Addex Pharmaceuticals
Annual Report 2022

Plain-text annual report

Allosteric Modulators for Human Health Annual Report 2022 Addex Therapeutics Annual Report 2022 Contents 3 4 6 21 27 59 Letter to Shareholders Financial Review Corporate Governance Report Compensation Report Consolidated Financial Statements Statutory Financial Statements Key Facts / Addex Therapeutics Focus: Disease area: Programs: Oral small molecule allosteric modulation-based drug discovery and development against diseases with high unmet medical needs. Rare diseases with orphan drug designation potential Central Nervous System (“CNS”) Dipraglurant for Parkinson’s disease levodopa-induced dyskinesia Dipraglurant for post-stroke recovery ADX71149 for epilepsy (licensed to Janssen Pharmaceuticals Inc.) GABAB PAM for substance use disorders (licensed to Indivior PLC) GABAB PAM for CMT1A, chronic cough & pain mGlu7 NAM for stress related disorders including post-traumatic stress disorder (“PTSD”) M4 PAM for schizophrenia and other psychoses Total full-time equivalent employees and consultants as of December 31, 2022: 24 Stock symbol / exchange: ADXN (ISIN:CH0029850754) / SIX Swiss Exchange ADXN (American Depositary Shares) / Nasdaq Stock Market Shares issued as of December 31, 2022: 115,348,311 Cash as of December 31, 2022: 6,957,086 Headquarter: Geneva, Switzerland Page 2 of 70 Addex Therapeutics Annual Report 2022 Letter to Shareholders Dear Shareholders, 2022 has been a very challenging year with the inconclusive data from our blepharospasm clinical study followed by the termination of dipraglurant’s development in PD-LID due to a slow recruitment rate attributed to COVID-19 pandemic related constraints. We have substantially completed our evaluation of the future development of dipraglurant and have identified stroke recovery and pain as interesting areas for future development in addition to PD-LID. We are currently pursuing collaborative arrangements prior to restarting development. On a more positive note, our partner Janssen Pharmaceuticals Inc., a Johnson and Johnson company, made excellent progress in advancing the ADX71149 phase 2a proof of concept clinical study in epilepsy patients with the enrollment of 60 patients in cohort 1 and the start of enrollment of patients in cohort 2. An independent interim review committee (IRC) has been constituted by Janssen to review the data and make a recommendation on the future direction of the study which we expect to report early in the second quarter of 2023. In addition, we made substantial progress in our collaboration with our partner, Indivior, in advancing our gamma-aminobutyric acid subtype B receptor (“GABA B”) positive allosteric modulators (“PAMs”) program towards selection of development candidates for substance use disorder, CMT1A, chronic cough and pain. During 2022, we extended our research collaboration with Indivior and they agreed additional research funding of CHF1.8 million, bringing total research funding since 2018 to more than CHF13.8 million, demonstrating their strong commitment to our partnership. Furthermore, we made excellent progress in our unpartnered preclinical portfolio: Our metabotropic glutamate receptor subtype 7 (“mGlu7”) negative allosteric modulators (“NAM”) program for stress related disorders, including post-traumatic stress disorder, made significant progress in 2022. As result we have selected a drug candidate to enter investigational new drug (“IND”) enabling studies and have multiple novel back up series of compounds in clinical candidate selection phase. Our metabotropic glutamate receptor subtype 2 (“mGlu2”) NAM program for mild neurocognitive disorders has made solid progress in 2022 with multiple novel lead series of compounds progressing in lead optimization and one series entering clinical candidate selection. Our muscarinic acetylcholine receptor subtype 4 (“M4”) PAM program for the treatment of schizophrenia and other psychoses has rapidly advanced multiple differentiated novel chemical series into late lead optimization. Due to the challenging financing environment, we continue to pursue discussions with potential partners across our portfolio, focus on cost control and making selective investments in areas of our portfolio where we believe we can bring the most value to support our discussions with potential partners. We strengthened our balance sheet in July 2022 with a small offering raising gross proceeds of $4.2 million from the sale of new shares primarily in the form of American Depository Shares on the Nasdaq Stock Market. We have made significant progress in a difficult year and would like to acknowledge and thank our employees and collaboration partners for their dedication, loyalty and perseverance. We would also like to thank our shareholders for their valued support. Vincent Lawton Chairman of the Board Tim Dyer Chief Executive Officer Page 3 of 70 Addex Therapeutics Annual Report 2022│Financial Review Financial Review The following review and discussion of the financial results for 2022 should be read in conjunction with the consolidated financial statements and related notes, which have been prepared in accordance with International Financial Reporting Standards and are presented in this Annual Report. We are a clinical development-stage biopharmaceutical company focused on building a sustainable pharmaceutical business around our expertise in the discovery and development of oral small molecule allosteric modulators of G-protein coupled receptors. As a result, commercialization is currently limited to licensing, and research and development services related to selected discovery and development stage programs. During 2022, our financial results are driven primarily by activities related to the development of dipraglurant for Parkinson’s disease levodopa-induced dyskinesia (“PD-LID”) and blepharospasm, as well as discovery activities related to our gamma-aminobutyric acid subtype B receptor (“GABAB”) positive allosteric modulators (“PAMs”) partnership with Indivior PLC (“Indivior”), M4 PAM program and to a lesser extent our metabotropic glutamate subtype 7 receptor (“mGlu7”) negative allosteric modulator (“NAM”) and mGlu2 NAM programs. In addition, we were engaged in a number of business development and financing activities related to securing resources to advance our portfolio, including entering into collaborations with patient advocacy groups, academic institutions and governmental organizations to characterize our portfolio of drug candidates and access expertise to complement our internal resources. At December 31, 2022, our headcount was 24 full time equivalents (FTEs) compared to 26 FTEs at December 31, 2021. Our average headcount was stable at 25 in 2022 and 2021. In addition to our headcount, we engaged a number of consultants and service providers to complement our internal resources. Research and development expenditure increased to CHF 14.6 million and general and administrative expenses increased to CHF 7.3 million. CHF 1.4 million has been recognized as income in the year and our net loss increased to CHF 20.8 million. We ended the year with a cash position of CHF 7.0 million. Results of operations The following table presents our consolidated results of operations for the fiscal years 2022 and 2021: For the years ended December 31 Amounts in millions of Swiss francs Revenue from contract with customer….. Other income……………………………... Total Income……………………………... Research and development expenses.... General and administrative expenses..... Total operating costs…………………… Operating loss…………………………... Finance result, net………………………... Net loss for the year…………………..... 2022 1.4 - 1.4 (14.6) (7.3) (21.9) (20.5) (0.3) (20.8) 2021 2.9 0.2 3.1 (12.8) (5.8) (18.6) (15.5) 0.1 (15.4) Income Income decreased by CHF 1.7 million in 2022 compared to 2021 primarily due to reduced research funding from Indivior which is recognized in income as related costs are incurred. Research and development expenses R&D expenses increased by CHF 1.8 million to CHF 14.6 million in 2022, compared to CHF 12.8 million in 2021. The increase primarily relates to outsourced R&D costs for CHF 1.0 million including dipraglurant clinical development activities for CHF 0.4 million and discovery activities for CHF 0.6 million, as well as higher share-based compensation costs for CHF 0.6 million. R&D expenses consist primarily of costs associated with research, preclinical and clinical testing and related staff costs. They also include depreciation of laboratory equipment, costs of materials used in research, costs associated with renting and operating facilities and equipment, as well as fees paid to consultants, patent costs, other outside service fees and overhead costs. These expenses include costs for proprietary and third-party R&D. General and administrative expenses G&A expenses increased by CHF 1.5 million to CHF 7.3 million in 2022, compared to CHF 5.8 million in 2021, primarily due to higher share-based compensation costs. Finance Result, net Finance result net decreased by CHF 0.4 million in 2022 compared to 2021 mainly due to currency exchange differences on U.S dollar cash deposits following the strengthening of the Swiss franc. Page 4 of 70 Addex Therapeutics Annual Report 2022│Financial Review Net loss for the year The net loss for the 2022 financial year was CHF 20.8 million compared to CHF 15.4 million for 2021. The increase in the net loss of CHF 5.4 million is primarily due to increased share-based compensation costs of CHF 2.5 million and a CHF 1.7 million reduction in revenue. Basic and diluted loss per share increased to CHF 0.46 for 2022, compared to CHF 0.45 for 2021 due to an increase in the loss offset by an increase in the weighted average number of shares issued. Balance sheet & cash flows Cash and cash equivalents decreased by CHF 13.5 million to CHF 7.0 million at December 31, 2022, compared to CHF 20.5 million at December 31, 2021. During the same period, total shareholders’ equity decreased by CHF 12.0 million and amounted to CHF 4.9 million at December 31, 2022 compared to CHF 16.9 million at December 31, 2021. Decreases in both cash and cash equivalents and total shareholders’ equity are primarily due to the net loss of CHF 20.8 million adjusted for CHF 3.7 million of share-based compensation expense, partially offset by the net proceeds of CHF 3.7 million from the offering executed on July 22, 2022. Post balance sheet event The Group sold 3,742,506 treasury shares for a gross amount of CHF 1.2 million under the sale agency agreement with Kepler Cheuvreux, between the closing date and the approval of these consolidated financial statements by the board of directors. Shares and shareholders’ information At December 31, 2022, the Company had 115,348,311 (2021: 49,272,952) issued shares and a free float of approximately 58.25%. Of the issued shares at December 31, 2022, 38,214,291 shares (at December 31, 2021: 11,374,803 shares) are held by Addex Pharma SA and recorded as treasury shares. The closing share price was CHF 0.10 at December 31, 2022 compared to CHF 1.04 at December 31, 2021 and the market capitalization was CHF 11.7 million compared to CHF 51.2 million, respectively. 2023 Outlook Following the completion of enrollment of patients in part 1 of the ADX71149 phase 2a epilepsy clinical study by our partner Janssen Pharmaceuticals Inc., we expect to report the outcome of the independent interim review committee (IRC) review of the data and next steps at the beginning of the second quarter of 2023. We are also continuing discussions with potential strategic partners to reinitiate Phase 2 development of dipraglurant in PD-LID or alternative indications, including stroke recovery, SUD and pain. Furthermore, we expect to advance our mGlu7NAM discovery program into IND enabling studies in 2023, prepare our GABAB PAM program under our partnership with Indivior for IND enabling studies in 2024 and progress our mGlu2 NAM and M4 PAM programs in clinical candidate selection phase. We will continue to invest in our allosteric modulator technology platform and pursue collaborations with industry, patient advocacy groups, academic institutions and governmental organizations to drive forward our portfolio of allosteric modulator drug candidates and secure further financial resources to advance their development and strengthen our balance sheet, Page 5 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report Corporate Governance Report General information Addex Therapeutics Ltd’s articles of association (the “Articles”), organizational rules (the “Organizational Rules”) and policies provide the basis the principles of Corporate Governance. These documents are available on Addex’s website at https://www.addextherapeutics.com/en/investors/corporate-governance/. This report has been prepared in accordance with the SIX Swiss Exchange Directive on Information Relating to Corporate Governance dated October 1, 2021. for 1. Group structure and shareholders 1.1. Group structure 1.1.1. Description of Addex’ operational group structure Addex Therapeutics Ltd (“Addex” or the “Company”; CHE-113.514.094) is the holding and finance company of the Group. Addex Pharma SA (CHE-109.561.624), based in Geneva, Switzerland, a 100% subsidiary of the Company, is in charge of research, development, registration, commercialization, and holds the Group’s intellectual property. Addex Pharma SA, with registered office at Chemin des Aulx 12, P.O. Box 68, CH-1228 Plan-les-Ouates, has a share capital of CHF 3,987,492 divided into 3,987,492 registered shares with a nominal value of CHF 1 each. Addex Pharmaceuticals France SAS, based in Archamps, France, with registered office at 72, Rue Georges de Mestral, Athena 1, Archamps Technopole, 74160 Archamps, France, has a share capital of EUR 37,000 divided into 37,000 registered shares with a nominal value of EUR 1 each, fully-owned by the Company. Addex Pharmaceuticals Inc, a company incorporated on May 29, 2019, registered in Delaware with its principal registered office at 1968 S Coast HWY #1915, Laguna Beach, CA 92651, USA, has a share capital of USD 1 divided into 1,000 shares fully owned by the Company. 1.1.2. Listed company Addex has its registered office c/o Addex Pharma SA, Chemin des Aulx 12, P.O. Box 68, CH-1228 Plan-les-Ouates, Geneva, Switzerland. Its shares have been listed on the SIX Swiss Exchange (SIX) since May 21, 2007 under the Swiss security number (Valorennummer) 2985075. The ISIN is CH0029850754, the common code is 030039254 and the ticker symbol is ADXN. Since January 29, 2020, its shares have been listed on the Nasdaq Stock Market (Nasdaq) under the symbol “ADXN” in the form of American Depositary Shares, or ADSs. Each ADS represents the right to receive six shares of Addex. As of December 31, 2022, Addex' market capitalization was approximately CHF 11.7 million and 33.13% of Addex' shares were indirectly held by the Company as treasury shares. 1.1.3. Non-listed company For an overview of the operational non-listed consolidated entities please refer to section 1.1.1 above and page 62 in the section financial statements of this Annual Report. 1.2. Significant shareholders As far as can be ascertained from the information available, the following shareholders owned 3% or more of the Company’s voting rights as at December 31, 2022, based on published notifications to SIX: Shareholder Addex Pharma SA3 Lock-up group4 Growth Equity Opportunities Fund IV, LLC5 Tim Dyer 33.13% 8.62% 4.90% 3.91% 1 This table presents the number of shares held by the shareholders listed therein. The derivative holdings held by such shareholders are not included. 2 Based on the share capital registered in the Commercial Register as of December 31, 2022 (i.e. CHF 1,153,483 divided into 115,348,311 registered shares). 3 The beneficial owner is Addex Therapeutics Ltd, Chemin des Aulx 12, CH-1228 Plan-les-Ouates, Switzerland. 4 Lock-up group established by a lock-up agreement among the following beneficial owners following the exercise of options granted to Board Members, Executive Managers and employees: Tim Dyer, who owns 4.51% of the voting rights, and 25 other shareholders, who individually hold less than 3% of the voting rights. The lock-up agreement will terminate on October 4, 2026. 5 The beneficial owner is New Enterprise Associates Timonium MD 21093, USA. Shares held1 38,214,291 9,941,187 5,648,690 4,505,157 % of voting rights2 % of capital2 33.13% 8.62% 4.90% 3.91% For a comprehensive list of notifications of shareholdings received during 2022 pursuant to article 120 of the Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (FMIA) and its implementing ordinances, refer to the SIX website (https://www.ser-ag.com/en/resources/notifications-market-participants/significant-shareholders.html#/). 1.3. Cross-shareholdings There are no cross-shareholdings in terms of capital shareholdings or voting rights in excess of 5%. Page 6 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report 2. Capital structure There were 2,401 shareholders registered in the share register on December 31, 2022. The distribution of shareholdings is divided as follows: Number of shares 1 to 100 101 to 1,000 1,001 to 10,000 10,001 to 100,000 100,001 to 1,000,000 1,000,001 to 10,000,000 Above 10,000,0000 Total Number of registered shareholders on December 31, 2022 224 849 1,020 272 29 6 1 2,401 The shareholder base on December 31, 2022 was constituted as follows: Shareholder structure according to category of investors (weighted by number of shares) 28.57% Private persons Institutional shareholders 40.89% Holder of ADSs listed on Nasdaq not registered in the share register 20.29% 10.25% Non-identified 100.00% Total Shareholder structure by country (weighted by number of shares) United States Switzerland Other Holder of ADSs listed on Nasdaq not registered in the share register 20.29% 10.25% Non-identified 100.00% Total 6.21% 58.05% 5.20% 2.1. Capital As of December 31, 2022, the share capital amounted to CHF 1,153,483.11 consisting of 115,348,311 issued shares with a nominal value of CHF 0.01 per share. As of December 31, 2022, the Company, indirectly, held 38,214,291 of its own shares. These shares are recorded as treasury shares. 2.2. Authorized and conditional capital Authorized share capital As of December 31, 2022, the Company’s authorized capital under article 3b of the Articles was nil. Conditional share capital As of December 31, 2022 and according to article 3c(A) of the Articles, the share capital of the Company may be increased by a maximum aggregate amount of CHF 13,306.95 through the issuance of a maximum of 1,330,695 registered shares, which shall be fully paid-in, with a par value of CHF 0.01 per share by the exercise of option rights or subscription rights attached to bons de jouissance which the employees, directors and/or consultants of the Company or a group company are granted according to respective regulations of the Board. The pre-emptive rights of the shareholders are excluded. The acquisition of registered shares through the exercise of option rights or subscription rights granted to the holders of bons de jouissance and the subsequent transfer of the registered shares shall be subject to the transfer restrictions provided in article 5 of the Articles. According to article 3c(B) of the Articles, the share capital of the Company may be increased by a maximum aggregate amount of CHF 138,668.98 through the issuance of a maximum of 13,866,898 registered shares, which shall be fully paid-in, with a par value of CHF 0.01 per share by the exercise of option and/or conversion rights which are granted to shareholders of the Company and/or in connection with the issue of bonds, similar obligations or other financial instruments by the Company or another group company. In the case of such grants of option and/or conversion rights, the advanced subscription right of shareholders is excluded. The holders of option and/or conversion rights are entitled to receive the new shares. The Board shall determine the terms of the option and/or conversion rights. The acquisition of registered shares through the exercise of option or conversion rights and the subsequent transfer of the registered shares shall be subject to the transfer restrictions provided in article 5 of the Articles. The Board is authorized to restrict or exclude the advanced subscription rights of shareholders: Page 7 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report – – – if the debt or other financial instruments and/or conversion rights or warrants are issued for the purpose of financing or refinancing of the acquisition of enterprises, parts of an enterprise, or participations or new investments; if such debt or other financial instruments and/or conversion rights or warrants are issued on the national or international capital markets and for the purpose of a firm underwriting by a banking institution or a consortium of banks with subsequent offering to the public; or if such debt or other financial instruments and/or conversion rights or warrants are issued for raising capital in a fast and flexible manner, which would not be achieved without the exclusion of the advanced subscription rights of the existing shareholders. If the Board excludes the advance subscription rights, the followings shall apply: the issuance of convertible bonds or warrants or other financial market instruments shall be made at the prevailing market conditions (including dilution protection provisions in accordance with market practice) and the new shares shall be issued pursuant to the relevant conversion or exercise rights in connection with bond or warrant issue conditions. Conversion rights may be exercised during a maximum 10 year period, and warrants may be exercised during a maximum 7 year period, in each case from the date of the respective issuance. 