from ablated tissue after HIFU prostate ablation. This study provides evidence that contrast ultrasound can diagnose early cancer recurrences. In May 2011, preliminary results related to good detection potential of CEUS after HIFU treatment were published by Edouard Herriot Hospital, Lyon, France, in the journalRadiology. Patient follow-up was completed in February 2012. CEUS technology was adopted for use in the new Focal One HIFU device.
In 2009, a new clinical trial was started in France to validate a new strategy of minimally invasive treatment of prostatic adenocarcinomas localized in a single lobe with HIFU. This concept of partial treatment is proposed as an intermediate option between active surveillance and whole prostate treatment. Partial treatment for this trial is hemiablation of the prostate in which a single prostatic lobe (or hemisphere) is ablated using HIFU in patients with prostate cancer that has a low risk of recurrence and for which the imaging and biopsy assessments show a unilateral cancer. The goal of hemiablation is to reduce the complications associated with standard treatments, notably the risks of incontinence and impotence. Final results were published in 2017 in the European Urology journal (Rischmann et al.'Focal High Intensity Focused Ultrasound of Unilateral Localized Prostate Cancer: A Prospective Multicentric Hemiablation Study of 111 Patients', Eur Urol, 71: 267-73). At 1 year follow-up, HIFU-hemiablation was efficient with 95% absence of clinically significant cancer associated with low morbidity and preservation of quality of life (urinary continence was preserved in 97% of patients and sexual function was preserved in 78%). Radical treatment-free survival rate was 89% at 2 years.
In September 2010, a new clinical trial commenced in France and Norway to validate the new strategy of hemi-ablation treatment in radio-recurrent prostate cancer localized in a single lobe. This objective of focal treatment in patients with prostate cancer recurrence after radiotherapy is to reduce the risks of side effects in a very fragile population of patients. This clinical trial had been expanded to include a cohort of 100 patients and to confirm the published preliminary outcomes. Preliminary results from this study were published in the British Journal of Urology International in 2014. A total of 48 patients were enrolled. The study publication concluded that hemispherical salvage HIFU is a feasible therapeutic option in patients with unilateral radio-recurrent prostate cancer, which offers limited urinary and rectal morbidity, and preserves health-related quality of life. The patient recruitment and evaluation of this hemi-ablation treatment in radio-recurrent prostate cancer localized in a single lobe is still ongoing. This study will allow to gather data from a larger population of patients with a good hindsight.
In June 2011, a new clinical trial began in France and then extended to Belgium in 2012 to evaluate the new technical improvements in HIFU technology: the Dynamic Focusing technology. This technology gives the ability to target a more precise area within the prostate making the dynamic focusing technology the perfect tool for focal therapy. It also allows for the treatment of bigger prostates and for a more precise contouring of the gland providing a better control over sensitive areas responsible for continence and sexual functions. As a result, the Dynamic Focusing technology has been incorporated into the new Focal One HIFU device. Based on clinical data obtained with the first 83 treatments as a primary indication and the 14 treatments as a salvage indication, we obtained a CE Mark in June 2013, that allowswhich allowed us to market the Focal One in the European Union. This clinical trial will be completedUnion and in late 2019.
In January 2014, a new clinical trial on multifocal HIFU treatments with theworldwide territories where CE Marking is required. Our current notified body has recently expanded our Focal One device began in France in six investigational centers. The aim of this study is to evaluate the efficacy and safety results of different focal HIFU treatment strategies. Thanks to Focal One technical capacities (Dynamic Focusing technology, elastic fusion of MRI and ultrasound images and Contrast Enhanced Ultrasound treatment validation) many focal treatments approaches are possible allowing for treatment that is individually tailored to the patient’s disease. In January 2015, the last patient was included in the above study, clinical results analysis is currently ongoing and will be published in the coming months.CE certificate until May 2024.
In February 2015, the reimbursement evaluation study of HIFU was initiated under the “Forfait Innovation”. This process, piloted by French Association of Urology (AFU), compares primary whole-gland or sub-total HIFU and salvage whole-gland and focal HIFU results with those of radical prostatectomy in 42 French urological centers. The primary outcome is the salvage treatment free rate at two years. In December 2017, 1,033 patients have been treated in primary setting and 303 patients as salvage indication.
Clinical and Regulatory Status in the United States
In 2005 EDAP started an Investigational Device Exemption (“IDE”) study (G050103) to assess the safety and effectiveness of Ablatherm HIFU in the U.S. for the treatment of low risk, localized prostate cancer. This study was designed as a pivotal study to support PMA approval. This study was planned as a multicentric, prospective, non-randomized, concurrently controlled clinical trial comparing Ablatherm HIFU to cryotherapy in patients with low risk, localized prostate cancer.
Due to accrual difficulties, particularly in the cryosurgery arm, this planned study was not completed. Of the planned 205 patients per arm, 136 and five patients were recruited to the Ablatherm HIFU and cryosurgery arms, respectively.
We completed the treatment of 134 patients in June 2010, the required two years’ follow-up phase was completed in June 2012. Clinical outcomes from these patients combined with our strong European long-term database formed the foundation of our PMA submission to the FDA on January 31, 2013.
On March 9,November 2015, we announced that based on our collaborative discussions with the FDA, we planned to seek clearance of Ablatherm HIFU by way of a direct de novo 510(k) application as opposed to the PMA application amendment we had been considering. The FDA indicated that while PMA approval would be required for specific claims regarding treatment of prostate cancer, a prostate tissue ablation claim could be cleared via a direct de novo 510(k) application.
On October 15, 2015, we announced the withdrawal of our de novo application and the submission of a 510(k) notice, in accordance with the FDA guidelines, following the FDA clearance of the Sonablate 450 for prostatic tissue ablation using HIFU.
On November 9, 2015, we announced the receipt ofreceived 510(k) clearance from the FDA to market Ablatherm® Integrated Imaging HIFU in the U.S. for the ablation of prostate tissue.
In April 2016 EDAP submitted to FDA a 510k application for the clearance of the Focal One HIFU Device.
On July 17,tissue and in October 2017, we had to withdraw the 510(k) application for our Focal One device in order to submit a new file including new clinical data to support our file, which we did on September 11, 2017, in accordance with FDA guidance. Our new 510(k) file is still under FDA review.
On July 31, 2017, the Company submittedwere granted a 510(k) application to the FDA for its Ablatherm Fusion device, which incorporates our proprietary fusion software which merges MRI and ultrasound images, providing increased accuracy during planning and prostate treatment for physicians. On October 4, 2017, we obtained FDA clearance for our Ablatherm Fusion device.
On June 7, 2018, based on Ablatherm clearance and European pre-market and post-market clinical data, we obtained FDA 510(k) clearance for our Focal One device.
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Clinical and Regulatory Status in Japan
In June 2000, the HIFU division applied for approval by the Japanese Ministry of Health for the Ablatherm to be marketed in Japan. We retrieved the application in 2005 to update it and review the process. In December 2016, based on FDA clearance of our Ablatherm HIFU system, wehave initiated discussions with the Japanese authorities (“PMDA”) on the best process to apply forto obtain Japanese approval for our Focal One device. We will need to conduct a clinical trial in Japan to obtain clearance for our HIFU Focal One device. The process of requesting approval to market the Focal One in Japan may be long and may never result in the approval to market the Focal One in Japan. See Item 3, ‘‘Key Information—Risk Factors—Our future revenue growth and income depend, among other things, on the success of our HIFU technology.’’technology” and “— Our clinical trials related to products using HIFU technology may not be successful and we may not be able to obtain regulatory approvals necessary for commercialization of all of our HIFU products.”
Clinical and Regulatory Status in China
On August 2, 2010, we entered into an exclusive distribution agreement with Shaw Han Biomedical Co. Ltd to distribute Ablatherm throughout China, once approvedWe did not obtain marketing clearance of our HIFU devices by Chinese authorities. This agreement involves a two-stage process: Shaw Han will first be responsible for processingauthorities due to lengthy and complex processes. We are currently reviewing our regulatory and market access strategy to address the marketing clearance application with China’s FoodChina market.
Clinical and Drug Administration for Ablatherm, then they will leadRegulatory Status in the marketing and distributionRest of the World
The Ablatherm is cleared for distribution in Australia, Canada, South Korea, Costa Rica, Ecuador, Russia, Taiwan.
The Focal One device is cleared for distribution in China for four years post approval. As of the date of this annual report on Form 20-F, the marketing clearance application is still ongoing with the Chinese authorities.
Saudi Arabia, Argentina, Brazil, Canada, South Korea, Costa Rica, United Arab Emirates, Ecuador, Israel, Malaysia, Mexico, U.K, Russia, Switzerland, Ukraine, Uruguay and Venezuela.
See Item 3, “Risk Factors” – “We“Risk Factors—We operate in a highly regulated industry and our future success depends on government regulatory approval of our products, which we may not receive or which may be delayed for a significant period of time.”
HIFU Clinical DataDevelopments
To date, our clinical Ablatherm results have been published in more than 85 renowned peer-reviewed journals. In 2010, the results of a major multicentric study on 803 patients were published showing a local control of the disease in 77.9% of the patients. In 2013, three long-term studies presenting results obtained over a period of more than 14 years on 538 patients, 704 patients and 1,002 patients were published, showing excellent cancer-specific and metastasis-free survival in primary patients (Ganzer et al. BJU 2013, Thuroff et al. Journal of Urology 2013 and Crouzet et al. European Urology 2013).
In 2014, the first clinical results of focal treatments with Ablatherm were published by Baco et al. in the British Journal of Urology International (“BJUInt”) and Van Velthoven et al. inProstate Cancer magazine. Baco et al. published promising results of hemi-salvage HIFU (treatment of one lobe of the prostate) after External Beam Radiation Therapy (“EBRT”) and brachytherapy recurrences. In this fragile population of patients, the treatment of the infected lobe is reported to provide better functional outcomes and preserves quality of life. A similar approach of HIFU prostate hemi-ablation was presented by Van Velthoven et al. for primary care patients. With a maximum follow-up of 61 months the study showed a rate of 100% full continence and 75% erectile function preservation combined with only 11% of salvage treatment (re-HIFU in the contralateral lobe). Authors concluded primary zonal HIFU is a valid focal therapy strategy which is safe and feasible in a day-to-day practice showing good promising results. This study was updated in 2015 in Prostate Cancer
The clinical study initiated in 2015 within the scope of “Forfait Innovation” (the “HIFI” study) and Prostatic Diseases journal with 50 patients treated with Hemi-HIFU strategy and provided 100% five-year cancer specific survival rate. The functional results included 94% pad free patients and 80% erectile function preservation atpiloted by the end of follow-ups.
We haveset upan extensiveworldwide patient database called "@-registry." This on-line database was designed tocompiletreatmentinformation and follow-up data for patients who have undergone HIFU for prostate cancer. The goal of the @-registry was to further demonstrate the safety, effectiveness and durability of Ablatherm.Information from the registry are submitted to medical conferences for presentation and to peer-reviewed medical journals for publication. Based on more than 10,000 patients included into our @-registry database, we presented at the EuropeanFrench Association of Urology (EAU) held(“AFU”) aimed at evaluating the reimbursement of HIFU in ParisFrance. The patients’ inclusion period closed on September 30, 2019. Patients included in February 2012, an abstract presentation covering 5,662 primarythe HIFI study will be followed for 30 months ahead of data analysis and results publication. During that follow-up period, we will be able to pursue patient treatments using HIFU under the specific Forfait Innovation coverage process, but these patients and an abstract covering 929 patients treated with Ablatherm after radiorecurrence with seven years follow-up that was elected "best poster" bywill not be followed as part of HIFI Study. In November 2020, the scientific committee.Thüroff et alStudy Coordinator presented a posterinterim results at the American Urology Association (AUA) 2014 on the long term HIFU retreatment rate, evaluating 2,632 patients. Thüroff et al concluded that technical development and adjuvant transurethral radical prostatectomy (“TURP”) before HIFU resulted in higher local efficacy and lower HIFU retreatment rates.
In January 2016, Professor Ronald van Velthoven, Head of Urology Department at Institut Bordet Oncology Center, Brussels, Belgium published outcomes of hemiablation HIFU in the journal Prostate Cancer and Prostatic Diseases. With the initial patient treated in early 2007 it is the first prospective study of focal HIFU to enroll patients and had a follow-up of extending to 8 years. The publication reports a 100% cancer specific survival at 5 years, a 97% rate of continence preservation and 80% rate of potency preservation.
AFU annual congress. The results of the French hemiablation study were electronically published ininterim analysis (non-consolidated results) show a significantly better 24-month recurrence-free survival (i.e., the peer-reviewed journal European Urology in October 2016. The study included a totalrate of 110salvage treatment by external beam radiotherapy and/or hormone therapy) for the patients at 10 centers whose prostates were treated with Ablatherm HIFU in which halfcompared to the prostate was ablated. The follow-up of the study was 2 years at which time all patients were required to undergo follow-up biopsy. In the treated side, 5% of subjects had residual or recurrent clinically significant cancer. The survival rate without additional definitive treatment at 24 months was 89%undergoing surgery (p<0.001). UrinaryAdditionally, urinary continence was preserved in 97% of patientssignificantly better and erectile function was preservedsignificantly less impacted for the patients undergoing HIFU compared to those in 78%.
the RP arm.
In December 2016, Professor Roland van Velthoven from Institut Bordet Oncology Center, Brussels, Belgium publishedJuly 2017, we, together with our academic, scientific and clinical partners, initiated a matched pair analysiscollaborative project (the “PERFUSE” project) under the “French National Investment Program for the Future”. The overall objective of HIFU hemiablation vs robotic assisted laparoscopic prostatectomy. In this study, 55 patients with unilateral localizedthe PERFUSE project is two-fold: (i) to set-up several clinical studies to assess focal therapy using the Focal One device in view of a better understanding of focal therapy in prostate cancer were treated using Ablatherm-HIFUmanagement and, their outcomes were compared 1:1 with patients having similar clinical criteria but underwent robotic assisted laparoscopic prostatectomy. The matched pair analysis concluded that HIFU was comparable(ii) to robotic-assisted radical prostatectomyprepare a change of paradigm in the managementtreatment of prostate cancer via technical innovations such as focal therapy. The whole project was awarded funding of €8 million over five years. We, as a partner of the PERFUSE project, are to receive about €1.2 million over the period as a non-refundable grant. As of December 31, 2020, we received refundable grant of a total of €0.6 million.
As part of PERFUSE project, several studies have already been initiated and showedsponsored by academic partner HCL - Edouard Herriot Hospital. In September 2018, we launched a Phase II multi-centric study to evaluate the efficacy and safety of HIFU to have significantly better functional outcomes.
In 2017, Crouzet et al. reported the oncological outcome of salvage high-intensity focused ultrasound (S-HIFU) for locally recurrentfocal therapy in patients with intermediate-risk single-lobed prostate cancer after external beam radiotherapy (EBRT) from(the “FOCALE” study). 170 patients are to be included in the @-registry multicenter databaseFOCALE study. As of January 2021, 141 patients have already been included in British Journalthis study within 13 French active centers. In October 2018, we initiated a Phase III, multi-centric, randomized study aiming at evaluating the efficacy of Urology (BJU) International journal. This retrospective study comprises patients from nine centers with local recurrent disease after EBRT treated with S-HIFU from 1995 to 2009. The publication isfocal HIFU versus active surveillance hence reducing the largest series of salvageneed for radical treatment confirming very positive oncological outcomes for this population (7 year metastasis free rate of 81%). It also insists on the importance of treating recurrence oflow-risk prostate cancer earlypatients (the “HIFUSA” study). 146 patients are to be included in the study. As of January 2021, 58 patients have been included within 11 French active centers. In February 2020, French regulatory authorities authorized the initiation of a Phase I study aiming at evaluating the use of HIFU guided by a new imaging modality (“PSMA-PET-MRI”) to evaluate prostate cancer recurrence after failure, as it largely improves outcomes.radiotherapy (the “PMSA” study). 40 patients are to be included in the study. The first patient was included in this study in July 2020.
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In early 2018, a new database,data collection collaborative effort, called the Focal Robotic Ultrasound Ablation Registry (“FoR-UsA”), has been established Registry, was initiated to collect high quality clinical data of U.S. patients treated with Ablatherm Robotic HIFU.EDAP’s HIFU devices in academic institutions in the U.S. Clinical data from Focal One treatments is now being collected as part of this project. The FoR-UsA Registry is the first in the U.S. that specifically collects data on patients who have had HIFU focal therapy for prostate tissue ablation, giving urologists around the U.S. greater access to short and long termlong-term HIFU outcomes. The registry also holds the potential for the FDA, which cleared HIFU for prostate tissue ablation in 2015, to re-evaluate the technology in the future for a prostate cancer indication. Likewise, health insurance reimbursements on a wider scale are also possible with a registrysuch prospective data collection efforts documenting HIFU data from patients in the U.S.
HIFU for Potential Treatment of Liver Cancer
In view of addressing liver cancer using HIFU technology, we entered into a multi-partner liver cancer development project named the HECAM consortium in 2015 to develop a novel HIFU –per operative- approach to treat liver metastasis. The HECAM project was completed in 2020. To fund this development program, EDAP received a total of €1.5 million including €1.0 million as a conditional subsidy and €0.5 million as a non-refundable grant. Despite a first single-center study successfully implemented with Lyon’s Centre Leon Bérard cancer center, we decided not to pursue the development of HIFU for liver cancer as a per-operative approach. Additionally, the multi-center Phase II study, which was to be initiated following the single-center study, will not be implemented. We determined that the per-operative approach will not be sufficiently distinct from existing options to be commercially viable at this time and will require lengthy comparative clinical studies against existing therapeutic solutions to fulfill the requirement of the new European MDR regulations to become effective in May 2021. The company intends to leverage the efforts, knowledge and assets resulting from the HECAM project in two ways: to evaluate the technology and approach for pancreatic cancer for patients with few or even no alternatives and to evaluate the technology and approach as an extracorporeal solution for patients affected by primary or metastatic liver cancer.
HIFU for Potential Treatment of Deep Endometriosis
In 2020, we initiated a Phase II clinical study in France to investigate further the use of Focal One HIFU in the treatment of certain types of deep endometriosis situated in the low rectum. A total of 38 women will be enrolled in the study at five major hospitals in France and assessed over a six-month follow-up period. The intended end-point of this study is to evaluate the safety and efficacy of HIFU for this pathology. This Phase II study complements a Phase I study successfully completed in 2019 which reported promising results with a significant improvement of the outcomes and in patient quality of life at six months. These results were published in November 2019.
HIFU Clinical Publications
To date, clinical results related to our HIFU devices have been published in renowned peer-reviewed journals.
In October 2016, clinical results were published in the European Urology journal (Rischmann et al.). They validated a new focal HIFU strategy in the treatment of prostate cancer localized in a single lobe of the prostate (hemi-ablation treatment). The goal of focal treatment as opposed to “radical” treatment is to reduce the complications associated with standard treatments, particularly the risks of incontinence and impotence.
In December 2016, Professor Roland van Velthoven from Institut Bordet Oncology Center, Brussels, Belgium published in the Journal of Endourology a matched pair analysis of HIFU Hemi-ablation vs robotic assisted laparoscopic prostatectomy. In this study, 55 patients with prostate cancer localized in a single lobe of the prostate were treated using Ablatherm-HIFU and their outcomes were compared 1:1 with patients having similar clinical criteria but who underwent robotic-assisted laparoscopic prostatectomy.
In 2017, Crouzet et al. from Edouard Herriot Hospital, Lyon, France, reported in the British Journal of Urology (BJU), oncological outcomes of salvage HIFU for locally recurrent prostate cancer after External Beam Radiotherapy (“EBRT”). This retrospective study comprises 418 patients from nine centers with local recurrent cancer after EBRT treated with HIFU from 1995 to 2009. The publication is the largest series of salvage treatment confirming very positive oncological outcomes.
More recently, Ganzer & al., Germany, evaluated focal HIFU Hemi-ablation in a prospective trial. Their data were published in the Journal of Urology in April 2018. In their conclusion, they reported that focal therapy Hemi-ablation is safe with acceptable oncologic outcome.
In November 2019, Philip CA et al, from Croix Rousse Hospital, Lyon, France, published in Ultrasound Obstet Gynecology journal, the results of the treatment of 20 patients with deep rectal endometriosis using Focal One HIFU. This EDAP sponsored study
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is the first one on the use of HIFU in this indication. The authors reported very promising results with low morbidity and significant efficiency on intestinal and gynecological symptoms as well as in the quality of life.
In September 2019, Dupré et al. from Leon Bérard Cancer Center, Lyon, France, published in the Journal of Visualized Experiments an evaluation of the feasibility, safety and accuracy of an Intraoperative HIFU device for treating liver metastases. Results are promising and a multi-centric Phase II study is to be initiated.
In February 2020, Tourhino-Barbosa et al. from Institut Mutualiste Monsouris, Paris, France, published in the Journal of Urology a retrospective study presenting their results of focal prostate cancer treatments (HIFU and cryotherapy) in their institution.
In September 2020, Nahar et al. from University of Miami Miller School of Medicine, Miami, Florida, published in the Journal of Urology, their results on 52 patients after focal treatments using the Ablaterm device (January 2016 to July 2018) on patients with clinically significant cancer profile. They concluded that focal HIFU is safe and effective and may be offered as an alternative to the existing modalities of treatment for select patients with all risk profiles of prostate cancer.
In October 2020, Abreu et al. From USC Institute of Urology, University of Southern California, Los Angeles, California, published in the Journal of Urology the first U.S. series of results on a cohort of 100 consecutive men who underwent hemi-gland HIFU ablation (December 2015 to December 2019). They concluded that focal HIFU ablation is safe and provides excellent potency and continence preservation with adequate short-term cancer control and that radical treatment was avoided in 91% of men at two years.
In January 2021, Dr. Castilho Borges et al. from Institut Mutualiste Montsouris, Paris, published in the Journal of Urology their results on 300 patients, a study in which the results compare the impact on functional results (Sexual Function and Urinary Continence) in two groups of patients: 195 patients in Focal Treatment (FT) versus 105 patients in the Whole Gland (WGT) Ablation Prostate Cancer. In the conclusions, FT is associated with better functional outcomes, with an earlier urinary continence recovery, and better sexual function at 3 and 12 months. Moreover, the morbidity associated with focal therapy is substantially lower than that related to whole gland therapy.
HIFU Division Market Potential
Prostate cancer is currently the first or(in terms of new cases diagnosed) and second (in terms of number of deaths) most common form of cancer among men in many populations. In the United States, the American Cancer Society estimates the number of new prostate cancers to be diagnosed every yearfor 2021 to be approximately 165,000,248,530, of which approximately 70% are diagnosed with localized stage prostate cancer. Additionally, the HIFU division believes, based on figures provided by the World Health Organization that the worldwide incidence of localized prostate cancer is approximately twice this U.S. figure. A more effective diagnostic method for prostate cancer, the PSA test, has increased public awareness of the disease in developed countries since its introduction. PSA levels jump sharply when cancer is present. Prostate cancer is an age-related disease, and its incidence in developed countries is expected to increase as the population ages.
The HIFU divisionManagement believes that HIFU therapy could be expanded to othermedical conditions,, such as rectal endometriosis, liver and pancreatic cancers but also to certain localized thyroid, breast, gynecological, bladder, kidney, liver, brain pancreatic and retroperitoneal tumors. We decided to focus on developing HIFU for certain types of pathologies. For example, in late 2016, we initiated a clinical Phase I study to address certain types of deep endometriosis situated in the low rectum, using Focal One HIFU. Nine patients have been treated successfully. A multi-centric study is to take place in 2019. As per the European Society of Human Reproduction and Embryology, endometriosis is estimated to affect approximately one in 10 women of reproductive age. In June 2015, we entered into a multi-partner liver cancer development project organized by the HECAM (“HEpatocellular CArcinoma Multi-technological”) consortium. This project aims at developing innovative diagnostic, imaging and therapeutic technologies to address liver cancer. EDAP’s focus within the HECAM consortium is on developing a novel HIFU treatment for liver cancer in cooperation with its long-term academic partner INSERM and leading cancer centers. To fund this development program, EDAP will receive a maximum of €2.4 million in non-dilutive financing from Bpifrance over the five-year project period of which we received the first instalment of €0.7 million in June 2015 and a second installment of €0.8 million in June 2017 (i.e. a total of €1.5 million including €1.0 million as a conditional subsidy and €0.5 million as a grant). The HECAM project is ongoing and a multicentric study will be initiated mid-2018 based on a first mono-centric study implemented with Lyon’s Centre Leon Bérard cancer center. We also anticipate to develop HIFU technology to address pancreatic, breast and gynecological tumors. However, the expansion of the use of HIFU to other areas of treatment will require a significant investment in research and development, an investment that we will undertake gradually while focusing on theintend to accelerate as acceptance of HIFU as a treatment for localized prostate cancer. cancer is gaining grounds in the medical community.
For example, in 2019, as we decided to expand the development of HIFU beyond prostate cancer, we successfully finalized a clinical Phase I study using Focal One HIFU to address certain types of deep endometriosis located in the low rectum. The study results are promising and show a decrease of symptoms in the treated patients. In 2020, we initiated a Phase II multi-centric study to investigate further the use of HIFU in this pathology. As per the European Society of Human Reproduction and Embryology, endometriosis is estimated to affect approximately one in 10 women of reproductive age.
In addition, in view of addressing liver cancer using HIFU technology, we decided to pursue the development of HIFU for liver cancer as an extracorporeal solution, avoiding open surgery approach.
HIFU Reimbursement status
In the United States, following the AMA’s recognition of a new Category 1 CPT code, CMS finalized payment rules for hospitals, facilities, and physicians that facilitates coverage and reimbursement for the ablation of malignant prostate tissue with HIFU technology, effective January 1, 2021. U.S. private insurers are continuing to evaluate and advance coverage and payment policies
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related to HIFU procedures for prostate tissue ablation. We have engaged Medical Technology Partners (MTP) and Argenta Advisors, two leading reimbursement consultancies, to support us in reimbursement analysis and strategies. As public and private payors expand coverage and payment for HIFU procedures, our licensee, Theraclion, obtained CE Marking for theirFocal One HIFU device dedicated toand procedure likely will have accelerated market access and demand in the treatmentUnited States.
On the hospital payment side, the final rule maintains the HIFU procedure in the Level 5 Urology Ambulatory Payment Classification (APC) in 2021. This translates into a payment for a hospital performing a HIFU procedure on a Medicare patient of benign breast tumors and thyroid tumors. See Item 4, “Informationaround $4,400 as a national average, adjusted locally based on the Company—wage index. This represents an increase of 5%, from the payment hospitals receive from Medicare for a HIFU Division Patentsprocedure in 2020.
In the physician fee schedule final rule, CMS has established for the first time a payment to physicians performing a HIFU procedure in the U.S. In the final rule, CMS has set a total Relative Value Units (“RVUs”) for a physician performing a HIFU procedure at 28.57. This translates to an average payment of $997 for a urologist performing a HIFU procedure on a Medicare patient in a facility setting. As a reference, a comparable established minimally invasive therapy for prostate cancer, cryotherapy, yields 22.28 RVUs, which translates to $786 for the urologist under the same setting and Intellectual Property.”patient conditions. A radical prostatectomy would grant the urologist 34.06 RVUs, which translates to a Medicare payment of $1,188, or 41.95 RVUs and $1,464 if performed laparoscopically.
In the European Union, there is no harmonized procedure for obtaining reimbursement and, consequently, we must seek reimbursement in each Member State. Procedures performed with our HIFU devices are not reimbursed in the European Union with the exception of Italy, Germany, the United Kingdom (where procedures are partially reimbursed by either public healthcare systems or private insurers) and France under certain conditions. In 2014, the French healthcare government authorities announced the reimbursement of prostate cancer treatment procedures using HIFU as part of a specific process (“Forfait Innovation”) to further validate breakthrough therapies and to accelerate their related reimbursement process based on clinical trials and data registries. HIFU patients are still being treated and entered into the dedicated registry. Under this specific process, French healthcare government authorities will review the clinical data gathered following this decision in view of granting definitive reimbursement for HIFU.
HIFU Competition
The principal current therapies for prostate cancer carry side effects that can seriously affect a patient’s quality of life. One of the current therapies is radical prostatectomy (surgery), which involves the ablation of the entire prostate gland. Radical prostatectomy requires several days of hospital stay and several weeks of recovery, usually with catheterization, and may result in partial and/or total urinary incontinence. In addition, it almost invariably renders patients impotent. A newnewer surgical technique, nerve-sparing prostatectomy, has been developed to address that problem. However, the procedure can only be applied when the tumor is not located close to the surface of the prostate and it requires a very skilled surgeon. Other therapies for localized prostate cancer include brachytherapy, a therapy that involves the implantation of radioisotopes into the prostate gland, EBRTexternal beam radiation therapy and cryotherapy.
Our robotic HIFU devices compete with all current treatments for localized tumors, which include surgery, brachytherapy, radiotherapy, cryotherapy and electroporation. We believe that HIFU competes against those treatments on the basis of efficacy, limited side effects and cost-effectiveness.
We also believe that Focal One will be well positioned to address the growing demand for a “focal” approach of localized prostate cancer which cannot be answered by surgery or radiation therapy. “Focal” treatment (also known as “partial” or “zonal” treatment, as opposed to “radical” or “total” treatment) provides an effective and accurate ablative treatment of localized tumors with the capacities of being flexible and repeatable, while preserving patient quality of life.
Other companies are working with HIFU for the minimally invasive treatment of tumors. See Item 3, “Risk Factors – Risks Relating“Risk Factors—Competition in the markets in which we operate is intense and is expected to Competition.increase in the future.”
Certain existing and potential competitors of our HIFU division may have substantially greater financial, research and development, sales and marketing and personnel resources than us and may have more experience in developing, manufacturing, marketing and supporting new products. We believe that an important factor in the potential future market for HIFU treatments will be the ability to make the substantial investments in research and development required to advance the technology beyond the treatment of prostate cancer. These future investments are wholly dependent on the successful acceptance of the device for the treatment of prostate cancer.
Other companies working with HIFU technology for the minimally invasive treatment of tumors include SonaCare Medical, a U.S. company that markets a device called the Sonablate for the ablation of prostatic tissue. Sonablate was cleared by the FDA for
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commercialization in the U.S. in October 2015. Profound Medical, a Canadian company, is developing transurethral ultrasound therapy for prostate cancer. Profound Medical acquired Philips Healthcare’s HIFU activity, integrating the development of HIFU devices addressing uterine fibroids, breast tumors and drug delivery activated by HIFU. Insightec, an Israeli company owned mainly by General Electric, Elbit Medical Imaging and Koch Industries, has developed a device using HIFU technology to treat uterine fibroids, painful bone tumors and brain disorders. Theraclion, a French company licensed by EDAP to use certain of our HIFU patents, is currently marketing the Echopulse HIFU device to treat thyroid tumors, benign breast tumors and varicose veins. Haifu, a Chinese company, is developing HIFU products addressing various types of cancers.
HIFU Division Sales and Distribution of Products
The HIFU division markets and sells its products through our own direct marketing and sales organization as well as through selected third-party distributors and agents in several countries. Using our direct subsidiaries or representative offices network, the HIFU division maintains direct marketing and sales forces in France, the United States, Germany, RussiaMalaysia, South Korea and Italy,Russia, which currently represent its largest HIFU markets. Additionally, the HIFU division markets and sells its products through our distribution platform in the rest of Europe, Middle East South Korea and South East Asia.
The HIFU division’s customers are located worldwide and have historically been principally public and private hospitals and urology clinics. The HIFU division believes that as it increases its customer base it will gain further access to the medical community, which will enable it to monitor the urological market as well as other new targeted markets, introduce new products and conduct trials addressing new pathologies under satisfactory conditions. No single customer of the HIFU division represents a significant portion of the division’s installed base.
The HIFU division’s marketing efforts currently include the organization of information and training programs for urologists, mainly in key European countries and in the United States where HIFU awareness is growing, comprehensive media and web programs to educate patients on the availability of HIFU technology to treat localized prostate cancer and strong participation in focused dedicated urological events. Our dedicated web site www.hifu-prostate.com for patients and physicians is visited regularly. The information contained on that website is not incorporated by reference herein. As HIFU expands in these countries, we intend to strengthen our marketing efforts and further invest in educational and sales programs in these countries.
ESWL Division
The HIFU division is also committed to exclusively distribute HIFU products on behalf of Theraclion, in France, including the Echopulse device dedicated to the treatment of benign breast tumors and thyroid tumors.
UDS Division
The UDSESWL lithotripsy division is engaged in the development,manufacturing, marketing manufacturing and servicing of medical devices for the minimally invasive diagnosis or treatmentour installed base of urological disorders, mainly urinary stones, and other clinical indications.Sonolith range of lithotripters. The UDSESWL divisioncontributed €26.2€12.9 million to our consolidated net sales during the fiscal year ended December 31, 2017.
2020.
Our UDSESWL business is quite cyclical and generally linked to lengthy hospital decision and investment processes and their activities. Hence our quarterly revenues are often impacted and fluctuate according to these parameters, generally resulting in a possible higher selling activity in the last quarter of the year.
UDSESWL Division Business Overview
The UDSESWL division’s primary business is producing and marketing certain medical devices, known as lithotripters, for the treatment of urinary tract stones by means of ESWL technology. ESWL uses extracorporeal shockwaves, which can be focused at urinary stones within the human body to fragment the stones, thereby permitting their natural elimination and preventing the need for incisions, transfusions, general anesthesia, and the resultingpotential for related complications. The UDSESWL division currently manufactures two modelsmarkets one model of lithotripters:lithotripter: the Sonolith i-move andi-move. The Company stopped manufacturing the Sonolith i-sys. i-sys lithotripter in 2020. In addition, as part of the strategic shift we recently implemented, we decided to discontinue our R&D investments in lithotripsy, including the launch of our Endo-Up platform.
As of December 31, 2017,2020, the UDSESWL divisionhas sold 904 ESWL lithotripters worldwideto this date andan activelymaintained or otherwise serviced 701 installed lithotripters.base of 731 lithotripters.
In addition to its manufacturing and selling of lithotripters, the UDS division also generates revenues from the leasing of lithotripters, as well as from the sale of disposables, spare parts and maintenance services. It also derives revenues from the distribution of urodynamics products and urology lasers.
UDSESWL Division Business Strategy
The business strategy for the UDSESWL division is to capitalize on its expertise in ESWL and its position in urology to achieve long-term growthmaintain our lithotripsy sale and service activity as a leader in the development, production, marketing and distribution of minimally invasive medical devices for urological and other clinical indications.we intend to maintain this cash generating activity. The UDSESWL division manufactures its own products as part oflithotripsy device, the Sonolith i-move, via EDAP TMS France SAS (“EDAP TMS France”), our wholly owned subsidiary. The key elements
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Table of the UDS division’s strategy are:Contents
UDSESWL Division Products
The UDSESWL division offers the Sonolith i-move extracorporeal shockwave lithotripter to small and mid-size hospitals, while the Sonolith i-sys is offered to large hospitals that can afford a fully dedicated and integrated lithotripter.hospitals. The UDSESWL division also sells disposable parts for lithotripters including the piezoelectric elements of the LT02, (a machine we discontinued manufacturing in 2002) and the electrodes of the Sonolith line, which need to be replaced approximately every ten treatments. These parts incorporate key proprietary technologies, and the UDS division has retained sole marketing rights for these parts.
The Sonolith i-move and the Sonolith i-sys relyrelies on the electroconductive technology for shockwave generation. The electroconductive technology, which is derived from the electrohydraulic technology on which the first ESWL lithotripters were based, permits improved focusing of the shockwave, reduces the variability in the shockwave pressure and allows a better transfer of energy to the calculus. These features result in a faster, more effective treatment as compared to electrohydraulic lithotripters.
The UDSESWL division’s ESWL customers are located worldwide and have historically been principally large hospitals, urology clinics and research institutions. To increase its penetration of the market segment of smaller hospitals and outpatient clinics, the UDSESWL division developed the Sonolith i-move, ana compact electroconductive lithotripter designed for smaller clinics. It is more compact than the Sonolith i-sys, which is more fully integrated and dedicated to larger hospitals and can be used as a urological workstation to perform endourological procedures. The Sonolith i-move launched in 2010, brings a novel approach to the market by offeringoffers a wide range of configurations to suit various budgets and various local market needs. TheOur Sonolith range has also been very successful thanks to its innovativeVisio-Track ultrasound stone localization: a unique three dimensionalthree-dimensional virtual system that uses infrared stereovision proprietary technology to guide the treatment robotically.
UDSESWL Division Patents and Intellectual Property
As of December 31, 2017,2020, the UDSESWL division’s patent portfolio contained 11six granted owned and co-owned patents consisting of one granted patent in the United States, eightfour granted patents in the European Union and Japan and twoone granted patent in Japan.
These patents in both Israel and the rest of the world. They belong to five groups of patents covering key technologies relating to ESWL systems and associated software capabilities. The patent covering the ultrasound localization system is also in the examination process in the United States.The UDSESWL division’s patents cover both piezoelectric and electroconductive technologies associated to ESWL generator, localization systems and device design. The UDSESWL division’s ongoing R&D objectives in ESWL are to further increase the clinical efficacy, the cost-effectiveness and the ease of use of its products to make them accessible to wider patient and user populations.
As with the development of our HIFU technology, we cooperate with INSERM to develop our ESWL technology. This cooperation gave rise to co-owned patents in some cases. We have entered in the past into various license agreements with INSERM whereby we committed to pay a fixed amount of royalties to INSERM based on the net revenues generated from the sales of ESWL devices using co-owned patents. Under these agreements, we had the exclusive right to the commercial use of the co-owned patents, including the right to out-license such commercial rights. These license agreements expired in 2016, allowing EDAP to freely use the related patents.
UDS Division Regulatory Status
The Sonolith i-move is cleared and available for commercial distribution in the European Union, Saudi Arabia, Colombia, South Korea, Costa Rica, Egypt, the United States, Indonesia, Japan, Malaysia, Thailand, Taiwan, Singapore,Philippines, United Kingdom, Russia, Serbia, Peru, Colombia, Costa Rica, Japan, United States, Saudi Arabia, Argentina, MexicoSwitzerland, Taiwan, Ukraine and Brazil.
Vietnam.
The Sonolith i-sys is available in the European Union, South Korea, Canada, United States, Peru, Colombia, Mexico, Costa Rica, Russia, Serbia, Japan, Australia, Malaysia, Singapore, Saudi Arabia and Taiwan.
The UDSESWL division continues to provide disposables, replacement parts and services for the current installed base of Sonolith Praktis, Sonolith Visio and Sonolith i-sys even though we have discontinued the manufacture of these machines.
UDSESWL Division Market Potential
We estimate that roughly 5%12% of the world population suffers from kidney or ureteric stones during their lifetime and that urinary calculi are responsible for 10% of urological hospital admissions worldwide.lifetime. Although urinary calculi may be eliminated naturally by the body, natural elimination is frequently accompanied by considerable pain and very often by serious complications, such as obstruction and infection of the urinary tract.
Since its introduction in clinical practice more than 35 years ago, ESWL has become the standard treatment for urinary calculi. ESWL consists of fragmenting calculi within the body using extracorporeal shockwaves without any surgery. We believe that the market for lithotripters includes both buyers looking for a sophisticated, higher-priced machine (generally hospitals and larger urology clinics) but alsoand buyers looking for simpler and less expensive machines (typically smaller clinics). We also believe that after a period of fast growth in the mid-1980s and early 1990s, theThe market for lithotripters is now mature and has become primarily a replacement and service and maintenance market in most of the world. We believe that companies with a large installed base of ESWL lithotripters will be most successful in the replacement market. Consequently, we intend to capitalize on our share of the installed base of ESWL lithotripters to maintain our position in the replacement market for those machines. Several geographical opportunities remain in under-equipped countries or in some countries where the national health system strategy is being reviewed for hospitals and clinics equipment. ESWL is today in competition with less costly stone laser devices. Consequently, in order to remain competitive, EDAP integrated stone laser products into its ESWL product range.
We believe that companies with a large installed base of ESWL lithotripters will be most successful in the replacement market. Consequently, we intend to capitalize on our share of the installed base of ESWL lithotripters to gain a significant position in the replacement market for those machines. We expect the ESWL businessdivision to continue to contribute at historically consistent levels, to the UDS division’s financial results despite the mature nature of the market, due to revenues from consumables, maintenance contracts and demand for replacement machines. See Item 5, ‘‘Operating and Financial Review and Prospects’Prospects’’.
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ESWL Division Competition
The ESWL market is characterized by severe price competition among manufacturers, with the result that, in recent years, the average unit price of ESWL lithotripters has declined. The UDSESWL division expects this trend to continue. See Item 5, ‘‘Operating and Financial Review and Prospects.’’ The UDSESWL division’s major competitors in developed countries are Wolf, Storz Medical and Dornier.Dornier Medtech.
UDSESWL Division Sales and Distribution of Products
The UDSESWL division markets, sells and services its products through our direct sales and service platform in France, Italy, Germany, the United States, Japan, South Korea, Malaysia and most recently, in the United Arab Emirates through our representative office in Dubai. The UDSESWL division also markets its products through agents and third-party distributors in several other countries.
The UDSESWL division’s customers are located worldwide and have historically been mainly public and private hospitals and urology clinics. We believe that the division’s customer base provides it with excellent access to the urological community and enables it to introduce newits ESWL products and conduct trials under satisfactory conditions.
No single customer of the UDSESWL division represents a significant portion of the division’s installed base. The UDSESWL division’s marketing efforts include the organization of training programs for urologists worldwide.
UDSDistribution Division Services and Distribution
The UDSDistribution division is engaged in the marketing, distribution and servicing of products complementary to our global activity such as lasers, micro-ultrasound systems and other medical products from third parties. The Distribution division contributed €17.3 million to our consolidated net sales during the fiscal year ended December 31, 2020.
Distribution Division Business Strategy
The Distribution division’s business strategy is to generate revenues from the marketing and distribution of medical devices for the minimally invasive diagnosis or treatment of urological disorders and other various clinical indications. These products include, but are not limited to: micro-ultrasound devices such as the ExactVu product and lasers. The Distribution division also pursuing variousgenerates revenues from the leasing of devices, as well as from the sale of disposables, spare parts and maintenance contracts for equipment sold under the Distribution division.
We have engaged in exclusive distribution optionsagreements with third parties to distribute and service their products in certain territories, under specific conditions.
The Distribution division strategy is also to distribute products that use its strong networkbring synergies and complementarity to our existing home grown technologies. In May 2020, we signed an exclusive worldwide distribution agreement with Exact Imaging, a developer of high resolution micro-ultrasound imaging technologies. Under the terms of the agreement, we will market Exact Imaging’s micro-ultrasound diagnostic devices alongside our Focal One. In that respect, ExactVu micro-ultrasound complements our Focal One HIFU technology. ExactVu offers all of the steps and procedures that need to be done prior to a treatment for prostate cancer. By distributing the two technologies, EDAP offers the urologist a complete solution for focal prostate cancer management, with full autonomy and capabilities from diagnostic to treatment. This type of complete care is also extremely attractive to patients with prostate cancer as it represents a non-invasive way of managing their disease by using diagnostics to eliminate unnecessary biopsy procedures and allows for a very precise non- invasive HIFU ablation of the suspicious and diagnosed region of the prostate.
Distribution Division Products
The Distribution division currently distributes Holmium lasers (HoLEP) produced by the Israeli company Lumenis Ltd, under an exclusive agreement limited to the French territory. HoLEP Moses Lumenis laser is a groundbreaking, patent-protected pulse delivery technology that remarkably improves energy transmission, resulting in more efficient lithotripsy and BPH treatments compared to the regular Holmium pulse1. The Distribution division also exclusively markets lasers manufactured by Italian company Quanta System Spa in Japan, in certain countries in South-East Asia. Distribution agreements are under renewal in Japan and South-East Asia territories. The Distribution division also exclusively markets Quanta lasers in certain Middle East territories including Kuwait, Oman, Saudi Arabia, Jordan and Bahrain.
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The Distribution division also distributes the ExactVu device, produced by the Canadian company Exact Imaging, under a worldwide subsidiaries and agents. exclusive agreement. ExactVu is an ultrasound-based imaging system that can operate and be used the same way as a standard ultrasound, but it also has the unique capability of operating at a very high frequency of 29MHz. Similar to MRI, it allows urologists to visualize and locate suspicious regions within the prostate and target biopsies in real time. Exact Imaging’s technology also includes a solution called FusionVu. Where an MRI is required, FusionVu allows for the quick import, alignment and targeting of MRI-identified lesions. After the MRI image is imported via FusionVu, ExactVu’s 70 micron real-time resolution, allows physicians to very precisely targeting lesions.
The UDSDistribution division, through the Group’s Japanese subsidiary, exclusively distributes urodynamicssome urology products of the American company Laborie Medical Technologies (“Laborie”) in Japan, that includes Urodynamic equipment, Uroflow, and a range of disposable products. Laborie is the world leader of Urodynamic systems and disposables which are used by urologists and gynecologists to diagnose lower urinary tract functions. The Group’s Japanese subsidiary also distributes x-ray imaging systems for the diagnosis of musculoskeletal pathologies and orthopedic surgical care in Japan on behalf of Laborie Company, including MMS (Medical Measurement Systems) products,French company EOS Imaging and Andromedaalso exclusively distributes urology accessories on behalf of Monaco’s company Rocamed in Japan. The UDS division also distributes laser urology solutions from Lumenis in France and from Quanta System in Asia. We believe that the laser use in endo-urology will increase in the coming years, for both the treatment of urinary stones and for other urological procedures such as HoLEP (Holmium Laser Enucleation of Prostate). We believe that the UDS division can successfully market its worldwide distribution platform to a wide range of medical equipment development companies, thus allowing for quick, easy and economically sound entry for these companies into markets covering most of the world.
Manufacturing
Our current manufacturing operations consist of manufacturing medical products in our facility, which is FDA-approvedFDA-registered and certified under international ISO 1348513485: 2016 and MDSAP standards. We believe that this facility could possibly extend its outsourced services to provide device and disposable development and manufacturing services to a range of medical equipment development companies. Each division manufactures itsmanufacture our own products through our operational subsidiary EDAP TMS France.
We manufacture the critical components for our devices and accessories, unless a subcontractor can manufacture the component more cost-effectively, and we also perform final assembly and quality control processes and maintain our own set of production standards. We purchase the majority of the raw materialscomponents used in our products from a number of suppliers, but for several components of our products, we rely on a single source. Most of single source components are secured by contract, by double sourcing or by safety stock. Furthermore, we conduct regular quality audits of suppliers’ manufacturing facilities. Our principal suppliers are located in France, Germany, Denmark, South Korea and the United States. Management believes that the relationships with our suppliers are good.
Quality and Design Control
The manufacturing operations of EDAP TMS France must comply with all regulations of countries where we market our products, including the GMP regulations enacted by the FDA, which establish requirements for assuring quality by controlling components, processes and document traceability and retention, among other things. EDAP TMS France’s facilities are also subject to inspections performed by the FDA. The U.S. FDA conducted a routine inspection of our manufacturing site in March 2018 which resulted in the issuance of a Form 483. There was only one observation which was for Management Review procedure(s) but it was deemed by FDA that no further action was indicated at this time. The issue is currently being addressed through our CAPA system. EDAP TMS France has obtainedis ISO 13485 (V:2003) certifications,13485: 2016 and MDSAP certified which indicateindicates compliance by EDAP TMS France’s manufacturing facilities with international standards for quality assurance, design and manufacturing process control. EDAP TMS France also complies with the applicable requirements that will allow it to affix the CE Marking to certain of its products. Our manufacturing site also complies with Taiwanese, Japanese, Canadian, Australian, Brazilian and CanadianSouth Korean regulations, as well as with the U.S. Quality System Regulation. See ‘‘Information on the Company—Government Regulation—Healthcare Regulation in the United States’’ and ‘‘—Government Regulation—Healthcare Regulation in the European Union.’’
Organizational Structure
The following table sets forth the fully consolidated subsidiaries of the Company as of the date of this annual report:
| | | | | |
| | Jurisdiction of | | | |
Name of the Company | Establishment | Percentage Owned(1) | | ||
EDAP TMS France SAS | France | 100 | % | ||
EDAP Technomed Inc. | United States | 100 | % | ||
EDAP Technomed Co. Ltd | Japan | 100 | % | ||
EDAP Technomed Sdn Bhd | Malaysia | 100 | % | ||
EDAP Technomed Srl(2) | Italy | 100 | % | ||
EDAP TMS GmbH | Germany | 100 | % |
(1) | Percentage of equity capital owned by EDAP TMS S.A. directly or indirectly through subsidiaries (percentage of capital owned and voting rights are the same). |
(2) | EDAP Technomed Srl is not operational and is currently in liquidation. |
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Property and Equipment
We have one principal facility, which is located in Vaulx-en-Velin, on the outskirts of Lyon, France. The premises comprise 4,150 square meters and are leased to us under a renewable ten-year commercial lease agreement signedwhich became effective on July 1, 2015. We use this facility to manufacture our device portofolio.portfolio. We believe the terms of the lease reflect commercial practice and market rates. The manufacturing facility, and principal offices, which we utilize to manufacture and/or assemble all of our products, have ISO 13485 certifications. We are not aware of any environmental issues that could affect utilization of the facility.
In addition, we lease office and/or warehouse facilities in Kuala Lumpur (Malaysia), Rome (Italy), Flensburg (Germany), Austin (U.S.), Moscow (Russia), Seoul (South Korea), Fukuoka, Osaka, Sapporo and Tokyo (Japan), and Dubai (United Arab Emirates).
Organizational Structure
The following table sets forth the fully consolidated subsidiaries of the Company as of the date of this annual report:
Government Regulation
Government regulation in our major markets, in particular the United States, the European Union and Japan, is a significant factor in the development and marketing of our products and in our ongoing research and development activities. See Item 3, “Risk Factors –Risks“Risk Factors—Risks Related to Government Regulations.Regulations.”
Regulation in the United States
We and our products are regulated in the United States by the FDA under a number of statutes including the Federal Food, Drug and Cosmetic Act (‘‘FDC Act’’). Pursuant to the FDC Act, the FDA regulates the preclinical and clinical testing, manufacturing, labeling, distribution, sale, marketing, advertising and promotion of medical devices in the United States. Medical devices are classified in the United States into one of three classes - Class I, II or III - on the basis of the controls reasonably necessary to ensure their safety and effectiveness. Class I devices are those whose safety and effectiveness can be ensured through general controls, such as establishment and registration, medical device listing, FDA-mandated CGMP and labeling. Most Class I devices are exempt from premarket notification (510(k)). Class II devices are those whose safety and effectiveness can reasonably be ensured through the use of general controls and ‘‘special controls,’’ such as special labeling requirements, mandatory performance standards, and post-market surveillance. Class II medical devices require 510(k) submission and clearance. The FDA may also require the submission of clinical data as part of the 510(k) for Class II devices. The FDA introduced the de novo 510(k) process for novel devices that present low to moderate risk where there is no suitable predicate device to support a standard 510(k) submission. Class III devices are those that require submission of a PMApre-market approval (“PMA”) application by the FDA to ensure their safety and effectiveness. The PMA process is expensive and often lengthy, typically requiring several years, and may not necessarily result in approval. The manufacturer or the distributor of the device must obtain an IDE approval from the FDA before commencing human clinical trials in the United States in support of the PMA. Some newer PMA devices must also go before a clinical review panel before FDA approval. Our lithotripsy range of Sonolith i-move products areis now classified by the FDA as Class II devices. As far as ourOur Ablathermor and Focal One HIFU devices are concerned, they also have been classified as Class II. Ablatherm was cleared by FDA in November 2015, via a 510(k) application, with a prostate tissue ablation claim, following the approval of another HIFU device via the de novo 510(k) process. In April 2016, we submitted a 510(k) application for our Focal One device. After discussion with the FDA, it was decided to withdraw our 510(k) application and submit a new premarket notification with new clinical data. This second 510(k) for the Focal One was submitted in September 2017 and is currently under FDA review. Our 510(k) application for the Ablatherm Fusion was cleared by FDA in October 2017. Advertising and promotional activities in the United States are subject to regulation by the FDA and, in certain instances, by the U.S. Federal Trade Commission.
The FDC Act also regulates quality and manufacturing procedures by requiring us to demonstrate and maintain compliance with current Quality System Regulations (QSR). Our manufacturing facilities are in compliance with the requirements of the QSR. This was last verifiedThere are also certain requirements of state, local and foreign governments which must be complied with in March 2018 whenthe manufacturing and marketing of our products. We believe that the manufacturing and quality control procedures we employ meet the requirements of these regulations.
Advertising and promotional activities in the United States are subject to regulation by the FDA conducted a routine inspection of our facility and, quality processes. There was only one observation recorded on Form 483 which was for Management Review procedure(s) but it was deemedin certain instances, by FDA that no further action was indicated at this time. The issue is currently being addressed through our CAPA system.the U.S. Federal Trade Commission.
Regulation in the European Union
In the European Union, we annually perform ISO 13485 (V:2003)13485: 2016 and MDSAP (Australia, Brazil, Canada, Japan, U.S.) certification audits, showing that we comply with standards for quality assurance, manufacturing and design control.
In 2017, the European Union our products are also subjectenacted the new Medical Device Regulation (“MDR”). Manufacturers with currently approved medical devices in their portfolio have had an initial transition time of three years, i.e. until May 26, 2020 to legislation implementingmeet new MDR requirements. The transition period was extended to four years, i.e. until May 26, 2021 due to COVID-19 pandemic context. The MDR introduces substantial changes to the way medical device manufacturers bring their devices to the European Union Council Directive 93/42/EEC concerning medical devices (the ‘‘Medical Device Directive’’). Themarket and how they maintain compliance throughout the product’s life cycle. MDR will replace the EU’s current Medical Device Directive provides(93/42/EEC) (“MDD”). We are currently updating our organization and quality system as well as our product development to be able to handle the MDR enforcement within the expected timelines for our existing devices ranges and the devices under development. We have implemented regulatory actions to ensure our devices may be marketed in the European and international markets after May 2021.
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The MDD and the MDR provide that medical devices that meet certain safety standards must bear a certification of conformity, the European Community approval ‘‘CE Marking.’’ Except in limited circumstances,member states of the European Union may not prohibit or restrict the sale, free movement or use for its intended purpose of a medical device bearing the CE Marking. Medical devices marketed throughout the European Union must comply with the requirement of the Medical Device DirectiveMDD and MDR as applicable to bear a CE Marking (subject to certain exceptions). All of our products bear the CE Marking, except for Ablatherm Fusion.
Pursuant to the Medical Device Directive,MDD and MDR, medical devices are classified into fourdifferent classes Class I, Class IIa, Class IIb and Class III, on the basis of their invasiveness and the duration of their use. The classification serves as a basis for determining the conformity assessment procedures that apply to medical devices to be eligible to receive a CE Marking. The conformity assessment procedures for Class I devices can be carried out, as a general rule, under the sole responsibility of the manufacturer, while for devices of other classes, the involvement of an authorized supervisorya notified body is required. The extent of the involvement of such body in the development and manufacturing of a device varies according to the class under which it falls, with Class III devices being subject to the greatest degree of supervision. All of the devices currently marketed by us are Class I, IIa and IIb devices.
On April 27, 2016, the European Union adopted the General Data Protection Regulation (“GDPR”) (Regulation (EU) 2016/679) which intends to strengthen and unify data protection for all individuals within the European Union. It also addresses the export of personal data outside the EU. The GDPR aims primarily to give control back to citizens and residents over their personal data and to simplify the regulatory environment for international business by unifying the regulation within the EU. When the GDPR takes effect, it will replace the data protection directive of 1995 (Directive 95/46/EC). The GDPR becomes enforceable from May 25, 2018 after a two-year transition period and, unlike a directive, it does not require national governments to pass any enabling legislation, and is thus directly binding and applicable.
On May 25, 2017, Europe’s new Medical Device Regulation (“MDR”) was enacted and came into force. Manufacturers with currently approved medical devices in their portfolio will have a transition time of three years, i.e. until May 26, 2020 to meet new MDR requirements. MDR addresses substantial changes to the way medical device manufacturers bring their devices to the European market and how they maintain compliance throughout the product's life cycle. MDR will replace the EU’s current Medical Device Directive (93/42/EEC).
Regulation in Japan
The import and sales of medical devices in Japan is regulated by the Japanese Ministry of Health, Labor and Welfare (‘the “MHLW’’) under the license “Marketing Authorization Holder”. Our Japanese subsidiary has obtained a general license as the “Marketing Authorization Holder” as well as specific marketing approvals to import and market our products that have been approved in Japan. Our Japanese subsidiary is also operating under the statute of Designatedas “Designated Marketing Authorization Holder (“DMAH”)Holder” on behalf of some companies to act asmarket their representative onproducts in the Japanese Territory, before Japanese regulatory authorities.Territory. The MHLW also administers various national health insurance programs to which each Japanese citizen is required to subscribe. These programs cover, among other things, the cost of medical devices used in operations. The MHLW establishes a price list of reimbursable prices applicable to certain medical devices under the national health insurance programs and until a new device is included in this list its costs are not covered by the programs. The LT02, the LT-02X, the Sonolith Praktis, the Sonolith Vision, the Sonolith i-sys and the Sonolith i-move are all included on the MHLW’s list for reimbursement.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The following discussion of our results of operations and liquidity and capital resources for the fiscal years ended December 31, 2017, 20162020, 2019 and 20152018 is based on, and should be read in conjunction with, our consolidated financial statements and the notes thereto included in Item 18, of this annual report."Financial Statements." The consolidated financial statements have been prepared in accordance with U.S. GAAP and refer to the new topic-based FASB Accounting Standards Codification (‘ASC’).
GAAP.
The following discussion contains certain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those contained in such forward-looking statements. See ‘‘Cautionary Statement on Forward-Looking Information’’ at the beginning of this annual report.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, accounts receivable, bad debts, inventories, warranty obligations, employee stock-option plans, goodwill impairment, provisions for retirement indemnities, litigation and deferred tax assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe our more significant judgments and estimates used in the preparation of our consolidated financial statements are made in connection with the following critical accounting policies.
Revenue Recognition
The Company adopted ASC Topic 606, Revenue Recognitionfrom Contracts with Customers, on January 1, 2018.
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The Company’s revenue consists of:
● | Sales of goods (devices and consumables), where invoicing generally takes place upon delivery. Consumable revenues included in sales contract are deferred until delivery. |
● | Revenue-per-Procedures (“RPP”) and leases: they comprise (i) revenues on a per treatment basis which are invoiced after each treatment, or in advance, or on a periodic basis, (ii) leases of devices, which are generally invoiced on a monthly or quarterly basis, and (iii) immaterial lease components arising from multiple-element arrangements, where specific sales terms are negotiated in accordance with each customer’s individual requirements and which are generally invoiced based on contract terms, |
● | Sales of spare parts and services (maintenance, upgrades, mobility and others). Spare parts are invoiced when delivered. Regarding services, invoicing is performed either on a subscription basis (in advance or at the end of the period) or when services are performed. |
Sales of our medical devices and sales of disposables, sales of RPPs and leases, and sales of spare parts and services, are all net of commissions.
The Company invoices its customers based on the billing schedules in its sales arrangements. Payments are generally due between one to three months from the date of invoice.
The Company accounts for a contract with a customer when there is a legally enforceable contract between the Company and its customer, the rights of the goods or services and their payment terms can be identified, the contract has commercial substance, collectability of the contract consideration is probable, it is approved and the parties are committed to their obligations.
Our sale arrangements may contain multiple elements, including device(s), consumables and services. For these multiple-element arrangements, the Company accounts for individual goods and services as separate performance obligations: (i) if a customer can benefit from the good or service on its own or with other resources that are readily available to the customer, and (ii) if they are a distinct good or service that is separately identifiable from other items in the multiple-element arrangement. The Company’s sale arrangements may include a combination of the following performance obligations: device(s), consumables, leases and services (such as, but not limited to, warranty extension).
For multiple-element arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the goods or services. If a standalone selling price is not directly observable, then the Company estimates the standalone selling price considering market conditions and entity-specific factors including, but not limited to, features and functionality of the goods and services, geographies, and type of customer. The Company regularly reviews standalone selling prices and updates these estimates as necessary.
The Company recognizes revenue when the performance obligations are satisfied by transferring control over the good or service to a customer.
The Company’s revenue consists of the following:
Sales of goods:
Sales of goods are and have historically been comprised of sales net of commission of medical devices (ESWL lithotripters and HIFU devices) and net sales of disposables (mostly Ablapaks and Focalpaks in the HIFU division and electrodes in the ESWL division). Sales of goods also includes products such as urology laser and urodynamics devices distributed through our agents and third-party distributors.
For medical device sales with no significant remaining vendor obligation, payments contingent upon customer financing or acceptance criteria that can be subjectively interpreted by the customer or tied to the use of the device, revenue is recognized when evidence of an arrangement exists, title to the device passes (depending on terms, either upon shipment or delivery),devices and the customer has the intent and ability to pay in accordance with contract payment terms that are fixed or determinable. For sales in which payment is contingent upon customer financing, acceptance criteria that can be subjectively interpreted by the customer, or payment depends on use of the device,disposables, revenue is recognized when the contingencyCompany transfers control to the customer (i.e. when the customer has the ability to direct the use of, and obtain substantially all of the remaining benefit from, the device or disposables), which is resolved. Wegenerally at the point of delivery or installation, depending on the terms of the arrangement (i.e. when the customer can use the good to provide trainingservices or sell or exchange the good), and based on contractual incoterms. Such installation related costs are immaterial in the context of the contract with the customer and do not constitute a minimumdistinct performance obligation.
The Company’s sales arrangements do not provide a right of one-yearreturn. The goods are generally covered by a period of one to two years standard warranty upon installation, depending of the geographic area. Over this standard one to two years period, warranty is considered as an extension of such warranty period and constitutes a distinct performance obligation. The Company also provides training associated with the sales of goods; such training-related costs are immaterial in the context of the contract with the customer and do not constitute a maximum of two-year warranty. We accrue the estimated warranty costs at the time of sale. Revenues related to disposables are recognized when goods are delivered.distinct performance obligation.
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Sales of RPPs and leases:
Sales of RPP and leases include the revenues from the sale of treatment procedures and from the leasing of machines. For RPPs, we provide machines to clinics and hospitals for free for a limited period, rather than selling the devices. These hospitals and clinics perform treatments using the devices and leases:
usually pay us based on the number of individual treatments provided. Revenues from leases of machines are considered as immaterial.