2.3. Changes in capital Nominal share capital December 31, 2020 December 31, 2021 December 31, 2022 CHF 32,848,635 CHF 49,272,952 CHF 1,153,483 Conditional share capital December 31, 2020 December 31, 2021 December 31, 2022 Authorized share capital December 31, 2020 December 31, 2021 December 31, 2022 CHF 16,424,317 CHF 24,636,476 CHF 151,976 CHF 16,424,317 CHF 24,636,476 - Changes in capital in 2020 In 2020 there was no change in the share capital of the Company. On June 9, 2020 the shareholders resolved to extend the term of the authorized capital to June 9, 2022. Changes in capital in 2021 On June 16, 2021, the shareholders increased the authorized capital from CHF 9,524,317 to CHF 24,636,476 expiring on June 16, 2023 and the conditional capital from CHF 16,424,317 to CHF 24,636,476. On April 23, 2021, the Company increased its capital from CHF 39,748,635 to CHF 49,272,952 through the issue of 9,524,317 new registered shares at nominal value of CHF 1 each out of the authorized capital. On January 8, 2021 the Company increased its capital from CHF 32,848,635 to CHF 39,748,635 through the issue of 6,900,000 new registered shares at nominal value of CHF 1 each, in connection with a global offering of shares. Changes in capital in 2022 On December 15, 2022, the Company increased its share capital from CHF 979,094 to CHF 1,153,483 through the issuance of 17,438,883 new registered shares at a nominal value of CHF 0.01 each out of the conditional capital following the exercise of 17,438,883 equity incentive units at a strike price of CHF 0.13 by Board Members, Executive Managers and other employees on October 26, 2022. On October 31, 2022, the Company increased its share capital from CHF 652,730 to CHF 979,094 through the issuance of 32,636,476 new registered shares at nominal value of CHF 0.01 each out of the authorized capital. On May 9, 2022, the shareholders (i) increased the authorized capital from CHF 8,636,476 to CHF 32,636,476 and extended its term to May 9, 2024 and (ii) increased the conditional capital from CHF 24,636,476 to CHF 32,636,476. On the same date, the shareholders approved the reduction of the nominal value from CHF 1 to CHF 0.01 of all 65,272,952 issued shares, and of all shares issuable from the authorized capital and conditional capital. The approved reduction was registered by the Geneva’s commercial registry on July 19, 2022 and published on July 22, 2022, after the expiration of a period of two months from the publication in the Swiss Gazette of Commerce of three calls to creditors. The Company's share capital was thus reduced by a total amount of CHF 64,602,222.48 from CHF 65,272,952 to CHF 652,729.52, and its authorized capital and conditional capital were each reduced by a total amount of CHF 32,310,111.24 from CHF 32,636,476 to CHF 326,634.76. The Company's total number of issued shares (i.e. 65,272,952) as well as its total number of issuable shares out of the authorized capital and conditional capital were not affected by the reduction. The Page 8 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report amount corresponding to the nominal reduction of the Company's issued capital was allocated to capital contributions reserves and there was no distribution to shareholders. On February 2, 2022, the Company increased its share capital from CHF 49,272,952 to CHF 65,272,952 through the issuance of 16,000,000 new registered shares at nominal value of CHF 1 each out of the authorized capital. For further information on changes in capital including changes in reserves, refer to the consolidated statements of changes in equity as well as note 12 of the consolidated financial statements included in this Annual Report. 2.4. Shares and participation certificates Addex has one class of shares, i.e. registered shares with a nominal value of CHF 0.01 per share. Each share is fully paid up and carries one vote and equal dividend rights, with no privileges. The Company has no participation certificates (bons de participation / Partizipationsscheine). 2.5. Dividend-right certificates Equity sharing certificates are available for granting to employees and/or directors and/or consultants of the Company or any Group company under the Group’s equity incentive plan. Equity sharing certificates do not form part of the share capital, have no nominal value, and do not grant any right to vote nor to attend meetings of shareholders. The Company has 1,700 issued equity sharing certificates (bons de jouissance/Genussscheine). Each equity sharing certificate grants the right to subscribe for 1,000 shares of the Company and a right to liquidation proceeds of the Company calculated in accordance with article 34 of the Articles. The Company’s shares and equity sharing certificates are not certificated. Shareholders and equity sharing certificate holders are not entitled to request printing and delivery of certificates, however, any shareholder or equity sharing certificate holder may at any time request the Company to issue a confirmation of their holdings. 2.6. Limitations on transferability of shares and nominee registration A transfer of uncertified shares is affected by a corresponding entry in the books of a bank or depository institution following an assignment in writing by the selling shareholder and notification of such assignment to Addex by the bank or the depository institution. If following a transfer of shares a shareholder wishes to vote at or participate in a shareholders’ meeting, such shareholder must file a share registration form in order to be registered in the share register with voting rights. Failing such registration, a shareholder may not vote at or participate in a shareholders meeting. The shares in the form of American Depository Shares or ADSs are held by Citibank acting as depositary and voted at the shareholders’ meeting according to the instructions received from the ADS holders. A purchaser of shares will be recorded in Addex’ share register as a shareholder with voting rights if the purchaser discloses its name, citizenship or registered office and address and declares that it has acquired the shares in its own name and for its own account. Article 5 of the Articles provides that a person or entity not explicitly stating in its registration request that it will hold the shares for its own account (Nominee) may be entered as a shareholder in the share register with voting rights for shares up to a maximum of 5% of the share capital as set forth in the commercial register. Shares held by a Nominee that exceed this limit are only registered in the share register with voting rights if such Nominee discloses the name, address and shareholding of any person or legal entity for whose account it is holding 1% or more of the share capital as set forth in the commercial register. The limit of 1% shall apply correspondingly to Nominees who are related to one another through capital ownership or voting rights or have a common management or are otherwise interrelated. A share being indivisible, hence only one representative of each share will be recognized. Furthermore, shares may only be pledged in favor of the bank that administers the bank entries of such shares for the account of the pledging shareholders. If the registration of shareholdings with voting rights was effected based on false information, the Board may cancel such registration with retroactive effect. There are no further rules in the Articles for granting exceptions and no exceptions were granted in 2022. The Articles do not contain any provisions on the procedure and conditions for cancelling privileges and limitations on transferability. 2.7. Convertible bonds and options As of December 31, 2022, the Company has no convertible or exchangeable bonds or loans outstanding. As of December 31, 2022, the Company has a total of 30,874,670 options outstanding, which primarily include (i) 777,000 options granted according to the Employee Share Option Plan (ESOP), (ii) 5,866,898 warrants granted to various investors on March 29, 2018, and (iii) 9,230,772 and 15,000,000 warrants granted to one investor, respectively on December 21, 2021 and July 26, 2022. The ESOP options outstanding were granted to employees or consultants of the Group. They vest over a four-year period, have a ten-year expiration term and a strike price between CHF 0.13 to CHF 3.00. In connection with the capital increase of March 28, 2018, each investor was granted 0.45 warrants for each new share subscribed. Upon exercise (which may occur without any specific conditions), each warrant entitles the investor to subscribe one registered share at a price of CHF 3.43 during a seven-year period. Page 9 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report A total of 24,230,772 warrants have been granted to one investor through two offerings. On December 21, 2021, 9,230,772 warrants in the form of 1,538,462 ADSs listed on Nasdaq Stock Market have been granted with a strike price of USD 6.50 per ADS (CHF 1 per share) and six year exercise period expiring on December 21, 2027. On July 26, 2022, 15,000,000 warrants in the form of 2,500,000 ADS warrants have been granted with a strike price of USD 1.90 per ADS (CHF 0.30 per share) and five year exercise period expiring on July 26, 2027. ADS are listed on the Nasdaq Stock Market and represents 6 shares listed on SIX Swiss Exchange. For information on equity incentive plans, refer to notes 12 and 13 of the consolidated financial statements included in this Annual Report. 3. Board of Directors 3.1. Members of the Board of Directors The following table sets forth the name, year joined the Board, position and directorship term of each member of the Board, followed by a short description of each member’s business experience, education and activities. Except for Tim Dyer and Roger Mills, all Board members are non-executive and none of them were members of the management of the Company or one of its subsidiaries in the three financial years before 2022 or has significant business connections with the Company or one of its subsidiaries. Name Vincent Lawton Raymond Hill Tim Dyer Roger Mills Jake Nunn Isaac Manke Year of birth 1949 1945 1968 1957 1970 1977 Nationality UK UK Swiss/UK US/UK US US First elected 2009 2015 2015 2017 2018 2018 Elected until 2023 2023 2023 2023 2023 2023 Board Chairman Member Member Member Member Member Vincent Lawton Chairman of the Board of Directors Dr. Lawton was Vice President Merck Europe and Managing Director of MSD UK until he stepped down in 2006, after 26 years’ service internationally for Merck & Co Inc. He was appointed CBE (Commander of the British Empire) by the Queen of England for services to the Pharmaceutical Industry. During his tenure, MSD UK achieved sustained commercial success, launching many new medicines to the market in a wide range of therapeutic areas, becoming the fastest growing company in the market over a number of years. He worked in commercial, research and senior management roles in France, the US and Canada, Spain and throughout Europe. As President of the UK Industry Association, the ABPI, he negotiated industry pricing, worked with Government bodies to help establish the UK globally as a leading center of clinical research. He served on the board of the UK regulatory authority (MHRA) from 2008 to 2015. He was a Senior Strategy Advisor for Imperial College Department of Medicine, University of London and serves as a consultant to a number of leading healthcare organizations. He studied Psychology at the University of London and holds an undergraduate degree and PhD. Raymond Hill Member of the Board of Directors Dr. Hill was previously a member of the Board of Directors from the Annual General Meetings of 2008 until 2012. Currently Visiting Professor of Pharmacology at Imperial College in London, and Chairman/Non-Executive Director of Avilex (Denmark), Chair of SAB Asceneuron (Switzerland) and was NED of Orexo AB (Sweden) from 2008 to 2019. Prior to his retirement, he was Executive Director, Licensing and External Research at Merck/MSD in Europe (2002 - 2008); Executive Director, Pharmacology (1990-2002) at the Merck Neuroscience Research Centre and had oversight responsibility for Neuroscience research at the Banyu Research Labs in Tsukuba, Japan (1997-2002). At Merck, he chaired a number of discovery project teams including those responsible for the marketed products Maxalt® and Emend®. Dr. Hill received his academic training (BPharm PhD) at the University of London. He was awarded an Honorary DSc by the University of Bradford in 2004 and was elected to Fellowship of the Academy of Medical Sciences in 2005. He was a lecturer in Pharmacology at the University of Bristol School of Medicine from 1974 to 1983 and supervisor in Pharmacology at Downing College, University of Cambridge from 1983 to 1988. He joined the pharmaceutical industry in 1983 as Head of Biology and founder member of the Park Davis Research Unit at Cambridge. In 1988, he joined SK&F (United Kingdom) as Group Director of Pharmacology and in 1990 moved to Merck. He is a past Council Member of the UK Academy of Medical Sciences and President Emeritus of the British Pharmacological Society. He is a Visiting Professor at the University of Bristol and was a member of the UK Government Advisory Council on the Misuse of Drugs from 2010 to 2019. He continues to serve on the ACMD Working Group on the Medicinal Uses of Cannabis and is a member of the drug misuse WG of Royal Pharmaceutical Society Science Committee. Tim Dyer Member of the Board of Directors and Chief Executive Officer Since co-founding Addex in 2002, Mr. Dyer has played a pivotal role in building the Addex Group, raising significant capital, including Addex IPO and negotiating licensing agreements with pharmaceutical industry partners. Prior to founding Addex, he spent 10 years with Price Waterhouse, or PW & PricewaterhouseCoopers, or PwC in the UK and Switzerland as part of the audit and business advisory group. At PwC in Switzerland, Mr. Dyer’s responsibilities included managing the service delivery to a diverse portfolio of clients including high growth start-up companies, international financial institutions and venture capital and investment companies. Mr. Dyer has extensive experience in finance, corporate development, business operations and the building of start-up companies. He is a UK Chartered Accountant and holds a BSc (Hons) in Biochemistry and Pharmacology from the University of Southampton, UK. Page 10 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report Roger Mills Member of the Board of Directors and Chief Medical Officer Dr. Mills brings more than 30 years of biopharmaceutical industry experience at both large global pharmaceutical companies and smaller biotechnology companies, including Acadia Pharmaceuticals, Pfizer, Gilead Sciences, Abbott Laboratories and The Wellcome Foundation, across a spectrum of disease areas. His extensive track record includes managing drug development programs, including IND’s and NDAs as well as post-marketing and OTC products. Most recently, Dr. Mills was with Acadia Pharmaceuticals for nine years, serving as Executive Vice President, Development and Chief Medical Officer. In this role, he oversaw the largest ever international Phase 3 program in Parkinson’s Disease Psychosis and led its NDA submission to the FDA for NUPLAZID, which was subsequently approved and remains the first and only medication approved in this indication. Dr. Mills currently serves as Professor of Medical Research in Practice at the University of Exeter, UK, and a Visiting Professor at the Centre for Age Related Diseases, Institute of Psychiatry, Psychology and Neuroscience, King’s College London. He is a member of the Board of Directors of Enterin Inc, a US biopharmaceutical company. He received his medical degree from Imperial College, Charing Cross Hospital Medical School, London, United Kingdom. Jake Nunn Member of the Board of Directors Mr. Nunn has more than 25 years of experience in the life science industry as an investor, independent director, research analyst and investment banker. He is currently an independent advisor to life science companies and a venture partner at SR One Capital Management. Mr. Nunn was previously a venture advisor at New Enterprise Associates, or NEA, where he was a partner from 2006 to 2018, focusing on later-stage specialty pharmaceuticals, biotechnology and medical device investments and managing a number of NEA’s public investments in healthcare. Mr. Nunn is a Director of Hexima Ltd. (ASX: HXL), Regulus Therapeutics (Nasdaq: RGLS) and Trevena, Inc. (Nasdaq: TRVN). He previously was a Director of Dermira Inc. (acquired by Eli Lilly), Hyperion Therapeutics (acquired by Horizon Pharma PLC), TriVascular (acquired by Endologix), Aciex Therapeutics (acquired by Nicox SA), Transcept Pharmaceuticals (merged with Paratek) and a board observer at Vertiflex, Inc. (acquired by Boston Scientific). Prior to NEA, Mr. Nunn worked at MPM Capital as a Partner with the MPM BioEquities Fund, where he specialized in public, PIPE and mezzanine-stage life sciences investing. Previously, he was a healthcare research analyst and portfolio manager at Franklin Templeton Investments. Mr. Nunn was also an investment banker with Alex. Brown & Sons. He received an MBA from the Stanford Graduate School of Business and an AB in Economics from Dartmouth College. Mr. Nunn holds the Chartered Financial Analyst designation, is a member of the CFA Society of San Francisco, and recently completed the Stanford GSB Directors’ Consortium executive education program. Isaac Manke Member of the Board of Directors Dr. Manke has more than 15 years of experience in the life science industry as an investor, research analyst, consultant and scientist. Isaac is currently a General Partner at Acorn Bioventures, where he focuses on investing in small-cap public and private biotechnology companies. Prior to Acorn, Isaac spent 11 years at New Leaf Venture Partners (NLV). In addition to private venture investments, during his time at NLV, he also led the firm’s public investment activities initially with the public portfolio within NLV-II, and from 2014 through 2019, had day-to-day management and oversight responsibility for the NLV Biopharma Opportunities Funds. Isaac has been a board member or observer for several companies, including the boards of True North Therapeutics (acquired by Bioverativ) and Karos Pharmaceuticals (acquired by an undisclosed company). Previously, Isaac was an Associate in the Global Biotechnology Equity Research group at Sanford C. Bernstein. Isaac was also an Associate in the Biotechnology Equity Research group at Deutsche Bank and was a Senior Analyst at Health Advances, a biopharmaceutical and medical device strategy consulting firm. Isaac received a B.A. in Biology and a B.A. in Chemistry at Minnesota State University (Moorhead), and a Ph.D. in Biophysical Chemistry and Molecular Structure at the Massachusetts Institute of Technology, or MIT. Isaac’s discoveries led to several publications in top journals, including Science and Cell, and were selected by Science as one of the “2003: Signaling Breakthroughs of the Year”. These discoveries also resulted in four issued patents. 