Revenues related to the sale of HIFU treatments invoiced on a RPP‘‘Revenue-Per-Procedure’’ (‘‘RPP’’) basis are recognized when the treatment procedure has been completed. Revenues from devices leased to customers under operating leases are recognized on a straight-line basis.
Regarding multiple-element arrangements with a lease component, a portion of the contract is allocated to the lease component on the basis of observable market prices applied by the Company for similar devices under operating leases. The lease component is recognized on a straight line basis over the contractual period. Other immaterial components under the contract are recognized in accordance with their nature.
Sales of spare parts and services:
Revenues related to spare parts are recognized when goodsspare parts are delivered. Maintenancedelivered to distributors who perform their own maintenance services. Spare parts used in the performance of EDAP’s own maintenance and repair services are generally not recognized separately, unless a type of spare part is specifically excluded from the maintenance contract terms.
Revenues related to services mainly consist of maintenance contracts which rarely exceed one year and are recognized on a straight line basis over the term of the service period as the customer benefits from the service throughout the service equally contract period. For services rendered when no maintenance contract is in place or for services not included in the scope of a maintenance contract, revenues are recorded when services are performed.
The Company recognizes revenue for extended warranties included in the multiple-element arrangements as a separate performance obligation in sales of services on a straight-line basis. Billingsbasis over the extended warranty period. In the majority of countries in which the Company operates, the statutory warranty period is one to two years and the extended warranty covers periods beyond this statutory period. Standard warranties do not constitute a separate performance obligation. The Company accrues for the warranty costs at the time of sale of the device through the multiple-element arrangement.
Agents and distributors:
As part of its sale process in countries other than continental France, when the Company does not have a local subsidiary, sales of goods to end-customers are performed through agent and distributors. Such agent and distributors are primarily responsible for the sales’ process, bear the inventory risk, and are free to determine the sale prices. Sales of goods to agents and distributors are recognized at the time of the sale to the related agent or distributor, based on contractual incoterms.
Deferred revenue:
Deferred revenue for the periods presented primarily relates to service contracts where the service fees are billed up-front, generally quarterly or annually, prior to those services having been performed, and consists primarily of billing or cash receipts in advance of services due under maintenance contracts are recorded asor extended warranty contracts. The associated deferred revenue.revenue is generally recognized ratably over the service period.
Disaggregation of revenue:
Disaggregation by primary geographical market, and timing of revenue recognition is reported in Note 18.
WarrantsContract Balances:
On May 28, 2013, pursuant to a securities purchase agreement dated May 20, 2013, as amended, the Company issued new ordinary shares in the form of ADSs to selected institutional investors in a registered direct placement (the “May 2013 Placement”) with warrants attached (the “May 2013 Investor Warrants”). The Company also issued warrants to the placement agent, H.C. Wainwright & Co., LLC (the “May 2013 Placement Agent Warrants” and together with the May 2013 Investor Warrants, the “May 2013 Warrants”). As the May 2013 Warrants included an exercise price determined in U.S. dollars while the functional currency of the Company is the euro, the Company determined that the May 2013 Warrants should be accounted for as a liability.
Details on contract liabilities are reported on Note 11.
The Company usedapplies the Black-Scholes pricing modelpractical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. This relates mainly to value the May 2013 Warrants at inception, with changes in fair value recorded as a financial expense or income.maintenance services.
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On April 14, 2016, pursuant to a securities purchase agreement dated April 7, 2016, the Company issued new ordinary shares in the formTable of ADSs to selected institutional investors in a registered direct placement (the “April 2016 Placement”) with warrants attached (the “April 2016 Investor Warrants”). As the April 2016 Warrants comprised the same structure and provisions than the May 2013 Warrants, including an exercise price determined in U.S. dollars while the functional currency of the Company is the Euro, the Company determined that the April 2016 Warrants should be accounted for as a liability.Contents
The Company used the Black-Scholes pricing model to value the April 2016 Warrants at inception, with changes in fair value recorded as a financial expense or income.
Allowance for Doubtful Accounts
We evaluate the collectability of our accounts receivable based on the individual circumstances of each customer on a quarterly basis. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us (e.g., bankrupcybankruptcy filings, substantial downgrading of credit scores), we record a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe we will collect. If circumstances change (i.e. higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to us), our estimates of the recoverability of amounts due to us could be reduced by a material amount.
Operating Results
Overview
Overview
The recent reorganization of our activities into three divisions clarified our vision and enhanced our financial reporting of our three businesses HIFU, ESWL and Distribution. This new structure also allows for an improved measurement of our business progress.
Total revenues of the Company include sales of our medical devices and sales of disposables (“sales of goods”), sales of RPPs and leases, and sales of spare parts and services, all net of commissions, as well as other revenues.
Sales of goods have historically been comprised of net sales of medical devices (ESWL(HIFU devices, ESWL lithotripters and HIFUother third-parties devices) and net sales of disposables (mostly Ablapaks and Focalpaks in the HIFU division, and electrodes in the UDSESWL division and disposables from third-parties’ devices marketing by the Distribution division). Sales of goods also included products such as urology laser and urodynamics devices distributed through our agents and third-party distributors. The sale price of our medical devices is subject to variation based on a number of factors, including market competition, warranties and payment terms. Consequently, a particular sale of a medical device may, depending on its terms, result in significant fluctuations in the average unit sale price of the product for a given period, which may not be indicative of a market trend.
Sales of RPP and leases mainly include the revenues recording in the HIFU division from the sale of Ablatherm and Focal One treatment procedures and from the leasing of Ablatherm and Focal One machines.devices. We provide Ablatherm and Focal One machinesdevices to clinics and hospitals for free for a limited period, rather than selling the devices. These hospitals and clinics perform treatments using the devices and usually pay us based on the number of individual treatments provided. With this business model, the hospital or clinic does not make an initial investment until the increase in patient demand justifies the purchase of a HIFU machine.device. Consequently, we are able to make Ablatherm or Focal One treatments available to a larger number of hospitals and clinics, which we believe should serve to create more long-term interest in the product. Compared to the sale of devices, this business model initially generates a smaller, although more predictable stream of revenue and, if successful, should lead to more purchases of Ablatherm and Focal One machinesdevices by hospitals and clinics in the long term.
Regarding sales of lithotripters as recorded in our ESWL division, we believe that the market for ESWL lithotripters is now mature and has become primarily a replacement and maintenance market, with intense competition. As a result, we expect total market volumes for our ESWL Division to remain stable in the foreseeable future. In addition, following the discontinuation of our Sonolith i-sys lithotripter in 2020 and of our developments in lithotripsy, including the development of our Endo-UP platform, our ESWL revenues will be mainly stemming from sales of Sonolith i-move lithotripters as well as revenues from sales of maintenance contracts and spare parts.
Revenues recorded in our Distribution division include sales of complementary products such as lasers, micro-ultrasound systems and other products from third parties, including the associated disposables and maintenance contracts.
Sales of spare parts and services include revenues arising from maintenance services furnished by us for the installed base of ESWL lithotripters, HIFU devices and HIFU devices.
complementary products from third parties.
We derive a significant portion of both net sales of medical devices and consumablesdisposables and net sales of spare parts and services from our operations in Asia, through our wholly-owned subsidiaries or representative offices in Japan (Edap Technomed Co. Ltd), Malaysia (Edap Technomed Sdh Bhd) and South Korea (Edap Technomed Korea). Net sales derived from our operations in Asia represented approximately 38% of our total consolidated net sales in 2017.2020. Net sales of goods in Asia represented approximately 46%43% of such sales in 20172020 and consisted mainly of sales of urology devices and consumables.disposables. Net sales of spare parts, supplies and services in Asia represented approximately 39% of such sales in 20172020 and related primarily to ESWL lithotripters, reflecting the fact that approximately 43%51% of the installed base of our ESWL lithotriptersthat we actively maintain or otherwise serve is located in Asia. See Note 2718 of our consolidated financial statements. We sell our products in many parts of the world and, as a result, our business is affected by fluctuations in currency exchange rates. We are exposed to foreign currency exchange rate risk because the mix of currencies in which our costs are denominated is different from the mix of currencies in
36
which we earn revenues. In 2017, approximately 77%2020, 74% of our costs of sales and research and development, selling, marketing and general and administrative expenses were denominated in euro, while approximately 45%49% of our sales were denominated in currencies other than euro (primarily the U.S. Dollar and Japanese yen). Our operating profitability could be materially affected by large fluctuations in the rate of exchange between the euro and such other currencies. To minimize our exposure to exchange rate risks, we sometimes use certain financial instruments for hedging purposes. See Item 3, ‘‘Key Information—Risk Factors—We sell our products in many parts of the world and, as a result, our business is affected by fluctuations in currency exchange rates’rates’’ and Item 11, ‘‘Quantitative and Qualitative Disclosures About Market Risk’Risk’’ for a description of the impact of foreign currency fluctuations on our business and results of operations.
Reserves for slow-moving and obsolete inventory are determined based upon quarterly reviews of all inventory items. Items which are not expected to be sold or used in production, based on management’s analysis, are written down to their net realizable value, which is their fair market value or zero in the case of spare parts or disposable parts for devices that are no longer in commercial production.
Consolidated research and development expenses include all costs related to the development of new technologies and products and the enhancement of existing products, including the costs of organizing clinical trials and of obtaining patents and regulatory approvals. We do not capitalize any of our research and development expenses, except for the expenses relating to the production of machines to be used in clinical trials and that have alternative future uses as equipment or components for future research projects.
Consolidated research and development expenses, as described above, amounted to €3.9€4.5 million, €3.9€3.7 million and €2.7€4.1 million in 2017, 20162020, 2019 and 2015,2018, respectively, representing approximately 10.9%10.8%, 10.9%8.3% and 8.4%10.4% of total revenues in 2017, 20162020, 2019 and 2015,2018, respectively. Consolidated research and development expenses included researchResearch and development government grants and tax credits are deducted from our consolidated research and development expenses for amounts of €0.7 million, €0.7€1.0 million and €0.6€0.8 million in 2017, 20162020, 2019 and 2015,2018, respectively. Research and development expenses included net impact of allowances for depreciation of prototypes and parts in inventory of €0.5 million in 2020, following the decision to discontinue the Endo-Up platform program. Beginning in 2018,2021, management expects the budget for research and development expenses in Europe to increase at approximately 13%11.5% of total revenues, which we expect will allow us to maintain our strategy to launch new clinical studies (thus strengthening our clinical credibility), to continue to focus our efforts on obtaining regulatory approvals in the U.S. and in Japan in particular, and to build reimbursement coverage in key countries and particularly in the U.S., to continue to develop our HIFU and ESWL product range and to fund projects to expand the use of HIFU beyond the treatment of prostate cancer.
Consolidated selling and marketing expenses amounted to €9.5€9.3 million in 2017, €8.92020, €10.9 million in 20162019 and €7.4€10.6 million in 2015.2018. Selling and marketing expenses included net impact of allowances for doubtful accounts of €0.1 million in 2017, €(0.02)2020, €0.1 million in 20162019 and €0.02€0.4 million in 2015.2018. The €0.7€1.6 million or 7.6% increase14.5% decrease in selling and marketing expenses from 20162019 to 20172020 was primarily a result of the increasedecrease in global sales and marketing activity.activity in a COVID-19 context (cancelation of congresses, limitation of business trips, etc.). Management expects marketing and sales efforts to stay at significantget back to higher levels as soon as the sanitary situation returns to normal and in the future to consolidate the Ablatherm and Focal One HIFU technology’s status as a standard of care for prostate pathologies, in Europe, and to sustain the Company’s worldwide market position in urology. Beginning in 2018,2021, management expects selling and marketing expenses to continue to increase in view of the Company’s expansion.
In 2017, 2016 and 2015, our UDS sales activity benefited from the success of our Sonolith i-sys device and our Sonolith i-move device, together withasustained commercial effort in distributing additional urology devices which allowed us to capture market share worldwide. We believe that the market for ESWL lithotripters is now mature and has become primarily a replacement and maintenance market, with intense competition. As a result, we expect total market volumes for our UDS Division to remain stable in the foreseeable future.
We believe that our results of operations in the near future will be affected by our ability to grow our sales volumes both in the prostate cancer and the lithotripsy markets, along with our ability to control expenses in connection with the development, marketing and commercial expansionacceleration of HIFU adoption in the U.S.
The novel COVID-19 virus which has profoundly impacted the whole worldwide economy in 2020 represents a new challenge for prostate cancerus all. We continue to closely monitor the situation and other applications worldwide, .have implemented numerous precautions and protective measures to safeguard our employees and to ensure an uninterrupted supply of our devices and disposables, including requiring the majority of our employees to work remotely, adjusting supply chain activity and curtailing all business travel. In the near term, we expect this situation to continue to cause decreased activity in our recurring usual business activity with some cancellations of ESWL and HIFU treatments. We also anticipate that device sales projects may be postponed on a near-term basis as hospital purchase and investment decisions are put on hold. However, our sales cycles are long and we have in inventory several devices and accessories that are ready to be shipped when order activity resumes. The Company therefore believes to be well positioned to resume delivery activities as soon as that becomes possible. Importantly, in this unique and unknown global crisis, EDAP has a solid cash position, which is expected to minimize disruption to the extent possible. See Item 3. ‘‘—Risk Factors” and “—Liquidity and Capital Resources.Resources.’’
37
Fiscal Year Ended December 31, 20172020 Compared to Fiscal Year Ended December 31, 20162019
We report our segment information on a “net contribution” basis. See Note 29 to our consolidated financial statements.
| | | | | |
(in millions of euros) |
| 2020 |
| 2019 |
|
Total revenues |
| 41.7 |
| 44.9 | |
Total net sales |
| 41.6 |
| 44.9 | |
Of which HIFU |
| 11.4 |
| 14.1 | |
Of which ESWL |
| 12.9 |
| 14.2 | |
Of which DISTRIBUTION |
| 17.3 |
| 16.6 | |
Total cost of sales |
| (23.3) |
| (23.9) | |
Gross profit |
| 18.4 |
| 21.0 | |
Gross profit as a percentage of total net sales |
| 44.1 | % | 46.8 | % |
Total operating expenses |
| (18.1) |
| (18.8) | |
Income (loss) from operations |
| 0.3 |
| 2.2 | |
Net income (loss) |
| (1.7) |
| 1.5 | |
Total revenues
Our total revenues decreased 7.2% from €44.9 million in 2019 to €41.7 million in 2020.
HIFU division.
The HIFU division’s total revenues decreased by 19.1% from €14.1 million in 2019 to €11.4 million in 2020, reflecting the impact of the ongoing COVID-19 pandemic on both procedure volumes and equipment sales.
The HIFU division’s net sales of medical devices decreased 22.7% to €4.5 million in 2020, with two Ablatherm units and ten Focal One units sold, as compared to €5.9 million, with two Ablatherm units and eleven Focal One units sold in 2019.
Treatment-driven revenue, which includes net sales of RPP & leases, net sales of disposables and treatments related services, decreased by 20.1% to €5.6 million in 2020.
Net sales of HIFU maintenance services increased from €1.2 million in 2019 to €1.3 million in 2020 thanks to the increase of the installed base under contract after the warranty period.
Other HIFU-related revenues decreased to €12 thousand in 2020 from €52 thousand in 2019 and were comprised of license-based revenues from Theraclion and training to customers.
ESWL division.
The ESWL division’s total revenues decreased 9.2% from €14.2 million in 2019 to €12.9 million in 2020, primarily due to the impact of the COVID-19 pandemic on both procedure volumes and equipment sales.
The ESWL division’s net sales of medical devices decreased 4.9% from €5.4 million in 2019 to €5.2 million in 2020 with 33 ESWL devices sold in 2020 compared to 28 ESWL units sold in 2019 due to a change in the mix of products.
Net sales of ESWL-related consumables, spare parts, supplies, RPP, leasing and services decreased 11.9% from €8.7 million in 2019 to €7.7 million in 2020.
Distribution division.
The Distribution division’s total revenues increased 4.6% from €16.6 million in 2019 to €17.3 million in 2020, primarily due to the development of Exact Imaging sales and in spite of the adverse impact of the sanitary crisis on the company’s activities.
The Distribution division’s net sales of medical devices slightly decreased 2.8% from €10.9 million in 2019 to €10.6 million in 2020.
Net sales of Distribution-related consumables, spare parts, supplies, RPP, leasing and services increased 18.7% from €5.7 million in 2019 to €6.8 million in 2020 due to the increase of the installed base under contract after the warranty period.
38
Cost of sales.
Cost of sales decreased 2.6% from €23.9 million in 2019 to €23.3 million in 2020, and represented 55.9% as a percentage of net sales in 2020, up from 53.3% as a percentage of net sales in 2019. This effect is driven primarily by the decrease in the percentage of HIFU revenue to overall revenue (since HIFU activity has better margin than the former UDS division that combined both ESWL and Distribution); and the effect of the decrease of net sales on the fixed costs.
Operating expenses.
Operating expenses decreased 3.7%, or €0.7 million, from €18.8 million in 2019 to €18.1 million in 2020.
Marketing and sales expenses decreased €1.6 million, or 14.5% to €9.3 million in 2020, reflecting the slowdown in sales and marketing activities in the COVID-19 context.
Research and development expenses increased 20.6% at €4.5 million in 2020 from €3.7 million in 2019, which included non-recurring Endo-up platform program discontinuation cost of €0.5 million, and are net of R&D grants and tax credits of €0.7 million in 2020, €1.0 million in 2019.
General and administrative expenses increased 2.6% to €4.3 million in 2020. General and administrative expenses included net impact of allowances for contingencies linked to bank fraud of €0.1 million in 2020
Operating profit (loss).
As a result of the factors discussed above, we recorded a consolidated operating income of €0.3 million in 2020, as compared to a consolidated operating income of €2.2 million in 2019.
We realized an operating loss in the HIFU division of €0.4 million in 2020, as compared with an operating profit of €0.5 million in 2019, an operating profit in the ESWL division of €1.1 million in 2020, as compared to an operating profit of €1.6 million in 2019, and an operating profit in the Distribution division of €1.1 million in 2020, as compared to an operating profit of €1.4 million in 2019.
Financial (expense) income, net.
Net financial expense was €0.1 million in 2020, compared with a net financial expense of €0.1 million in 2019.
Foreign currency exchange gain (loss), net.
In 2020, we recorded a net foreign currency exchange loss of €1.4 million, mainly due to the variation of the Euro against the U.S. Dollar, compared to an income of €0.1 million in 2019.
Income taxes.
Income tax was an expense of €0.5 million in 2020, compared to an expense of 0.7 million in 2019, reflecting the decrease of the Income before taxes
Net income / (loss).
As a result of the above, we realized a consolidated net loss of €1.7 million in 2020 compared with a consolidated net income of €1.5 million in 2019.
39
Fiscal Year Ended December 31, 2019 Compared to Fiscal Year Ended December 31, 2018
We report our segment information on a “net contribution” basis, so that each segment’s results comprise the elimination of our intra-group revenues and expenses and thus reflect the true contribution to consolidated results of the segment. See Note 2629 to our consolidated financial statements.
| | | | | |
(in millions of euros) |
| 2019 |
| 2018 |
|
Total revenues |
| 44.9 |
| 39.2 | |
Total net sales |
| 44.9 |
| 39.2 | |
Of which HIFU |
| 14.1 |
| 11.0 | |
Of which ESWL |
| 14.2 |
| 14.5 | |
Of which Distribution |
| 16.6 |
| 13.7 | |
Total cost of sales |
| (23.9) |
| (22.3) | |
Gross profit |
| 21.0 |
| 16.9 | |
Gross profit as a percentage of total net sales |
| 46.8 | % | 43.2 | % |
Total operating expenses |
| (18.8) |
| (18.2) | |
Income (loss) from operations |
| 2.2 |
| (1.3) | |
Net income (loss) |
| 1.5 |
| (0.3) | |
(in millions of euros) | 2017 | 2016 | ||||||
Total revenues | 35.7 | 35.6 | ||||||
Total net sales | 35.7 | 35.6 | ||||||
Of which HIFU | 9.5 | 13.8 | ||||||
Of which UDS | 26.2 | 21.8 | ||||||
Total cost of sales | (20.9 | ) | (19.2 | ) | ||||
Gross profit | 14.8 | 16.4 | ||||||
Gross profit as a percentage of total net sales | 41.5 | % | 46.1 | % | ||||
Total operating expenses | (16.8 | ) | (16.0 | ) | ||||
Income (loss) from operations | (2.0 | ) | 0.4 | |||||
Net income (loss) | (0.7 | ) | 3.8 |
Total revenues
Our total revenues increased 0.4%14.6% from €35.7€39.2 million in 20162018 to €35.6€44.9 million in 2017.
2019.
HIFU division. The HIFU division’s total revenuesdecreased increased by 31.2% to €9.528.1% from €11.0 million in 2017 as compared2018 to €13.8€14.1 million in 2016.
2019.
The HIFU division’s net sales of medical devices decreased 70.7%increased 63.8% to €2.3€5.9 million in 2017,2019, with two Ablatherm units and threeeleven Focal One units sold,, as compared to€7.8 €3.6 million, with sixone Ablatherm and eightsix Focal One units sold in 2016.
2018. This growth is primarily driven by the U.S. market activity since we sold nine HIFU devices in the U.S. in 2019 as compared to two in 2018.
Treatment-driven revenue, which includes net sales of RPP & leases, net sales of consumablesdisposables and treatments related services, increased 12.9%by 15.3% to €6.1€7.0 million in 2017.
2019.
Net sales of HIFU maintenance services increasedslightly decreased from €0.6€1.3 million in 20162018 to €1.1€1.2 million in 2017.
2019 in spite of the increase of the installed base, since new sold machines are still under warranty.
Other HIFU-related revenues increased to €36€52 thousand in 20172019 from €28€19 thousand in 20162018 and were comprised of license-based revenues from Theraclion.Theraclion and training to customers.
UDSESWL division. The UDSESWL division’s total revenues decreased 2.0 % from €14.5 million in 2018 to €14.2 million in 2019, mostly due to the decrease in medical devices revenues.
The ESWL division’s net sales of medical devices decreased 7.6% from €5.9 million in 2018 to €5.4 million in 2019 with 28 ESWL devices sold in 2019 compared to 33 ESWL units sold in 2018.
Net sales of ESWL-related consumables, spare parts, supplies, RPP, leasing and services slightly increased 1.9% from €8.6 million in 2018 to €8.7 million in 2019.
Distribution division. The Distribution division’s total revenues increased 20.421.4 % from €21.8€13.7 million in 20162018 to €26.2€16.6 million in 2017,2019, mostly due to the increase in machine salesdistribution products both in machines and maintenanceconsumables revenues.
The UDSDistribution division’s net sales of medical devices increased 23.6%15.0% from €12.2€9.5 million in 20162018 to €15.1€10.9 million in 2017 with 40 ESWL devices sold2019. The increase was primarily driven by the growth in 2017 compared to 36 ESWL units soldthe sales of lasers in 2016.
Japan.
Net sales of UDS-relatedDistribution-related consumables, spare parts, supplies, RPP, leasing and services increased 16.1%35.7% from €9.6€4.2 million in 20162018 to €11.1€5.7 million in 2017,2019, as a result of the largergrowing installed base of UDS machines and the developmentdistribution machines.
40
Cost of sales.
sales.
Cost of sales increased 9.1%7.4% from €19.2€22.3 million in 20162018 to €20.9€23.9 million in 2017,2019, and represented 58.7%53.3% as a percentage of net sales in 2017, up2019, down from 54.0%56.9% as a percentage of net sales in 2016, due2018. This improvement is driven primarily by the increase in the percentage of HIFU revenue to overall revenue (since HIFU activity has better margin than the decrease in HIFU revenuesformer UDS division that combined both ESWL and Distribution); and the adverse mix between HIFU and UDS division, as HIFU margins are higher than UDS margins.
effect of the increase of net sales on the fixed costs.
Operating expensesexpenses..
Operating expenses increased 5.1%3.1%, or €0.8€0.6 million, from €16.0€18.2 million in 20162018 to €16.8€18.8 million in 2017.
2019.
Marketing and sales expenses increased €0.7€0.3 million, or 7.6%2.8% at €9.5€10.9 million, reflecting the sales and marketing efforts on expanding the business.
Research and development expenses increased 0.4%decreased 8.8% at €3.9€3.7 million in 20172019 from €3.9€4.1 million in 2016, mainly driven by HIFU development projects2018, which included regulatory expenses for the Focal One clearance in the U.S., and comprisedare net of R&D grants and tax credits of €0.7€1.0 million in 20172019 and 2016.
€0.8 million 2018.
General and administrative expenses increased 4.0%17.6% to €3.4€4.2 million in 2017,2019, mainly due to the higher level of activity and the implementation of the SAP program.
Operating profit (loss)..
As a result of the factors discussed above, we recorded a consolidated operating lossincome of €2.0€2.2 million in2017, 2019, as compared to a consolidated operating profitloss of €0.4€1.3 million in 2016.2018.
We realized an operating loss in the HIFU division of €2.7 million in 2017, as compared with an operating profit of €1.0 million in 2016, and an operating profit in the UDS division of €2.1 million in 2017, as compared to an operating profit of €0.7 million in 2016.
Financial (expense) income, net. Net financial income was €2.6 million in 2017, including a €2.7 million income for fair value adjustments on the outstanding warrants, compared with anet financial incomeof €3.9 million in 2016, including a €3.8 million income due to fair value adjustments.
Foreign currency exchange gains (loss), net. In 2017, we recorded a net foreign currency exchange loss of €0.9 million, mainly due to the variation of the Euro against the U.S. Dollar and the Japanese Yen, compared to an income of €0.1 million in 2016.
Income taxes. Income tax was an expense of €0.4 million in 2017 and €0.6 million in 2016.
Netincome / (loss)
As a result of the above, we realized a consolidated net loss of €0.6 million in 2017 compared with a consolidated net income of €3.8 million in 2016.
Fiscal Year Ended December 31, 2016 Compared to Fiscal Year Ended December 31, 2015
We report our segment information on a “net contribution” basis, so that each segment’s results comprise the elimination of our intra-group revenues and expenses and thus reflect the true contribution to consolidated results of the segment. See Note 27 to our consolidated financial statements.
(in millions of euros) | 2016 | 2015 | ||||||
Total revenues | 35.6 | 32.3 | ||||||
Total net sales | 35.6 | 32.2 | ||||||
Of which HIFU | 13.8 | 8.5 | ||||||
Of which UDS | 21.8 | 23.8 | ||||||
Total cost of sales | (19.2 | ) | (18.5 | ) | ||||
Gross profit | 16.4 | 13.8 | ||||||
Gross profit as a percentage of total net sales | 46.1 | % | 42.8 | % | ||||
Total operating expenses | (16.0 | ) | (13.3 | ) | ||||
Income (loss) from operations | 0.4 | 0.5 | ||||||
Net income (loss) | 3.8 | (1.7 | ) |
Total revenues
Our total revenues increased 10.4% from €32.3 million in 2015 to €35.6 million in 2016, principally due to the increase in HIFU machine sales.
HIFU division. The HIFU division’s total revenuesincreased 63.0% to €13.8 million in 2016 as compared to €8.5 million in 2015.
The HIFU division’s net sales of medical devices increased 110.9% to €7.8 million in 2016, with six Ablatherm units and eight Focal One units sold, as compared to€3.7 million, with two Ablatherm and five Focal One units sold in 2015.
Treatment-driven revenue, which includes net sales of RPP & leases and net sales of consumables, increased 25.8% to €5.2 million in 2016.
Net sales of HIFU-related spare parts, and services increased from €0.7 million in 2015 to €0.9 million in 2016.
Other HIFU-related revenues were €28 thousand from €32 thousand in 2015 and were comprised of license-based revenues from Theraclion.
UDS division. The UDS division’s total revenues decreased 8.3 % from €23.8 million in 2015 to €21.8 million in 2016, mostly due to the decrease in machine sales.
The UDS division’s net sales of medical devices decreased 15.5% from €14.5 million in 2015 to €12.2 million in 2016 with 36 devices sold in 2016 compared to 52 units sold in 2015.
Net sales of UDS-related spare parts, supplies, RPP, leasing and services increased 2.8% from €9.3million in 2015 to €9.6 million in 2016, as a result of the larger installed base of UDS machines and despite the Japanese authorities’ decision to stop reimbursing lithotripters’ disposables.
Cost of sales.
Cost of sales increased 4.0% from €18.5 million in 2015 to €19.2 million in 2016, and represented 54.0% as a percentage of net sales in 2016, down from 57.3% as a percentage of net sales in 2015, thanks primarily to the strong growth in HIFU sales.
Operating expenses.
Operating expenses increased 20.5%, or €2.7 million, from €13.3 million in 2015 to €16.0 million in 2016. This increase in operating expenses included an adverse exchange rate impact of €0.3 million.
Marketing and sales expenses increased €1.5 million, or 19.6%, reflecting the sales and marketing efforts on expanding the HIFU business.
Research and development expenses increased 43.8% at €3.9 million in 2016 from €2.7 million in 2015, mainly driven by HIFU development projects and comprised R&D grants and tax credits of €0.7 million and €0.6 million in 2016 and 2015, respectively, including costs of the FDA approval of €0.3 million in 2015. Following the Ablatherm FDA clearance received on November 9, 2015, there is no more cost recorded on this segment activity in 2016 compared to €0.3 million recorded in 2015.
General and administrative expenses increased 2.9% to €3.3 million in 2016.
Operating profit.
As a result of the factors discussed above, we recorded a consolidated operating profit of €0.4 million in2016,as compared to a consolidated operating profit of €0.5 million in 2015.
We realized an operating profit in the HIFU division of €1.0€0.5 million in 2016,2019, as compared with an operating loss of €2.3 million in 2018, an operating profit in the ESWL division of €1.1 million in 2019, as compared to an operating profit of €1.8 million in 2018, and an operating profit in the Distribution division of €1.1 million in 2019, as compared to an operating profit of €0.5 million in 2015, and an operating profit in the UDS division of €0.7 million in 2016, as compared to an operating profit of €1.6 million in 2015.
2018.
Financial (expense) income, netnet..
Net financial incomeexpense was €3.9€0.1 million in 2016, including a €3.8 million income for fair value adjustments on the outstanding warrants,2019, compared with anet financial expenseincome of €2.1€0.8 million in 2015,2018, including a €2.4€0.9 million expenseincome due to fair value adjustments.
adjustments of warrants. There were no more outstanding warrants at the end of 2018 and 2019.
Foreign currency exchange gainsgain (loss), netnet..
In 2016,2019, we recorded a net foreign currency exchange income of €0.1 million, mainly due to the variation of the Euro against the U.S. Dollar and the Japanese Yen, compared to an income of €0.7€0.5 million in 2015.
2018.
Income taxestaxes..
Income tax was an expense of €0.6€0.7 million in 2016 and €0.82019, compared to an expense of 0.4 million in 2015.
2018, reflecting the growth of the Income before taxes
Netincome / (loss)(loss).
As a result of the above, we realized a consolidated net income of €3.8€1.5 million in 20162019 compared with a consolidated net loss of €1.7€0.3 million in 2015.2018.
Effect of Inflation
Management believes that the impact of inflation was not material to our net sales or loss from operations in the three years ended December 31, 2017.
2020.
Liquidity and Capital Resources
Our cash flow has historically been subject to significant fluctuations over the course of any given financial year due to cyclical demand for medical devices. Cyclical demand has historically resulted in significant annual and quarterly fluctuations in trade and other
41
receivables and inventories, and therefore led to significant variations in working capital requirements and operating cash flows that were not necessarily indicative of changes in our business. We believe our working capital is sufficient for our present working capital requirements although we have in the past experienced negative cash flows and associated risks to liquidity, and may in the future experience the same. Our cash flow situationis described in more detail below.
We anticipate that cash flow in future periods will be derived mainly from ongoing operations. As of the date of this annual report we do not employ any off-balance sheet financing. Because we anticipate relying principally on cash and cash equivalent balances to meet our liquidity requirements, a decrease in the demand for our products, or the inability of our customers to meet their financial obligations to us due to operating difficulties or adverse market conditions, would reduce the availability of funds to us. As our expansion plans in the United States are implemented, we anticipate additional capital resources may be needed to implement our strategy.
| | | | | | |
(in thousands of euros) |
| 2020 |
| 2019 |
| 2018 |
Net cash generated by/(used in) in operating activities |
| 1,977 |
| 3,800 |
| 175 |
Net cash generated by/(used in) in investing activities |
| (2,011) |
| (1,532) |
| (1,569) |
Net cash generated by/(used in) in financing activities |
| 3,201 |
| (664) |
| 1,178 |
Net effect of exchange rate changes |
| 642 |
| (182) |
| (323) |
Net increase/(decrease) in cash and cash equivalents |
| 3,810 |
| 1,422 |
| (539) |
Cash and cash equivalents at the beginning of the year |
| 20,886 |
| 19,464 |
| 20,004 |
Cash and cash equivalents at the end of the year |
| 24,696 |
| 20,886 |
| 19,464 |
(in thousands of euros) | 2017 | 2016 | 2015 | |||||||||
Net cash generated/(used) in operating activities | (3,058 | ) | 1,209 | 1,213 | ||||||||
Net cash generated/(used) in investing activities | (2,033 | ) | (384 | ) | (541 | ) | ||||||
Net cash generated/(used) in financing activities | 2,871 | 7,604 | 2,112 | |||||||||
Net effect of exchange rate changes | 235 | (19 | ) | (347 | ) | |||||||
Net increase/(decrease) in cash and cash equivalents | (1,985 | ) | 8,410 | 2,436 | ||||||||
Cash and cash equivalents at the beginning of the year | 21,989 | 13,578 | 11,142 | |||||||||
Cash and cash equivalents at the end of the year | 20,004 | 21,989 | 13,578 | |||||||||
Total cash and cash equivalents, and short-term investments at the end of the year | 20,004 | 21,989 | 14,578 |
Our cash position as of December 31, 2017, 20162020, 2019 and 2015,2018, was €20.0€24.7 million (with no short-term treasury investments), €22.0€20.9 million (with no short-term treasury investments) and €14.6€19.5 million (including €1.0 million of(with no short-term treasury investments), respectively. We experienced positive cash flows of €3.8 million in 2020, positive cash flows of €1.4 million in 2019 and negative cash flows of €2.0€0.5 million in 2017 and positive cash flows of €8.4 million in 2016 and €2.4 million in 2015.
2018.
In 2017,2020, our positive net cash flow was primarily due to net cash generated by financing activities which included COVID-related assistance loans for €4.6 million. In 2019, our positive net cash flow was primarily due to the high level of cash generated by operating activities, partly offset by cash used in investing activities and net cash used in financing activities which included a repayment of long term borrowing (€1.1 million). In 2018, our negative net cash flow was primarily due to the negative cash flow from operations and the high level of cash used in investing activities. In 2016, our positiveactivities partly offset by net cash flow was due togenerated by financing activities which included the April 2016 Placement and our positive cash flow from operations. new Long Term debt (€1.0 million) granted during the year.
In 2015, our positive2020, net cash flow was due to a positive cash flow from operations and to warrant exercises for €1.1 million.
In 2017, net cash used ingenerated by operating activities was €3.1€2.0 million compared with net cash generated by operating activities of€1.2of €3.8 million in 20162019, and compared with net cash generationgenerated by operating activities of €1.2€0.2 million in 2015.
2018.
In 2017,2020, net cash used ingenerated by operating activities reflected principally:
- | a net loss of |
- | elimination of €3.8 million of net loss without effects on cash, including €2.1 million of depreciation and amortization, €0.7 million of change in allowances for doubtful accounts & slow-moving inventories and €0.5 million in long term provisions and €0.2 million of non-cash compensation linked to stock-options plans; and |
- | a slight increase in working capital of €0.1 million reflecting the slowdown of activity due to the COVID-19, offset by the high level of net |
In 2019, net cash generated by operating activities reflected principally:
- | a net income of €1.5 million; |
- | elimination of €2.3 million of net loss without effects on cash, including €1.9 million of depreciation and amortization and €0.3 million of non-cash compensation linked to stock-options plans; and |
- | an unchanged level in working capital reflecting the growth of activity on the inventories level, offset by the lower level of net sales recorded in December 2019 as compared to December 2018. |
In 2018, net cash generated by operating activities reflected principally:
- | a net loss of €0.3 million; |
42
- | elimination of €1.8 million of net loss without effects on cash, including a gain of |
- | an increase in |
In 2016, net cash generated in operating activities reflected principally:
In 2015, net cash generated in operating activities reflected principally:
In 2017,2020, net cash used in investing activities was €2.0 million compared with net cash used of €0.4 million in investing activities of €1.5 million in 20162019 and compared with net cash used in investing activities of €0.5 thousand€1.6 million in 2015.
2018.
Net cash used in investing activities of €2.0 million in 20172020 reflected investments of €1.0 million in capitalized assets produced by the Company, mostly for RPP activity (€0.5 million) and R&D program (€0.3 million) and investment of €1.0 million in property, equipment and software (including new Enterprise Resource Planning “ERP” implementation for €0.5 million), and net proceeds from sales of leased-back assets of €0.1 million.mainly:
- | investments of €1.3 million in capitalized assets produced by the Company: devices for RPP activity (€0.1 million), HIFU treatments probes (€0.9 million) and R&D program (€0.1 million); and |
- | investment of €0.5 million in property, equipment (including €0.4 million of laser and Exact Imaging equipments for demo and RPP) and IT and offices equipment (€0.1 million). |
Net cash used in investing activities of €0.4€1.5 million in 20162019 reflected investments of €0.9 million in capitalized assets produced by the Company, mostly for commercial demonstrations, training and RPP activity and investment of €0.5 million in property, equipment and software, and net proceeds from sales of short term investments of €1,0 million.mainly:
- |
- | investment of €0.4 million in property, equipment (including €0.2 million of equipment for demo) and IT and offices equipment (€0.2 million). |
Net cash used in investing activities of €0.5€1.6 million in 2015 reflected investments of €0.5 million in capitalized assets produced by the Company, mostly for commercial demonstrations, training and RPP activity and investment of €0.2 million in property, equipment and software, net proceeds from sales of leased-back assets of €0.1 million and net proceeds from sales of assets of €26 thousand.2018 reflected:
- | investments of €0.8 million in capitalized assets produced by the Company (devices), mostly for RPP activity (€0.3 million) and R&D program (€0.5 million); |
- | investment of €1.1 million in property, equipment (including €0.3 million of equipment for mobile activity) and software (including new Enterprise Resource Planning “ERP” implementation for €0.4 million); and |
- | net proceeds from sales of leased-back assets of €0.4 million. |
In 2017,2020, net cash generated in financing activities was €2.9€3.2 million compared with net cash used in financing activities of €0.7 million in 2019 compared with net cash generated in financing activities of €7.6€1.2 million in 2016 and net cash generated in financing activities of €2.1 million in 2015.
2018.
Net cash generated in financing activities of €2.9€3.2 million in 20172020 reflected principally the net proceeds of €0.7 million from the exercise of stock options and warrants, but also new long term borrowings of €0.8 million related to new investments financing, €0.8 million of conditional advances to finance research HECAM project, repayment of long-term borrowings and lease financing for €0.5 million and an increase of short-term borrowings of €1.1 million.
Net cash generated in financing activities of €7.6 million in 2016 reflected principally the €9.2 million net proceeds from the April 2016 Placement and the net proceeds of €0.1 million from the exercise of warrants, repaymentstock options, new long terms borrowings for €4.8 million (mainly composed of short-termCOVID-19 government assistance programs: € 4.0 million guaranteed by the French government, €0.4 million from Japan and €0.2 million from the U.S. Paycheck Protection Program), the repayments of long-term borrowings and financing lease financing for €1.8€0.8 million and a decrease of short-term borrowings of €0.9 million.
Net cash used in financing activities of €0.7 million in 2019 reflected principally the net proceeds of €0.3 million from the exercise of stock options, the new long term borrowings of €0.7 million in Japan, the repayments of long-term borrowings and financing lease for €1.5 million (including €0.7 million of early repayment in Japan) and a decrease of short-term borrowings of €0.2 million.
Net cash generated in financing activities of €2.1€1.1 million in 20152018 reflected principally the net proceeds of €1.2 million from the exercise of stock options and warrants, but also new long-termlong term borrowings of €0.5€1.0 million €0.2 million of conditional advances to finance research HECAM project,in Germany and Japan, repayment of short-term and long-term borrowings and lease financing for €0.5€0.8 million and an increase of short-term borrowings of €0.7€0.9 million.
Our policy is that our treasury department should maintain liquidity with the use of short-term borrowings and the minimal use of long-term borrowings. The treasury department currently adheres to this objective by using fixed-rate debt, which normally consists of long-term borrowing and with certain long-term borrowings consisting of sale and leaseback equipment financing. Currently the short-term debt consists of account receivables factored and for which the Company is supporting the collection risk. We maintain bank accounts for each of our subsidiaries in the local currencies of each subsidiary. The primary currencies in which we maintain balances are the euro, the U.S. dollar and the Japanese yen. To minimize our exposure to exchange rate risks, we may use certain financial instruments for hedging purposes from time to time. As of December 31, 2017,2020, there were no outstanding hedging instruments. See Notes 13 and 14 to the consolidated financial statements for further information on our borrowings.
43
Contractual Obligations and Commercial Commitments as of December 31, 20172020 (in thousands of euro)euros)
| | | | | | | | | | |
| | Payments Due by Period | ||||||||
|
| Total |
| Less than 1 year |
| 1-3 years |
| 4-5 years |
| More than 5 years |
Short-Term Debt | | 2,638 |
| 2,638 |
| — |
| — |
| — |
Long-Term Debt |
| 5,675 |
| 4,532 |
| 732 |
| 356 |
| 54 |
Financing Lease Obligations |
| 899 |
| 344 |
| 456 |
| 93 |
| 5 |
Operating Leases Obligations |
| 1,901 |
| 802 |
| 904 |
| 195 |
| — |
Payments Due by Period | ||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 4-5 years | More than 5 years | ||||||||||||||||
Short-Term Debt | 2,718 | 2,718 | - | - | - | |||||||||||||||
Long-Term Debt | 2,057 | 1,223 | 806 | 29 | - | |||||||||||||||
Capital Lease Obligations | 783 | 269 | 497 | 42 | 5 | |||||||||||||||
Operating Leases | 2,581 | 401 | 1,065 | 642 | 473 | |||||||||||||||
Interest | 33 | 19 | 14 | 1 | - |
NewRecent Accounting Pronouncements
See “
NewNote 1. Summary of Significant Accounting Policies —1.25 Recent Accounting Pronouncements Recently Adopted
In November 2015, the FASB issued ASU No. 2015-17,Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for the Company in its first quarter of fiscal 2017. The Company adopted the ASU 2015-17 retrospectively as of December 31, 2017. Deferred tax assets have been reclassified from current assets to non-current assets for the period ended as of December 31, 2016.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects” of the Notes to Consolidated Financial Statements for a description of recent accounting for share-based payment transactions,pronouncements including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. For public business entities, the amendments in ASU 2016-09 are effective for annual periods beginning after 15 December 2016, and interim periods within those annual periods. No impact has been identified on Financial Statements upon adoption of ASU 2016-09.
New Accounting Pronouncements Not Yet Adopted
In July 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers: Deferral of the Effective Date (ASU 2015-14) which deferred the effective date for ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), by one year. ASU 2014-09 will supersede the revenue recognition requirements in Revenue Recognition (Topic 605) and requires entities to recognize revenue in a way that depicts 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. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which for the Company is January 1, 2018. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The new standard can be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the change recognized at the date of the initial application in retained earnings. The Company reviewed the accounting pronouncement with respect to its current accounting principles and did not identify any impact from implementation. .. The impact to the Company of adopting the new revenue standard primarily relates to additional and expanded disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02), which supersedes ASC 840 “Leases” and creates a new topic, ASC 842 "Leases." This update requires lessees to recognize on their balance sheet a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is expecting that the impact of this update on its consolidated statements will mainly consist of leases for facilities situated in France, Japan and in the U.S. as described in Note 12.2. The Company will adopt the new standard in fiscal 2019. The Company is currently evaluating the effect of this standard on its consolidated financial statements and related disclosures.
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Costs”. The standard requires the service component of pension and other postretirement benefit expense to be presented in the same statement of income lines as other employee compensation costs, however, the other components will be presented outside of operating income. In addition, only the service cost component will be eligible for capitalization in assets. The standard is effective starting in 2018, with early adoption permitted. Retrospective application is required for the guidance on the statement of income presentation. Prospective application is required for the guidance on the cost capitalization in assets. The Company does not believe this standard will materially impact our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment.” This update eliminates step 2 from the goodwill impairment test, and requires the goodwill impairment test to be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective for the Company in the first quarter of 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testingrespective expected dates after January 1, 2017. The Company will assess the timing of adoption and impact of this guidance to future impairment considerations.
In August 2016, the FASB issued ASU 2016-15,“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” ASU 2016-15 identifies how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows under Topic 230. ASU 2016-15 is effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. ASU 2016-15 should be applied retrospectively and early adoption is permitted, including adoption in an interim period. The Company does not believe this standard will materially impactestimated effects, if any, on our consolidated financial statements.
Consolidated Financial Statements.
Research and Development, Patents and Licenses
See Item 5, “—Operating Results—Overview”and Financial Review and Prospects—Operating Results—Overview” and Item 4, ‘‘Information on the Company—HIFU Division—HIFU Division Patents and Intellectual Property’Property’’ and ‘‘Information on the Company—UDSESWL Division—UDSESWL Division Patents and Intellectual Property.’’
The French government provides tax credits to companies for innovative research and development.This tax credit is calculated based on a percentage of eligible research and development costs and it can be refundable in cash.cash.
In 2009, the Company reviewed the presentation of its research tax credit and elected to change for the preferred classification as permitted under ASC 250-10.
The research tax creditamounted to €504 thousand in 2017, €511 thousand in 2016 and €448 thousand in 2015 and was classified as a reduction of research and development expenses.
Off-Balance Sheet Arrangements
At December 31, 2017,2020, we had no off-balance sheet arrangements other than those specified in Notes 2 and 14-1 of our consolidated financial statements.arrangements.
Item 6. Directors, Senior Management and Employees
Senior Executive Officers
The following table sets forth the name, age and position of each of our Senior Executive Officers as of April 3, 2018.7, 2021. The Chief Executive Officer and the Chief Financial Officer listed below have entered into employment contracts with us or our subsidiaries (which permit the employee to resign subject to varying notice periods). In addition, in case of a change of control of the Company, or of a termination of their employment contract by the Company without cause, the Senior Executive Officers are entitled to receive severance packages totaling approximately € 0.6€0.7 million.
44
Name | Position | ||
| | | |
Marc Oczachowski | | Chief Executive Officer of EDAP TMS S.A. and | |
Age: | | President of EDAP TMS France SAS and EDAP Technomed, Inc. | |
| | Marc Oczachowski joined | |
| | | |
François Dietsch | | Chief Financial Officer of EDAP TMS S.A. | |
Age: | | François Dietsch joined EDAP in 2005 as Internal Audit and Consolidation Manager, leading the implementation of internal controls for Sarbanes-Oxley Compliance, consolidation of financial statements from the Company's subsidiaries and preparation of financial statements in accordance with U.S. GAAP, including EDAP's | |
Board of Directors
The following table sets forth the names and backgrounds of the members of the Board of Directors. On March 25, 2020, the Board of Directors accepted the resignation of Mr. Philippe Chauveau as Chairman of the Board and, upon the recommendation of the Company’s Nomination Committee, the Board decided to combine the roles of Chairman of the Board and Chief Executive Officer, as permitted by the Company’s by-laws, and elected Mr. Marc Oczachowski as the new Chairman of the Board of Directors. None of the directors has service contracts with the Company or any of its subsidiaries providing for benefits upon termination of employment. Allemployment (except for those related to Mr. Oczachowski’s position as Chief Executive Officer, provided under his employment agreement). Four Board members out of the Board membersfive are independent within the meaning of NASDAQ Marketplace Rule 5605(2). Four BoardThe mandate of four of our Directors mandates terminate in June 2020was renewed for a new period of six years at the General Meeting of Shareholders held on June 30, 2020 approving the 2019 accounts.accounts for the financial year ended December 31, 2019. Their mandate will expire at the end of the ordinary general meeting of
45
shareholders which will approve the accounts for the financial year ended December 31, 2025, i.e., in the course of 2026. On June 30, 2020, Ms. Marie Meynadier was elected as independent Director in replacement of Mr. Philippe Chauveau.
Marc Oczachowski 51
July 1, 2017 Expiration: |
|
| |
| | | |
Pierre Beysson
78
2014 & 2020) Expiration: | | Pierre Beysson was appointed as a member of the Board of Directors in September 2002. Pierre Beysson was then the Chief Financial Officer of Compagnie des Wagons-Lits ("CWL"), the on-board train service division of Accor, a French multinational Hotel and Business Services Group. In this capacity, he sat on a number of boards of companies related to the Accor Group. Before his assignment at CWL, Pierre Beysson held a number of senior financial positions with Nixdorf Computers, Trane (Air Conditioning), AM International (Office Equipment) and FMC (Petroleum Equipment). Pierre Beysson was trained as a CPA, has auditing experience and holds an MBA from Harvard Business School. | |
46
Argil Wheelock
73
2014 & 2020) Expiration: | | Dr. Argil Wheelock was elected as a member of the | |
| |||
Rob Michiels
71
2014 & 2020) Expiration: | | Rob Michiels was elected as a member of the | |
Marie Meynadier | | Marie Meynadier was elected as a member of the Company’s Board of Directors in June 2020. Ms. Meynadier currently serves on the Boards of Directors of several medical technology companies in Europe and North America. From 1999 through 2018, she served at EOS Imaging as its CEO and led the company through a period of rapid worldwide sales growth, increasing at a CAGR of 32% from 2012 to 2017. Prior to EOS Imaging, Ms. Meynadier served as CEO at Biospace Lab, a preclinical imaging company she developed and turned to profitability. Ms. Meynadier received a degree in electrical engineering from Sup Télécom, Paris, and her Ph.D. in physics from Ecole Normale Supérieure Ulm, Paris. | |
|
|
Compensation
Aggregate compensation paid or accrued for services in all capacities by the Company and its subsidiaries to Senior Executive Officers and to the Board of Directors as a group for the fiscal year 20172020 was approximately €590€536 thousand including performance bonuses of €57€99 thousand and benefits in kind of €54€9 thousand (benefits in kind comprise car allowances for senior management). No amount was set aside or accrued by us to provide pension, retirement or similar benefits for Senior Executive Officers and to the Board of Directors as a group in respect of the year 2017.2020. For information regarding compensation paid in the form of stock options, see “Directors, Senior Management and Employees— -- Share Ownership” and “Directors, Senior Management and Employees— -- Options to Purchase or Subscribe for Securities.”
Compensation Committee
The Compensation Committee is comprised of the following independent members: Mr. Philippe Chauveau, Mr. Pierre Beysson, Dr. Argil Wheelock, Ms. Marie Meynadier and Mr. Rob Michiels. The Committee gathers once a year to review the compensation of our Chief Executive Officer, as per the approved charter of the Compensation Committee, and to propose to the Board of Directors any changes to the Chief Executive Officer’s compensation. The Chief Executive Officer is not present when the Compensation Committee reviews his
47
compensation. In August 2014, the Compensation Committee updated its charter which was subsequently approved by the Board of Directors.
Audit Committee
The Board of Directors’ Audit Committee comprises four independent members of the Board: Mr. Pierre Beysson, acting as Head of the Audit Committee and financial expert, Mr. Philippe Chauveau,Ms. Marie Meynadier, Dr. Argil Wheelock and Mr. Rob Michiels. The purpose of the Audit Committee, in accordance with its annually approved charter, is as stated below, but not limited to:
For more information on the missions of our Audit Committee, please refer to our web site www.edap-tms.com, under the Investor Relations Section, where our Audit Committee Charter is available.
Nomination Committee
The Company’s Board of Directors recommends for the Board’s selection director nominees to submit to the vote of the Company’s shareholders. In addition, under specified circumstances and in accordance with French law, shareholders may also submit resolutions to the general meeting to appoint directors.
The Company’s nominations practice is formalized in a Board resolution and at its Board meeting in February 2015, the Board resolved that in the event that one or more directors is or are no longer independent, the Board will create a Nominations Committee (composed exclusively of independent Directors). A Nominations Committee Charter was approved accordingly, the terms of which apply to the Board of Directors when considering director nominees.nominees including evaluation of potential candidates, and recommendations to the Board of Directors prior to submitting the candidates to the vote of shareholders. As per this Charter, upon the appointment of Mr. Marc Oczachowski to the Board as a non-independent Director, on June 30, 2017, the Board of Directors, was convened on July 10, 2017, and decided to create a NominationsNomination Committee composed exclusively of independent Directors. The Nomination Committee is comprised of the following independent members: Mr. Pierre Beysson, Dr. Argil Wheelock, Ms. Marie Meynadier and Mr. Rob Michiels.
Strategic Committee
On August 26, 2020, the Company’s Board of Directors created a Strategic Committee which duties are to address the development and implementation of the Company’s strategic plan and the risks associated with such plan. Such responsibility has been further formalized by a charter approved by the Board of Directors. The Strategic committee is composed of the following members: Ms. Marie Meynadier, independent Director and Head of the Committee, and Mr. Marc Oczachowski, Chief Executive Officer and Chairman of the Board.
Employees
As of December 31, 2017,2020, we employed 200223 individuals on a full-time basis, as follows:
| | | | | | | | | | | | | | | | |
| | Sales & | | Manufac- | | | | Research | | Regula- | | Clinical | | Adminis- | | |
|
| Marketing |
| turing |
| Service |
| & Dvpt |
| tory |
| Affairs |
| trative |
| Total |
France |
| 25 |
| 30 |
| 23 |
| 22 |
| 8 |
| 8 |
| 17 |
| 133 |
Germany |
| 5 |
| — |
| 3 |
| — |
| — |
| — |
| 2 |
| 10 |
Japan |
| 27 |
| — |
| 17 |
| — |
| 2 |
| — |
| 6 |
| 52 |
48
Sales & Marketing | Manufac- turing | Service | Research & Dvpt | Regula- tory | Clinical Affairs | Adminis- trative | Total | |
France | 21 | 32 | 21 | 17 | 4 | 9 | 14 | 118 |
Italy | 4 | 0 | 0 | 0 | 0 | 0 | 2 | 6 |
Germany | 4 | 0 | 3 | 0 | 0 | 0 | 2 | 9 |
Japan | 18 | 0 | 15 | 0 | 2 | 0 | 4 | 39 |
Malaysia | 2 | 0 | 3 | 0 | 0 | 0 | 2 | 7 |
South Korea | 2 | 0 | 3 | 0 | 0 | 0 | 1 | 6 |
USA | 7 | 0 | 3 | 0 | 0 | 1 | 4 | 15 |
Total | 58 | 32 | 48 | 17 | 6 | 10 | 29 | 200 |
Malaysia |
| 2 |
| — |
| 4 |
| — |
| — |
| — |
| 2 |
| 8 |
South Korea |
| 2 |
| — |
| 4 |
| — |
| — |
| — |
| 1 |
| 7 |
USA |
| 6 |
| — |
| 4 |
| — |
| — |
| — |
| 3 |
| 13 |
Total |
| 67 |
| 30 |
| 55 |
| 22 |
| 10 |
| 8 |
| 31 |
| 223 |
As of December 31, 2016,2019, we employed 197216 individuals on a full-time basis, as follows:
| | | | | | | | | | | | | | | | |
| | Sales & | | Manufac- | | | | Research | | Regula- | | Clinical | | Adminis | | |
|
| Marketing |
| turing |
| Service |
| & Dvpt |
| tory |
| Affairs |
| trative |
| Total |
France |
| 23 |
| 31 |
| 24 |
| 21 |
| 7 |
| 9 |
| 15 |
| 130 |
Italy |
| 2 |
| — |
| — |
| — |
| — |
| — |
| 2 |
| 4 |
Germany |
| 7 |
| — |
| — |
| — |
| — |
| — |
| 2 |
| 9 |
Japan |
| 24 |
| — |
| 16 |
| — |
| 3 |
| — |
| 6 |
| 49 |
Malaysia |
| 2 |
| — |
| 3 |
| — |
| — |
| — |
| 2 |
| 7 |
South Korea |
| 2 |
| — |
| 4 |
| — |
| — |
| — |
| 1 |
| 7 |
USA |
| 6 |
| — |
| 1 |
| — |
| — |
| — |
| 3 |
| 10 |
Total |
| 66 |
| 31 |
| 48 |
| 21 |
| 10 |
| 9 |
| 31 |
| 216 |
Sales & Marketing | Manufac- turing | Service | Research & Dvpt | Regula- tory | Clinical Affairs | Adminis- trative | Total | |
France | 23 | 34 | 23 | 18 | 2 | 8 | 13 | 121 |
Italy | 4 | 0 | 0 | 0 | 0 | 0 | 2 | 6 |
Germany | 4 | 0 | 3 | 0 | 0 | 0 | 2 | 9 |
Japan | 17 | 0 | 14 | 0 | 2 | 0 | 4 | 37 |
Malaysia | 2 | 0 | 3 | 0 | 0 | 0 | 2 | 7 |
South Korea | 1 | 0 | 0 | 0 | 0 | 0 | 1 | 2 |
USA | 7 | 0 | 3 | 0 | 0 | 1 | 4 | 15 |
Total | 58 | 34 | 46 | 18 | 4 | 9 | 28 | 197 |
As of December 31, 2015,2018, we employed 165215 individuals on a full-time basis, as follows:
| | | | | | | | | | | | | | | | |
| | Sales & |
| Manufac- |
| |
| Research |
| Regula- |
| Clinical |
| Adminis- |
| |
|
| Marketing | | turing |
| Service |
| & Dvpt |
| tory |
| Affairs | | trative |
| Total |
France |
| 25 |
| 32 |
| 20 |
| 18 |
| 6 |
| 9 |
| 16 |
| 126 |
Italy |
| 3 |
| — |
| — |
| — |
| — |
| — |
| 2 |
| 5 |
Germany |
| 4 |
| — |
| 3 |
| — |
| — |
| — |
| 2 |
| 9 |
Japan |
| 21 |
| — |
| 16 |
| — |
| 3 |
| — |
| 6 |
| 46 |
Malaysia |
| 2 |
| — |
| 3 |
| — |
| — |
| — |
| 2 |
| 7 |
South Korea |
| 2 |
| — |
| 3 |
| — |
| — |
| — |
| 1 |
| 6 |
USA |
| 7 |
| — |
| 2 |
| — |
| 1 |
| 2 |
| 4 |
| 16 |
Total |
| 64 |
| 32 |
| 47 |
| 18 |
| 10 |
| 11 |
| 33 |
| 215 |
Sales & Marketing | Manufac- turing | Service | Research & Dvpt | Regula- tory | Clinical Affairs | Adminis- trative | Total | |
France | 19 | 28 | 22 | 14 | 3 | 6 | 11 | 103 |
Italy | 3 | 0 | 0 | 0 | 0 | 0 | 2 | 5 |
Germany | 4 | 0 | 2 | 0 | 0 | 0 | 2 | 8 |
Japan | 18 | 0 | 11 | 0 | 1 | 0 | 3 | 33 |
Malaysia | 2 | 0 | 2 | 0 | 0 | 0 | 2 | 6 |
South Korea | 1 | 0 | 0 | 0 | 0 | 0 | 1 | 2 |
USA | 3 | 0 | 1 | 0 | 0 | 1 | 3 | 8 |
Total | 50 | 28 | 38 | 14 | 4 | 7 | 24 | 165 |
Management considers labor relations to be good. Employee benefits are in line with those specified by applicable government regulations.
Share Ownership
As of April 2, 2018,March 30, 2021, the total number of shares issued was 29,368,39429,488,564 with 370,528292,428 shares held as treasury shares, thus bringing the total number of shares outstanding to 28,997,866.
29,196,136.
As of April 2, 2018,March 30, 2021, the Board of Directors and the Senior Executive Officers of the Company held a total of 60,623 Shares.77,804 Shares. The Board of Directors and Senior Executive Officers beneficially own, in the aggregate less than 1% of the Company'sCompany’s shares.
As of April 2, 2018,March 30, 2021, Senior Executive Officers held a total of 20,00132,001 Shares and an aggregate of 505,000540,000 options to purchase or to subscribe a total of 505,000540,000 ordinary shares, with a weighted average exercise price of €2.64€2.78 per share. Of these options, 30,000 expire on June 25, 2020, 200,000 expire on January 18, 2023, 220,000 expire on April 26, 2026, and 55,000 expire on April 25, 2027.2027, 25,000 expire on August 29, 2028 and 40,000 expire on April 4, 2029.
Options to Purchase or Subscribe for Securities
On May 22, 2007,December 19, 2012, the shareholders authorized the Board of Directors to grant up to 600,000500,000 options to subscribe to 600,000500,000 new shares at a fixed price to be set by the Board of Directors.
On June 24, 2010,February 18, 2016, the shareholders authorized the Board of Directors to grant up to 229,1001,000,000 options to subscribe to 1,000,000 new shares at a fixed price to be set by the Board of Directors.
On June 28, 2019, the shareholders authorized the Board of Directors to grant up to a maximum of 358,528 options to purchase pre-existing shares at a fixed price to be set by the Board of Directors. All of the shares that may be purchased through the exercise of stock options are currently held as treasury stock.
On December 19, 2012,June 28, 2019, the shareholders also authorized the Board of Directors to grant up
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to 500,0001 million options to subscribe to 500,0001 million new shares at a fixed price to be set by the Board of Directors.
On February 18, 2016, the shareholders authorized the Board No options were granted under these two plans as of Directors to grant up to 1,000,000 options to subscribe to 1,000,000 new shares at a fixed price to be set by the Board of Directors.
March 30, 2021.
As of April 3, 2018,March 30, 2021, we had sponsored fourthree stock purchase and subscription option plans open to employees of EDAP TMS group.