3.2. Other activities and vested interests Apart from the information given above, none of the members of the Board has had other activities or holds any positions: – in governing and supervisory bodies of important Swiss and foreign organizations, institutions and foundations under private and public law; – of permanent management and consultancy functions for important Swiss and foreign interest groups; or – of official government functions and political posts. 3.3. Rules in the articles of incorporation regarding the number of permitted mandates outside the Company Article 31 of the Articles provides certain restrictions to the number of mandates that members of the Board may have in the supreme governing bodies of legal entities registered in the Swiss commercial register or similar foreign register as follows: – no member of the Board may hold more than fourteen additional mandates of which no more than four mandates in listed entities; – mandates in companies controlled by Addex or which control Addex are not subject to restrictions; – mandates that are held by order and on behalf of Addex or companies under Addex control are restricted to ten; and – mandates in associations, charitable organizations, family trusts and foundations relating to post-retirement benefits and other not-for-profit organizations are restricted to twenty-five. Page 11 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report Multiple mandates in different legal entities which are under common control or same beneficial ownership are deemed to be one mandate. 3.4. Elections and terms of office In accordance with articles 15, 16 and 17 of the Articles: – The Board shall consist of between one and eleven members. The Company currently has six Board members. – In accordance with the Swiss Ordinance Against Excessive Compensation in Listed Stock Companies of November 20, 2013 (the "Compensation Ordinance"), members of the Board including the Chairman are appointed and removed exclusively by shareholders’ resolution for a term of one year until completion of the next annual general meeting of shareholders. – The members of the Board and the Chairman of the Board may be re-elected without limitation. – If the office of the Chairman of the Board is vacant, the Board shall appoint a Chairman from among its members for a term of office extending until completion of the next annual general meeting of shareholders. – Subject to mandatory law and the provisions of these Articles, the Board determines its own internal organization and the modalities for the passing of resolutions in its Organizational Rules. 3.5. Internal organization Except for the election of the Chairman of the Board and the members of the Compensation Committee (which are to be elected by the general meeting of shareholders), the Board determines the Company’s internal organization. It shall elect the members of the Audit Committee and of the Nomination Committee and appoint a Secretary who does not need to be a member of the Board. The committees may designate their own secretaries. 3.5.1. Allocation of tasks within the Board of Directors The Articles and Organizational Rules define the Company’s internal organization and areas of responsibility of the Board, Chairman, Chief Executive Officer ("CEO") and the Executive Management. In accordance with article 17 of the Articles, the Board may appoint from amongst its members standing or ad hoc committees entrusted with the preparation and execution of its decisions or the supervision of specific parts of business of the Company. 3.5.2. Committees of the Board of Directors As of December 31, 2022, the Company had two committees: The Audit Committee and the Compensation Committee. These Committees are assisting the Board in fulfilling its duties and also have decision authority to the extent described below. The Board Committees as of December 31, 2022 Members of the Board of Directors Vincent Lawton Raymond Hill Tim Dyer Roger Mills Jake Nunn Isaac Manke Audit Committee Board of Directors Chairman Member Member Member Member Member Audit Committee Compensation Committee Chairman – – – Member Member Member Chairman – – – – Members as of December 31, 2022: The Audit Committee consists of Vincent Lawton (Chairman Audit Committee), Jake Nunn and Isaac Manke. In accordance with the Organization Rules, the Audit Committee consists of up to three non-executive and independent Directors. The members have to be financially literate. Pursuant to the Organizational Rules, a "non-executive" Director is a Director who does not perform any line management function within the Company; an "independent" Director is a non-executive Director and a Director who never was or was more than three years ago a member of the Executive Management and who has no or comparatively minor business relations with the Company. The members shall be appointed, as a rule, for the entire duration of their mandate as Board members and be re-eligible. The Audit Committee assists the Board in fulfilling its duties of supervision of management. The Audit Committee has following powers and duties: – to review and assess the effectiveness of the statutory auditors and the group auditors, in particular their independence from the Company. In connection therewith, it reviews in particular additional assignments given by the Company or its subsidiaries. It may issue binding regulations or directives in connection with such additional assignments; Page 12 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report – – – – – – – – to review and assess the scope and plan of the audit, the examination process and the results of the audit and to examine whether the recommendations issued by the auditors have been implemented by management; to review the auditors' reports, to discuss their contents with the auditors and with the management; to approve the terms and conditions of the engagement of the auditors; to assess the risk assessment established by the management and the proposed measures to reduce risks; to assess the state of compliance with norms within the Company; to review in cooperation with the auditors, the CEO and Head of Finance whether the accounting principles and the financial control mechanism of the Company and its subsidiaries are appropriate in view of the size and complexity of the Group; to review the annual and interim statutory and consolidated financial statements intended for publication. It should discuss these with the CEO and the Head of Finance and, separately, with the head of external audit; and to make a proposal to the Board with respect to these annual and interim statutory and consolidated financial statements; the responsibility for approving the annual financial statements remains with the Board. Should an internal audit function be established, the Audit Committee would have the power and duties: – to review the effectiveness of the internal audit function, its professional qualifications, resources and independence and its cooperation with external audit; to approve the annual internal audit concept and the annual internal audit report, including the responses of the management thereto; – The Audit Committee regularly reports to the Board on its decisions, assessments, findings and proposes appropriate actions. Nomination Committee In accordance with the Organization Rules, should the Board elect to constitute a Nomination Committee then the Nomination Committee shall consist of up to three Directors, the majority of which shall be non-executive and independent. The Board did not constitute a Nomination Committee in 2022. Compensation Committee Members as of December 31, 2022: Raymond Hill (Chairman Compensation Committee) and Vincent Lawton. In accordance with the Organization Rules, the Compensation Committee consists of two non-executive and independent Directors. Pursuant to the Organizational Rules, a "non-executive" Director is a Director who does not perform any line management function within the Company; an "independent" Director is a non-executive Director and a Director who never was or was more than three years ago a member of the Executive Management and who has no or comparatively minor business relations with the Company. The members shall be appointed by the shareholder's meeting until the next ordinary general meeting of shareholders and be re- eligible. The Compensation Committee assists the Board in fulfilling its remuneration related matters. The Compensation Committee has the following powers and duties: – to review and assess on a regular basis the remuneration system of the Company and the Group (including the management incentive plans) and to make proposals in connection thereto to the Board; to recommend the terms of employment, in particular the remuneration package, of the CEO and to make proposals in relation to the remuneration of Directors; to recommend upon proposal of the CEO the terms of employment, in particular the remuneration package, of employees reporting directly to the CEO as well as review matters related to the compensation of other top managers, as well as the general employee compensation, benefit policies and HR practices of the Company; and to make recommendations on the grant of options or other securities under any management incentive plan of the Company. – – – The Compensation Committee regularly reports to the Board on its decisions, assessments, findings and proposes appropriate actions. The Compensation Committee meets as often as business requires. The Compensation Committee held five meetings in 2022 to review the 2021 achievements versus the planned corporate objectives, determine the performance related bonus pool, review the annual salary review process and 2022 corporate objectives as well as to review the remuneration of the members of the Board, amend the grant conditions relating to the strike price and propose a Staff retention deferred strike price payment plan (See Compensation report of the Group). 3.5.3. Working methods of the Board of Directors and its committees In 2022, due to COVID 19 pandemic, the Board held four virtual meetings with average duration of half a day. In addition to formal Board meetings, the Board holds additional ad hoc meetings or telephone conferences to discuss specific matters. The CEO and Chief Medical Officer (“CMO”) are entitled to attend every Board meeting and to participate in its debates and deliberations with the exception of non-executive sessions. Page 13 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report During Board meetings, each member of the Board may request information from the other members of the Board, as well as from the members of the Executive Management present on all affairs of the Company. The CEO reports at each meeting of the Board on the course of business of the Company in a manner agreed upon from time to time between the Board and the CEO. The Board also engages specific advisors to address specific matters when required. In addition to reporting at Board meetings, the CEO reports immediately any extraordinary event and any significant change within the Company to the Chairman. Outside of Board meetings, each member of the Board may request from the CEO information concerning the course of business of the Company. 3.6. Definition of areas of responsibility The Board is the ultimate corporate body of the Company. It further represents the Company towards third parties and shall manage all matters which by law, Articles or Organizational Rules have not been delegated to another body of the Company. – – In Accordance with article 19 of the Articles, the Board has delegated all areas of management of the Group’s business to the CEO and the Executive Management, and has granted the CEO the power to appoint the members of the Executive Management. The Board carries out the responsibilities and duties reserved to it by law, the Articles and the Organizational Rules. The following responsibilities remain with the Board: – – – – the ultimate direction of the Company and the Group and the issuance of the necessary instructions; the determination of the organization of the Company, including the adoption and revision of the Organizational Rules; the organization of the accounting system, the financial control and the financial planning; the appointment, remuneration and dismissal of the CEO of the company and of managers directly reporting to the CEO, as well as the determination of their signatory power; the ultimate supervision of the persons entrusted with management of the Company, specifically in view of their compliance with the law, the Articles, the Organizational Rules and directives given from time to time by the Board; the preparation of the business report, the preparation for the meetings of shareholders and the implementation of the resolutions adopted by the meeting of shareholders; the filing of a request for a debt restructuring moratorium and the notification of the judge if liabilities exceed assets; the preparation of the compensation report; the passing of resolutions regarding the supplementary contribution for shares not fully paid-in; the passing of resolutions concerning an increase in share capital to the extent that such power is vested in the Board, and of resolutions concerning the confirmation of capital increases and corresponding amendments to the Articles, as well as making the required report on the capital increase; the non-delegable and inalienable duties and powers of the Board pursuant to the Swiss Merger Act and any other law; the examination of the necessary qualifications of the auditors; the adoption of, and any amendments or modifications (except for immaterial changes) to, any equity incentive plan, stock option agreement, restricted stock purchase agreement, etc.; the decisions regarding entering into any financing arrangement in excess of CHF 2,000,000 including loan agreements, credit lines, letters of credit or capitalized leases; – the issuance of convertible debentures, debentures with option rights or other financial market instruments; – the approval of the business strategy and the approval and adoption of the budget of the Company; – decisions or actions in excess of CHF 1,000,000 which are not in accordance with the budget; and – the approval of any recommendation made by any of the Committees. – – – – – – – – According to the current Organizational Rules enacted by the Board, resolutions of the Board are passed by way of simple majority vote. To validly pass a resolution, more than half of the members of the Board have to attend the meeting. No quorum is required for confirmation resolutions and adaptations of the Articles in connection with capital increases pursuant to articles 634a, 651a, 652g and 653g of the Swiss Federal Code of Obligations. Except for Vincent Lawton (Chairman) and Tim Dyer, who have single signature authority, the members of the Board have joint signatory authority. 3.7. Information and control instruments vis-à-vis the Executive Management The Board ensures that it receives sufficient information from the CEO and Executive Management to perform its supervisory duty and to make the decisions that are reserved to the Board. At each Board meeting the Board receives reports from the CEO and selected members of the Executive Management on the status of finance, business, research and development. These reports focus on the main risks and opportunities related to the Group. In addition, the Board is provided with a status report prior to each board meeting, a monthly finance report and other ad hoc reports on significant matters related to the Group’s operations. Furthermore, the Board receives unaudited annual and interim financial statements for all Group companies including consolidated financial statements for the Company. The Board receives a written report from the auditors on the results of the audit which includes any findings with respect to internal control risks arising as a result of their audit procedures. The auditors held two meetings with the Chairman during the 2022 audit process. Addex does not have an independent internal audit function. For further information on the risk management and the financial risks factors inherent to the Group’s activities, refer to note 3 of the consolidated financial statements. Page 14 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report 4. Executive Management 4.1. Members of the Executive Management In accordance with the Articles and the Organizational Rules, the Board has delegated the operational management to the CEO. The CEO together with the Executive Management and under the control of the Board conducts the operational management of the Company pursuant to the Organizational Rules and reports to the Board on a regular basis. The following table sets forth the name, year of birth and principal position of those individuals who currently are part of the Executive Management followed by a short description of each member’s business experience, education and activities: Name Tim Dyer Roger Mills Year of Birth 1968 1957 Position Chief Executive Officer Chief Medical Officer Robert Lütjens Jean-Philippe Rocher Mikhail Kalinichev 1968 1959 1967 Head of Discovery - Biology Head of Discovery - Chemistry Head of Translational Science Nationality Swiss / British USA / British Swiss French French / British Member since 2002 2016 2015 2018 2021 Tim Dyer Chief Executive Officer – Refer to page 10 Roger Mills Chief Medical Officer – Refer to page 11 Robert Lütjens Co-Head of Discovery - Biology Dr. Lütjens is responsible for all biology activities and has extensive experience in drug discovery. He established the biology capabilities and built the Company’s small molecule allosteric modulator biology platform. He played a pivotal role in the success of both internal and partnered programs, including the discovery of dipraglurant and ADX71149, both of which progressed into Phase II clinical development. Prior to joining Addex at inception in 2002, Dr. Lütjens completed a postdoctoral fellowship in the Department of Neuropharmacology at the Scripps Research Institute, in La Jolla, CA, where he focused on understanding molecular changes involved in addiction disorders. Dr. Lütjens obtained his degrees in Biology from the University of Geneva, his master’s at the Swiss Institute for Experimental Cancer Research and his Ph.D. thesis at the Glaxo Institute for Molecular Biology in Geneva and the Institute for Cellular Biology and Morphology in Lausanne. Dr. Lütjens is co-author of over 30 peer-reviewed publications and patents. Jean-Philippe Rocher Co-Head of Discovery - Chemistry Dr. Rocher is responsible for IP and for all chemistry activities including CMC, scale-up and formulation, medicinal chemistry, computational chemistry, compound library management and activities linked to developability. He has extensive experience in drug discovery and returns to Addex from Pierre Fabre where he was Director of CNS Programs from March 2014 to May 2018. Joining Addex at its inception in 2002, Dr. Rocher established the Company’s chemistry capabilities and built its small molecule allosteric modulator chemistry platform. He played a pivotal role in the success of both internal and partnered programs, including the discovery of dipraglurant and ADX71149, both of which progressed into Phase 2 clinical development. Prior to joining Addex, Dr. Rocher was Director of Chemistry at Devgen NV (Gent, Belgium), Senior Research Scientist for GlaxoSmithKline KK (Tsukuba, Japan), Scientific Project Leader in CNS at Mitsubishi Tanabe (Yokohama, Japan) and Head of Drug Discovery Unit for Battelle (Geneva, Switzerland). He started his career as a Research Scientist in the Dermatology Research Center of Galderma (Sophia-Antipolis, France) following a PhD in Medicinal Chemistry and Pharm D at the Faculty of Pharmacy of Lyon (France). He is a co-author of more than 40 research publications and patents. Mikhail Kalinichev Head of translational science This is the second time Dr. Kalinichev is a part of Addex team, as previously, he spent 4 years in the company in several positions, including Associate Director and Group Leader, Behavioral Neuroscience. Immediately before his second appointment at Addex, Dr. Kalinichev spent 6 years as Director of in vivo neurology at Ipsen, France. In this role, he helped define the neuroscience therapeutic strategy, led operational activities and initiated several industrial and academic collaborations in the area of neuromuscular disorders and pain. Before Ipsen, he was a section head at Lundbeck, Denmark where he helped drive translational studies in schizophrenia, cognitive impairment and pain. His first role in pharmaceutical industry was as a principal scientist at Psychiatry Center of Excellence of GlaxoSmithKline, UK. Dr. Kalinichev’s post-doctoral training was at the Department of Pharmacology, Emory University School of Medicine (USA). Dr. Kalinichev has been awarded several prestigious awards, including the Vernalis Prize of the British Association for Psychopharmacology and the GlaxoSmithKline Exceptional Science Award. He is inventor on several patents and co-authored more than 50 papers. Dr. Kalinichev earned his PhD in behavioral neuroscience at Rutgers University (USA). Page 15 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report 4.2. Other activities and vested interests Apart from the information given above, none of the members of the Executive Management has had other activities or holds any positions in: – governing and supervisory bodies of important Swiss and foreign organizations, institutions and foundations under private and public law; – permanent management and consultancy functions for important Swiss and foreign interest groups; or – official government functions and political posts. 