On December 31, 2017,2020, the expiration of our stock option contracts was as follows:
| | | ||
| | Number of | ||
Date of expiration | Options | |||
January 18, 2023 | 262,500 | |||
April 25, 2026 | 465,000 | |||
April 26, | 184,400 | |||
August 25, 2028 | 145,000 | |||
April | 130,000 |
As of December 31, 2017,2020, a summary of stock option activity to purchase or to subscribe to shares under these plans is as follows:
| | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 | ||||||
| | | | Weighted | | | | Weighted | | | | Weighted |
| | |
| average | | |
| average | | |
| average |
| | |
| exercise | | |
| exercise | | |
| exercise |
| | |
| price | | |
| price | | |
| price |
|
| Options |
| (€) |
| Options |
| (€) |
| Options |
| (€) |
Outstanding on January 1, | | 1,273,900 | | 2.78 | | 1,347,600 | | 2.61 | | 1,207,600 | | 2.61 |
Granted |
| 155,000 |
| 3.90 |
| 165,000 |
| 2.65 |
|
|
|
|
Exercised |
| (23,750) |
| 2.54 |
| (143,700) |
| 2.16 |
| — |
| — |
Forfeited |
| (21,250) |
| 2.55 |
| (85,000) |
| 1.94 |
| (25,000) |
| 3.05 |
Expired |
| (42,000) |
| 2.38 |
| — |
| — |
| — |
| — |
Outstanding on December 31, |
| 1,186,900 |
| 2.81 |
| 1,273,900 |
| 2.78 |
| 1,347,600 |
| 2.61 |
Exercisable on December 31, |
| 970,650 |
| 2.73 |
| 818,900 |
| 2.60 |
| 772,600 |
| 2.44 |
Share purchase options available for grant on December 31 |
| 292,428 |
|
|
| 250,428 |
|
|
| 250,428 |
|
|
2017 | 2016 | 2015 | ||||||||||||||||||||||
Options | Weighted (€) | Options | Weighted (€) | Options | Weighted (€) | |||||||||||||||||||
Outstanding on January 1, | 1,427,438 | 2.94 | 917,188 | 2.79 | 1,095,850 | 2.76 | ||||||||||||||||||
Granted | 260,000 | 2.39 | 575,000 | 3.22 | - | - | ||||||||||||||||||
Exercised | (60,000 | ) | 1.91 | - | - | (72,412 | ) | 2.13 | ||||||||||||||||
Forfeited | (134,750 | ) | 3.11 | (64,750 | ) | 3.30 | (106,250 | ) | 2.88 | |||||||||||||||
Expired | (285,088 | ) | 3.99 | - | - | - | - | |||||||||||||||||
Outstanding on December 31, | 1,207,600 | 2.61 | 1,427,438 | 2.94 | 917,188 | 2.79 | ||||||||||||||||||
Exercisable on December 31, | 598,850 | 2.29 | 774,938 | 2.87 | 724,688 | 3.03 | ||||||||||||||||||
Share purchase options available for grant on December 31 | 250,428 | 243,428 | 232,428 |
The following table summarizes information about options to purchase existing shares held by the Company, or to subscribe to new Shares, as of December 31, 2020:
| | | | | | | | | | | | | | |
| | Outstanding options | | Fully vested options (1) | ||||||||||
| | | | Weighted | | Weighted | | | | | | Weighted | | |
| | |
| average |
| average |
| Aggregate | | |
| average |
| Aggregate |
| | |
| remaining |
| exercise |
| Intrinsic | | |
| exercise |
| Intrinsic |
| | |
| contractual |
| price |
| Value | | |
| price |
| Value |
Exercise price (€) |
| Options |
| life |
| (€) |
| (2) |
| Options |
| (€) |
| -2 |
3.90 | | 130,000 | | 8.8 | | 3.90 | | 42,576 | | 32,500 | | 3.90 | | 13,017 |
3.22 |
| 465,000 |
| 5.3 |
| 3.22 |
| 468,492 |
| 465,000 |
| 3.22 |
| 468,492 |
2.65 |
| 145,000 |
| 7.7 |
| 2.65 |
| 228,739 |
| 72,500 |
| 2.65 |
| 114,369 |
2.39 |
| 184,400 |
| 6.3 |
| 2.39 |
| 338,837 |
| 138,150 |
| 2.39 |
| 253,852 |
| | | | | | | | | | | | | | |
1.91 |
| 262,500 |
| 2.0 |
| 1.91 |
| 608,346 |
| 262,500 |
| 1.91 |
| 608,346 |
1.91 to 3.90 |
| 1,186,900 |
| 6.0 |
| 2.81 |
| 1,686,989 |
| 970,650 |
| 2.73 |
| 1,458,076 |
Outstanding options | Fully vested options(1) | |||||||||||||||||||||||||||
Exercise price (€) | Options | Weighted average remaining contractual life | Weighted (€) |
Aggregate Intrinsic Value (2) | Options | Weighted (€) |
Aggregate Intrinsic Value (2) | |||||||||||||||||||||
3.22 | 525,000 | 8.3 | 3.22 | - | 131,250 | 3,22 | - | |||||||||||||||||||||
2.39 | 215,000 | 9.3 | 2.39 | 646 | - | - | - | |||||||||||||||||||||
2.38 | 120,100 | 2.5 | 2.38 | 1,562 | 120,100 | 2.38 | 1,562 | |||||||||||||||||||||
1.91 | 297,500 | 5.0 | 1.91 | 143,694 | 297,5000 | 1.91 | 143,694 | |||||||||||||||||||||
1.88 | 50,000 | 2.5 | 1.88 | 25,650 | 50,000 | 1.88 | 25,650 | |||||||||||||||||||||
1.88 to 3.22 | 1,207,600 | 7.2 | 2.61 | 171,553 | 598,850 | 2.29 | 170,907 |
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Item 7. Major Shareholders and Related Party Transactions
Major Shareholders
To our knowledge, we are not directly or indirectly owned or controlled by another corporation, by any foreign government, or by any other natural or legal person or persons acting severally or jointly.
To the best of our knowledge and on the basis of the notifications received or filed with the SEC, there are no shareholders who have been or are beneficial owners of more than 5% of our shares asover 2018 and 2019. As of December 31, 2017.
April 16, 2020, only Opaleye Management Inc. filed a report showing an increase in its ownership interest in the Company to 1,785,000 ADSs, representing 6.1% of our outstanding ADSs. As of April xx, 2021, Opaleye Management Inc. had decreased its ownership interest in the Company to 657,500 ADSs representing 2.2% of our outstanding ADRs.
There are no arrangements known to us, the operation of which may at a later date result in a change of control of the Company. All shares issued by the Company have the same voting rights, except the treasury shares held by the Company, which have no voting rights.
As of April 2, 2018, 29,368,394March 30, 2021, 29,488,564 shares were issued, including 28,997,86629,196,136 outstanding and 370,528292,428 treasury shares. At March 30, 2018,15, 2021, there were 29,342,29429,475,814 ADSs, each representing one Share, all of which were held of record by 1816 registered holders in the United States (including The Depository Trust Company).
Related Party Transactions
The General ManagerOn August 19, 2019, EDAP Technomed Co. Ltd. (Japan) contracted a loan for 80,000,000 JPY. As a current practice in Japan, this loan required a personal guarantee from the representative director, president and CEO of the Company's Korean branch "EDAP-TMS Korea"subsidiary, Mr. Jean-François Bachelard. EDAP TMS S.A., who resignedas the parent company, counter-guaranteed this personal loan and agreed to indemnify Mr. Bachelard, in an indemnification letter dated September 12, 2019, expiring upon loan maturity date of August 26, 2026.
On March 27, 2019, EDAP Technomed Sdn Bdh (Malaysia) contracted with Maybank to establish a fixed deposit amounting 65,464.85 MYR. As a current practice in Malaysia, any fixed deposit requires a personal warranty from his position withthe representative director, president and CEO of the subsidiary Mr. Hervé de Soultrait. EDAP on October 11, 2017,TMS S.A., as the parent company, counter-warranted this deposit and agreed to indemnify Mr. de Soultrait, in an indemnification letter dated September 13, 2019, which expired upon loan maturity date of March 27, 2020.
On August 2, 2019, EDAP Technomed Inc. contracted a car lease for $28,756.44. This lease required a personal guarantee from the president of the subsidiary, Mr. Marc Oczachowski. EDAP TMS S.A., as the parent company, counter-guaranteed this personal lease warranty and agreed to indemnify Mr. Marc Oczachowski, in an indemnification letter dated July 1, 2019, expiring upon the car lease maturity date of July 2, 2022.
On April 22, 2020, EDAP Technomed Co. Ltd (Japan) contracted another loan for 50,000,000 JPY requiring a personal guarantee from the representative director, president and CEO of the subsidiary, Mr. Jean-François Bachelard. EDAP TMS S.A., as the parent company, counter-guaranteed this personal loan and agreed to indemnify Mr. Bachelard, in an indemnification letter dated June 2, 2020, expiring upon loan maturity date of April 2, 2025.
On September 2, 2020, a consulting agreement was also theestablished between Mr. Philippe Chauveau, Chairman of the Board of the Company until June 23, 2020 (date of expiration of his mandate as a Korean company named Dae You. ADirector) and the Company. As per this agreement, Mr. Chauveau, is to provide Mr. Oczachowski, new independent General Manager was immediately appointed as HeadChairman of EDAP-TMS Koreathe Board, with no relationadvice and recommendations on various subjects related to the Company’s activity and strategic projects. This consulting agreement can be terminated at any time with 30-day’s notice. For the company Dae You, therefore, inperiod ending December 31, 2020, the future, transactions with this company will no longer be considered related party transactions. EDAP-TMS Korea subcontracted until October 11, 2017, the service contract maintenance of our medical devices installed in Korea to Dae You. The amounts invoiced by Dae YouCompany paid €6,000 under this contract were €41 thousand, €62 thousand and €78 thousand, for 2017, 2016 and 2015 respectively. As of December 31, 2017, the Company recorded no payables to Dae You. As of December 31, 2016, payables to Dae You amounted to €9 thousand.
Dae You has purchased medical devices from us, which it operates in partnership with hospitals or clinics. These purchases (‘Sales of goods’) amounted to €161 thousand, €483 thousand and €408 thousand, in 2017, 2016 and 2015, respectively. As of December 31, 2017, the Company recorded no receivables (‘Net trade accounts and notes receivable’). As of December 31, 2016, receivables (‘Net trade accounts and notes receivable’) amounted to €325 thousand.
contract.
Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information
Consolidated Financial Statements
See Item 18, ‘‘Financial Statements.Statements.’’
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Export Sales
As of December 31, 2017,2020, total consolidated export net sales, which we define as sales made outside of mainland France, were €25.1€31.6 million, which represented 70.4%76% of total net sales.
As part of our business, we are engaged in sales and marketing activities with hospitals, clinics, distributors or agents in countries on a worldwide basis where we can provide our minimally invasive therapeutic solutions to patients with prostate cancer or urinary stones. The following information complies with the sub-section “Disclosure of Certain Activities Relating to Iran” of the Section 13 of the U.S. Securities Exchange Act of 1934 as amended: in 2015 we honored warranty contracts on previous sales of lithotripsy devices to three Iranian public hospitals in order to provide the hospitals with the necessary disposables and services to treat patients with kidney stones using our devices. As part of these warranty commitments, in 2016 and 2017 we did not invoice any medical equipment to the hospitals.
hospitals in 2018, 2019 and 2020.
Legal Proceedings
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
On August 4, 2014, Mark Eaton filed a purported class action lawsuit in the United States District Court for the Southern District of New York, asserting that the Company, Marc Oczachowski, and Eric Soyer (our former Chief Financial Officer) violated federal securities laws Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by issuing materially false and misleading statements about the Company’s business operations and prospects particularly concerning the Company’s Ablatherm-HIFU PMA file under review by the FDA that caused the price of the Company’s American Depository Receipts to be artificially inflated during the period from February 1, 2013 to July 30, 2014. On August 6, 2014, Ronnie Haddad filed a second purported class action lawsuit, also in the United States District Court for the Southern District of New York, asserting similar claims.
On October 24, 2014, the related cases were consolidated by the United States District Court for the Southern District of New York and a lead plaintiff and lead counsel were appointed.
On December 22, 2014, the lead plaintiff filed an amended complaint that no longer included Mr. Soyer. The amended complaint alleges that the Company and Mr. Oczachowski breached their obligations under the Exchange Act in various ways, including by misrepresenting and failing to disclose allegedly material information about the safety and efficacy of treatment with Ablatherm-HIFU, and the Company’s interactions with the FDA. The complaint seeks unspecified damages, interest, costs, and fees, including attorneys’ and experts’ fees.
On December 31, 2014, we accrued €206 thousand as legal costs to be incurred by the Company in relation to this litigation.
On February 20, 2015, the defendants, including the Company, filed a motion to dismiss the action.
On September 14, 2015, we received a confirmation of the dismissal of our class action. On November 11, 2015, we announced the appeals period had concluded with no notice of appeal had been filed by the plaintiffs. The remaining accrued amount was reversed as of December 31, 2015.
Dividends and Dividend Policy
The payment and amount of dividends depend on our earnings and financial condition and such other factors that our Board of Directors deems relevant. Dividends are subject to recommendation by the Board of Directors and a vote by the shareholders at the shareholders’ ordinary general meeting. Dividends, if any, would be paid in euro and, with respect to ADSs, would be converted at the then-prevailing exchange rate into U.S. dollars. Holders of ADSs will be entitled to receive payments in respect of dividends on the underlying shares in accordance with the Deposit Agreement.
No dividends were paid with respect to fiscal years 20132015 through 2016,2019, and we do not anticipate paying any dividends for the foreseeable future. Thereafter, any declaration of dividends on our shares as well as the amount and payment will be determined by majority vote of the holders of our shares at an ordinary general meeting, following the recommendation of our Board of Directors. Such declaration will depend upon, among other things, future earnings, if any, the operating and financial condition of our business, our capital requirements, general business conditions and such other factors as our Board of Directors deems relevant in its recommendation to shareholders.
Significant Changes as of April 23, 2018
7, 2021
N/A
Item 9. The Offer and Listing
Description of Securities
The shares are traded solely in the form of ADSs, each ADS representing one ordinary share. Each ADS may be evidenced by an American Depositary Receipt issued by The Bank of New York, our Depositary. The principal United States trading market for the ADSs, which is also the principal trading market for the ADSs overall, is theThe NASDAQ Global Market of theThe NASDAQ Stock Market, Inc. (‘‘The NASDAQ”), on which the ADSs are quoted under the symbol ‘‘EDAP.’’
Trading Market
The following tables set forth, for the years 2013 through 2017, the reported high and low sales prices of the ADSs on NASDAQ.
NASDAQ | ||||||||
High | Low | |||||||
$ | ||||||||
2017 | 3.85 | 2.25 | ||||||
2016 | 4.80 | 2.43 | ||||||
2015 | 6.57 | 2.26 | ||||||
2014 | 6.05 | 1.15 | ||||||
2013 | 4.94 | 1.98 | ||||||
The following tables set forth, for the years 2016 and 2017, and through March 30, 2018, the reported high and low sales prices of the ADSs on NASDAQ for each full financial quarter:
NASDAQ | ||||||||
High | Low | |||||||
$ | ||||||||
2018: | ||||||||
Through March 30, 2018 | 2.86 | 2.07 | ||||||
2017: | ||||||||
First Quarter | 3.62 | 2.25 | ||||||
Second Quarter | 3.85 | 2.35 | ||||||
Third Quarter | 3.49 | 2.51 | ||||||
Fourth Quarter | 3.50 | 2.60 | ||||||
2016: | ||||||||
First Quarter | 4.74 | 2.89 | ||||||
Second Quarter | 4.80 | 3.00 | ||||||
Third Quarter | 3.42 | 2.43 | ||||||
Fourth Quarter | 3.60 | 2.59 |
The following table sets forth, for the most recent six months (from September 2017 through March 30, 2018), the reported high and low sale prices of the ADSs on NASDAQ for each month:
NASDAQ | ||||||||
High | Low | |||||||
2018: | $ | |||||||
January | 2.88 | 2.55 | ||||||
February | 2.86 | 2.55 | ||||||
March (through March 30, 2018) | 2.47 | 2.07 | ||||||
2017: | ||||||||
September | 3.25 | 2.86 | ||||||
October | 3.50 | 2.73 | ||||||
November | 3.18 | 2.90 | ||||||
December | 3.14 | 2.60 | ||||||
Item 10. Additional Information
Memorandum and Articles of Association
Set forth below is a brief summary of significant provisions of our by-laws (orstatuts) and applicable French laws. This is not a complete description and is qualified in its entirety by reference to our by-laws, a translation of which is provided in Exhibit 1.1 to this annual report. Each time they are modified, which can only occur with the approval of a two third majority of the shareholders present or represented at a shareholders’ meeting, we file copies of ourstatutswith, and such by-laws are publicly available from, the Registry of Commerce and Companies in Lyon, France, under number 316 488 204.
Our corporate affairs are governed by our by-laws and by Book II of the French Commercial Code, as amended.
52
Our by-laws were last updated in January 2018on June 30, 2020 to reflect French legal provisions recently implemented and on March 30, 2021 to reflect the latest increases in share capital related to the issuance of additional shares following the exercise of warrants and options in the course of 2017.options.
Corporate Purposes
Pursuant to Article 2 of the by-laws, the corporate purpose of the Company is:
- | the taking of financial interests, under whatever form, in all French or foreign groups, companies or businesses which currently exist or which may be created in the future, mainly through contribution, subscription or purchasing of stocks or shares, obligations or other securities, mergers, holding companies, groups, alliances or partnerships; |
- | the management of such financial investments; |
- | the direction, management, control and coordination of its subsidiaries and interests; |
- | the provision of all administrative, financial, technical or other services; and |
- | generally, all transactions of whatever nature, whether financial, commercial, industrial, civil, relating to property and/or real estate, which may be connected directly or indirectly, in whole or in part, to the Company’s purposes or to any similar or related purposes which may favor the extension or development of such purpose. |
Board of Directors
The Board of Directors is currently composed of five members, four of which were appointed by the shareholders for a period of six years expiring on the date of the annual general shareholders’ meeting approving the accounts for fiscal year 2019.2025. Mr. Marc Oczachowski, Chief Executive Officer, and newly elected Chairman of the Board as of March 25, 2020, was appointed director of the Company by the shareholders on June 30, 2017, effective July 1, 2017, for a period of six years expiring on the date of the annual general shareholders’ meeting approving the accounts for the fiscal year 2022. See Item 6, ‘‘Directors, Senior Management and Employees.’’ A director’s term ends at the end of the ordinary general shareholders” meeting convened to vote on the accounts of the then-preceding fiscal year and held in the year during which the term of such director comes to an end. Directors may be re-elected; a director may also be dismissed at any time at the shareholders’ meeting.
Each director must own at least one share during his/her term of office. If, at the time of his/her appointment, a director does not own the required number of shares or if during his/her term, he/she no longer owns the required number of shares, he/she will be considered to have automatically resigned if he/she fails to comply with the shareholding requirement within three months.
An individual person may not be a member of more than five Boards of Directors or Supervisory Boards in corporations (société anonyme) registered in France; directorships held in controlled companies (as defined by Section L.233-16 of the French Commercial Code) by the Company are not taken into account.
In the event of the death or resignation of one or more directors, the Board of Directors may make provisional appointments to fill vacancies before the next general shareholders’ meetings. These provisional appointments must be ratified by the next ordinary shareholders meeting. Even if a provisional appointment is not ratified, resolutions and acts previously approved by the Board of Directors nonetheless remain valid.
If the number of Directors falls below the compulsory legal minimum, the remaining directors must immediately convene an ordinary general shareholders’ meeting to reach a full Board of Directors.
Any director appointed in replacement of another director whose term has not expired remains in office only for the remaining duration of the term of his predecessor.
One of our employees may be appointed to serve as a director. His/her employment contract must include actual work obligations. In this case, he/she does not lose the benefit of his/her employment contract.
The number of directors that have employment contracts with the Company may not exceed one third of the directors then in office and in any case, a maximum of five members.
Pursuant to our by-laws, a director may not be over eighty-five years old. If a director reaches this age limit during his/her term, such director is automatically considered to have resigned at the next general shareholders meeting.
A director cannot borrow money from the Company.
The Board of Directors determines the direction of our business and supervises its implementation. Within the limits set out by the corporate purposes and the powers expressly granted by law to the general shareholders’ meeting, the Board of Directors may deliberate upon our operations and make any decisions in accordance with our business. A director must abstain from voting on matters
53
in which the director has an interest. The resolutions passed in a meeting of the Board of Directors are valid only if a quorum of half of the Directors is reached.
French law provides that the functions of Chairman of the Board and Chief Executive Officer in a Frenchsociété anonymemay be distinct and held by two separate individuals.individuals or combined. The choice between these two methods of management belongs to the Board of Directors and must be made pursuant to our by-laws and applicable French law.
The Chairman of the Board
The Board of Directors must elect one of its members as Chairman of the Board of Directors, who must be an individual. The Board of Directors determines the duration of the term of the Chairman, which cannot exceed that of his/her tenure as a director. The Board of Directors may revoke the Chairman at any time. The Chairman’s compensation is determined by the Board of Directors, upon recommendation of the Compensation Committee.
The Chairman represents the Board of Directors and organizes its work. The Chairman reports on the Board’s behalf to the general shareholders’ meeting. The Chairman is responsible for ensuring the proper functioning of our governing bodies and that the Board members have the means to perform their duties.
Pursuant to Section 706-43 of the French Criminal Proceedings Code, the Chairman may validly delegate to any person he/she chooses the power to represent us in any criminal proceedings that we may face.
As with any other director, the Chairman may not be over eighty-five years old. In case the Chairman reaches this age limit during his/her tenure, he/she will automatically be considered to have resigned. However, his/her tenure is extended until the next Board of Directors meeting, during which his/her successor will be appointed. Subject to the age limit provision, the Chairman of the Board may also be re-elected.
The Chief Executive Officer
We are managed by the Chairman of the Board of Directors or by an individual elected by the Board of Directors bearing the title of Chief Executive Officer. The choice between these two methods of management belongs to the Board of Directors and must be made pursuant to our by-laws. On March 31, 2007, the Board of Directors appointed Mr. Marc Oczachowski as Chief Executive Officer.
Officer and on March 25, 2020, the Board of Directors decided to combine the roles of Chairman of the Board and Chief Executive Officer, as allowed by the Company’s by-laws, and elected Mr. Marc Oczachowski as the new Chairman of the Board of Directors.
The Chief Executive Officer is vested with the powers to act under all circumstances on behalf of the Company, within the limits set out by the Company’s corporate purposes, and subject to the powers expressly granted by the law to the Board of Directors and the general shareholders’ meeting.
The Chief Executive Officer represents the Company with respect to third parties. The Company is bound by any acts of the Chief Executive Officer even if they are contrary to corporate purposes, unless it is proven that the third party knew such act exceeded the Company’s corporate purposes or could not ignore it in light of the circumstances. Publication of the by-laws alone is not sufficient evidence of such knowledge.
The Chief Executive Officer’s compensation is set by the Board of Directors, upon recommendation of the Compensation Committee. The Chief Executive Officer can be revoked at any time by the Board of Directors. If such termination is found to be unjustified, damages may be allocated to the Chief Executive Officer, except when the Chief Executive Officer is also the Chairman of the Board.
The Chief Executive Officer may not hold another position as Chief Executive Officer or member of a Supervisory Board in a corporation (société anonyme) registered in France except when (a) such company is controlled (as referred to in Section L.233-16 of the French Commercial Code) by the Company and (b) when this controlled company’s shares are not traded on a regulated market.
Pursuant to our by-laws, the Chief Executive Officer may not be over seventy years old. In case the Chief Executive Officer reaches this age limit during his/her office, he/she is automatically considered to have resigned. However, his/her tenure is extended until the next Board of Directors meeting, during which his/her successor must be appointed.
54
Dividend and Liquidation Rights (French Law)
Net income in each fiscal year, increased or reduced, as the case may be, by any profit or loss of the Company carried forward from prior years, less any contributions to legal reserves, is available for distribution to our shareholders as dividends, subject to the requirements of French law and our by-laws.
Under French law, we are required to allocate at least 5% of our unconsolidated net profits in each fiscal year to a legal reserve fund before dividends may be paid with respect to that year. Such allocation is compulsory until the amount in such reserve fund is equal to 10% of the nominal amount of the registered capital. The legal reserve is distributable only upon the liquidation of the Company.
Our shareholders may, upon recommendation of the Board of Directors, decide to allocate all or a part of distributable profits, if any, among special or general reserves, to carry them forward to the next fiscal year as retained earnings, or to allocate them to the shareholders as dividends.
Our by-laws provide that, if so agreed by the shareholders, reserves that are available for distribution under French law and our by-laws may be distributed as dividends, subject to certain limitations.
If we have made distributable profits since the end of the preceding fiscal year (as shown on an interim income statement certified by our statutory auditors), the Board of Directors has the authority under French law, without the approval of shareholders, to distribute interim dividends to the extent of such distributable profits. We have never paid interim dividends.
Under French law, dividends are distributed to shareholders pro rata according to their respective shareholdings. Dividends are payable to holders of shares outstanding on the date of the annual shareholders'shareholders’ meeting deciding the distribution of dividends, or in the case of interim dividends, on the date of the Board of Directors meeting approving the distribution of interim dividends. However, holders of newly issued shares may have their rights to dividends limited with respect to certain fiscal years. The actual dividend payment date is decided by the shareholders in an ordinary general meeting or by the Board of Directors in the absence of such a decision by the shareholders. The payment of the dividends must occur within nine months from the end of our fiscal year. Under French law, dividends not claimed within five years of the date of payment revert to the French State.
If the Company is liquidated, our assets remaining after payment of our debts, liquidation expenses and all of our remaining obligations will be distributed first to repay in full the nominal value of the shares, then the surplus, if any, will be distributed pro rata among the shareholders based on the nominal value of their shareholdings and subject to any special rights granted to holders of priority shares, if any. Shareholders are liable for corporate liabilities only up to the par value of the shares they hold and are not liable to further capital calls of the Company.
Changes in Share Capital (French Law)
Our share capital may be increased only with the approval of two thirds of the shareholders voting or represented at an extraordinary general meeting, following a recommendation of the Board of Directors. Increases in the share capital may be effected either by the issuance of additional shares (including the creation of a new class of shares) or by an increase in the nominal value of existing shares or by the exercise of rights attached to securities giving access to the share capital. Additional Shares may be issued for cash or for assets contributed in kind, upon the conversion of debt securities previously issued by the Company, by capitalization of reserves, or, subject to certain conditions, by way of offset against indebtedness incurred by the Company. Dividends paid in the form of shares may be distributed in lieu of payment of cash dividends, as described above under ‘‘—Dividend and Liquidation Rights (French law).’’ French law permits different classes of shares to have liquidation, voting and dividend rights different from those of the outstanding ordinary shares, although we only have one class of shares.
Our share capital may be decreased only with the approval of two thirds of the shareholders voting or represented at an extraordinary general meeting. The share capital may be reduced either by decreasing the nominal value of the shares or by reducing the number of outstanding shares. The conditions under which the registered capital may be reduced will vary depending upon whether or not the reduction is attributable to losses incurred by the Company. The number of outstanding shares may be reduced either by an exchange of shares or by the repurchase and cancellation by the Company of its shares. Under French law, all the shareholders in each class of shares must be treated equally unless the inequality in treatment is accepted by the affected shareholder. If the reduction is not attributable to losses incurred by us, each shareholder will be offered an opportunity to participate in such capital reduction and may decide whether or not to participate therein.
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Repurchase of Shares (French Law)
Pursuant to French law, the Company, as a company whose shares are not admitted to trading on a regulated market subject to the provisions of Article L. 433-3 II of the French Monetary and Financial Code, may not acquire its own shares except (a) to reduce its share capital under certain circumstances with the approval of the shareholders at an extraordinary general meeting, or (b) to provide shares for distribution to employees under a profit sharing or a stock option plan.plan, (c) to offer shares as payment in exchange for assets acquired by the Company in the context of an external growth, merger, demerger or contribution transaction or (d) to provide shares to shareholders as part of a sale procedure organized by the Company. However, the Company may not hold more than 10% of its shares then-issued.then-issued and 5% for a repurchase of shares to offer them as payment or in exchange for assets acquired by the Company in the context of an external growth, merger, demerger or contribution transaction. A subsidiary of the Company is prohibited by French law from holding shares of the Company and, in the event it becomes a shareholder of the Company, such shareholder must transfer all the shares of the Company that it holds.
Attendance and Voting at Shareholders’ Meetings (French Law)
In accordance with French law, there are two types of general shareholders’ meetings, ordinary and extraordinary. Ordinary general meetings are required for matters such as the election of directors, the appointment of statutory auditors, the approval of the report prepared by the Board of Directors, and the annual accounts and the declaration of dividends.
Extraordinary general meetings are required for approval of matters such as amendments to the Company’s by-laws, modification of shareholders’ rights, approval of mergers, increases or decreases in share capital (including a waiver of preferential subscription rights), the creation of a new class of shares, the authorization of the issuance of investment certificates or securities convertible or exchangeable into shares and for the sale or transfer of substantially all of the Company’s assets.
The Board of Directors is required to convene an annual ordinary general shareholders’ meeting, which must be held within six months of the end of our fiscal year, for approval of the annual accounts. Article 4 of Order no. 2020-321 of March 25, 2020, Adapting the Rules for Meetings and Deliberations of the Meetings and Governing Bodies of French Legal Entities and Entities without Legal Personality under Private Law due to the COVID-19 Epidemic, as amended by Decree no. 2021-255 of March 9, 2021, provides that the Shareholders’ Meeting may exceptionally be held ‘‘behind closed doors’’ without the shareholders and other persons entitled to attend being physically present. These provisions are applicable until July 31, 2021.
Other ordinary or extraordinary meetings may be convened at any time during the year. Shareholders’ meetings may be convened by the Board of Directors or, if the Board of Directors fails to call such a meeting, by our statutory auditors or by a court-appointed agent. The court may be requested to appoint an agent either by one or more shareholders holding at least 5% of the our registered capital or by an interested party under certain circumstances, or, in case of an urgent matter, by the Work Council (Comité d’entrepriseSocial et Economique) representing the employees. The notice calling a meeting must state the agenda for such meeting.
French law provides that, at least 15 days before the date set for any general meeting on first notice, and at least ten days before the date set for any general meeting on second notice, notice of the meeting (avis de convocation) must be sent by mail to all holders of properly registered shares who have held such shares for more than one month before the date of the notice. A preliminary written notice (avis de réunion) must be sent to each shareholder who has requested to be notified in writing. Under French law, one or several shareholders together holding a specified percentage of shares may propose resolutions to be submitted for approval by the shareholders at the meeting. Upon our request, Thethe Bank of New York Mellon will send to holders of ADSs notices of shareholders’ meetings and other reports and communications that are made generally available to shareholders. The Work Council may also require the registration of resolution proposals on the agenda.
Attendance and exercise of voting rights at ordinary and extraordinary general shareholders’ meetings are subject to certain conditions. Shareholders deciding to exercise their voting rights must have their shares registered in their names in the shareholder registry maintained by or on behalf of the Company before the meeting. An ADS holder must timely and properly return its voting instruction card to the Depositary to exercise the voting rights relating to the shares represented by its ADSs. The Depositary will use its reasonable efforts to vote the underlying shares in the manner indicated by the ADS holder. In addition, if an ADS holder does not timely return a voting instruction card or the voting instruction card received is improperly completed or blank, that holder will be deemed to have given the Depositary a proxy to vote, and the Depositary will vote in favor of all proposals recommended by the Board of Directors and against all proposals that are not recommended by the Board of Directors.
All shareholders who have properly registered their shares have the right to participate in general shareholders’ meetings, either in person, by proxy, or by mail, and to vote according to the number of shares they hold. Each share confers on the shareholder the right to one vote. Under French law, an entity we control directly or indirectly is prohibited from holding shares in the Company and, in the
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event it becomes a shareholder, shares held by such entity would be deprived of voting rights. A proxy may be granted by a shareholder whose name is registered on our share registry to his or her spouse, to another shareholder or to a legal representative, in the case of a legal entity, or by sending a proxy in blank to the CompanyCompany. Under French law, a proxy that is returned without nominating any representatives. In the latter case, the Chairmaninstructions will be counted as present for purposes of the shareholders’ meetingquorum and will vote such blank proxybe counted (i) in favor of allthe adoption of the draft resolutions proposedpresented or approved by the Board of Directors and (ii) against the adoption of all others.other draft resolutions which were not expressly presented or approved by the Board of Directors.
The presence in person or by proxy of shareholders having not less than 20% (in the case of an ordinary general meeting or an extraordinary general meeting deciding upon any capital increase by capitalization of reserves) or 25% (in the case of any other extraordinary general meeting) of the shares entitled to vote is necessary to reach a quorum. If a quorum is not reached at any meeting, the meeting is adjourned. Upon reconvening of an adjourned meeting, there is no quorum requirement in the case of an ordinary general meeting or an extraordinary general meeting deciding upon any capital increase by capitalization of reserves. The presence in person or by proxy of shareholders having not less than 20% of the Sharesshares is necessary to reach a quorum in the case of any other type of extraordinary general meeting.
At an ordinary general meeting or an extraordinary general meeting deciding upon any capital increase by capitalization of reserves, a simple majority of the votes of the shareholders present or represented by proxy is required to approve a resolution. At any other extraordinary general meeting, two-thirds of the votes cast is required. However, a unanimous vote is required to increase liabilities of shareholders. Abstention
As a result of a recent change in French law, as of the General Meeting of Shareholders approving the 2019 accounts, abstention from voting, blank votes and null votes by those present or those represented by proxy is viewedor voting by mail are no longer counted as a votevotes against the resolution submitted to a vote.
shareholder vote at any of the two types of meetings.
In addition to his/her rights to certain information regarding the Company, any shareholder may, during the two-week period preceding a shareholders’ meeting, submit to the Board of Directors written questions relating to the agenda for the meeting. The Board of Directors must respond to such questions during the meeting.
Under French law, shareholders can nominate individuals for election to the Board of Directors at a shareholders’ meeting. When the nomination is part of the agenda of the shareholders’ meeting, the nomination must contain the name, age, professional references and professional activity of the nominee for the past five years, as well as the number of shares owned by such candidate, if any. In addition, if the agenda for the shareholders’ meeting includes the election of members of the Board of Directors, any shareholder may require, during the meeting, the nomination of a candidate for election at the Board of Directors at the shareholders’ meeting, even if such shareholder has not followed the nomination procedures. Under French law, shareholders cannot elect a new member of the Board of Directors at a general shareholders meeting if the agenda for the meeting does not include the election of a member of the Board of Directors, unless such nomination is necessary to fill a vacancy due to the previous resignation of a member.
As set forth in our by-laws, shareholders’ meetings are held at the registered office of the Company or at any other locations specified in the written notice. We do not have staggered or cumulative voting arrangements for the election of Directors.
Preferential Subscription Rights (French Law)
Shareholders have preferential rights to subscribe for additional shares issued by the Company for cash on a pro rata basis (or any equity securities of the Company or other securities giving a right, directly or indirectly, to equity securities issued by the Company). Shareholders may waive their preferential rights, either individually or at an extraordinary general meeting under certain circumstances. Preferential subscription rights, if not previously waived, are transferable during the subscription period relating to a particular offering of shares. U.S. holders of ADSs may not be able to exercise preferential rights for Shares underlying their ADSs unless a registration statement under the Securities Act is effective with respect to such rights or an exemption from the registration requirement thereunder is available.
Form and Holding of Shares (French Law)
Form of Shares
Our by-laws provide that shares can only be held in registered form.
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Holding of Shares
The shares are registered in the name of the respective owners thereof in the registry maintained by or on behalf of the Company.
Stock certificates evidencing shares, in a manner comparable to that in the United States, are not issued by French companies, but we may issue or cause to be issued confirmations of shareholdings registered in such registry to the persons in whose names the shares are registered. Pursuant to French law, such confirmations do not constitute documents of title and are not negotiable instruments.
Ownership of ADSs or Shares by Non-French Residents (French Law)
Under current French law, there is no limitation on the right of non-French residents or non-French security holders to own, or where applicable, vote securities of a French company. A non-resident
Nevertheless, any investment: (i) by (a) any non-French citizen, (b) any French citizen not residing in France, (c) any non-French entity or (d) any French entity controlled by one of the aforementioned individuals or entities; (ii) that will result in the relevant investor (a) acquiring control of an entity having its registered office in France, (b) acquiring all or part of a business line of an entity having its registered office in France, or (c) for non-EU or non-EEA investors crossing, directly or indirectly, alone or in concert, a 25% threshold of voting rights in an entity having its registered office in France; and (iii) developing activities in certain strategic industries related to: (a) activities likely to prejudice national defense interests, participating in the exercise of official authority or likely to prejudice public order and public security (including activities related to weapons, dual-use goods and technologies, IT systems, cryptology, data capturing devices, gambling, toxic agents or data storage), (b) activities relating to essential infrastructure, goods or services (including energy, water, transportation, space, telecom, public health, farm products or media), (c) research and development activities related to critical technologies (including cybersecurity, artificial intelligence, robotics, additive manufacturing, semiconductors, quantum technologies, energy storage or biotechnology) or dual-use goods and technologies, is subject to the prior authorization of the French Minister of Economy, which authorization, if granted, may be subject to certain undertakings. This request for prior authorization must file adéclaration administrative, or administrative notice, with French authorities in connectionbe filed with the acquisitionFrench Ministry of Economy, which has 30 business days from receipt of the complete file to provide a first decision which may (i) unconditionally authorize the investment or (ii) indicate that further examination is required. In the latter case, the French Ministry of Economy must make a second decision within 45 business days from its first decision. In case of lack of response from the French Ministry of Economy within the above mentioned timeframe, the authorization will be deemed refused. If the authorization is granted, it may be subject to the signature of a controlling interest in anyletter of undertakings aimed at protecting the French company. Under existing administrative rulings, ownership,national interests. If an investment requiring the prior authorization of the French Minister of Economy is completed without such authorization having been granted, the French Minister of Economy might direct the relevant investor to (i) submit a request for authorization, (ii) have the previous situation restored at its own expense, or (iii) amend the investment. The relevant investor might also be found criminally liable and might be sanctioned with a fine which cannot exceed the greater of: (i) twice the amount of the relevant investment, (ii) 10% of the annual turnover before tax of the target company and (iii) €5 million (for a company) or €1 million (for an individual).
The French Monetary and Financial Code (CMF) provides for statistical reporting requirements. Transactions by a non-residentwhich non-French residents acquire at least 10% of France or a French corporation which is itself controlled by a foreign national, of 33.33% or more of a company’sthe share capital or voting rights, is regardedor cross the 10% threshold, of a French resident company, are considered as a controlling interest, but a lower percentage may be heldforeign direct investments in France and are subject to be a controlling interest instatistical reporting requirements (Articles R. 152-1; R.152-3 and R. 152-11 of the CMF). When the investment exceeds €15,000,000, companies must declare foreign transactions directly to the Banque de France within 20 business days following the date of certain circumstances (depending upon such factors as the acquiring party’s intentions, its ability to elect directors or financial reliance by the French company on the acquiring party).
Also, certaindirect foreign investments in companies incorporated under French laws are subjectus, including any purchase of ADSs. Failure to comply with such statistical reporting requirement may be sanctioned by five years’ imprisonment and a fine of a maximum amount equal to twice the prior authorization from the French Ministeramount which should have been reported, in accordance with Article L 165-1 of the Economy, where all or part ofCMF. This amount may be increased fivefold if the target’s business and activity relate toviolation is made by a strategic sector, such as energy, transportation, public health, telecommunications, etc.legal entity.
Certain Exemptions (French(US Law)
Under the U.S. securities laws, as a foreign private issuer, we are exempt from certain rules that apply to domestic U.S. issuers with equity securities registered under the U.S. Securities Exchange Act of 1934, including the proxy solicitation rules and the rules requiring disclosure of share ownership by directors, officers and certain shareholders. We are also exempt from certain of the current NASDAQ corporate governance requirements. For more information on these exemptions, see Item 16 G, ‘‘Corporate Governance —Exemptions from Certain NASDAQ Corporate Governance Rules.’’
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Enforceability of Civil Liabilities (French Law)
We are asociété anonyme, or limited liability corporation, organized under the laws of the Republic of France. The majority of our directors and executive officers reside in the Republic of France. All orIn addition, a substantial portion of our assets and the assets of such persons areis located outside of the United States. As a result, it may not be possibledifficult for investors to effect serviceinvestors:
● | to obtain jurisdiction over us or our non-U.S. resident officers and directors in U.S. courts, or obtain evidence in France or from French citizen or any individual being resident in France or any officer, representative, agent or employee of a legal person having its registered office or an establishment in a territory of France, in connection with those actions in actions predicated on the civil liability provisions of the U.S. federal securities laws; |
● | to enforce in U.S. courts judgments obtained in such actions against us or our non-U.S. resident officers and directors; |
● | to bring an original action in a French court to enforce liabilities based upon the U.S. federal securities laws against us or our non-U.S. resident officers or directors; and |
● | to enforce in U.S. courts against us or our directors in non-U.S. courts, including French courts, judgments of U.S. courts predicated upon the civil liability provisions of the U.S. federal securities laws. |
Nevertheless, a final judgment for the payment of process withinmoney rendered by any federal or state court in the United States upon such persons or to enforce, either inside or outside the United States, judgments against such persons obtained in U.S. courts or to enforce in U.S. court judgments obtained against such persons in courts in jurisdictions outside the United States, in each case, in any action predicated upon thebased on civil liability, provisions of the federal securities laws of the United States. In an original action brought in Francewhether or not predicated solely upon the U.S. federal securities laws, would be recognized and enforced in France provided that a French courts may not havejudge considers that this judgment meets the requisite jurisdictionFrench legal requirement concerning the recognition and the enforcement of foreign judgments and is capable of being immediately enforced in the United States. A French court is therefore likely to grant the remedies sought,enforcement of a foreign judgment without a review of the merits of the underlying claim, only if (i) the judgment was rendered by a court having jurisdiction over the matter as the dispute is clearly connected to the jurisdiction of such court, the choice of the U.S. court was not fraudulent and actionsthe French courts did not have exclusive jurisdiction over the matter, (ii) the judgment does not contravene the international public policy rules, both pertaining to the merits and to the procedure of the case, including the defense rights, (iii) the judgment is not tainted with fraud and (iv) the judgment does not conflict with a French judgment or a foreign judgment (or an arbitral award) which has become effective in France. In addition, French law guarantees full compensation for the harm suffered but is limited to the actual damages, so the victim does not suffer or benefit from the situation, it being specified that under French law, the principle of awarding punitive damages is not, per se, contrary to public order, provided the amount awarded is not disproportionate to the harm suffered and the defendant’s breach.
As a result, the enforcement, in Franceby U.S. investors, of any judgments ofobtained in U.S. courts rendered against French persons referred to in the second sentence of this paragraph would require such French persons to waive their right under Article 15 of the French Civil Code to be sued in France only. We believe that no such French persons have waived such right with respect to actions predicated solely upon U.S. federal securities laws. In addition, actions in the United Statescivil and commercial matters, including judgments under the U.S. federal securities law against us or members of our Board of Directors, officers or certain experts named herein who are residents of France or countries other than the United States would be subject to the above conditions.
Finally, there may be doubt as to whether a French court would impose civil liability on us, the members of our Board of Directors, our officers or certain experts named herein in an original action predicated solely upon the U.S. federal securities laws could be affected under certain circumstances by the French lawbrought in a court of July 16, 1980, which may preclude or restrict obtaining evidencecompetent jurisdiction in France against us or from French persons in connection with such actions.
members, officers or experts, respectively.
Material Contracts
On April 14, 2016, pursuant to a securities purchase agreement dated April 7, 2016, we issued Investor Warrants which will expire on October 14, 2018 (the “April 2016 Warrants”). The April 2016 Warrants are exercisable, from October 14, 2016, at the option of the holder, upon the surrender of the Investor Warrants to us and the payment in cash of the exercise price of $4.50 per ordinary share in the form of ADSs. With respect to the April 2016 Warrants, the exercise price is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting our ordinary shares. The holders of the April 2016 Warrants are entitled to 20 days’ notice before the record date for certain distributions to holders of our ordinary shares. If certain “fundamental transactions” occur, such as a merger, consolidation, sale of substantially all of our assets, tender offer or exchange offer with respect to our ordinary shares or reclassification of our ordinary shares, the holders of the April 2016 Warrants will be entitled to receive thereafter in lieu of our ordinary shares, the consideration (if different from ordinary shares) that the holders of the April 2016 Warrants would have been entitled to receive upon the occurrence of the fundamental transaction as if the April 2016 Warrants had been exercised immediately before the fundamental transaction. If any holder of ordinary shares is given a choice of consideration to be received in the fundamental transaction, then the holders of the April 2016 Warrants shall be given the same choice upon the exercise of the April 2016 Warrants following the fundamental transaction. A copy of the form of Investor Warrant was furnished to the SEC on our report on Form 6-K dated April 14, 2016. The foregoing description is qualified in its entirety by reference to the full text of the Form 6-K.
None.
Exchange Controls
Under current French foreign exchange control regulations, there are no limitations on the amount of cash payments that we may remit to residents of foreign countries. Laws and regulations concerning foreign exchange controls do require, however, that all payments or transfers of funds made by a French resident to a non-resident be handled by an accredited intermediary.
Certain Income Tax Considerations
General
The following generally summarizes the material French and U.S. federal income tax consequences to U.S. holders (as defined below) of purchasing, owning and disposing of ADSs and shares or ADS (the(collectively the “Securities”). The statements set forth below are based on the applicable laws, treaties and administrative interpretations of France and the United States as of the date hereof, all of which are subject to change.
This discussion is intended only as a descriptive summary and does not purport to be a complete analysis or listing of all potential tax effects of the purchase, ownership or disposition of the Securities. ItAll of the following is subject to change. Such changes could apply retroactively and could affect the consequences described below.
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This summary does not constitute a legal opinion or tax advice.
Investors should Holders are urged to consult their own tax advisorsadvisers regarding the tax consequences of the purchase, ownership and disposition of Securities in light of their particular circumstances, including especially the lawseffect of all jurisdictionsany U.S. federal, state, local or other national tax laws.
A set of tax rules is applicable to French assets that are held by or in which they are residentforeign trusts. These rules provide inter alia for the inclusion of trust assets in the settlor’s net assets for purpose of applying the French real estate wealth tax, purposes.
for the application of French Taxation
gift and death duties to French assets held in trust, for a specific tax on capital on the French assets of foreign trusts not already subject to the French real estate wealth tax and for a number of French tax reporting and disclosure obligations. The following summary ofdiscussion does not address the French tax consequences of purchasing and disposing of Securities does not address the treatment of Securities that are held by a resident of France (except for purposes of describing related tax consequences for other holders) or in connection with a permanent establishment or fixed base through which a holder carries on business or performs personal services in France, or by a person that owns, directly or indirectly, 5% or more of the stock of the Company. Moreover, the following discussion of the tax treatment of dividends only deals with distributions made on or after January 1, 2018.
There are currently no procedures available for holders that are not U.S. residentsapplicable to claim tax treaty benefits in respect of dividends received on Securities registered in the name of a nominee. Such holders should consult their own tax advisors about the consequences of owning and disposing of Securities.
French law provides for specific rules relating to trusts, in particular specific tax and filing requirements as well as modifications to wealth, estate and gift taxes as they apply to trusts. Given the complex nature of these new rules and the fact that their application varies depending on the status of the trust, the grantor, the beneficiary and the assets held in the trust, the following summary does not address the tax treatment of Securities held in a trust.trusts. If Securities are held in trust, the grantor, trustee and beneficiary are urged to consult their own tax adviser regarding the specific tax consequences of acquiring, owning and disposing of Securities.
TaxationThe description of Dividends on Securities - Withholding Tax
Dividends paid by a French corporation, such as EDAP, to non-residents normally are subject to a 30% French withholding tax (reduced to 12.8% when non-residents are individuals and 15% for distributions made to not-for-profit organizations with a head office in a Member State of the European Economic Area which would be subject to the tax regime set forth under article 206-5 of the French General Tax Code if their head office was located in France and which meet the criteria set forth in the administrative guidelines BOI-RPPM-RCM-30-30-10-70-20171004, n°130).
Dividends paid by a French corporation transferred to non-cooperative States or territories (Etat ou territoire non coopératif), within the meaning of Article 238-0 A of the French General Tax Code (a “Non-Cooperative State”), will be subject to French withholding tax at a rate of 75% irrespective of the tax residence of the beneficiary of the dividends, if the dividends are received in such States or territories (subject to certain exceptions and the more favorable provisions of an applicable double tax treaty, provided that the double tax treaty is found to apply and the relevant conditions are fulfilled). The list of Non-Cooperative States is published by ministerial executive order, which is updated from time to time. However, non-resident holders that are entitled to and comply with the procedures for claiming benefits under an applicable tax treaty may be subject to a reduced rate (generally 15%) of French withholding tax. If a non-resident holder establishes its entitlement to treaty benefits prior to the payment of a dividend, then French tax generally will be withheld at the reduced rate provided under the treaty.
Taxation on Sale or Disposition of Securities
Generally, holders, who are not residents of France for tax purposes, will not be subject to any French income tax or capital gains tax upon the sale or the disposal of Securities unless:
-the holders have held more than 25% of EDAP dividend rights, known as (“droits aux bénéfices sociaux”), at any time during the preceding five years, either directly or indirectly, and, as relates to individuals, alone or with relatives; or
-the holders are established or domiciled in a Non-Cooperative State, in which case they will be subject to a 75% tax on your capital gain.
If the holders are resident in a State with which France has signed a double tax treaty that contains more favorable provisions, the holders may be exempt from any French income or capital gains tax when they sell or dispose of any Securities even if one of the above statements applies to them.
Transfers of Securities issued by a listed French company such as EDAP will not be subject to French registration or stamp duty if such transfers are not evidenced by a written agreement (acte). However, if the transfer is evidenced by a written agreement executed either in France or outside France, the transfer of Securities will be subject to a registration duty of 0.1% assessed on the sale price.
Pursuant to Article 235 ter ZD of the French General Tax Code, purchases of shares or ADS are subject to a 0.3% French tax on financial transactions provided that the market capitalization of the issuer exceeds €1.0 billion as of December 1 of the year preceding the taxation year. The list of issuers whose securities are subject to the tax as at January 1, 2018, has been published in the official guidelines of the French tax authorities on December 21, 2017 (BOI-ANNX-000467-20171221). EDAP was not included in such list as its market capitalization did not exceed €1.0 billion as at December 1, 2017. Therefore, purchases of EDAP’s securities are not subject to the French tax on financial transactions.
Estate and Gift Tax
France imposes estate and gift tax on Securities of a French company that are acquired by inheritance or gift. The tax applies without regard to the tax residence of the transferor. However, France has entered into estate and gift tax treaties with a number of countries pursuant to which, assuming certain conditions are met, residents of the treaty country may be exempted from such tax or obtain a tax credit.
Wealth Tax
The French Wealth tax (“impôt de solidarité sur la fortune”) has been replaced with a French real estate wealth tax (“impôt sur la fortune immobilière”) with effect from January 1, 2018. Individuals who are not residents of France for purposes of French taxation are not subject to a real estate wealth tax in France as a result of owning an interest in the share capital of a French corporation, provided that such individuals do not own directly or indirectly a shareholding exceeding 10% of the financial rights and voting rights of the corporation. Double taxation treaties may provide for a more favorable tax treatment.
Taxation of U.S. Holders
Shares
The following is a summary of the material French and U.S. federal income tax consequences set forth below is based on the laws (including, for U.S. federal income tax purposes, the Internal Revenue Code of 1986, as amended (the “Code”), final, temporary and proposed U.S. Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof) in force as of the purchase, ownership and dispositiondate of Securities by a U.S. holder (as defined above). It deals principally with U.S. holders that are residents of the United States for purposes ofthis annual report, the Convention betweenBetween the Government of the United States of America and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital of August 31, 1994 (the “Treaty”), which entered into force on December 30, 1995 (as amended by any subsequent protocols, including the protocol described below and any subsequent protocols)of January 13, 2009), and the tax regulations issued by the French tax authorities and are fully eligible for benefits underwithin the Treaty.
This summary does not deal with Securities that are not heldBulletin Officiel des Finances Publiques-Impôts (the “Regulations”) in force as capital assets, and does not address the tax treatment of holders of ADSs that acquire them in“pre-release”transactions or holders that are subject to special rules, such as banks, insurance companies, dealers in securities or currencies, regulated investment companies, persons that elect mark-to-market treatment, persons holding Securities as a position in a synthetic security, straddle or conversion transaction, persons that own, directly or indirectly, 5% or more of our voting stock or 5% or more of our outstanding capital and persons whose functional currency is not the U.S. dollar.
This summary does not discuss the treatment of Securities that are held in connection with a permanent establishment or fixed base through which a holder carries on business or performs personal services in France. The summary is based on laws, treaties, regulatory interpretations and judicial decisions in effect on the date hereof, all of which are subject to change. Such changes could apply retroactively and could affect the consequences described below.
In particular, the United States and France signed a protocol on January 13, 2009, that entered into force on December 23, 2009 and make several significant changes to the Treaty, including changes to the “Limitation of Benefits” provision.this report. U.S. holders are advised to consult their own tax advisorsadvisers regarding the effect the protocol may have on their eligibility for Treaty benefits, especially with regard to the “Limitations on Benefits” provision, in light of their own particular circumstances.
No advance ruling has been obtained with respect to the tax consequences of the acquisition, ownership or disposition of the Securities from either the French or U.S. tax authorities. Thus, there can no assurances that one or both of such authorities will not take a position concerning the such tax consequences different from that set out herein or that such a position would not be sustained by a court.
A“For the purposes of this discussion, a U.S. holder” includes (1) is a beneficial owner of Securities that is (i) an individual who is a U.S. citizen or individual resident of the United States; (2)for U.S. federal income tax purposes, (ii) a U.S. domestic corporation or certain other entity taxable as a corporationentities created or organized in the United States or under the laws of the United States or any state thereof, orincluding the District of Columbia; (3) an estate whose income isColumbia, or (iii) otherwise subject to U.S. federal income tax regardless of its source; and (4)taxation on a trust (i) whose administration is subject to the primary supervision of a U.S. court and which has one or more“U.S. persons”who have the authority to control all substantial decisions of the trust or (ii) which has made an election under applicable Treasury regulations to be treated as a U.S. person.
A U.S. holder generally will be entitled to Treaty benefitsnet income basis in respect of Securities if heSecurities. A non-U.S. holder is concurrently: (1) the beneficial owner of Securities (and the dividends paid with respect thereto); (2) an individual resident of the United States,a person other than a U.S. corporation, or a partnership, estate or trust to the extent its income is subject to taxation in the United States in its hands or in the hands of its partners or beneficiaries; (3) not also a resident of France for French tax purposes; and (4) not subject to an anti-treaty shopping article that applies in limited circumstances.
Special rules apply to pension funds and certain other tax-exempt investors.
holder.
If a partnership holds Securities, the tax treatment of a partner generally will depend onupon the status of the partner and the activities of the partnership. If a U.S. holder is a partner in a partnership that holds Securities, the holder is urged to consult its own tax advisoradviser regarding the specific tax consequences of acquiring, owning and disposing of its Securities.
ForThis discussion is intended only as a general summary and does not purport to be a complete analysis or listing of all potential tax effects of the acquisition, ownership or disposition of the Securities to any particular investor, and does not discuss tax considerations that arise from rules of general application or that are generally assumed to be known by investors. The discussion applies only to investors that hold the Securities as capital assets that have the U.S. dollar as their functional currency, that are entitled to Treaty benefits under the “Limitation on Benefits” provision contained in the Treaty, and whose ownership of the Securities is not effectively connected to a permanent establishment or a fixed base in France. Certain holders (including, but not limited to, U.S. expatriates, partnerships or other entities classified as partnerships for U.S. federal income tax purposes, banks, insurance companies, regulated investment companies, tax-exempt organizations, financial institutions, persons subject to the alternative minimum tax, persons who acquired the Securities pursuant to the exercise of employee stock options or otherwise as compensation, persons that own (directly, indirectly or by attribution) 5% or more of the Company’s voting stock or 5% or more of the Company’s outstanding share capital, dealers in securities or currencies, persons that elect to mark their securities to market for U.S. federal income tax purposes, and persons holding Securities as a position in a synthetic security, straddle or conversion transaction) may be subject to special rules not discussed below. Holders of Securities are advised to consult their own tax advisers with regard to the application of French tax law and U.S. federal tax law to their particular situations, as well as any tax consequences arising under the laws of any state, local or other foreign jurisdiction.
French Taxes
Estate and gift taxes and transfer taxes
In general, a transfer of Securities by gift or by reason of death of a U.S. holder’s ownershipholder that would otherwise be subject to French gift or inheritance tax, respectively, will not be subject to such French tax by reason of ourthe Convention between the Government of the
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United States of America and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates, Inheritances and Gifts, dated November 24, 1978, unless the donor or the transferor is domiciled in France at the time of making the gift or at the time of his or her death, or the Securities were used in, or held for use in, the conduct of a business through a permanent establishment or a fixed base in France.
Pursuant to Article 235 ter ZD of the French General Tax Code, purchases of certain securities issued by a French company, including shares and ADSs, which are listed on a regulated market of the EU or an exchange market formally acknowledged by the AMF (in each case within the meaning of the French Monetary and Financial Code) are subject in France to a 0.3% tax on financial transactions, or the TFT, provided inter alia that the issuer’s market capitalization exceeds €1.0 billion as of December 1 of the year preceding the taxation year. A list of companies whose market capitalization exceeds €1.0 billion as of December 1 of the year preceding the taxation year within the meaning of Article 235 ter ZD of the French General Tax Code has been published by the French tax authorities in its official guidelines on December 23, 2020 (BOI-ANNX-000467-23/12/2020). The Company was not included in such list as its market capitalization did not exceed €1.0 billion as at December 1, 2020. Please note that such list may be updated from time to time, or may not be published anymore in the future. Furthermore, NASDAQ is not currently acknowledged by the French AMF, but this may change in the future. Therefore, purchases of the Securities are not subject to the TFT.
In the case where the TFT is not applicable, transfers of shares issued by a French company which are not listed on a regulated or organized market within the meaning of the French Monetary and Financial Code are subject to uncapped registration duties at the rate of 0.1% notwithstanding the existence of a written statement (acte). As shares of the Company are not listed, their transfer should be subject to uncapped registration duties at the rate of 0.1% notwithstanding the existence of a written agreement (acte). Although the official guidelines published by the French tax authorities are silent on this point, ADSs should remain outside of the scope of the aforementioned 0.1% registration duties.
Wealth Tax
The French wealth tax (impôt de solidarité sur la fortune) has been replaced with a French real estate wealth tax (impôt sur la fortune immobilière) with effect from January 1, 2018. French real estate wealth tax applies only to individuals and does not generally apply to the Securities if the holder is a U.S. resident, as defined pursuant to the provisions of the Treaty, provided that the individual does not own directly or indirectly a shareholding exceeding 10% of the financial rights and voting rights.
U.S. Taxes
Ownership of the securities
Deposits and withdrawals by a U.S. holder of shares in exchange for ADSs, will not be taxable events for U.S. federal income tax purposes. For U.S. tax purposes, holders of ADSs will be treated as ownershipowners of our underlying ordinary shares.the shares represented by such ADSs. Accordingly, the discussion that follows regarding the U.S. federal income tax consequences of acquiring, owning and disposing of shares is equally applicable to ADSs.
Information reporting and backup withholding tax
Distributions made to holders and proceeds paid from the sale, exchange, redemption or disposal of Securities may be subject to information reporting to the Internal Revenue Service. Such payments may be subject to backup withholding taxes unless the holder (i) is a corporation or other exempt recipient or (ii) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary to establish that it is an exempt recipient. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s U.S. federal income tax liability. A holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service and furnishing any required information.
Foreign asset reporting
In addition, a U.S. holder that is an individual (and, to the extent provided in future regulations, an entity), may be subject to recently-enacted reporting obligations with respect to shares and ADSs if the aggregate value of these and certain other “specified foreign financial assets” exceeds $50,000. If required, this disclosure is made by filing Form 8938 with the U.S. Internal Revenue Service. Significant penalties can apply if holders are required to make this disclosure and fail to do so. In addition, a U.S. holder should consider the possible obligation to file online a FinCEN Form 114 - Foreign Bank and Financial Accounts Report as a result of holding
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shares or ADSs. Holders are encouraged to consult their U.S. tax advisors with respect to these and other reporting requirements that may apply to their acquisition of shares and ADSs.
State and local taxes
In addition to U.S. federal income tax, U.S. holders of Securities may be subject to U.S. state and local taxes with respect to such Securities. Holders of Securities are advised to consult their own tax advisors regardingadvisers with regard to the application of U.S. state and local income tax consequences of the purchase, ownership and disposition of Securities in the light oflaw to their particular circumstances, includingsituation.
ADSs and Shares
French Taxes
Taxation of dividends
Under French law, dividends paid by a French corporation, such as the effect of any state or local laws.
Dividends and Paying Agents
Generally, dividend distributionsCompany, to non-residents of France are generally subject to French withholding tax at a 30% rate (reducedof 26.5% (12.8% for distributions made to 12.8% when non-residents are individuals, orand 15% for distributions made to 75%not-for-profit organizations with a head office in a Member State of the European Economic Area which would be subject to the tax regime set forth under article 206 paragraph 2 of the French General Tax Code if its head office were located in France and which meet the criteria set forth in the Regulations BOI-RPPM-RCM-30-30-10-70-24/12/2019, no 130). Dividends paid inby a French corporation, such as the Company, towards non-cooperative States or territories, as defined in Article 238-0 A of the French General Tax Code, will generally be subject to French withholding tax at a rate of 75%, irrespective of the tax residence of the beneficiary of the dividends if the dividends are received in such States or territories. Eligibleterritories; however, eligible U.S. holders providing evidence of the entitlemententitled to Treaty benefits with respect to the dividend (art.30) under the ‘‘Limitation“Limitation on Benefits’’Benefits” provision contained in the Treaty who are U.S. residents, as defined pursuant to the provisions of the Treaty and who receive dividends in non-cooperative States or territories, shouldwill not be subject to this 75% withholding tax rate.
Under the Treaty, the rate of French withholding tax on dividends paid to an eligible U.S. holder who is a U.S. resident as defined pursuant to the provisions of the Treaty andwhose ownership of Securitiesthe shares or ADSs is not effectively connected with a permanent establishment or fixed base that such U.S. holder has in France, is reduced to15%, or to 5% if such U.S. holder is a corporation and owns directly or indirectly at least 10% of the share capital of the issuing company; such U.S. holder may claim a refund from the French tax authorities of the amount withheld in excess of the Treaty rates of 15% or 5%, if any.any. For U.S. holders that are not individuals but are U.S. residents, as defined pursuant to the provisions of the Treaty, the requirements for eligibility for Treaty benefits, including the reduced 5% or 15% withholding tax rate,rates contained in the “Limitation on Benefits” provision of the Treaty, are complicated, and certain technical changes were made to these requirements by the protocol of January 13, 2009.2009. U.S. holders are advised to consult their own tax advisers regarding their eligibility for Treaty benefits in light of their own particular circumstances.