4.3. Rules in the articles of association on the number of permitted mandates outside the Company Article 31 of the Articles provide certain restrictions to the number of mandates that members of the Executive Management may have in the supreme governing bodies of legal entities registered in the Swiss commercial register or similar foreign register as follows: – no member of the Executive Management may hold more than five board of director mandates with no more than two mandates in listed entities; – mandates in companies controlled by Addex or which control Addex are not subject to restrictions; – mandates that are held by order and on behalf of Addex or companies under Addex control are restricted to ten; and – mandates in associations, charitable organizations, family trusts and foundations relating to post-retirement benefits and other not-for-profit organizations are restricted to twenty-five. Multiple mandates in different legal entities which are under common control or same beneficial ownership are deemed to be one mandate. 4.4. Management contracts There are no management contracts between Addex and third parties. 5. Compensation, shareholdings and loans 5.1. Content and method of determining the compensation and the shareholding programs Detailed information about content and method of determining compensation and shareholder programs of the members of the Board and Executive Management is included in the Compensation Report of the Group. Information about shareholdings of the members of the Board and Executive Management is included in note 15 of the statutory financial statements of the Company. 5.2. Disclosure of rules in the articles of incorporation regarding compensation of the Board of Directors and of the Executive Management For rules in the Articles regarding the approval of compensation by the meeting of shareholders, the supplementary amount for changes in the Executive Management as well as the general compensation principles, please refer to articles 26–28 of the Articles. The rules regarding agreements with members of the Board and of the Executive Management in terms of duration and termination, please refer to article 29 of the Articles. Article 30 of the Articles indicates the rules regarding credits for the members of the Board and of the Executive Management. 6. Shareholders’ participation rights 6.1. Voting rights restrictions and representation Voting rights may be exercised only after a shareholder has been recorded in the Company’s share register as a shareholder or usufructuary with voting rights, subject further the restrictions on transferability set forth in article 5 of the Articles. No exceptions from these restrictions were granted in 2022. A shareholder may be represented by his legal representative, the independent proxy or by a duly authorized person who does not need to be a shareholder. Subject to the registration of shares in the share register within the deadline set from time to time by the Board before shareholders’ meetings, the Articles do not impose any restrictions on the voting rights of shareholders. Specifically, there is no limitation on the number of voting rights per shareholder. For further information on the conditions for registration in the share register (including in relation to Nominees) and for attending and voting at a shareholders’ meeting, please refer to the sections “Limitations on transferability of shares and nominee registration” on page 9 above and “Entries in the share register” on page 17 below. Article 13 of the Articles provides the basis for election of the independent proxy. The Articles do not contain any rules on the issue of instructions to the independent proxy or on the electronic participation in the general meeting of shareholders. The Shareholders’ Meeting of May 9, 2022, re-elected Robert P. Briner as the independent proxy. Resolutions of shareholders’ meetings generally require the approval of the absolute majority of the votes represented at the shareholders meeting (more than 50% of the share votes represented at such meeting). Such resolutions include amendments to the Articles, elections of the members of the Board and statutory and group auditors election of the Chairman of the Board and of the members of the Compensation Committee, election of the independent proxy, approval of the annual financial statements, setting the annual dividend, approval of the compensation of the Board and management pursuant to the Articles, decisions to discharge the Page 16 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report members of the Board and management for liability for matters disclosed to the shareholders’ meeting and the ordering of an independent investigation into specific matters proposed to the shareholders’ meeting. A resolution passed at a shareholders’ meeting with a qualified majority of at least two-thirds of the votes represented and the absolute majority of the nominal share capital is required by law for: – changes to the business purpose; – the consolidation of shares; – an increase in the share capital by way of capitalization of reserves, against contribution in kind, for the acquisition of assets or involving the grant of special privileges; the restriction or exclusion of pre-emptive rights of shareholders; the creation of a conditional capital or of a capital range; restrictions on the transferability of registered shares; the creation of shares with privileged voting rights; – – – – – a change of the currency in which the share capital is denominated; – – – – a relocation of the registered office; – – the introduction of an arbitration clause in the Articles; and the dissolution of the Company. the introduction of a casting vote for the Chairman at the general meeting; the introduction of a provision in the Articles allowing general meetings to be held abroad; the delisting of shares; Special quorum rules apply by law to a merger, demerger, or conversion of the Company. The introduction or abolition of any provision in the Articles introducing a majority greater than that required by law must be resolved in accordance with such greater majority. 6.2. Statutory quorums There is no provision in the Articles requiring a majority for shareholders’ resolutions beyond the majority requirements set out by applicable legal provisions. 6.3. Convocation of the general meeting of shareholders The shareholders’ meeting is the supreme body of the Company and under Swiss law, the ordinary shareholders’ meeting takes place annually within six months after the close of the business year. Shareholders’ meetings may be convened by the Board or, if necessary, by the auditors. Furthermore, the Board is required to convene an extraordinary shareholders’ meeting if so requested in writing by holders of shares representing at least 10% of the share capital and who submit a petition specifying the item for the agenda and the proposals. 6.4. Inclusion of items on the agenda Shareholders representing shares with a nominal value of at least CHF 1,000,000 or 10% of the share capital have the right to request in writing that an item be included on the agenda of the next shareholders’ meeting, setting forth the item and the proposal. A request to put an item on the agenda has to be made at least 60 days prior to the meeting. Extraordinary shareholders’ meetings may be called as often as necessary, in particular in all cases required by law. A shareholders’ meeting is convened by publishing a notice in the Swiss Official Commercial Gazette (Feuille Officielle Suisse du Commerce/Schweizerisches Handelsamtsblatt) at least 20 days prior to such meeting. In addition, holders of shares may be informed by a letter sent to the address indicated in the share register. 6.5. Entries in the share register The Board determines the relevant deadline for registration in the share register giving the right to attend and to vote at the shareholders’ meeting. Such deadline is published by Addex on the Company’s website, usually in connection with the publication of the invitation to the shareholders’ meeting in the Swiss Official Commercial Gazette. The registration deadline for the ordinary shareholders’ meeting will be determined and communicated prior to the end of April 2023. Addex has not enacted any rules on the granting of exceptions in relation to these deadlines. No exceptions were granted in 2022, and the Board does not anticipate granting any exceptions related to the shareholders’ meeting to be held in 2023. For further information on registration in the share register, please refer to section “Limitations on transferability of shares and nominee registration” on page 9. 7. Changes of control and defense measures 7.1. Duty to make an offer Swiss law provides for the possibility to have the Articles contain a provision which would eliminate the obligation of an acquirer of shares, exceeding the threshold of 33 1/3% of the voting rights (whether exercisable or not), to proceed with a public tender offer to acquire 100% of the listed equity securities of the Company (opting-out provision pursuant to article 125 para. 3 FMIA or which would increase such threshold to 49% of the voting rights (opting-up provision pursuant to article 135 para. 1 FMIA). Page 17 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report On March 16, 2018, the EGM resolved a selective opting-out limited to a 5-year period of the mandatory offer rules of article 135 FMIA based on article 125 para. 3 FMIA by adopting a new article 39 of the Articles (the "Opting-out") in order to facilitate the financing of the Company by two lead investors, i.e. Growth Equity Opportunities Fund IV, LLC and New Leaf Biopharma Opportunities I, L.P., and to provide legal certainty in connection with the possible legal consequences under Swiss takeover law of these investors' acquisition of newly issued registered shares of the Company for an amount of around CHF 20,000,000 in March 2018. As a result of the Opting-out, neither Growth Equity Opportunities Fund IV, LLC. or New Leaf Biopharma Opportunities I, L.P., nor their respective affiliates would have a duty to make a mandatory offer for a period until March 21, 2023 in case any of them would acquire (either alone or acting in concert pursuant to article 135 FMIA) 33 1/3% or more of the outstanding voting rights of the Company. The Company's shareholders would be deprived of their right to tender their shares in a mandatory offer triggered by a change of control over the Company caused by Growth Equity Opportunities Fund IV, LLC and/or New Leaf Biopharma Opportunities I, L.P. and/or their respective affiliates until March 21, 2023 pursuant to article 135 FMIA. The extension of the opting out will be discussed during the next annual general assembly that is planned to be held the week of May 22, 2023. On August 18, 2022, the Swiss Takeover Board granted, subject to certain conditions, an exemption to Addex Pharma SA from the obligation to make an offer in relation to the acquisition of shares in Addex. After such acquisition, which occurred on October 31, 2022, Addex Pharma SA temporarily exceeded the shareholding threshold of 33 1/3 % of the voting rights in Addex. On December 19, 2022, Addex Pharma reduced its shareholding in Addex below the threshold of 33 1/3% of the voting rights, thus complying with all conditions of the exemption. 7.2. Clauses on changes of control Addex’ equity sharing certificate incentive plan, share option plan and staff retention deferred strike price payment plan contain a provision in respect of changes of Addex shareholder base. In the event of a change of control over Addex (defined as a change of control event triggering a mandatory public tender offer according to applicable stock exchange rules) all outstanding unvested share options and subscription rights attached to equity sharing certificates, vest, and become exercisable with their remaining term being reduced proportionally, and deferred strike price payment obligations and sales restrictions associated with the staff retention deferred strike price payment plan are waived. 8. Auditors 8.1. Duration of the mandate and term of office of the lead auditor Pursuant to article 23 of the Articles and the Organization Rules, the auditor shall be elected every year and may be re-elected. The statutory and group auditors of Addex Therapeutics is BDO AG, Switzerland since their election during the Annual General Meeting held on June 9, 2020. Mr. Christoph Tschumi acts as lead auditor of Addex since 2020. 8.2. Auditing fees In 2022, BDO AG charged the Group audit fees in the amount of CHF 260,000. 8.3. Additional fees In 2022, BDO AG charged the Group additional fees of CHF 34,141 for services relating to operations on the capital and Nasdaq Stock Market related filings. 8.4. Information instruments pertaining to the external audit The Audit Committee as a committee of the Board reviews and evaluates the performance and independence of the auditor at least once a year. Based on its review, the Audit Committee recommends to the Board, which external auditor should be proposed for election at the general meeting of shareholders. The decision regarding the general meeting agenda is then taken by the Board. When evaluating the performance and independence of the auditor, the Audit Committee puts special emphasis on criteria such as global network of the audit firm, professional competence of the lead audit team, understanding of Addex' specific business risks, personal independence of the lead auditor and independence of the audit firm as a company and coordination of the auditor with the Audit Committee. The Audit Committee determines the scope of the external audit and the relevant methodology to be applied to the external audit with the auditors and discusses the results of the respective audits with the auditor. Representatives of the auditor are regularly invited to meetings of the Audit Committee, to attend during those agenda points dealing with an accounting, financial reporting or auditing matters. The Audit Committee assumes the task of supervising the auditors. The Audit Committee meets with external auditor at least once a year to discuss the scope and the results of the audit and to assess the quality of their service. The auditor prepares a Board Report addressed to the Chairman of the Board two times per year, informing them of their audit plan for the year under review followed by a report detailing the result of their annual audit. In 2022, the Chairman of the Board or Audit Committee met with the auditors five times to discuss the financial situation of the Group, the scope and the results of their 2021 year-end audit and their review of the interim reports relating to the published quarterly reports. Page 18 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report In 2023, the Audit Committee of the Board met with the auditors two times to discuss the financial situation of the Group, the scope and the results of their 2022 year-end audit. 9. Information policy Addex is committed to an open and transparent communication with its shareholders, financial analysts, potential investors, the media, customers, suppliers and other interested parties. Addex publishes financial results in the form of an Annual Report and quarterly reports (Interim Reports). In addition, Addex informs shareholders and the public regarding the Group’s business through press releases, conference calls, as well as roadshows. Where required by law or Addex’ Articles, publications are made in the Swiss Official Commercial Gazette. The Annual Report, usually published no later than April of the following year and the Interim Reports, usually published no later than two months after the closing date, are announced by press release. Annual Reports, Interim Reports and press releases are available on request in printed form to all registered shareholders and are also made available on the Group’s website. The Group’s website, which is the Group’s permanent source of information, also provides other information useful to investors and the public, including information on the Group’s research and development programs as well as contact information. It is the Group’s policy not to release explicit earnings projections, but it will provide general guidance to enable the investment community and the public to better evaluate the Group and its prospective business and financial performance. The Board has issued a disclosure policy to ensure that investors will be informed in compliance with the requirements of the SIX. The following table summarizes the scheduled financial calendar for the financial year 2023: Expected Dates: March 30, 2023 March 30, 2023 Week of May 8, 2023 Week of May 22, 2023 Week of August 7, 2023 Week of November 6, 2023 Event: Publication of the annual 2022 report Media conference annual 2022 report Publication of the Q1 2023 report Annual General Meeting Publication of the half-year 2023 report Publication of the Q3 2023 report Our 2023 calendar is as well available on our website: https://www.addextherapeutics.com/en/investors/events/ Details and information on the business activities, Company structure, financial reports, media releases and investor relations are available on the Company's website: https://www.addextherapeutics.com The official means of publication of the Company is the Swiss Official Gazette of Commerce: https://www.shab.ch Web-links regarding the SIX push-/pull-regulations concerning ad hoc publicity issues are: https://www.addextherapeutics.com/en/investors/ad-hoc-announcements-art-53-lr/ https://www.addextherapeutics.com/en/investors/register-email-news The financial reports as well as shareholders meeting invitations and results are available under: https://www.addextherapeutics.com/en/investors/financial-reports/ The Group’s investor relations department is available to respond to shareholders’ or potential investors’ queries under IR@addextherapeutics.com or via post at Addex Therapeutics Ltd., Investor Relations, C/O Addex Pharma SA, Chemin des Mines 9, CH-1202 Geneva, Switzerland. Additional inquiries may also be made by phone at +41 22 884 1555. 