French withholding tax willDividends paid to an eligible U.S. holder may immediately be withheld atsubject to the domesticreduced rates mentioned above or theof 5% or 15% Treaty rate if a U.S.provided that such holder has establishedestablishes before the date of payment that the holderit is a U.S. resident of the United States under the Treaty by followingcompleting and providing the simplified procedure described below.
The gross amount of dividends thatdepositary with a treaty form (Form 5000). Dividends paid to a U.S. holder receives (beforethat has not filed the deduction of French withholding tax) generallyForm 5000 before the dividend payment date will be subject to French withholding tax at the rate of 26.5% and then reduced at a later date to 5% or 15%, provided that such holder duly completes and provides the French tax authorities with the treaty forms Form 5000 and Form 5001 before December 31 of the second calendar year following the year during which the dividend is paid. Pension funds and certain other tax-exempt entities are subject to the same general filing requirements as other U.S. holders except that they may have to supply additional documentation evidencing their entitlement to these benefits.
The depositary agrees to use reasonable efforts to follow the procedures established, or that may be established, by the French tax authorities (i) to enable eligible U.S. holders to qualify for the reduced withholding tax rate provided by the Treaty, if available at the time the dividends are paid, or (ii) to recover any excess French withholding taxes initially withheld or deducted with respect to dividends and other distributions to which such U.S. holders may be eligible from the French tax authorities and (iii) to recover any other available tax credits. In particular, associated forms (including Form 5000 and Form 5001, together with their instructions), will be made available by the depositary to all U.S. holders registered with the depositary, and are also generally available from the U.S. Internal Revenue Service.
The withholding tax refund, if any, ordinarily is paid within 12 months of filing the applicable French Treasury Form, but not before January 15 of the year following the calendar year in which the related dividend is paid.
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Tax on sale or other disposition
In general, under the Treaty, a U.S. holder who is a U.S. resident for purposes of the Treaty will not be subject to French tax on any capital gain from the redemption (other than redemption proceeds characterized as dividends under French domestic law), sale or exchange of shares or ADSs unless the shares or the ADSs form part of the business property of a permanent establishment or fixed base that the U.S. holder has in France. Special rules apply to holders who are residents of more than one country.
U.S. Taxes
Taxation of dividends
For U.S. federal income taxationtax purposes, the gross amount of any distribution paid to U.S. holders (that is, the net distribution received plus any tax withheld therefrom) will be treated as ordinary dividend income to the extent paid or deemed paid out of the current or accumulated earnings and profits of the Company (as determined under U.S. federal income tax principles). Such dividendsDividends paid by the Company will not be eligible for the dividends receiveddividends-received deduction generally allowed to corporate U.S. corporations. To the extent that an amount received by a U.S. holder exceeds the allocable share of current and accumulated earnings and profits of the Company, such excess will be applied first to reduce such U.S. holder’s tax basis in its Securities and then, to the extent it exceeds the U.S. holder’s tax basis, it will constitute capital gain from a deemed sale or exchange of such Securities. As the Company does not maintain “earnings and profits” computations, holders should assume that all distributions constitute dividends.
holders.
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual U.S. holder with respect to the SecuritiesADSs or shares is currently subject to taxation at a maximum rate of 20% if the dividends are “qualified dividends.”dividends”. Dividends paid on the Securitiesshares or ADSs will be treated as qualified dividends if (i) the issuer is eligible for the benefits of a comprehensive income tax treaty with the United States that the IRSInternal Revenue Service has approved for the purposes of the qualified dividend rules and (ii) the Companyissuer was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a passive foreign investment company or PFIC.(“PFIC”). The Treaty has been approved for the purposes of the qualified dividend rules. Based on our auditedthe Company’s financial statements and relevant market and shareholder data, we dothe Company believes it was not believe we were a PFIC for U.S. federal income tax purposes with respect to our 2017its 2020 taxable year. In addition, we dobased on its current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data, the Company does not anticipate that it becomingwill become a PFIC for the 2018its 2021 taxable year (as described under “—Passiveyear. See “Passive Foreign Investment Company Rules” below). Accordingly, dividends, if any, paid by us in 2017 to a U.S. holder would constitute “qualified dividends.”
, below. Holders of Securitiesshares and ADSs should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of their own particular circumstances.
Dividends distributedDividend income received by a U.S. Holder with respect to the SecuritiesADSs or shares generally will be treated as dividendforeign source income from sources outsidefor foreign tax credit purposes. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. Distributions out of earnings and profits with respect to the United States, andADSs or shares generally will be treated as “passive category” income (or, in the case of certain U.S. holders, “general category”) income for U.S. foreign tax credit purposes. income). Subject to certain limitations, French income tax withheld in connection with any distribution with respect to the SecuritiesADSs or shares may be claimed as a credit against the U.S. federal income tax liability of a U.S. holder if such U.S. holder elects for that year to credit all foreign income taxes. Alternatively, such French withholding tax may be taken as a deduction against taxable income. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securitiesSecurities and may not be allowed in respect of certain arrangements in which a U.S. holder’s expected economic profit is insubstantial. The U.S. federal income tax rules governing the availability and computation of foreign tax credits are complex. U.S. holders should consult their own tax advisorsadvisers concerning the implications of these rules in light of their particular circumstances.
Dividends paid in euro will be included inTo the income ofextent that an amount received by a U.S. holder exceeds the allocable share of the Company’s current and accumulated earnings and profits, such excess will be applied first to reduce such U.S. holder’s tax basis in its shares or ADSs and then, to the extent it exceeds the U.S. holder’s tax basis, it will constitute capital gain from a deemed sale or exchange of such shares or ADSs (see “- Tax on Sale or Other Disposition”, below).
The amount of any distribution paid in euros will be equal to the U.S. dollar value of the euro amount distributed, calculated by reference to the exchange rate in effect on the date the dividend is received by a U.S. holder of receiptshares (or by the holder (or,depositary, in the case of the ADSs, by the Depositary),ADSs) regardless of whether the payment is in fact converted into U.S. dollars. Ifdollars on such date. U.S. holders should consult their own tax advisers regarding the treatment of foreign currency gain or loss, if any, on any euros received by a dividend isU.S. holder that are converted into U.S. dollars on thea date of receipt, a U.S. holder generally should not be requiredsubsequent to recognize foreign currency gain or loss in respect of the dividend income.
Capital Gainsreceipt.
Under the Treaty,Distributions to holders of additional shares (or ADSs) with respect to their shares (or ADSs) that are made as part of a U.S. holderpro rata distribution to all shareholders generally will not be subject to FrenchU.S. federal income tax. However, if a U.S. holder has the option to receive a distribution in shares (or ADSs) or to receive cash in lieu of such shares (or ADSs), the distribution of shares (or ADSs) will be taxable as if the holder had received an amount equal to the fair market value of the distributed shares (or ADSs), and such holder’s tax basis in the distributed shares (or ADSs) will be equal to such amount.
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Tax on any gain derived from the sale or exchange of Securities, unless the gain is effectively connected with a permanent establishment or fixed base maintained by the holder in France.other disposition
ForIn general, for U.S. federal income tax purposes, a U.S. holder that sells, exchanges or otherwise disposes of its shares or ADSs will recognize capital gain or loss in an amount equal to the U.S. dollar value of the difference between the amount realized by afor the shares or ADSs and the U.S. holder onholder’s adjusted tax basis (determined in U.S. dollars and under U.S. federal income tax rules) in the saleshares or other disposition of SecuritiesADSs. Such gain or loss generally will be capitalU.S.-source gain or loss, and will be treated as long-term capital gain or loss if the Securities were held for more thanU.S. holder’s holding period in the shares or ADSs exceeds one year. The net amountyear at the time of long-termdisposition. If the U.S. holder is an individual, any capital gain recognized by an individual U.S. holder generally is currentlywill be subject to taxationU.S. federal income tax at preferential rates (currently a maximum rate of 20%. U.S. holders’ ability to offset) if specified minimum holding periods are met. The deductibility of capital losses against ordinary income is limited.
Additional Issues For U.S. Holders
Procedures for Claiming Treaty Benefits
Pursuant to French official administrative guidelines (BOFIP BOI-INT-DG-20-20-20-20-20120912), U.S. holders can either claim Treaty benefits under a simplified procedure or under the normal procedure. The procedure to be followed depends on whether the application for Treaty benefits is filed before or after the dividend payment.
Under the simplified procedure, in order to benefit from the lower rate of withholding tax applicable under the Treaty before the payment of the dividend, a U.S. holder must complete and deliver to the paying agent (through its account holder) a treaty form (Form 5000), to certify in particular that:
For partnerships or trusts, claims for Treaty benefits and related attestations are made by the partners, beneficiaries or grantors who also have to supply certain additional documentation.
In order to be eligible for Treaty benefits, pension funds and certain other tax-exempt U.S. holders must comply with the simplified procedure described above, though they may be required to supply additional documentation evidencing their entitlement to those benefits.
If Form 5000 is not filed prior to the dividend payment, a withholding tax will be levied at the 30% rate, and a holder would have to claim a refund for the excess under the normal procedure by filing both Form 5000 and Form 5001 no later than December 31 of the second calendar year following the year in which the dividend is paid.
Pension funds and certain other tax-exempt entities are subject to the same general filing requirements as other U.S. holders except that they may have to supply additional documentation evidencing their entitlement to these benefits.significant limitations.
Copies of Form 5000 and Form 5001 may be downloaded from the FrenchMedicare tax authorities’ website (www.impots.gouv.fr) and are also available from the U.S. Internal Revenue Service and from theCentre des Impôts des Non-Résidents in France (10 rue du Centre 93160, Noisy-le-Grand).
Medicare Tax
Certain U.S. holders thatwho are individuals, estates or trusts are required to pay an additionala Medicare tax of 3.8% tax(in addition to taxes they would otherwise be subject to) on their “net investment income” which would include, among other things, dividends on and capital gains from the sale or other disposition of stock. U.S. holders that are individuals, estates or trusts should consult their tax advisors regarding the effect of this legislation on their ownershipshares and disposition of the Securities.ADSs.
Passive Foreign Investment Company Rules
Unfavorable U.S. tax rules such as the PFIC rules apply to companies that are considered PFICs. The Company will be classified as a PFIC in a particular taxable year if either (a) 75% or more of its gross income is treated as passive income for purposes of the PFIC rules; or (b) the average percentage of the value of its assets that produce or are held for the production of passive income is at least 50%.
As explained above, based on the Company’s financial statements and relevant market and shareholder data, the Company believes that it was not a PFIC for U.S. tax purposes with respect to its 2020 taxable year. In addition, based on its current expectations regarding the year 2017,value and alsonature of its assets, the sources and nature of its income, and relevant market and shareholder data, the Company does not anticipate becomingthat it will become a PFIC with respect to the year 2018.for its 2021 taxable year. However, as discussed in our Annual Report on Form 20-Fs filed by the Company with respect to certain prior years the Company believes that it was a PFIC in the past. Moreover, because the PFIC determination is made annually and is dependent upon a number of factors, some of which are beyond the Company'sCompany’s control (including whether the Company continues to earn substantial amounts of operating income as well as the market composition and value of the Company'sCompany’s assets), there can be no assurance that the Company will not become a PFIC in future years.
U.S. holders that heldhold Securities at any time during the years when the Company wasis a PFIC and diddo not make certain U.S. tax elections (a "mark-to-market election" or a "QEF election") will be subject to adverse tax treatment. For instance, such holders will be subject to a special tax at ordinary income tax rates on certain dividends that the Company pays and on gains realized on the sale of Securities (“excess distributions”) in all subsequent years, even though the Company ceased to qualify as a PFIC. The amount of this tax will be increased by an interest charge to compensate for tax deferral, calculated as if the excess distributions had been earned ratably over the period the U.S. holder held its Securities. It may be possible, in certain circumstances, for a holder to avoid the application of the PFIC rules by making a "deemed sale" election for its taxable year that includes the last day of the Company’s last taxable year during which it qualified as a PFIC. The PFIC rules are extremely complex, and holders should consult their own tax advisers regarding the possible application of the PFIC rules to their Securities and the desirability and availability of the above elections.
French Estate and Gift Tax
Under the estate and gift tax convention between the United States and France dated November 24, 1978 (as amended by the protocol signed on December 8, 2004), a transfer of Securities by gift or by reason of the death of a U.S. holder entitled to benefits under that convention generally will not be subject to French gift or inheritance tax, so long as the donor or transferor was not domiciled in France at the time of the transfer, and Securities were not used or held for use in the conduct of a business or profession through a permanent establishment or fixed base in France.
French Real Estate Wealth Tax
The French real estate wealth tax (“impôt sur la fortune immobilière”), which replaced the French wealth tax (“impôt de solidarité sur la fortune”) with effect from January 1, 2018, does not generally apply to Securities of a U.S. holder if the holder is a resident of the United States for purposes of the Treaty and does not own directly or indirectly a shareholding exceeding 10% of the financial rights and voting rights of EDAP.
U.S. Information Reporting and Backup Withholding Rules
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (i) is a corporation or other exempt recipient or (ii) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary.
Information with Respect to Foreign Financial Assets
In addition, U.S. holders that are individuals (and, to the extent provided in future regulations, entities) are subject to reporting obligations with respect to the shares, securities, debt instruments and other obligations of a French corporation if the aggregate value of such assets and certain other “specified foreign financial assets” exceeds $50,000. Significant penalties can apply if a U.S. holder fails to disclose its specified foreign financial assets.
U.S. holders should also consider their possible obligation to file online a FinCEN Form 114 Foreign Bank and Financial Accounts Report as a result of holding the Securities. U.S. holders are urged to consult their tax advisors regarding these and any other reporting requirements that may apply with respect to their Securities.
The discussion above is a general summary. It does not cover all tax matters that may be important to you. You should consult your tax advisors regarding the application of the U.S. federal tax rules to your particular circumstances, as well as the state, local, non-U.S. and other tax consequences to you of the purchase, ownership and disposition of the Securities.
Statement by Experts
Not applicable.
Documents on Display
We file annual, periodic, and other reports and information with the SEC. These materials, including this annual report and the exhibits hereto, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at +1 800 SEC 0330. Certain of our public filings are also available on the SEC’s website at http://www.sec.gov (such documents are not incorporated by reference in this annual report).
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Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in both foreign currency exchange rates and interest rates. We do not hold or issue derivative or other financial instruments. AsDuring 2020 and as of December 31, 2017,2020, we had no outstanding foreign exchange sale or purchase contracts.
Exchange Rate Risk
Revenues and Expenses in Foreign Currencies
We are exposed to foreign currency exchange rate risk because a significant portion of our costs are denominated in currencies other than those in which we earn revenues. In 2017, approximately 77%2020, 74% of our total costs of sales and operating expenses were denominated in euro. During the same period, approximately 55%51% of our net sales were denominated in euro, the rest being denominated primarily in U.S. dollars and Japanese yen.
A uniform 10% strengthening in the value of the euro as of December 31, 20172020 relative to the U.S. dollar and the Japanese yen would have resulted in an increase in income before taxes and minority interests of approximately €93,000€65,000 for the year ended December 31, 2017,2020, compared to a decreasean increase of approximately €9,000€67,000 for the year ended December 31, 2016.2019. A uniform 10% decrease in the value of the euro as of December 31, 20172020 relative to the U.S. dollar and the Japanese yen would have resulted in a decrease in income before taxes and minority interests of approximately €102,000€71,000 for the year ended December 31, 20172020 as compared to an increase of approximately €10,000€73,000 for the year ended December 31, 2016.2019. This calculation assumes that the U.S. dollar and Japanese yen exchange rates would have changed in the same direction relative to the euro. In addition to the direct effect of changes in exchange rates quantified above, changes in exchange rates also affect the volume of sales.
We regularly assess the exposure of our receivables to fluctuations in the exchange rates of the principal foreign currencies in which our sales are denominated (in particular, the U.S. dollar and the Japanese yen) and, from time to time, hedge such exposure by entering into forward sale contracts for the amounts denominated in such currencies that we expect to receive from our local subsidiaries. As of December 31, 20172020, we had no outstanding hedging instruments.
Financial Instruments and Indebtedness
Over the past three years, we also had exchange rate exposures with respect to indebtedness and assets denominated in Japanese yen and U.S. dollars. Approximately €40 thousand, €0.1€0.9 million, €0.6 million and €0.2€0.6 million of our outstanding indebtedness at December 31, 2017, 20162020, 2019 and 2015,2018, respectively, were denominated in Japanese yen. Approximately €0.8€0.2 million, €3.9€0 million and €4.4 million2017€0 million of our outstanding indebtedness at December 31, 2017, 20162020, 2019 and 2015,2018, respectively, were denominated in U.S. dollars. In addition, we had approximately €2.1€6.0 million, €2.8€4.0 million and €2.1€1.3 million of cash denominated in U.S. dollars at December 31, 2017, 20162020, 2019 and 2015,2018, respectively, and €3.9€2.7 million, €1.5million€1.3 million and €0.9€3.7 million of cash denominated in Japanese yen at December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
Equity Price Risk
Not applicable.
In connection with the funds we raised in 2013 and 2016, we have issued a certain number of Investor and Placement Agent Warrants (see Item 5. “Operating and Financial Review and Prospects—Warrants”). We recorded such Warrants as a liability at fair value and we adjust the carrying value of the Warrants to their estimated fair value at each reporting date. The fair value increases (decreases) are recorded as a financial income (loss) in our consolidated Statement of Income. We use a Black-Scholes option pricing model to adjust the fair value of the Warrants. A 10% increase in our stock price from its December 31, 2017 closing price of $2.87 per ADR would result in an increase of €0.4 million in the fair value of the Warrants with a corresponding financial loss in our Statement of Income. See Note 24 of our consolidated financial statements.
Item 12. Description of Securities Other than Equity Securities
American Depositary Shares
Fees Payable to ADS Holders
The Bank of New York Mellon, as the Company’s Depositary, currently collects its fees for the delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. With respect to the outstanding 2013 and 2016 warrants, fees for delivery of ADSs directly linked to a warrant exercise or the payment of quarterly interest shares are supported by the Company.
The Depositary may collect fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may collect its annual fee for Depositary services by
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deductions from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The Depositary may generally refuse to provide fee-attracting services until the fees for those services are paid.
Fees: | For: | ||
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | | - Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property, | |
- Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates. | | ||
$0.2 (or less) per ADS | | - Any cash distribution to ADS registered holders. | |
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited to issuance of ADSs | | - Distribution of securities distributed to holders of deposited securities which are distributed by the Depositary to ADS registered holders. | |
Registration or transfer fees | - Transfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw shares | | |
Expenses of the Depositary | | - Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) | |
- Converting foreign currency to U.S. dollars | | ||
Taxes and other governmental charges the Depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes | | - As necessary | |
Any charges incurred by the Depositary or its agents for servicing the deposited securities | | - As necessary | |
Fees Payable to the Company by the Depositary
From January 1, 20172020 to March 16, 2018,15, 2021, the following amounts were paid by the Depositary to the Company: $90,000.00$90,000 and $9,927.13$13,656 respectively for the administration of the ADR program and for expenses linked to the assistance in identifying shareholders of the Company.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Notapplicable.
Item 15. Controls and Procedures
Disclosure Controls and Procedures
The Company'sCompany’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation, pursuant to Rule 13a-1513a-15(e) promulgated under the Securities Act of 1934, as amended (the "Exchange Act"), of the effectiveness of our disclosure controls and procedures as of December 31, 2017.2020. Based on this evaluation, the Chief Executive Officer
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and Chief Financial Officer concluded that our disclosure controls and procedures were not effective becauseas of December 31, 2020 and that the material weakness described below.
In responsereported in our annual report for the year ended December 31, 2019 was fully remediated. During the course of 2020, the Company implemented a formal “Ticketing tool” in order to strengthen the identificationchange management process and documentation. The Company also strengthened its IT team to ensure a better segregation of theduties upon IT changes implementation. The Company therefore considers that this material weakness described below, the Company performed additional analysis and other post-closing procedures. has been remediated as of December 31, 2020.
Based upon the work performed, management believes that the Company’s consolidated financial statements for the periods covered by and included in this Annual Report on Form 20-F fairly present in all material respects the Company’s financial position, results of operations and cash flows, in conformity with U.S. generally accepted accounting principles.
Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
The Company’s disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of its disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and for the assessment of the effectiveness of our internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Company’s internal controls over financial reporting include those policies and procedures that:
● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and |
● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of internal control over financial reporting as of December 31, 20172020 based upon the internal control framework as set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO) in Internal Control-Integrated Framework.. Based on the management’s assessment, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2017 because of2020.
Remediation Activities
In our Annual Report on Form 20-F for the material weakness described below. This annual report includes an attestation report of the Company’s registered independent public accounting firm on the Company’s internal control over financial reporting because the Company’s market capitalization is above $75 million at June 30, 2017.
Under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), management assessed our internal control over financial reporting based upon the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this evaluation, management identifiedyear ended December 31, 2018, we reported a material weakness in our internal control with respect to the insufficient segregationimplementation of duties linkeda new integrated information management system (SAP version 4HANA) which we launched in production on July 1, 2018, and that includes our accounting, as well as our production and inventory processes. This material weakness resulted from several significant deficiencies in the development and change program which, considered in aggregation, gave rise to the small size of our structure, as further described below. As a result of this material weakness, management has concludedconclusion that our internal control over financial reporting was not effective as of December 31, 2017. This2018 and that this material weakness didwas not result in a material misstatementconsidered fully remediated as of the consolidated financial statements for the year ended December 31, 2017 or restatement2019, although certain new controls were implemented during 2019.
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During the Company.
A material weakness iscourse of 2020, the Company implemented a deficiency, or combination of deficiencies,formal “Ticketing tool” in internal control over financial reporting, such that there isorder to strengthen the change management process and documentation. The Company also strengthened its IT team to ensure a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We did not maintain sufficientbetter segregation of duties within the consolidation process given the limited sizeupon IT changes implementation. The Company, therefore, considers that this material weakness has been remediated as of our finance team. Specifically, our Chief Financial Officer has the ability to prepare consolidated financial statements without sufficient evidence of independent review, and we have insufficient evidence of supporting documentation, calculations and assumptions used to prepare the consolidated financial statements.
As stated above, this deficiency did not result in a material misstatement of the consolidated financial statements for the year ended December 31, 2017 or a restatement of any prior period previously reported by the Company. However, there is a reasonable possibility that a material misstatement of the consolidated financial statements would not have been prevented or detected on a timely basis due to the failure in designing and implementing appropriate controls over the consolidation process, and therefore, our management has determined this deficiency constitute a material weakness.
Remediation Activities
In an effort to remediate the identified material weakness and to enhance our overall control environment, we plan to initiate the following actions:
2020.
Change in Internal Control over Financial Reporting
Other than the material weakness and remediation, activities described above, there waswere no changechanges in the Company’s internal control over financial reporting occurred as of the end ofduring the period covered by this report that has materially affected, or is reasonably likely to materially affect the Company’s internal control over financial reporting.
Attestation Report of Registered Public Accounting Firm
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, has been audited by PricewaterhouseCoopers Audit,KPMG S.A., an independent registered public accounting firm, as stated in its report on the Company’s internal control over financial reporting as of December 31, 2017, which is included herein. See report of PricewaterhouseCoopers Audit, an independent registered public accounting firm, included within the financial statements on page F-2.F-2 of this Annual Report.
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
Our Board of Directors has determined that the chair of the Board’s Audit Committee, Mr. Pierre Beysson, an independent director, qualifies as an audit committee financial expert.
Item 16B. Code of Ethics
We have adopted a code of ethics applicable to our Chief Executive Officer, Chief Financial Officer, principal accounting officers and to any persons performing similar functions. The code of ethics is reviewed every year by the Board of Directors, and an update of the code of ethics was approved by the Board of Directors on January 25, 2017.Ourcode of ethics is filed herewith as Exhibit 11.1and wehave made it available on our website at http://www.edap-tms.com. You may request a copy of our code of ethics free of charge upon request to Blandine Confort, Investor Relations Officer, at bconfort@edap-tms.com.
Item 16C. Principal Accountant Fees and Services
The following table summarizes the aggregate fees of our independent registered accounting firm, billed to us for the fiscal years ended December 31, 2020 and December 31, 2019 for audit and other services. KPMG S.A. (“KPMG”) served as the Company’s independent registered accounting firm for the fiscal years ended December 31, 2020 and 2019.
| | | | |
| | Fees for | | Fees for |
| | 2020 | | 2019 |
Nature of the Fees |
| (in €) |
| (in €) |
Audit fees (1) |
| 375,829 |
| 358,902 |
Audit-related fees |
| 8,000 |
| 5,000 |
Tax fees |
| — |
| — |
All other fees |
| — |
| — |
Total |
| 383,829 |
| 363,902 |
As the Company has exceeded certain levels of revenues and balance sheet set under French law, the appointment of a joint-auditor, as well as the production of consolidated accounts under International Financial Reporting Standards, is required for the fiscal year 2020. On June 30, 2020, the shareholders appointed the audit firm of Agili(3F) as our independent joint-auditors starting with
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the 2020 fiscal year for the audit of the statutory consolidated financial statements prepared in accordance with International Financial Reporting Standards. Audit fees to be billed to us by Agili(3F) for fiscal year ended December 31, 2020 are as follows:
| | |
| | Fees for |
| | 2020 |
Nature of the Fees | (in €) | |
Audit fees | 37,000 | |
Audit-related fees | — | |
Tax fees | — | |
All other fees | — | |
Total | 37,000 |
Audit Fees
The following services were billed under the category ‘‘audit services’’: audit of financial statements and services performed in relation to legal obligations, including the formulation of audit opinions, consents and reports, domestic and international legal audits and support in the preparation.
Audit-Related Fees
Audit-related services billed under this category only consist of attestation services related to financial reporting that are not required by statute or regulation.
Pre-approval policy
The ‘‘Audit and Non-Audit Services Pre-Approval Policy’’ was approved by our Audit Committee on December 22, 2003 (the “2003 Rules”) and reviewed on November 20, 2012. This requires all services which are to be performed by our external auditors to be pre-approved. Pre-approval may be in the form of a general pre-approval or as pre-approval on a case-by-case basis. All services to be performed by the external auditors were subjected to the above policy and approved in advance. The Audit Committee has been regularly informed of the services and the fees to be paid. Our external auditor PricewaterhouseCoopers Audit (“PwC”) billed the following services related for our 2017 and 2016 financial years.
Nature of the Fees
|
2017 |
2016 | ||||||
Audit fees | 329,000 | 336,500 | ||||||
Audit-related fees | - | 3,500 | ||||||
Tax fees | - | - | ||||||
All other fees | - | - | ||||||
Total | 329,000 | 340,000 | ||||||
Audit Fees
The following services were billed under the category ‘‘audit services’’: audit of financial statements and services performed in relation to legal obligations, including the formulation of audit opinions and reports, domestic and international legal audits and support in the preparation and auditing of the documents to be filed.
Audit-Related Fees
Audit-related services billed under this category only consists of attestation services related to financial reporting that are not required by statute or regulation.
Item 16D. Exemptions from the Listing Standards for Audit Committees
None.
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
In 2017, the Company recorded no purchase of EDAP ADRs of the Company registered pursuant to Section 12 of the Exchange Act by the Company or by affiliated purchasers.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance Requirements
Exemptions from Certain NASDAQ Corporate Governance Rules
EDAP is incorporated under the laws of France, with securities listed on theThe NASDAQ Global Market in the United States. As a foreign private issuer listed on theThe NASDAQ, under theThe NASDAQ corporate governance requirements, we may follow French law corporate governance practices in lieu of following certain NASDAQ corporate governance rules. We summarize below the main practices we follow in lieu of theThe NASDAQ corporate governance rules.
We are exempt from NASDAQ’s quorum requirements applicable to meetings of shareholders. In keeping with French law and generally accepted business practices in France, the presence in person or by proxy of shareholders having not less than 20% (in the case of an ordinary general meeting or an extraordinary general meeting deciding upon any capital increase by capitalization of reserves) or 25% (in the case of an extraordinary general meeting) of the shares is necessary for a quorum. If a quorum is not present at any meeting, the meeting is adjourned. Upon recommencement of an adjourned meeting, there is no quorum requirement in the case of an ordinary general meeting or an extraordinary general meeting deciding upon any capital increase by capitalization of reserves. The
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presence in person or by proxy of shareholders having not less than 20% of the shares is necessary for a quorum in the case of any other type of extraordinary general meeting.
Under French law, the committees of our Board of Directors are advisory only, and where theThe NASDAQ requirements would vest certain decision-making powers with specific committees by delegation (e.g., nominating, compensation or audit committees), our Board of Directors is, pursuant to French law the only competent body to take such decisions, albeit taking into account the recommendation of the relevant committees. Additionally, under French corporate law, it is the shareholder meeting of the Company that is competent to appoint our auditors upon the proposal of our Board of Directors. On February 4, 2015, in order to conform with NASDAQ rules, the Board approved the creation of a Nominations Committee (composed exclusively of independent Directors), should one or more Directors become non-independent. A Nominations Committee Charter was approved accordingly. As per this Charter, upon the appointment of a non-independent Director to the Board on June 30, 2017, the Board of Directors, was convened on July 10, 2017 and decided to create a Nominations Committee composed exclusively of independent Directors.
Our Compensation Committee is composed of four members who meet the definition of independence contained in NASDAQ Listing Rule 5602(a) and is governed by a charter which sets forth its composition and defines its scope of authority. However, in accordance with French law, the Compensation Committee is not vested with the same scope of authority and responsibilities as set out in The NASDAQ Listing Rules.
On August 26, 2020, the Board of Directors approved the creation of a Strategic Committee to address strategic issues and governed by a charter which sets forth its composition and defines its scope of authority.
Item 16H. Mine Safety Disclosure
Not applicable.
PART III
Item 17. Financial Statements.
See Item 18, "Financial"Financial Statements."
Item 18. Financial Statements
The financial statements listed in the Index to Financial Statements are filed as a part of this annual report.
Item 19. Exhibits
The exhibits listed in the Index to Exhibits are filed or incorporated by reference as a part of this annual report.
INDEX TO EXHIBITS
Pursuant to the rules and regulations of the Securities and Exchange Commission, the Company has filed certain agreements as exhibits to this annual reportAnnual Report on Form 20-F. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to such agreements if those statements turn out to be inaccurate; (ii) may have been qualified by disclosures that were made to such other party or parties and that either have been reflected in the Company’s filings or are not required to be disclosed in those filings; (iii) may apply materiality standards different from what may be viewed as material to investors; and (iv) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments. Accordingly, these representations and warranties may not describe the Company’s actual state of affairs at the date hereof.
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Exhibit Description
Number:
| | | |
(1) | | Previously filed. | |
71
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
72 INDEX TO FINANCIAL STATEMENTS F-1 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors
We have audited the accompanying consolidated balance sheets of EDAP TMS S.A. and In our opinion, the consolidated financial statements We also have audited, in accordance with the
Change in Accounting Principle
Basis for Opinion These consolidated financial We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the fraud. Our audits Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue recognition – Identification of distinct performance obligations in multiple-element arrangements related to sales of medical devices produced by the Company As discussed in Note 1.5 to the consolidated financial statements, the Company’s sale arrangements may contain multiple elements, including medical devices produced by the Company, consumables, and services such as maintenance or warranty extensions. The Company identifies goods or services within the contract that constitute distinct performance obligations. We identified the identification of distinct performance obligations included in the contracts with customers for the sales of medical devices produced by the Company as a critical audit matter, because each customer contract is a specific contract, with distinct F-2 performance obligations. Challenging auditor judgment was required in evaluating the impact of the terms and conditions in contracts with multiple elements to assess the identification of distinct performance obligations. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control over the Company’s revenue recognition process related to the identification of distinct performance obligations included in multiple-element arrangements. For a sample of medical device sales we obtained and read the executed contracts and assessed the Company’s identification of distinct performance obligations. Lyon April7, 2021 KPMG Audit A division of KPMG S.A. /s/ Sara Righenzi de Villers Partner We have served as the Company’s auditor since 2018. F-3 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Opinion on Internal Control Over Financial Reporting We have audited EDAP TMS S.A. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated April 7, 2021 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rulesand regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our Definition and Limitations of Internal Control A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Lyon April7, 2021
A division of KPMG S.A. /s/ Partner
F-4 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, (in thousands of euros unless otherwise noted)
The accompanying notes are an integral part of the consolidated financial statement. F-5 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) For the years ended December 31, 2020, 2019 and 2018
(in thousands of euros except share and per share data)
The accompanying notes are an integral part of the consolidated financial statements. F-6 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the years ended December 31, (in thousands of euros
The accompanying notes are an integral part of the consolidated financial statements. F-7 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF For the years ended December 31, (in thousands of euros unless otherwise noted)
The accompanying notes are an integral part of the consolidated financial statements. F-8 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF For the years ended December 31, (in thousands of euros unless otherwise noted)
The accompanying notes are an integral part of the consolidated financial statements. F-9 EDAP TMS S.A. AND SUBSIDIARIES
( 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1-1Nature of operations EDAP TMS S.A. and its subsidiaries (‘‘the Company’’) are engaged in the development, production, marketing, distribution and maintenance of a portfolio of minimally-invasive medical devices for the treatment of urological diseases. The Company currently produces innovative robotic devices for treating stones of the urinary tract and localized prostate cancer. We also derive revenues from the distribution of urodynamics products and urology lasers. Net sales consist primarily of direct sales to hospitals and clinics in France and Europe, export sales to third-party distributors and agents, and export sales through subsidiaries based in Germany, Italy, the United States and Asia.
The Company purchases the majority of the components used in its products from a number of suppliers but for some components, relies on a single source. Delay would be caused if the supply of these components or other components was interrupted and these delays could be extended in certain situations where a component substitution may require regulatory approval. Failure to obtain adequate supplies of these components in a timely manner could have a material adverse effect on the Company’s business, financial position and results of Since the occurrence in 2020 of the COVID-19 virus, we have taken steps to require the majority of our employees to work remotely, maintain minimum supply chain and development activity and curtail most business travels. The pandemic has resulted in further postponement and/or cancelation of the sale and installation of new devices and disposables in hospitals or clinics as investment decisions are put on hold or their resources are refocused on COVID-19. During this period, we benefited from covid related assistance loans from French, Japanese and US authorities. 1-2Basis of preparation These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP).
1-3Management estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (‘‘U.S. GAAP’’) requires management to make estimates and assumptions, such as business plans, stock price volatility, duration of standard warranty per market, duration and interest rate of operating leases, price of maintenance contract used to determine the amount of revenue to be deferred and life duration of our range of products. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In particular regarding the estimate of future sales in our business plans, the prolonged impact of the COVID19 pandemic and lack of visibility on the return to normal sales cycles has created a higher level of uncertainty. Actual results could differ from those estimates. 1-4Consolidation The accompanying consolidated financial statements include the accounts of EDAP TMS S.A. and all its domestic and foreign owned subsidiaries 1-5Revenue recognition The Company adopted ASC Topic 606,Revenue from Contracts with Customers, on January1, 2018. F-10 EDAP TMS S.A. AND SUBSIDIARIES
(In thousands of euros unless otherwise noted, except per share data) The Company’s revenue consists of: - Sales of goods (devices and consumables), where invoicing generally takes place upon delivery. Consumables revenues included in sales contract are deferred until delivery. - Revenue-per-Procedures (“RPP”) and leases: they comprise (i)revenues on a per treatment basis which are invoiced after each treatment, or in advance, or on a periodic basis, (ii)leases of devices, which are generally invoiced on amonthly or quarterly basis, and (iii)immaterial lease components arising from multiple-element arrangements, where specific sales terms are negotiated in accordance with each customer’s individual requirements and which are generally invoiced based on contract terms, - Sales of spare parts and services (maintenance, upgrades, mobility and others). Spare parts are invoiced when delivered. Regarding services, invoicing is performed either on a subscription basis (in advance or at the end of the period) or when performed. Sales of The Company invoices its customers based on the billing schedules in its sales arrangements. Payments are generally due between one to threemonths from date of invoice.
their obligations. Our For multiple-element arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the goods or services. If a standalone selling price is not directly observable, then the Company estimates the standalone selling price considering market conditions and The Company recognizes revenue when the performance obligations are satisfied by transferring control over the The Company’s revenue consists of the following: Sales of goods: Sales of goods are and have historically been comprised of sales net of commission of medical devices (ESWL lithotripters and HIFU devices) and net sales of disposables (mostly Ablapaks and Focalpaks in the For devices and disposables, revenue is F-11 EDAP TMS S.A. AND SUBSIDIARIES
(
immaterial in the context of the contract with the customer and do not constitute a distinct performance obligation. Sales of RPPs and leases: Sales of RPP and leases include the revenues from the sale of treatment procedures and from the leasing of machines. For RPP, we provide machines to clinics and hospitals for free for a limited period, rather than selling the devices. These hospitals and clinics perform treatments using the devices and usually pay us based on the number of individual treatments provided. Revenues from leasing of machine are considered as immaterial. Revenues related to the sale of Regarding multiple-element arrangements with a lease component, a portion of the contract is allocated to the lease component on the basis of observable market prices applied by the Company for similar devices under operating leases. The lease component is recognized on a straight line basis over the contractual period. Other immaterial components under the contract are recognized in accordance with their nature. Sales of spare parts and services: Revenues related to spare parts are recognized when Revenues related to Services mainly consist of maintenance contracts which rarely exceed oneyear and are recognized on a straight line The Company recognizes revenue for extended warranties included in the multiple-element arrangements as a separate performance obligation in Sales of services on a straight-line basis over the extended warranty period. In the majority of countries in which the Company operates, the statutory warranty period is one to twoyears and the extended warranty covers periods beyond this statutory period. Standard warranties do not constitute a separate performance obligation. The Company accrues for the warranty costs at the time of sale of the device through the multiple-element arrangement. Agents and distributors: As part of its sale process in countries other than continental France, when the Company does not have a local subsidiary, sales of goods to end-customers are performed through agents and distributors. Such agents and distributors are primarily responsible for the sales’ process, bear the inventory risk, and are free to determine the sale prices. Sales of goods to agents and distributors are recognized when the control is transferred to the related agent or distributor which generally occurs based on contractual incoterms. F-12 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data) Deferred revenue: Deferred revenue for the periods presented primarily relates to service contracts where the service fees are billed up-front, generally quarterly or annually, prior to those services having been performed, and consists primarily of billing or cash receipts in advance of services due under maintenance contracts or extended warranty contracts. The associated deferred revenue is generally recognized ratably over the service period. Disaggregation of revenue: Disaggregation by primary geographical market, and timing of revenue recognition is reported in Note18. Contract Balances: Details on contract liabilities are The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of oneyear or less. This relates mainly to maintenance services. 1-6Costs of sales Costs of sales include all direct product costs, costs related to shipping, handling, duties and importation fees, as well as certain indirect costs such as service and supply chain departments expenses. Indirect costs are allocated by type of sales (goods, RPP and leases, spare parts and services) using an allocation method determined by management by type of costs and segment activities and reviewed on an annual basis. 1-7Shipping and handling costs
1-8Cash equivalents and short term investments Cash equivalents are cash investments which are highly liquid and have initial maturities of 90days or less. Cash investments with a maturity higher than 90days are considered as short-term investments. There is 0 short-term investment at December31, 2020. 1-9Accounts Receivable
1-10Inventories Inventories are valued at the lower of cost F-13 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data) devices). The Company establishes reserves for inventory estimated to be obsolete, unmarketable or slow moving, first based on a detailed comparison between quantity in inventory and historical consumption and then based on case-by-case analysis of the difference between the cost of inventory and the related estimated market value.
1-11Property and equipment Property and equipment is stated at historical
Equipment includes industrial equipment and research equipment that has alternative future uses. Equipment also includes devices that are manufactured by the Company and leased to customers through operating leases related to Revenue-Per-Procedure transactions and devices subject to sale and leaseback transactions. This equipment is depreciated over a period of seven years. 1-12Long-lived assets The Company reviews the carrying value of its long-lived assets, including fixed assets and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Recoverability of long-lived assets is assessed by a comparison of the carrying amount of the assets (or the Group of assets, including the asset in question, that represents the lowest level of separately-identifiable cash flows) to the total estimated undiscounted cash flows expected to be generated by the asset or group of assets. If the future net undiscounted cash flows is less than the carrying amount of the asset or group of assets, the asset or group of assets is considered impaired and an expense is recognized equal to the amount required to reduce the carrying amount of the asset or group of assets to its then fair value. Fair value is determined by discounting the cash flows expected to be generated by the assets, when the quoted market prices are not available for the long-lived assets. Estimated future cash flows are based on assumptions and are subject to risk and uncertainty. 1-13Goodwill and intangible assets Goodwill represents the excess of purchase price over the fair value of identifiable net assets of businesses acquired. Goodwill is not amortized but instead tested annually for impairment or more frequently when events or change in circumstances indicate that the assets might be When imparement indicators are identified, the impairment test is performed Changes in market conditions could have a major impact on the valuation of these assets and could result in additional impairment losses. F-14 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data) Intangible assets consist primarily of purchased patents relating to lithotripters, purchased licenses, a purchased trade name and a purchased trademark. The basis for valuation of these assets is their historical acquisition cost. Amortization of intangible assets is calculated by the straight-line method over the shorter of the contractual or estimated useful life of the assets, as follows:
1-14Treasury Stocks Treasury stock purchases are accounted for at cost. The sale of treasury stocks is accounted for using the first in first out method. Gains on the sale or retirement of treasury stocks are accounted for as additional paid-in capital whereas losses on the sale or retirement of treasury stock are recorded as additional paid-in capital to the extent that previous net gains from sale or retirement of treasury stocks are included therein; otherwise the losses shall be recorded to accumulated benefit (deficit) account. Gains or losses from the sale or retirement of treasury stock do not affect reported results of operations. Treasury stocks held by a Company cannot exceed 10% of the total number of shares issued. 1-15Warranty expenses The Company provides customers with a warranty for each product sold and accrues warranty expense at time of sale based upon historical claims experience. Standard warranty period may vary from 1year to 2years depending on the market. 1-16Income taxes The Company accounts for income taxes in accordance with ASC 740, ‘‘Accounting for Income Taxes’’ Under ASC 740, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured by applying enacted tax rates and laws to taxableyears in which such differences are expected to reverse. A valuation allowance is established if, based on the weight of available evidence, it is more likely than not that some portion, or all of the deferred tax assets, will not be realized. In accordance with ASC740, no provision has been made for income or withholding taxes on undistributed earnings of foreign subsidiaries, such undistributed earnings being permanently reinvested.
1-17Research and development costs Research and development costs are recorded as an expense in the period in which they are incurred. The French government provides tax credits to companies for innovative research and development.This tax credit is calculated based on apercentage of eligible research and development costs and it can be refundable in cash and is not contingent on future taxable income. As such, the Company considers the research tax credits as a grant, offsetting
1-18Advertising costs Advertising costs are recorded as an expense in the period in which they are F-15 EDAP TMS S.A. AND SUBSIDIARIES
( 1-19Foreign currency translation and transactions Translation of the financial statements of consolidated companies The reporting currency of EDAP TMS S.A. for allyears presented is the euro (€). The functional currency of each subsidiary is its local currency. In accordance with ASC 830, all accounts in the financial statements are translated into euro from the functional currency at the following exchange
Foreign currencies transactions Transactions involving foreign currencies are translated into the functional currency using the exchange rate prevailing at the time of the transactions. Receivables and payables denominated in foreign currencies are translated atyear-end exchange rates. The resulting unrealized exchange gains and losses are Presentation in the Statement of Income (loss) Aggregate foreign currency transactions gains and losses are disclosed in a single caption in the 1-20Earnings per share Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share reflects potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The dilutive effects of the Company’s common stock options and warrants is determined using the treasury stock method to measure the number of shares that are assumed to have been repurchased using the average market price during the period, which is converted from U.S. dollars at the average exchange rate for the period. 1-21Derivative instruments ASC 815 requires the Company to recognize all of its derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must classify the hedging instrument, based upon the exposure being hedged, as fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. Gains and losses from derivative instruments are recorded in the 1-22Employee stock option plans At December31,
F-16 EDAP TMS S.A. AND SUBSIDIARIES
(
1-23Warrants
The Company
1-24Leases Leases as a Lessee In accordance with ASC 842, Leases, and as from January1, 2019, the Company Leases are classified as either finance leases or operating leases. Substantially all our operating leases are comprised of office space leases, and substantially all our finance leases are comprised of office furniture and technology equipment. The Company For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to
Lease payments included in the measurement of the lease liability comprise the following: the fixed payments, including in-substance fixed payments over the lease term (which includes termination penalties the Company Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as Our real estate leases generally include non-lease maintenance services. The F-17 EDAP TMS S.A. AND SUBSIDIARIES
(
Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Lease expense for finance leases consists of the amortization of the right-of-use asset on a straight-line basis over the lease term and interest expense determined on an amortized cost basis. The lease payments are allocated between a reduction of the lease liability and interest expense.
We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12months or less. The effect of short-term leases on our right-of-use asset and lease liability was not material. We have elected not to review the classification for expired or existing leases, prior to January1, 2019. Leases as a Lessor: A lessor shall classify a lease criteria at lease commencement:
When none of the criteria are met:
met, in which case the lessor shall classify the lease as a direct financing lease:
1-25
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02), which supersedes ASC 840 “Leases” and creates a new topic, ASC 842 "Leases." This update requires lessees to recognize on their balance sheet a lease liability and a lease asset F-18 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data) for all leases, including operating leases, with a term greater than 12 months. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. The Company adopted ASC 842 using a modified retrospective transition approach for all leases existing at or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company
In accounts. In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment.” This update eliminates step 2 from the goodwill impairment test, and requires the goodwill impairment test to be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance
2—CASH EQUIVALENTS Cash
F-19 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data) 3—TRADE ACCOUNTS AND NOTESRECEIVABLE, NET Trade accounts and notes receivable consist of the following:
Notesreceivable usually represent commercial bills of exchange (drafts) with initial maturities of 90days or less. Bad debt expenses amount to a net cost of
2018. Long term portion consists of sales type leases of medical devices.
4—OTHER RECEIVABLES Other receivables consist of the following:
5—INVENTORIES
The provision for slow moving inventory relates to components and spare parts. The allowance for slow moving inventory (excluding exchange rate impact), the F-20 EDAP TMS S.A. AND SUBSIDIARIES
( 6—OTHER ASSETS Other assets consist of the following:
Prepaid expenses mainly consist of rental and future congresses and conferences expenses. 7—PROPERTY AND EQUIPMENT, NET Property and equipment consist of Property and equipment purchased or capitalized by the Company and finance leases for 2020 and 2019. 7-1Property and Equipment, net Property and equipment consist of the following:
Depreciation expense related to property and equipment amounted to Assets leased to customers: Capitalized costs on equipment
7-2Finance leases Finance lease right-of-use assets in 2020 and previousyears consist of the following:
F-21 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data) Depreciation expense related to finance lease right-of-use assets amounted to €401 thousand, €448 thousand and €386 for theyears ended December31, 2020, 2019, 2018, respectively. The reduction to right-of-use assets resulting from reductions to finance lease obligations amounted €670 thousand and €122 thousand for theyears ended December31, 2020 and 2019 respectively. 8—OPERATING LEASE RIGHT-OF-USE ASSETS Operating lease right-of-use assets consist of the following:
The reduction to right-of-use assets resulting from reductions to operating lease obligations amounted to €931 thousand and €836 thousand for theyears ended December31, 2020 and 2019 respectively. Variable lease costs related to above contracts amounted to €101 thousand and €108 thousand for theyears ended December31, 2020 and 2019 respectively. Non-recognized lease liabilities for short term leases amounted to €71 thousand and €71 thousand for theyears ended December31, 2020 and 2019 respectively. 9—GOODWILL AND INTANGIBLE ASSETS As discussed in Note1-13,
The Company completed the required annual impairment test in the fourth quarter of F-22
CONSOLIDATED FINANCIAL STATEMENTS (In thousands of Intangible assets consist of the following:
For the five comingyears, the annual estimated amortization expense will consist of the following:
Trade accounts and notes payable consist of the following:
Trade accounts payable usually represent invoices with a due date of 90days or less and invoices to be received. Notespayable represent commercial bills of exchange (drafts) with initial maturities of 90days or less. F-23 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data)
Deferred revenues consist of the following:
Deferred revenue on extension of warranty will be recognized over the following periods:
Changes in deferred revenue on extension of warranty are as follows:
F-24 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data)
Other accrued liabilities consist of the following:
We receive government conditional advances and grants for advanced research programs we conduct alone or in connection with other unrelated entities (mainly HECAM project) which are provided for and managed by French state-owned entities, and specifically “Banque Publique d’Investissement” (“Bpifrance”). We, alone or with other unrelated entities, enter into multi-year contractual arrangements for the financing of specific research programs. These arrangements consist of both grants and conditional advances which are paid in fixed instalments at predetermined contractual dates, subject generally to milestones based on progress of the research and documentation. Grants received are non-refundable. Conditional advances received are subject to a fixed 1.44% interest rate. Despite a first mono-centric study successfully implemented with Lyon’s Centre Leon Bérard cancer center, we decided not to pursue the development of HIFU for liver cancer as a per-operative approach. The multi-centric Phase II study, which was to be initiated following the mono-centric study, will not be implemented. We considered that the per-operative approach initially targeted will not offer the breakthrough innovation expected by the market and In 2020, the Company decided to reorient the efforts, knowledge and assets resulting from the HECAM project in two directions. The first one, with a Grants that relate to expenses we incur for this research program are recognized in the line item “Research and Development Expenses” in the period in which the expenses subject to the grants have been incurred (see Note Conditional advances as of December31, 2020 mature as follows, should the underlying Research Program advance as per contract:
F-25 EDAP TMS S.A. AND SUBSIDIARIES
(
Changes in the provision for warranty costs are as follows:
13-1Financing leases The Company leases certain of its equipment under Maturities of finance leases liabilities for theyears ending December31,
Interest paid under
F-26 EDAP TMS S.A. AND SUBSIDIARIES
( 13-2Operating leases Maturities of operating leases liabilities consist of the following amounts:
The weighted average remaining lease term and the weighted average discount rate for operating leases at December31, 2020 was: 2.80years and 1.45% and at December31, 2019 was: 3.51years and 1.56%. Total rent expenses under operating leases amounted to €941 thousand, €828 thousand and €1,002 thousand, for theyears ended December31, 2020, 2019 and 2018, respectively. These total rent expenses are related to office rentals, office equipment and car rentals. 14— SHORT-TERM BORROWINGS As of December31, As of December31, 2019 short-term borrowings consist mainly of €3,185 thousand of factored account receivables and for which the Company is F-27 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data)
As of December31,
As of December31, 2019, long-term debt in Japan consists of two loans in Yen with the following
The long-term debt of 40,000,000 has been fully reimbursed in April2020. As of December31,
This loan was pledged against an HIFU equipment with a purchase value of €438 thousand. As of December31, 2019, long-term debt in Germany consists of this previous loan in euro and another loan with the following conditions:
This loan is pledged
F-28 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data)
This loan was pledged against an HIFU equipment with a purchase value of €450
thousand, it has been fully reimbursed in November2020. As of December31,
This loan is related to ERP SAP project. This four-year loan will be fully reimbursed in October 2021.
This new loan is pledged against the countervalue in dollars on the loan. This loan constitutes a complete financial package of
This new loan is COVID-related loan guaranteed by the French government with
This new loan is COVID-related loan guaranteed by the French government with initially oneyear repayment term but which can be extended to fiveyears (conditions not yet defined). As of December31,
As of December31, 2020 and 2019, long-term debt in Malaysia consists of a loan in Ringgit with the following conditions:
F-29 EDAP TMS S.A. AND SUBSIDIARIES
(
This loan has been received from the US Paycheck Protection Program and may be forgivable in the future if certain conditions are met. 15-2Financial instruments carried at fair value:
As of December31,
warrants. Refer to Note
Long-term debt
Other long-term liabilities consist of the following:
Provision for asset retirement obligation in Japan is related to subsidiary’s offices and warehouses.
Pension, post-retirement and post-employment benefits for most of the Company’s employees are sponsored by European governments. In addition to government-sponsored plans, subsidiaries in Japan and France have defined benefit retirement indemnity plans in place. The provision for retirement indemnities at December31, F-30 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data) The provision is
The discount rate retained is determined by reference to the high quality rates for AA- rated corporate bonds for a duration equivalent to that of the obligations. It derives from a benchmark per monetary area of different market data at the closing date. In
In 2019, provision presentation according to ASC 715 in thousands of euros:
The Company does not have a funded benefit plan. Detailed reconciliation of pension cost components (in thousands of euros) during fiscalyear for each of the threeyears ending December31,
F-31 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data)
The benefits expected to be paid in each of the next five fiscalyears, and in the aggregate for the five fiscalyears thereafter, are detailed in the table below:
As of December31,
Shareholders have preemptive rights to subscribe on apro rata basis for additional shares issued by the Company for cash. Shareholders may waive such preemptive subscription rights at an extraordinary general meeting of shareholders under certain circumstances. Preemptive subscription rights, if not previously waived, are transferable during the subscription period relating to a particular offer of shares.
Dividends may be distributed from the statutory retained earnings, subject to the requirements of French law and the Company’s by-laws. The Company has not distributed any dividends since its inception as the result of an accumulated statutory deficit of F-32 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data) thousand. Dividend distributions, if any, will be made in euros. The Company has no plans to distribute dividends in the foreseeable future.
As of December31,
As of December31, 2020. As of December31,
group: On December19, 2012, the shareholders authorized the Board of Directors to grant up to 500,000 options to subscribe to 500,000 new shares at a fixed price to be set by the Board of Directors. Conforming to this stock option plan, the Board of Directors granted 500,000 options to subscribe 2020. On February18, 2016, the shareholders authorized the Board of Directors to grant up to 1,000,000 options to subscribe to 1,000,000 new shares at a fixed price to be set by the Board of Directors. Conforming to this stock option plan, the Board of Directors granted 575,000 options to subscribe Conforming to this February18, 2016 stock option plan, the Board of Directors granted 260,000 options to subscribe Conforming to this February18, 2016 stock option plan, the Board of Directors granted 165,000 options to subscribe to new shares to certain employees of EDAP TMS on August29, 2018. The exercise price was fixed at €2.65 per share. Options were to begin vesting oneyear after the date of grant and all options will be fully vested as of August29, 2022 (i.e., fouryears after the date of grant). Shares acquired pursuant to the options cannot be sold prior to fouryears from the date of grant. The options expire on August29, 2029 (i.e., tenyears after the date of grant) or when employment with the Company ceases, whichever occurs earlier. At December31, 2018, F-33 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data) the total fair value of the options granted on August29, 2018 under this plan was €219 thousand. This non-cash financial charge will be recognized in the Company’s operating expenses over a period of 48months (using the graded vesting method). Conforming to this February18, 2016 stock option plan, the Board of Directors granted 155,000 options to subscribe to new shares to certain employees of EDAP TMS on April4, 2019. Forfeited options corresponding to employees’ departures were re-allocated. The exercise price was fixed at €3.90 per share. Options were to begin vesting oneyear after the date of grant and all options will be fully vested as of April4, 2023 (i.e., fouryears after the date of grant). Shares acquired pursuant to the options cannot be sold prior to fouryears from the date of grant. The options expire on April4, 2029 (i.e., tenyears after the date of grant) or when employment with the Company ceases, whichever occurs earlier. At December31, 2019, the total fair value of the options granted on April4, 2019 under this plan was €299 thousand. This non-cash financial charge will be recognized in the Company’s operating expenses over a period of 48months (using the graded vesting method). The impact of this February18, 2016 Plan on operating income, in accordance with ASC 718, was €289 thousand, €260 thousand and €160 thousand in 2018, 2019 and 2020, respectively. Under this 2016 plan, On June28, 2019, the shareholders authorized the Board of Directors to grant up to a maximum of 358,528 options to purchase pre-existing shares and to grant 1,000,000 options to subscribe to 1,000,000 new shares at a fixed price to be set by the Board of Directors. As of December31, 2020, 292,428 pre-existing shares are available for future purchase option grants and none of the options authorized under this Plan have been allocated. Forfeited stock-options are recognized as they occur, in The fair value of each stock option granted during theyear is estimated on
F-34 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data) As of December31,
The following table summarizes information about options to purchase existing Shares held by the Company, or to subscribe to new Shares, at December31,
F-35 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data) A summary of the status of the non-vested options to purchase shares or to subscribe to new shares as of December31,
As of December31,
The components of accumulated other comprehensive income (loss) net of tax, for theyears ended December31,
As F-36 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data)
Amount of net sales derived from our operations in Asia, France, the United States. and other geographical areas, are as follows:
The amount of net sales is recognized following the timing above:
19— OTHER REVENUES Other revenues consist of the following:
In Theraclion and training to customers.
Costs of sales consist of the following:
21— RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses consist of the following:
In 2020 and 2019 grants consisted mainly of national grants for the assessment and optimization of the focal treatments of prostate cancer (Perfuse development project). F-37 EDAP TMS S.A. AND SUBSIDIARIES
(
In Research and development costs are expensed as incurred and include amortization of assets, costs of prototypes, salaries, benefits and other headcount related costs, contract and other outside service fees, and facilities and overhead costs.
Interest (expense) income, net consists of the following:
23— INCOME TAXES
Income / (loss) before income taxes is comprised of the following:
23-2Income tax (expense)/ benefit Income tax (expense)/benefit consists of the following :
F-38
EDAP TMS S.A. AND SUBSIDIARIES
(
Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities reported for financial reporting purposes and such amounts as measured in accordance with tax laws. The tax effects of temporary differences which give rise to significant deferred tax assets (liabilities) are as follows by
Net operating loss carryforwards available amounts to The 2017 U.S. Tax Act was enacted on December22, 2017. The 2017 U.S. Tax Act includes a number of changes in existing tax law which Starting from taxyear F-39 EDAP TMS S.A. AND SUBSIDIARIES
(
income (expense) A reconciliation of differences between the statutory French income tax rate and the Company’s effective tax
According to ASC 740, the Company reviewed the tax positions of each subsidiary. On December31, The Company remains subject to examination by major tax jurisdictions. Interest and penalties on income taxes are classified as a component of the provision for income taxes. There were no interest or penalties in 2018.
Diluted EPS income / (loss) available to common shareholders is computed including The effects of dilutive securities for the 25—
25-1Commitments The Company currently has commitments regarding its operating leases as described in Note12-2.
The Company currently has contingencies relating to warranties provided to customers for products as described in Note1-15 and Note11. F-40 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data)
The following disclosure of the estimated fair value of financial instruments was made in accordance with the requirements of ASC 820 ‘‘Disclosure about fair value of financial instruments’’ and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
ASC 820 defines three levels of inputs that may be used to measure fair value and requires that the assets or liabilities carried at fair value be disclosed by the input level under which they were valued. The input levels are defined as follows: Level 1: Quoted (unadjusted) prices in active markets for identical assets and liabilities that the reporting entity can access at the measurement date. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Unobservable inputs for the asset or liability.
The recorded amount of cash and cash equivalents The fair market value (Level 1 measurement) of the Company’s long-term debt is estimated using interest rate available to the Company in corresponding markets for debt with similar terms and maturities (see note
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents and trade accounts and notes receivable from customers, primarily located in France, Japan and the United States. The Company maintains cash deposits with major banks. Management periodically assesses the financial condition of these institutions and believes that credit risk is limited. The Company has implemented procedures Actual losses may vary from the current estimates, and any adjustments are reported in earnings in the periods in which they become known. In F-41 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data)
The Company generates a significantpercentage of its revenues, and of its operating expenses, in currencies other than the euro. The Company’s operating profitability could be materially adversely affected by large fluctuations in the rate of exchange between the euro and such other currencies. The Company engages in foreign exchange hedging activities when it deems necessary, but there can be no assurance that hedging activities will be offset by the impact of movements in exchange rates on the Company’s results of operations. As of December31,
We recently implemented organizational changes in our structure and realigned our activity into 3 divisions: HIFU, ESWL (including lithotripsy activities) and Distribution to better reflect how we view our businesses and how we measure our progress. Through these 3 divisions, we develop, produce, market and distribute minimally invasive medical devices, mainly for urological diseases. HIFU division includes sales of Focal One, Ablatherm and related consumables and services, ESWL division includes revenues generated by the existing Sonolith range of lithotripters and, Distribution division includes the sale of complimentary products such as lasers, micro-ultrasound systems and other products from third parties. The an improved measurement of our business progress. The business in which the Company operates is the development, production and The following tables set forth the key Statement of income (loss) figures, by segment for fiscalyears 2020, 2019 and 2018 and the key balance sheet figures, by segment, for fiscalyears 2020, 2019 and 2018. Segment operating profit or loss and segment assets are determined in accordance with the same policies as those described in the summary of significant accounting
F-42 EDAP TMS S.A. AND SUBSIDIARIES
( A summary of the Company’s operations by segment is presented below foryears ending December31,
F-43 EDAP TMS S.A. AND SUBSIDIARIES
(
Interest and income taxes paid are as follows:
F-44 EDAP TMS S.A. AND SUBSIDIARIES
( Cash paid for amounts included in the measurement of lease liabilities:
32— RELATED PARTY TRANSACTIONS
On March27, 2019, EDAP Technomed Sdn Bdh (Malaysia) contracted with Maybank to establish a fixed deposit amounting 65,464.85 MYR. As a current practice in Malaysia, any fixed deposit requires a personal warranty from On August2, 2019, EDAP TechnomedInc. contracted a car lease amounting $28,756.44. This lease required a personal warranty from the president of the subsidiary Mr.Marc Oczachowski. EDAP TMS S.A., as the parent company, counter-warranted this personal lease warranty and agreed to indemnify Mr.Marc Oczachowski, in an indemnification letter dated July1, 2019, expiring upon car lease maturity date of July2, 2022. On April22, 2020, EDAP Technomed Co. Ltd (Japan) contracted another loan amounting 50,000,000 JPY requiring a personal warranty from the representative director, president and CEO of the subsidiary Mr.Jean-François Bachelard. EDAP TMS S.A., as the parent company, counter-warranted this personal loan and agreed to indemnify Mr.Bachelard, in an indemnification letter dated June2, 2020, expiring upon loan maturity date of April2, 2025. On September2, 2020, a consulting agreement was
N/A F-45 EDAP TMS S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (In thousands of euros unless otherwise noted, except per share data) F-46 |