10. Quiet periods For members of the Board, members of the Executive Management and employees directly reporting to them, including their respective staff, trading in securities of Addex, including, but not limited to, shares of Addex, options or convertible bonds, or any other financial instruments whose price is dependent to a degree of more than 25% on such securities of Addex (collectively the Relevant Securities), is prohibited from trading in any Relevant Securities during the following regular restricted periods, regardless of whether such member is in possession of insider information or not: Page 19 of 70 Addex Therapeutics Annual Report 2022│Corporate Governance Report a) b) c) d) the period starting two (2) weeks prior to the end of any half yearly reporting period of Addex and ending one (1) full trading day following the respective public release of semi-annual results; the period starting two (2) weeks prior to the end of any yearly reporting period of Addex and ending one (1) full trading day following the respective public release of annual results; the period starting two (2) weeks before any public earnings release of Addex and ending one (1) full trading day following such public release; and the period starting four (4) weeks prior to the first public release of an offering memorandum for the issuance of Relevant Securities and ending one (1) full trading day following such public release. Members of the Board and the Executive Management and employees directly reporting to them may only deal in Relevant Securities if they obtained clearance in advance from the Chief Financial Officer. 11. Ethical business conduct The Group is committed to the highest standards of ethical conduct. As a pharmaceutical business, the Group is operating in a highly regulated business environment. Strict compliance with all legal and health authority requirements, as well as requirements of other regulators, is mandatory. The Group expects its employees, contractors and agents to observe the highest standards of integrity in the conduct of the Group’s business. The Code of Conduct sets forth the Group’s policy embodying the highest standards of business ethics and integrity required of all Board Members, Executive Managers, employees and agents when conducting business affairs on behalf of the Group. The Group is committed to complying with the spirit and letter of all applicable laws and regulations where the Group engages in business. Page 20 of 70 Addex Therapeutics Annual Report 2022 │Compensation Report Compensation Report Overview This Compensation Report provides the information required by the federal Ordinance against excessive compensation in listed companies ("Compensation Ordinance") (effective as of January 1, 2014). It also includes information required by section 5 of the Annex to the Directive on Information relating to Corporate Governance of the SIX Swiss Exchange (Amendment effective on October 1, 2021) and the Swiss Code of Best Practice for Corporate Governance (status August 28, 2014). Addex' Articles, Organization Rules and policies provided the basis for the principles of compensation. Review and approval process Subject to the powers of the general meeting of shareholders, the Board of Directors determines the compensation of its members and of the Executive Management in accordance with the Company’s Compensation Policy, on the recommendation of the Compensation Committee. The Compensation Committee is composed of two members of the Board of Directors who have been individually elected by the general meeting of shareholders, for a term of one year, until the end of the next annual general meeting. The Board of Directors elects the chairman of the Compensation Committee from the members of the Compensation Committee. Members of the compensation Committee are eligible for re-election indefinitely. The Compensation Committee supports the Board of Directors in establishing and reviewing the Company’s compensation strategy, guidelines and the performance targets. The Compensation Committee may also submit proposals to the Board of Directors in other compensation-related issues. For a more detailed description of the Compensation Committee, please refer to section 3.5.2 of the Corporate Governance Report on page 12. The Compensation Committee meets as often as necessary to fulfil its role, and generally at least once a year. The Board of Directors generally resolves on the recommendations of the Compensation Committee during the meeting of the Board of Directors which immediately follows the meeting of the Compensation Committee during which a recommendation was made. As a principle, the Chief Executive Officer (“CEO”) attends the meetings of the compensation Committee and, provided he is also a Board Member, attends and votes during the meetings of the Board of Directors where the compensation of the Board Members and the compensation of the Executive Managers are discussed. However, discussions and decisions of the Board of Directors and of the Compensation Committee regarding the compensation of the CEO are resolved in his absence. The other members of the Executive Management do not attend the meetings of the compensation Committee nor the parts of the meetings of the Board of Directors, where the compensation of the Board Members or the compensation of the Executive Managers are discussed. Board Members, who are not members of the Compensation Committee, do not attend the meetings of the Compensation Committee, but take part in the meetings of the Board of Directors during which the compensation of the Board Members is discussed and the compensation of the Executive Managers as well as the vote relating thereto. In its review process the Compensation Committee considers compensation packages of other companies in the biotech and pharmaceutical industry in Switzerland and Europe that are comparable to Addex with respect to size and business model, considering the professional experience and areas of responsibility of the respective members of the Board of Directors and Executive Managers. In 2020, a compensation benchmarking study has been conducted by a reputable, independent expert firm which has not been awarded additional mandates by the Company. This benchmarking study has contributed to the Compensation Committee’s assessment of the appropriateness of the Company’s compensation level and structure for the 2021 and 2022 business years. In this benchmarking study, compensation data of Swiss and European listed companies from the biotech sector with a similar size and stage of development to Addex were collected and used to establish compensation levels and structure. The Compensation Committee also consults relevant compensation surveys and benchmarking reports. Based on the detailed review process of the Compensation Committee, the Board of Directors submits two proposals for approval at the shareholders meeting: (i) the maximum aggregate amount of fixed and variable compensation for the Board of Directors for the prospective period from one ordinary general meeting of shareholders to the following ordinary general meeting of shareholders; and (ii) the maximum aggregate amount of fixed and variable compensation for the Executive Management for the period from January 1 to December 31 of the next financial year. Approval of these proposals requires an absolute majority (more than 50% of the share votes represented at the shareholders meeting). Compensation elements for the Board of Directors and Executive Management Board of Directors The compensation of the non-executive board members mostly includes variable elements whilst executive board members are not remunerated as board member. The fixed element comprises a fixed annual monetary compensation per Board term from one general meeting of shareholders to the next. The variable element comprises a monetary compensation based on Board meeting attendance and the fair value of equity incentive units (share options and equity sharing certificates) and represents from 50% to 250% of fixed annual compensation. Nevertheless, in 2022, the variable compensation of the chairman of the Board of Directors and of the chairman of the compensation committee represented fourteen and thirteen time their fixed annual compensation respectively, primarily due to Page 21 of 70 Addex Therapeutics Annual Report 2022 │Compensation Report the increased fair value of their options granted as the exercise prices have been reduced (See note 13). Social security contributions of the Company are accrued on the fixed and variable elements. Board member social security contributions are accrued on the fair value of equity incentive units. Equity incentive units are granted based on the discretion of the Board of Directors. Equity incentive units are granted to compensate for the dilutive effects of capital raising to ensure Board Members have sufficient unvested equity incentive units in accordance with external benchmarks. The most recent review of compensation for members of the Board took place in October 2022. For further information on the compensation for members of the Board, please refer to the section “Compensation of the Board in 2022" on page 23. Executive Management The compensation of members of the Executive Management consists of fixed and variable elements. The fixed element may include a base salary or a cash retainer paid under a consulting contract. The variable element may include performance-related cash or share based bonuses, consulting fees based on chargeable hours and equity incentive units (equity sharing certificates and share options). Company contributions to pension plans, death and invalidity insurances and social security contributions are accrued on all fixed and variable element compensation that relates to an employment relationship. Company social security contributions are accrued for all shares or equity incentive unit compensation. The amount of the fixed element depends on the position, responsibilities, experience and skills, and takes into account individual performance. The fixed element is reviewed at the end of each year by the Board. Any changes in the fixed elements are made effective in January of the following year. The variable elements are based on individual and company goals. The potential variable cash bonus is determined in the employment contract and in general is a percentage of the base salary. Where the Executive Manager has been engaged under a consulting contract, the variable element is based on the time spent at the contractually defined rate of remuneration. Every year, the Board decides on the total amount of variable elements including the amount of cash and equity incentive units to be granted for the previous year based on the achievement of Company and Individual goals. Equity incentive units are granted based on the discretion of the Board of Directors. Variable cash compensation paid to Executive Managers includes bonus and equity incentive units. The variable compensation of CEO is determined 100% based on company goals and includes a cash bonus representing from 0% to 50% of base salary and equity incentive units representing from 0% to 150% of base salary, exceptionally increased to seven times of base salary in 2022 primarily due to the higher fair value of his equity incentive units following the reduction of the exercise prices. Our Chief Medical Officer (“CMO”) is engaged through a consultancy agreement and invoices the company for hours worked on a monthly basis which are settled in cash. In addition, equity incentive units are granted from time to time at the discretion of the Board of Directors. The variable compensation of the other Executive Managers includes a cash bonus representing from 0% to 25% of base salary and is determined based on 20% individual goals and 80% company goals, and equity incentive units representing 0% to 100% of base salary, exceptionally increased up to 182% of base salary in 2022 primarily due to the increased fair value of their equity incentive units granted following the reduction of the exercise prices. In addition, the Board of Directors grants equity incentive units to Executive Managers to compensate for the dilutive effects of capital raising to ensure Executive Managers have sufficient unvested equity incentive units in accordance with external benchmarks. The company goals for 2022 were established at the beginning of the year as follows: Execution of dipraglurant phase 2b/3 PD LID study (study 301) Execution of dipraglurant phase 2a blepharospasm study Advancing GABAB PAM to end of clinical candidate selection Advancing other discovery programs to end of clinical candidate selection Securing the Group’s financial situation Maintain effective governance, regulation and administration 30% 15% 15% 15% 20% 5% Following the termination of the dipraglurant clinical development in PD LID in June 2022, the company goals were realigned with the Group’s revised strategy which primarily resulted in the dipraglurant phase 2b/3 PD LID study execution goal being replaced by an objective to efficiently and effectively close down the PD LID development in a cost-effective manner with a weighting of 15%. In addition, the percentage weighting of 20% for “securing the Group’s financial situation” was increased to 35%. The individual goals of the Executive Managers for 2022 were as follows: 1) Deliver novel drug candidates weighted at 50%; 2) Develop collaborative arrangements to efficiently advance preclinical portfolio weighted at 25%; and 3) Develop novel tools to identify and characterize allosteric modulators weighted at 25%. Equity incentive plans The purpose of the Group’s share purchase, share option and equity sharing certificate programs (refer to note 13 of the consolidated financial statements) is to provide members of the Board of Directors, Executive Management, employees and certain consultants (together “Staff”) with an opportunity to benefit from the potential appreciation in the value of the Company’s shares, thus providing an increased incentive for participants to contribute to the future success and prosperity of the Group, enhancing the value of the shares for the benefit of the shareholders of the Group and increasing the ability of the Group to attract and retain individuals of exceptional skills. In addition, these plans provide the Group with a mechanism to engage services for non-cash consideration by settling them through a transfer of treasury shares under the share purchase plan based on predefined terms of the consulting contract. The grant of any share option or equity sharing certificate is at the discretion of the Board of Directors. Key factors considered by the Board of Directors in making grants of share options or equity sharing certificates are the amount of shareholder approved conditional capital, the benchmarking with other companies as well as individual performance (for further information on the detail and composition of the benchmark please refer to the paragraph review and approval process above). The strike price is determined Page 22 of 70 Addex Therapeutics Annual Report 2022 │Compensation Report by the Board of Directors and is primarily based on the closing price of the Company’s shares on the SIX Swiss Exchange on the grant date. In addition, the Group has implemented a staff retention plan which includes a deferred strike price payment plan (“DSPPP”) which encourages Board Members, Executive Managers and employees to exercise their share options or equity sharing certificates and become shareholders of the Company by allowing deferral of the obligation to pay the strike price on exercise ("Deferred Strike Price Payment Obligations"). Indirect benefits The Company may contribute to the pension plan and maintains certain insurance for death and invalidity for the members of the Executive Management. New entrants may be eligible for reimbursement of relocation costs, compensation for lost benefits or stock granted by a previous employer, international school for children or language courses for a limited time period. No Indirect benefits have been paid to Executive Management in 2022. Special conditions in case of change of control In the event of a change of control of the company, three Executive Managers are entitled to receive an amount equivalent to one time the annual gross salary and 1.5 times the targeted annual bonus 12 months after the change of control, unless they have given notice of termination or have received notice of termination for cause. Compensation for the financial year under review (audited) Measurement basis for compensation Fixed cash compensation, variable cash compensation and shares acquired under the share purchase plan: accrual basis; The measurement basis for each component of compensation is described below: • • Equity incentive units: fair value at the grant date in accordance with IFRS 2 valuation methodology; and • Employers’ social security: accrual basis except for equity incentive units where the notional amount is calculated based on the fair value at grant date. Compensation of the Board of Directors in 2022 and 2021 2022 Fixed Variable compensation value of equity incentive units(2) 384,587 209,113 - - 25,616 25,616 644,932 (1) Equity incentive units include share options granted during the year under the Company’s share option plan (refer to note 13 of the consolidated financial statements). (2) Value of equity incentive units include the fair value of share options granted during the year under the Company’s share option plan amounting to CHF 246,502 and the increase of CHF 398,430 CHF Vincent Lawton, chairman..……………... Raymond Hill, member………………….. Tim Dyer, member………...…………….. Roger Mills, member……….……………. Jake Nunn, member………………...…... Isaac Manke, member…………...……… Total………………………………………. cash compensation 26,330 15,529 - - 13,639 13,639 69,137 number of equity incentive units(1) 758,317 411,869 - - 68,238 68,238 1,306,662 cash attendance 26,330 15,529 - - 13,639 13,639 69,137 Total 2022 437,247 240,171 - - 52,894 52,894 783,206 in fair value of the equity incentive units whose grant conditions have been changed during the year (Refer to note 13 of the consolidated financial statements). 2021 Fixed Variable compensation CHF Vincent Lawton, chairman..……………... Raymond Hill, member………………….. Tim Dyer, member………...…………….. Roger Mills, member……….……………. Jake Nunn, member………………...…... Isaac Manke, member…………...……… Total………………………………………. cash compensation 26,590 15,954 - - 13,295 13,295 69,134 cash attendance 26,590 15,954 - - 13,295 13,295 69,134 number of equity incentive units(1) 70,000 40,000 - - 30,000 30,000 170,000 value of equity incentive units(1) 54,129 30,931 - - 23,198 23,198 131,456 Total 2021 107,309 62,839 - - 49,788 49,788 269,724 (1) Equity incentive units include share options granted under the Company’s share option plan (refer to note 13 of the consolidated financial statements). Page 23 of 70 Addex Therapeutics Annual Report 2022 │Compensation Report Deferred Strike Price Payment Obligations of the Board of Directors: CHF Vincent Lawton, chairman..……………... Raymond Hill, member………………….. Tim Dyer, member………...…………….. Roger Mills, member……….……………. Jake Nunn, member………………...…... Isaac Manke, member…………...……… Total (1)………………………………………………………. December 31, 2022 190,364 103,683 - - 16,671 16,671 327,389 (1) The amounts reported in this table correspond to the amounts owed by members of the Board of Directors in relation to Deferred Strike Price Payment Obligations (see note 13), which may be assimilated to loans to be disclosed in the remuneration report within the meaning of the Compensation Ordinance. Compensation to the Executive Management in 2022 and 2021 2022 Fixed Variable compensation CHF Total Executive Management (1)….…... cash compensation 1,249,366 Cash(4) 375,685 number of equity incentive units (2) 6,846,206 value of equity incentive units(3) 3,455,027 Total 2022 5,080,077 (1) The highest paid member of Executive Management in 2022 was the CEO, Tim Dyer, who received CHF 472,724 of fixed cash compensation, CHF 133,881 of variable cash compensation and 4,882,845 equity incentive units. The fair value of equity incentive units including accrued social charges amounted to CHF 2,498,459 including CHF 970,001 for equity incentive units granted during the year and CHF1,528,458 relating to the change in grant conditions made during the year (see note 13). (2) Equity incentive units include share options granted during the year under the Company’s share option plan. (3) Value of equity incentive units include the fair value of share options granted during the year under the Company’s share option plan amounting to CHF 1,343,025 and the increase of CHF 2,112,002 in fair value of the equity incentive units whose grant conditions have been changed during the year (Refer to note 13 of the consolidated financial statements). (4) Variable compensation in cash relates to bonuses and compensation paid to Executive Managers engaged under consulting contracts which include hourly and daily rates with a monthly cap. 2021 Fixed Variable compensation CHF Total Executive Management (1)….…... cash compensation 1,082,184 Cash(3) 414,313 number of equity incentive units (2) 1,410,638 value of equity incentive units(2) 1,157,969 Total 2021 2,654,466 (1) The highest paid member of Executive Management in 2021 was the CEO, Tim Dyer, who received CHF 457,717 of fixed cash compensation, CHF 130,725 of variable cash compensation and 700,000 equity incentive units. The value of equity incentive units including accrued social charges amounted to CHF 569,990. (2) Equity incentive units include shares awarded for consulting services under the share purchase plan and share options granted under the Company’s share option plan. (3) Variable compensation in cash relates to bonuses and compensation paid to Executive Managers engaged under consulting contracts which include hourly and daily rates with a monthly cap. Deferred Strike Price Payment Obligations of the Executive Management: CHF Total Executive Management (1)…………. December 31, 2022 1,711,789 (1) The amounts reported in this table correspond to the amounts owed by Executive Managers in relation to Deferred Strike Price Payment Obligations (see note 13), which may be assimilated to loans to be disclosed in the remuneration report within the meaning of the Compensation Ordinance. The Highest Deferred Strike Price Payment Obligation amounted to CHF 1,222,748 as of December 31, 2022 and was attributable to the CEO Tim Dyer. Page 24 of 70 Addex Therapeutics Annual Report 2022 │Compensation Report Phone +41 22 322 24 24 www.bdo.ch geneve@bdo.ch BDO Ltd Rte de Meyrin 123 P.O. Box 150 1215 Geneva 15 REPORT OF THE STATUTORY AUDITOR To the General meeting of Addex Therapeutics Ltd, Plan-les-Ouates Report on the Audit of the Compensation Report Opinion We have audited the Compensation Report of Addex Therapeutics Ltd (the Company) for the year ended December 31, 2022. The audit was limited to the information on remuneration, loans and advances pursuant to Art. 14-16 of the Ordinance against Excessive Remuneration in Listed Companies bei Limited börsenkotierten Aktiengesellschaften, VegüV) in the tables marked «audited» on pages 21 to 24 of the Compensation Report. Vergütungen übermässige (Verordnung Shares gegen by In our opinion, the information on remuneration, loans and advances in the accompanying Compensation Report (pages 21 to 24) complies with Swiss law and Art. 14-16 VegüV. Basis for Opinion We conducted our audit in accordance with Swiss law and Swiss Standards on Auditing (SA-CH). Our responsibilities under those provisions and standards are further described in the Auditor’s Responsibilities for the Audit of the Compensation Report section of our report. We are independent of the Company in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information The Board of Directors is responsible for the other information. The other information comprises the information included in the annual report, but does not include the tables marked «audited» in the Compensation Report, the consolidated financial statements, the stand-alone financial statements and our auditor’s reports thereon. Our opinion on the Compensation Report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the Compensation Report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the audited financial information in the Compensation Report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information,we are required to report that fact. We have nothing to report in this regard. Board of Directors' Responsibilities for the Compensation Report The Board of Directors is responsible for the preparation of a Compensation Report in accordance with the provisions of Swiss law and the Company's articles of incorporation, and for such internal control as the Board of Directors determines is necessary to enable the preparation of a Compensation Report that is free from material misstatement, whether due to fraud or error. The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages. BDO Ltd, a limited company under Swiss law, incorporated in Zurich, forms part of the international BDO Network of independent member firms. Page 25 of 70 Addex Therapeutics Annual Report 2022 │Compensation Report Auditor’s Responsibilities for the Audit of the Compensation Report Our objectives are to obtain reasonable assurance about whether the information on remuneration, loans and advances pursuant to Art. 14-16 VegüV is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and SA-CH will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Compensation Report. As part of an audit in accordance with Swiss law and SA-CH, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement in the Compensation Report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made. We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. Geneva, March 30, 2023 BDO Ltd Nigel Le Masurier Licensed Audit Expert Christoph Tschumi Licensed Audit Expert (Auditor in Charge) BDO Ltd, a limited company under Swiss law, incorporated in Zurich, forms part of the international BDO Network of independent member firms. Page 26 of 70 Addex Therapeutics Annual Report 2022 │Consolidated Financial Statements Consolidated Financial Statements of Addex Therapeutics Ltd as at December 31, 2022 Page 27 of 70 Addex Therapeutics Annual Report 2022 │Consolidated Financial Statements Consolidated Balance Sheets as at December 31, 2022 and December 31, 2021 ASSETS Notes December 31, 2022 December 31, 2021 Amounts in Swiss francs Current assets Cash and cash equivalents………………………………..……………........ Other financial assets……………………………………………………….... Trade and other receivables…………………………….…………………… Contract asset…………………………...…………………….……………… Prepayments …………………….……...…………………….……………… Total current assets………………………………………………………… Non-current assets Right-of-use assets…………..………………………………………………. Property, plant and equipment………………………………………………. Non-current financial assets…………………………………………………. Total non-current assets…………………………………………………... 6 7 7 7 7 8 9 10 6,957,086 3,165 416,875 181,441 270,394 7,828,961 357,613 41,121 54,355 453,089 20,484,836 17,145 164,785 159,636 1,115,374 21,941,776 469,989 72,111 57,908 600,008 Total assets…………………………………………................................... 8,282,050 22,541,784 LIABILITIES AND EQUITY Current liabilities Current lease liabilities……………………………………………………….. Payables and accruals……………………………………………………….. Total current liabilities……………………………………………………... Non-current liabilities Non-current lease liabilities………………………………………………….. Retirement benefits obligations……………………………………………... Total non-current liabilities………………………................................... Equity Share capital…………………………………………………………….......... Share premium……………………………………………………………...... Other equity…………………………………………………………………… Treasury shares reserve……………………………………………………... Other reserves……..…………………………………………………………. Accumulated deficit…………………………………………………………... Total equity………………………………………………............................. 3.2 11 3.2 19 12 12 12 286,107 2,996,004 3,282,111 87,028 - 87,028 1,153,483 269,511,610 64,620,223 (6,278,763) 25,768,373 (349,862,015) 4,912,911 287,698 3,847,145 4,134,843 194,316 1,281,525 1,475,841 49,272,952 283,981,361 - (11,703,279) 24,437,868 (329,057,802) 16,931,100 Total liabilities and equity………………………..………......................... 8,282,050 22,541,784 The accompanying notes form an integral part of these consolidated financial statements. Page 28 of 70 Addex Therapeutics Annual Report 2022 │Consolidated Financial Statements Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022 and 2021 Notes December 31, December 31, 2022 2021 Amounts in Swiss francs Revenue from contract with customer…………………………………. Other income……………………………………………………………….. Operating costs Research and development...…………………………………….............. General and administration….……………………………………………... Total operating costs……………………………………......................... Operating loss…………………………………………………….............. Finance income……………………………………………………………… Finance expense……………………………………………………………. Finance result……………………………………..................................... Net loss before tax…………………………………….............................. Income tax expense…………………..……...……………………………... Net loss for the year...…………………………………………................. Basic and diluted loss per share for loss attributable to the ordinary equity holders of the Company………………………………. Other comprehensive income Items that will never be reclassified to profit and loss: Remeasurements of retirement benefits obligation.………………...….... Items that may be classified subsequently to profit and loss: Exchange difference on translation of foreign operations……………….. Other comprehensive income for the year, net of tax………….…..... 14 15 16 20 18 21 19 1,422,438 22,521 2,916,308 236,997 (14,665,462) (7,299,704) (21,965,166) (12,840,540) (5,818,682) (18,659,222) (20,520,207) (15,505,917) 29,251 (313,257) (284,006) (20,804,213) - (20,804,213) 217,015 (63,012) 154,003 (15,351,914) - (15,351,914) (0.46) (0.45) 1,270,132 (345) 1,269,787 260,548 (295) 260,253 Total comprehensive loss for the year…………………………………. (19,534,426) (15,091,661) The accompanying notes form an integral part of these consolidated financial statements. Page 29 of 70 Addex Therapeutics Annual Report 2022 │Consolidated Financial Statements Consolidated Statements of Changes in Equity for the years ended December 31, 2022 and 2021 Notes Share Capital Share Premium Other equity Treasury Shares Reserve Foreign Currency Translation Reserve Other Reserves Accumulated Deficit Total 32,848,635 286,888,354 (6,078,935) (657,230) 15,314,867 (313,705,888) 14,609,803 Balance as of January 1, 2021........................... Net loss for the year…... Other comprehensive income for the year….… Total comprehensive loss for the year…….... Issue of shares-third parties…………………... Issue of treasury shares…………………... Cost of share capital issuance………………... Sales under shelf registration……….…….. 12 Related costs of sales shelf registration……… Sale of pre-funded warrants………………… 12 12 13 12 Cost of pre-funded warrants sold……….….. Value of warrants and pre-funded warrants…... Value of share-based services.....……………... Other movements in treasury shares: Settlement of supplier invoices..……………...... Net purchases under liquidity agreement……. Other net sales of treasury shares………… Balance as of January 1, 2022….……………… Net loss for the year…... Other comprehensive income for the year….… Total comprehensive loss for the year........... Reduction of the nominal value………….. Issue of treasury shares…………………. Exercise ESOP & ESC (treasury shares IFRS 2) Cost of shares issuance………………... Sales under shelf registration……………... 12 12 12 13 12 Related costs of sales shelf registration……… Sale of pre-funded warrants…………….….. Cost of pre-funded warrants sold………..…. Exercise of pre-funded warrants…………….….. Value of warrants and pre-funded warrants…... Value of share-based services.............……….. Movement in treasury shares: Net purchases under liquidity agreement……. Sales agency agreement……………… Costs under sale agency agreement…….. Balance as of December 31, 2022…... - - - - - - 12 12 6,900,000 3,199,323 9,524,317 - - - - - - - - - - - (1,865,475) 3,882 (581,800) - - (3,720,491) - 48,066 (31,502) 41,004 49,272,952 283,981,361 - - - (64,620,223) 12 16,326,365 12/13 174,389 - - - - - - (288,131) (3,275,107) (114,754) - - (8,792,756) (999,789) - (105,433) (890,294) (3,487) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 64,620,223 - - - - - - - - - - - - - - - - - (9,524,317) - 3,759,402 - - - - - 116,914 (16,283) 39,940 - (295) (295) - (15,351,914) (15,351,914) 260,548 - 260,253 260,548 (15,351,914) (15,091,661) - - - - - - - - - - - - - - - - - 5,470,141 (848,998) 3,720,491 1,178,344 - - - - - - - - - - - - - - - 10,099,323 - (1,865,475) 3,763,284 (581,800) 5,470,141 (848,998) - 1,178,344 164,980 (47,785) 80,944 (11,703,279) (657,525) 25,095,393 (329,057,802) 16,931,100 - - - - (16,326,365) (174,389) - 4,500,000 - - - 15,978,570 - - 91,452 1,355,248 - - - (20,804,213) (20,804,213) (345) 1,270,132 - 1,269,787 (345) 1,270,132 (20,804,213) (19,534,426) - - - - - - - - - - - - - - - - - - - - 2,841,270 (301,841) (7,160,573) 999,789 3,682,073 - - - - - - - - - - - - - - - - - - - - (288,131) 1,224,893 (114,754) 2,841,270 (301,841) 25,241 - 3,682,073 (13,981) 464,954 (3,487) 1,153,483 269,511,610 64,620,223 (6,278,763) (657,870) 26,426,243 (349,862,015) 4,912,911 The accompanying notes form an integral part of these consolidated financial statements. Page 30 of 70 Addex Therapeutics Annual Report 2022 │Consolidated Financial Statements Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 Notes December 31, December 31, 2022 2021 Amounts in Swiss francs Net loss for the year...……………………………………………………….... Adjustments for: Depreciation…………………............................................................. Disposal of right-of-use assets…………………………………………. Value of share-based services..………………………………............. Post-employment benefits……………............................................... Finance cost/(income) net ....,……….…………………………………. Decrease in other financial assets……………………………..……………. Increase in trade and other receivables……………………………..……… Increase in contract asset...………………………………………………….. Decrease/(increase) in prepayments…….…………………..……………... (Decrease)/increase in payables and accruals…………………………..... Decrease in contract liability…………………...…………………………….. Decrease in deferred income…………………………………..................... Services paid in shares……………………………………………………….. Net cash used in operating activities….……………………………..….. Cash flows from investing activities Purchase of property, plant and equipment….….……………………........ Proceeds from decrease in non-current financial assets…………..……... Net cash from/(used in) investing activities…………………………….. Cash flows from financing activities Proceeds from capital increase…………………………………………...…. Costs / deferred costs paid on issue of shares……………………………... Proceeds from sale of treasury shares-shelf registration…………………. Costs paid on sale of treasury shares-shelf registration ……….……….… Proceeds from sale of pre-funded warrants….……....………..…………… Costs paid on sale of pre-funded warrants…………………………………. Proceeds from the exercise of pre-funded warrants……………………….. Sale of treasury shares under liquidity and sale agency agreement……... Costs paid on sale of treasury shares under sale agency agreement……. Cost paid on issue of treasury shares……………………………………….. Principal element of lease payment..………..……………………………… Interest received……………….……………………………………………... Interest paid………………..………………………………………………...... Net cash from financing activities…………........................................... 8/9 13 19 7 7 7 7 12 9 10 12 12 12 12 12 12 12 20 20 (20,804,213) (15,351,914) 323,144 - 3,682,073 (11,393) 215,527 13,980 (252,090) (21,805) 844,980 (427,388) - - - (16,437,185) (581) 3,553 2,972 - - 1,224,893 (304,009) 2,841,270 (576,117) 25,241 450,973 (3,487) (248,354) (288,076) 29,251 (48,897) 3,102,688 347,613 (127) 1,178,344 (150,464) (132,050) 47,785 (96,412) (159,636) (616,992) 883,837 (733,668) (86,481) 164,980 (14,705,185) (31,549) 1,236 (30,313) 10,161,746 (1,698,782) 3,763,284 (389,857) 5,470,141 (569,228) - 33,159 (332) - (309,617) 5,322 (63,012) 16,402,824 Increase/(decrease) in cash and cash equivalents…………………….. (13,331,525) 1,667,326 Cash and cash equivalents at beginning of the year...………………….... Exchange difference on cash and cash equivalents…………………......... Cash and cash equivalents at end of the year………............................ 6 6 20,484,836 (196,225) 6,957,086 18,695,040 122,470 20,484,836 The accompanying notes form an integral part of these consolidated financial statements. Page 31 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes Notes to the Consolidated Financial Statements for the years ended December 31, 2022 and 2021 (Amounts in Swiss francs) 1. General information Addex Therapeutics Ltd (the “Company”), formerly Addex Pharmaceuticals Ltd, and its subsidiaries (together, the “Group”) are a clinical stage pharmaceutical group applying its leading allosteric modulator drug discovery platform to discovery and development of small molecule pharmaceutical products, with an initial focus on central nervous system disorders. The Company is a Swiss stockholding corporation domiciled c/o Addex Pharma SA, Chemin des Aulx 12, CH1228 Plan-les-Ouates, Geneva, Switzerland and the parent company of Addex Pharma SA, Addex Pharmaceuticals France SAS and Addex Pharmaceuticals Inc. registered in Delaware, United States. Its registered shares are traded at the SIX, Swiss Exchange, under the ticker symbol ADXN. On January 29, 2020, the Group listed on the Nasdaq Stock Market, American Depositary Shares (ADSs) under the symbol “ADXN”, without a new issuance of securities. ADSs represents shares that continue to be admitted to trading on SIX Swiss Exchange. These consolidated financial statements have been approved for issuance by the Board of Directors on March 29, 2023. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The consolidated financial statements of Addex Therapeutics Ltd have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (“IASB”), and under the historical cost convention. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4 “Critical accounting estimates and judgements”. Due to rounding, numbers presented throughout these consolidated financial statements, may not add up precisely to the totals provided. All ratios and variances are calculated using the underlying amount rather than the presented rounded amount. Where necessary, comparative figures have been revised to conform with the current year 2022 presentation. 2.2 Standards and interpretations published by the IASB New and amended standards adopted by the Group A number of new or amended standards and interpretations became applicable for financial periods beginning on or after January 1, 2022. The Group noted that the latter did not have a material impact on the Group’s financial position or disclosures made in the condensed consolidated financial statements. New standards and interpretations not yet adopted by the Group The Group is currently assessing the potential impacts of the various new and revised standards and interpretations that will be mandatory from January 1, 2023 which the Group has not yet applied. Based on an analysis to date, the Group does not anticipate that these will have a material impact on the Group’s overall results and financial position. The Group is also assessing other new and revised standards which are not mandatory until after 2023. 2.3 Consolidation Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The Company currently consolidates the financial operations of its three fully-owned subsidiaries, Addex Pharma SA, Addex Pharmaceuticals Inc., and Addex Pharmaceuticals France SAS. Page 32 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes Inter-company transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The reporting date of all Group companies is December 31. 2.4 Segment reporting The Group operates in one segment, which is the discovery, development and commercialization of small-molecule pharmaceutical products. A single management team that reports to the Chief Executive Officer comprehensively manages the entire business. The chief operating decision-maker is the Chief Executive Officer who reviews the statement of operations of the Group on a consolidated basis, makes decisions and manages the operations of the Group as a single operating segment. The Group’s activities are not affected by any significant seasonal effect. Revenue is attributable to the Company’s country of domicile, Switzerland. 2.5 Foreign currency transactions Functional and presentation currency Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial statements are presented in Swiss francs, which is the Group’s presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of comprehensive loss. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the statement of comprehensive loss within ‘finance result’. Group companies The results and financial position of the Group's subsidiary that has a functional currency different from the presentation currency are translated into the presentation currency as follows: • • • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; income and expenses for each statement of comprehensive loss are translated at the average exchange rate; and all resulting exchange differences are recognized in other comprehensive loss. 2.6 Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation, and impairment (if any). Historical cost includes expenditure that is directly attributable to the acquisition of the item. Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive loss during the financial period in which they are incurred. Depreciation is calculated using the straight- line method to allocate their cost to their residual values over their estimated useful lives as follows: Computer equipment Laboratory equipment Furniture and fixtures Chemical library 3 years 4 years 5 years 5 years The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (see note 2.7). Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the statement of comprehensive loss. 2.7 Impairment of non-financial assets Assets that are subject to depreciation or amortization are reviewed for impairment annually, and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Prior impairment of non-financial assets other than goodwill is reviewed for possible reversal at each reporting date. Page 33 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes 2.8 Financial assets The Group has one category of financial assets, namely “trade and other receivables”. Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These assets are held for collection of contractual cash flows which represent solely the payment of principal and interest. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Trade and other receivables are included in other current assets in the balance sheet (see note 7). Trade and other receivables are initially measured at fair value and subsequently measured at amortized cost. The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortized cost of a financial asset before adjusting for any loss allowance. Trade and other receivables are derecognized when settled. The Group classifies a contract asset as a receivable when the Group’s right to consideration is unconditional. If the Group transfers control of goods or services to a customer before the customer pays consideration, the Group records either a contract asset or a receivable depending on the nature of the Group’s right to consideration for its performance. Contract assets and contract liabilities arising from the same contract are netted and presented as either a single net contract asset or net contract liability. Impairment of financial assets The Group recognizes a loss allowance for expected credit losses on trade and other receivables, contract assets and security rental deposits that are measured at amortized cost. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The Group always recognizes lifetime expected credit losses (“ECL”) for trade and other receivables and contract assets where applicable. The ECL on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. Lifetime ECL represents the ECL that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date. 2.9 Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. They are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Any bank overdrafts are not netted against cash and cash equivalents but are shown as part of current liabilities on the consolidated balance sheet. 2.10 Share capital Shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown as a deduction, net of tax, from the proceeds. Where any Group company purchases the Company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental cost (net of income taxes) is recorded as a deduction from equity attributable to the Company's equity holders as a treasury share reserve until the shares are cancelled, reissued or disposed of. When such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effect, the nominal amount is reversed from the treasury share reserve, with any remaining difference to the total transaction value being recognized in share premium. The Company has entered into a liquidity contract where an independent broker buys and sells the Company’s shares held in the broker’s custody. Such shares are presented in the treasury share reserve with all other treasury shares directly held by Addex Pharma SA. The Group also uses treasury shares to partially settle services rendered by third and related parties. When shares are issued for this purpose, the nominal share value is recognized as a treasury share reserve and the value above par is presented as a share premium. 2.11 Equity instruments Equity instruments issued by the Group are recorded at the fair value of the proceeds received, net of direct issuance costs. Page 34 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes 2.12 Trade payables Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. All payables have a contract maturity within 1 year. 2.13 Grants Grants are not recognized until there is reasonable assurance that the Group will comply with the terms and conditions of the grant and that the grants will be received. Grants are recognized as other income in the statement of comprehensive loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grant is intended to compensate. Specifically, grants whose primary conditions are that the Group should undertake specific research activities within a defined period of time, are recognized as deferred income in the consolidated statement of financial position and transferred to the statement of comprehensive loss on a systematic and rationale basis over the defined timeframe. 2.14 Deferred income tax Deferred income tax is recorded in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized, or the deferred income tax liability is settled. Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is recorded on temporary differences arising on investments in subsidiaries, except where the Group deems it probable that the temporary difference will not reverse in the foreseeable future. Potential deferred income tax assets from tax loss carry forwards exceed deferred tax liabilities. Deferred income tax assets from tax loss carry forwards are initially recognized to the extent that the realization of the related tax benefit through future taxable profits is probable. 2.15 Pension obligations The Group operates one pension scheme. The scheme is generally funded through payments to insurance companies or trustee- administered funds, determined by periodic actuarial calculations. The Group has defined benefit plans. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. Actuarial gains and losses arising from experience adjustments, changes in actuarial assumptions and changes in the asset ceiling effect are recognized immediately in other comprehensive loss and past-service costs are recognized immediately in statement of comprehensive loss. Under IAS 19, the shortfall or the surplus of the fair value of the plan assets compared with the defined benefit obligation is recorded as a liability or an asset in the consolidated balance sheet. That recognition is subject to asset ceiling rules and minimum funding requirements set out in IFRIC 14. The defined benefit obligation is calculated at least annually by an independent actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. 2.16 Share-based compensation The Group operates an equity sharing certificates’ equity incentive plan, a share option plan, and a share purchase plan. The Group also from time-to-time grants warrants to brokers and investors. The fair value of the services received in exchange for the grant or transfer of equity sharing certificates, options, shares or warrants is recognized in the consolidated financial statements over the period for which the services are received. The total amount to be recognized over the vesting period is determined by reference to the fair value of the equity incentive unit granted or transferred. The fair value of instruments granted includes any market performance conditions and excludes the impact of any service and non-market performance vesting conditions. Service and non-market performance conditions are included in assumptions about the number of equity incentive units that are expected to vest. At each balance sheet date, the Group revises its estimates for the number of equity incentive units that are expected to vest. It recognizes the impact of the revision to original estimates, if any, in the statement of comprehensive loss, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the equity incentive units are exercised. Page 35 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes 2.17 Revenue recognition The Group recognizes revenue from the license of intellectual property and providing research and development services: License of intellectual property If the license to the Group’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Group recognizes revenues when the license conveys a right of use, or there is a right of access to the underlying intellectual property. For licenses that are sold in conjunction with a related service, the Group uses judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the performance obligation is settled over time, the Group determines the appropriate method of measuring progress for purposes of recognizing license revenue. The Group evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Research and development services The Group has an arrangement with its partner that includes deploying its employees for research and development activities. The Group assesses if these research and development activities are considered distinct in the context of the respective contract and, if so, they are accounted for as a separate performance obligation. This revenue is calculated based on the costs incurred (input method) in accordance with the respective contract and recorded within “Revenue from contract with customer” over time as the activities are performed. Contract balances The Group receives payments and determines credit terms from its customers for its various performance obligations based on billing schedules established in each contract. The actual timing of the income recognition, billings and cash collections may result in other current receivables, accrued revenue (contract assets), and deferred revenue (contract liabilities) being recorded on the balance sheet. Amounts are recorded as other current receivables when the Group’s right to consideration is unconditional. The Group does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. Under IFRS 15, the Group recognizes as revenue its non-refundable license fees, milestone, research activities and royalties when its customer obtains control of promised services, in an amount that reflects the consideration which the Group expects to receive in exchange for those rendered services. To assess revenue recognition for arrangements that the Group determines are within the scope of IFRS 15, the Group performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Group satisfies a performance obligation. The Group only applies the five-step model to contracts when it is probable that the Group will collect the consideration it is entitled to in exchange for services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of IFRS 15, the Group assesses the services promised within each contract and determine those that are performance obligations and assess whether each promised service is distinct. The Group uses the most likely method to estimate any variable consideration and include such consideration in the amount of the transaction price based on an estimated stand-alone selling price. Revenue is recognized for the respective performance obligation when (or as) the performance obligation is satisfied. 2.18 Finance income and expense Interest received or paid on cash and cash equivalents are classified in the statement of cash flows under financing activities. 2.19 Leases The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognizes a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (less than USD 5 thousand). For these leases, the Group recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. The lease liability is initially measured at the present value of the lease payments as from the commencement date of the lease until the expected termination date. In determining the lease term, management consider all facts and circumstances that create an economic incentive to exercise an extension option, or not to exercise a termination option. Extension option are only considered if the lease is reasonably certain to be extended. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances, that is within the control of the lessees, occurs. The lease payments are discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. The lease liability is presented as a separate line in the consolidated statement of financial position. The interest expense is presented in the line finance expenses in the consolidated statement of comprehensive loss. The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. They are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group Page 36 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The right-of-use assets are presented as a separate line in the consolidated statement of financial position. When the Group renegotiates the contractual terms of a lease with the lessor, the accounting depends on the nature of the modification: • if the renegotiation results in one or more additional assets being leased for an amount commensurate with the standalone price for the additional rights-of-use obtained, the modification is accounted for as a separate lease; in all other cases where the renegotiated increases the scope of the lease (whether that is an extension to the lease term, or one or more additional assets being leased), the lease liability is remeasured using the discount rate applicable on the modification date, with the right-of-use asset being adjusted by the same amount; if the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability and right-of-use asset are reduced by the same proportion to reflect the partial or full termination of the lease with any difference recognized in the statement of comprehensive loss. The lease liability is then further adjusted to ensure the carrying amount reflects the amount of the renegotiated payments over the renegotiated term, with the modified lease payments discounted at the rate applicable on the modification date. The right-of-use asset is adjusted by the same amount. • • All lease payments on leases are presented as part of the cash flow from financing activities, except for the short-term and low value leases cash flows, which are booked under operating activities. 2.20 Research and development Research and development costs are expensed as incurred. Costs incurred on development projects are recognized as intangible assets when the following criteria are fulfilled: it is technically feasible to complete the intangible asset so that it will be available for use or sale; • • management intends to complete the intangible asset and use or sell it; • • • there is an ability to use or sell the intangible asset; it can be demonstrated how the intangible asset will generate probable future economic benefits; adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and the expenditure attributable to the intangible asset during its development can be reliably measured. • In the opinion of management, due to uncertainties inherent in the development of the Group's products, the criteria for development costs to be recognized as an asset, as prescribed by IAS 38, “Intangible Assets”, are not met. 3. Financial risk management 3.1 Financial risk factors The Group's activities expose it to a variety of financial risks: market risk, credit risk, liquidity risk and capital risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group's financial performance. Risk management is carried out by the Group's finance department (Group Finance) under the policies approved by the Board. Group Finance identifies, evaluates and in some instances economically hedges financial risks in close co- operation with the Group's operating units. The Board provides written guidance for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest-rate risk, use of derivative financial instruments and non- derivative financial instruments, credit risk and investing excess liquidity. Market risk and foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various exposures with respect to the Euro, US dollar and UK pound. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. To manage foreign exchange risk Group Finance maintains foreign currency cash balances to cover anticipated future requirements. The Group's risk management policy is to economically hedge 50% to 100% of anticipated transactions in each major currency for the subsequent 12 months. The Group has a subsidiary in France and in United States of America, whose net assets are exposed to foreign currency translation risk. In 2022, a 10% increase or decrease in the EUR/CHF exchange rate would have resulted in a CHF 7,945 decrease or increase in net loss and shareholders’ equity as at December 31, 2022 (2021: a CHF 7,948 increase or decrease), a 10% increase or decrease in the GBP/CHF exchange rate would have resulted in a CHF 1,470 increase or decrease in net loss and shareholders’ equity as at December 31, 2022 (2021: a CHF 17,893 decrease or increase) and a 10% increase or decrease in the USD/CHF exchange rate would have resulted in a CHF 175,837 (2021: CHF 1,027,027) increase or decrease in net loss and shareholders’ equity as at December 31, 2022. The Group is not exposed to equity price risk or commodity price risk as it does not invest in these classes of investment. Interest rate risk The Group’s exposure to interest rate fluctuations is limited because the Group has no interest-bearing indebtedness. Page 37 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes Credit risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and deposits with banks, as well as credit exposures to collaboration partners. The Group has a limited number of collaboration partners and consequently has a significant concentration of credit risk. The Group has policies in place to ensure that credit exposure is kept to a minimum and significant concentrations of credit risk are only granted for short periods of time to high credit quality partners. The Group's policy is to invest funds in low-risk investments including interest bearing deposits. For banks and financial institutions, only independently rated parties with a minimum rating of “A” are accepted (see note 6). Liquidity risk The Group's principal source of liquidity is its cash reserves which are obtained through the sale of new shares and to a lesser extent the sale of its research and development stage products. Group Finance monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs. The ability of the Group to maintain adequate cash reserves to sustain its activities in the medium term is highly dependent on the Group's ability to raise further funds from the licensing of its development stage products and the sale of new shares. Consequently, the Group is exposed to significant liquidity risk (see note 4). 3.2 Capital risk management The Group is not regulated and not subject to specific capital requirements. The amount of equity depends on the Group’s funding needs and statutory capital requirements. The Group monitors capital periodically on an interim and annual basis. From time to time, the Group may take appropriate measures or propose capital increases to its shareholders to ensure the necessary capital remains intact. The Group did not have any short-term or long-term debt outstanding as of December 31, 2022 and 2021. The ability of the Group to maintain adequate cash reserves to continue its activities in the medium term is subject to risk as it is highly dependent on the Group’s ability to raise further funds from the sale of new shares. The Group’s objectives when managing capital based on its net debt are to safeguard the Group’s ability to continue as a going concern in order to ensure the financing of successful research and development activities so that future profits can be generated and to maintain sufficient financial resources to mitigate against risks and unforeseen events. A reconciliation of the net debt position is detailed as follows: Net debt as at January 31, 2021……………………… Cash flows…………..…………………………………… Acquisition – Leases……..……………………………... Effect of modification to lease terms…………………... Disposals……………………………………………….... Foreign exchange differences…..……………………... Net debt as at December 31, 2021…………………... Cash flows…………..…………………………………… Effect of modification to lease terms………………….. Foreign exchange differences…..……………………... Net debt as at December 31, 2022…………………… Leases (567,396) 309,617 (2,000) (226,578) 4,343 - (482,014) 288,076 (179,197) - (373,135) Cash and cash equivalents 18,695,040 1,667,326 - - - 122,470 20,484,836 (13,331,525) - (196,225) 6,957,086 Other financial assets 64,930 (47,785) - - - - 17,145 (13,980) - - 3,165 Total 18,192,574 1,929,158 (2,000) (226,578) 4,343 122,470 20,019,967 (13,057,429) (179,197) (196,225) 6,587,116 In addition, the maturity profile of the Group’s financial liabilities is presented in the table below: At December, 31 2022 Lease Liabilities…………………………………………. At December, 31 2021 Lease Liabilities…………………………………………. Less than 1 Year 305,294 Less than 1 Year 315,412 1 to 5 Years 90,684 1 to 5 Years 202,526 More than 5 Years - Total cash out flows 395,978 Carrying amount liabilities 373,135 More than 5 Years - Total cash out flows 517,938 Carrying amount liabilities 482,014 Lease liabilities relate to the rent of laboratories, equipment, offices and related spaces used by the Group. Page 38 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes 3.3 Fair value estimation The nominal value less estimated credit adjustments of trade and other receivables, contract assets and payables are assumed to approximate to their fair values due to the short-term maturity of these instruments and are held at their amortized cost in accordance with IFRS 9. The fair value of other financial assets and liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. 4. Critical accounting estimates and judgments The Group makes estimates and assumptions concerning the future. These estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities or may have had a significant impact on the reported results are disclosed below: Going concern The Group’s accounts are prepared on a going concern basis. To date, the Group has financed its cash requirements primarily from share issuances and licensing certain of its research and development stage products. The Group is a development-stage enterprise and is exposed to all the risks inherent in establishing a business. The Group expects that its existing cash and cash equivalents, at the issuance date of these audited consolidated financial statements, will be sufficient to fund its operations and meet all of its obligations as they fall due, through the third quarter of 2023. These factors individually and collectively indicate that a material uncertainty exists that raise substantial doubt about the Group's ability to continue as a going concern for one year from the date of issuance of these audited consolidated financial statements. The future viability of the Group is dependent on its ability to raise additional capital through public or private financings or collaboration agreements to finance its future operations, which may be delayed due to reasons outside of the Group’s control including the COVID-19 pandemic and the Russia’s invasion of Ukraine. The sale of additional equity may dilute existing shareholders. The inability to obtain funding, as and when needed, would have a negative impact on the Group’s financial condition and ability to pursue its business strategies. If the Group is unable to obtain the required funding to run its operations and to develop and commercialize its product candidates, the Group could be forced to delay, reduce or stop some or all of its research and development programs to ensure it remains solvent. Management continues to explore options to obtain additional funding, including through collaborations with third parties related to the future potential development and/or commercialization of its product candidates. However, there is no assurance that the Group will be successful in raising funds, closing collaboration agreements, obtaining sufficient funding on terms acceptable to the Group, or if at all, which could have a material adverse effect on the Group’s business, results of operations and financial condition. COVID-19 In early 2020 a coronavirus disease (COVID-19) pandemic developed globally resulting in a significant number of infections and negative effects on economic activity. The Group is actively monitoring the situation and is taking any necessary measures to respond to the situation in cooperation with the various stakeholders. On June 17, 2022 the Group terminated its dipraglurant US registration program including pivotal Phase 2B/3 and open label clinical trials of dipraglurant in levodopa-induced dyskinesia associated with Parkinson’s disease (PD-LID) due to a slow recruitment of patients, attributed to the consequences of COVID-19 related patient concerns about participation in clinical studies, as well as staffing shortages and turnover within study sites. Depending on the duration of the COVID-19 crisis and continued negative impact on global economic activity, the Group may have to take additional measures that will have a negative impact on the Group’s business continuity and may experience certain liquidity restraints as well as incur impairments on its assets. The exact impact on the Group’s activities in 2023 and thereafter cannot be reasonably predicted. Russia’s invasion of Ukraine On February 24, 2022, Russia invaded Ukraine. The resulting conflict and retaliatory measures by the global community have created global security concerns, including the possibility of expanded regional or global conflict, which have had, and are likely to continue to have, short-term and more likely longer-term adverse impacts on Ukraine and Europe and around the globe. Potential ramifications include disruption of the supply chain including research and development activities being conducted by the Group and its strategic partners. The Group and partners rely on global networks of contract research organizations to engage clinical study sites and enroll patients, certain of which are in Russia and Ukraine. Delays in research and development activities of the Group and its partners could increase associated costs and, depending upon the duration of any delays, require the Group and its partners to find alternative suppliers at additional expense. In addition, the conflict in Eastern Europe has had significant ramifications on global financial markets, which may adversely impact the ability of the Group to raise capital on favorable terms or at all. Revenue recognition Revenue is primarily from fees related to licenses, milestones and research services. Given the complexity of the relevant agreements, judgements are required to identify distinct performance obligations; allocate the transaction price to these performance obligations and determine when the performance obligations are met. In particular, the Group’s judgement over the estimated stand-alone selling price which is used to allocate the transaction price to the performance obligations is disclosed in note 14. Grants Grants are recorded at their fair value when there is reasonable assurance that they will be received and recognized as income when the Group has satisfied the underlying grant conditions. In certain circumstances, grant income may be recognized before explicit grantor acknowledgement that the conditions have been met. Page 39 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes Accrued research and development costs The Group records accrued expenses for estimated costs of research and development activities conducted by third party service providers. The Group records accrued expenses for estimated costs of research and development activities based upon the estimated amount of services provided, but not yet invoiced, and these costs are included in accrued expenses on the balance sheets and within research and development expenses in the statements of comprehensive loss. These costs are a significant component of research and development expenses. Accrued expenses for these costs are recorded based on the estimated amount of work completed in accordance with agreements established with these third parties. To date, the Group has not experienced significant changes in the estimates of accrued research and development expenses after a reporting period. However, due to the nature of estimates, the Group may be required to make changes to the estimates in the future as it becomes aware of additional information about the status or conduct of its research activities. Research and development costs The Group recognizes expenditure incurred in carrying out its research and development activities, including development supplies, until it becomes probable that future economic benefits will flow to the Group, which results in recognizing such costs as intangible assets, involving a certain degree of judgement. Currently, such development supplies are associated with pre-clinical and clinical trials of specific products that do not have any demonstrated technical feasibility. Deferred taxes Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. The probability that taxable profits will be available is assessed by management based on business projections for each relevant entity. The carrying amount of deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realized based on tax laws and rates that have been enacted or substantively enacted at the reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the way the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is recognized in statement of comprehensive loss, except when related to items that are recognized in other comprehensive loss or directly in equity, in which case, the current and deferred tax are recognized in other comprehensive loss or directly in equity. Share-based compensation The Group recognizes an expense for share-based compensation based on the valuation of equity incentive units using the Black- Scholes valuation model. A number of assumptions related to the volatility of the underlying shares and to the risk-free rate are made in this model. Should the assumptions and estimates underlying the fair value of these instruments vary significantly from management's estimates, then the share-based compensation expense would be materially different from the amounts recognized. Had these assumptions been modified within their feasible ranges, i.e. a 10% increase or decrease in the volatility assumption and a risk-free rate of 0.5 or zero, and the Group calculated the share-based compensation based on the higher and lower values of these ranges, share-based compensation expense in 2022 would have been CHF 3.0 million or CHF 4.3 million respectively (2021: CHF 1.0 million or CHF 1.3 million, respectively). This is compared to the amount recognized as an expense in 2022 of CHF 3.7 million (2021: CHF 1.2 million). Additional information is disclosed in note 13. Pension obligations The present value of the pension obligations is calculated by an independent actuary and depends on a number of assumptions that are determined on an actuarial basis such as discount rates, future salary and pension increases, and mortality rates. Any changes in these assumptions will impact the carrying amount of pension obligations. The Group determines the appropriate discount rate at the end of each period. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in note 19. 5. Segment information Management has identified one single operating segment, related to the discovery, development and commercialization of small- molecule pharmaceutical products. Page 40 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes Information about products, services and major customers External income of the Group for the years ended December 31, 2022 and 2021 is derived from the business of discovery, development and commercialization of pharmaceutical products. Income was earned from rendering of research services to a pharmaceutical company and grants earned. Information about geographical areas External income is exclusively recorded in the Swiss operating company. Analysis of revenue from contract with customer and other income by nature is detailed as follows: Collaborative research funding……………………....... Grants earned…………………………………............... Other service income………………………………….... Total …..…………………………………………………. 2022 1,422,438 - 22,521 1,444,959 2021 2,916,308 218,330 18,667 3,153,305 Analysis of revenue from contract with customer and other income by major counterparties is detailed as follows: Indivior PLC ……………………………………………... Eurostars/Innosuisse……………...……………………. Other counterparties………………………………….… Total …………………..……………………………..….. 2022 1,422,438 - 22,521 1,444,959 2021 2,916,308 218,330 18,667 3,153,305 For more detail, refer to note 14, “Revenue from contract with customer” and note 15 “Other Income”. The geographical allocation of long-lived assets is detailed as follows: Switzerland………………...………………………......... United States of America……………………................ France…………………………………………………..... December 31, 2022 452,732 - 357 December 31, 2021 596,098 3,536 374 Total…….…………………..………………................... 453,089 600,008 The geographical analysis of operating costs is as follows: Switzerland…………….……………………….............. United States of America……………………................ France…………………………………...…………......... Total operating costs (note 16) …………………....... 2022 21,933,056 27,513 4,597 21,965,166 2021 18,619,123 33,016 7,083 18,659,222 There was capital expenditure of CHF 581 in 2022 and CHF 31,549 in 2021. 6. Cash and cash equivalents Cash at bank and on hand…………………….............. December 31, 2022 6,957,086 December 31, 2021 20,484,836 Total cash and cash equivalents………………........ 6,957,086 20,484,836 Split by currency: CHF……………...………………………………..……... USD………….…………………………………………… EUR………...………………………………..…….......... GBP………………………………………………………. December 31, 2022 52.98% 42.10% 2.69% 2.23% December 31, 2021 44.33% 54.47% 0.58% 0.62% Total……………………………………………………… 100.00% 100.00% Page 41 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes The Group pays interests on CHF cash and cash equivalents and earns interests on USD cash and cash equivalents. The Group invests its cash balances into a variety of current and deposit accounts mainly with Swiss banks. All cash and cash equivalents were held either at banks or on hand as of December 31, 2022 and December 31, 2021. Credit quality of cash and cash equivalents The table below shows the cash and cash equivalents by credit rating of the major counterparties: External credit rating of counterparty P-1 / A-1………...……..……........................................ P-2 / A-2………………………………………………….. Other……………………………………………………… Cash on hand………………………..…………………... December 31, 2022 3,708,603 3,031,028 217,335 120 December 31, 2021 11,943,391 - 8,541,279 166 Total cash and cash equivalents………................... 6,957,086 20,484,836 External credit ratings of counterparties were obtained from Moody’s (P-) or Standard & Poor’s (A-). 7. Other current assets Other financial assets…………………………………… Trade and other receivables……………….…………... Contract asset (Indivior PLC).……………..…………... Prepayments………..………….................................... December 31, 2022 3,165 416,875 181,441 270,394 December 31, 2021 17,145 164,785 159,636 1,115,374 Total other current assets……………………..…...... 871,875 1,456,940 Other current assets decreased by CHF 0.6 million as of December 31, 2022 compared to December 31, 2021 including a decrease of CHF 0.8 million in prepayments primarily due to reduced prepaid amounts related to dipraglurant clinical development activities partially offset by an increase of CHF 0.3 million in the combined amount of contract assets, trade and other receivables primarily relating to the research agreement with Indivior. The Group applies the IFRS 9 simplified approach to measuring expected credit losses (“ECL”), which uses a lifetime expected loss allowance for all contract assets, trade receivables and other receivables. As of December 31, 2022, the combined amount of the contract asset, trade receivables and other receivables amounted to CHF 0.6 million (CHF 0.3 million as of December 31, 2021) including CHF 0.4 million for the research agreement with Indivior (CHF 0.2 million as of December 31, 2021), CHF 0.1 million for the grant from Eurostars/Innosuisse (CHF 0.1 million as of December 31, 2021). The Group has considered that the contract asset, trade receivables and other receivables have a low risk of default based on historic loss rates and forward-looking information on macroeconomic factors affecting the ability of the third parties to settle invoices. As a result, expected loss allowance has been deemed as nil as of December 31, 2022 and December 31, 2021. 8. Right-of-use assets Year ended December 31, 2021 Opening net book amount……………………………... Additions…………………………………………………. Depreciation charge…………………………………….. Effect of lease modifications…………………………… Disposals….……………………………………………... Exchange differences…….…………….…................... Closing net book amount…………..……………....... Properties Equipment Total 543,890 2,000 (294,389) 208,902 (4,216) 698 456,885 21,454 - (26,026) 17,676 - - 13,104 565,344 2,000 (320,415) 226,578 (4,216) 698 469,989 Total 1,387,413 (917,424) 469,989 As of December 31, 2021 Cost…………………......……………............................ Accumulated depreciation………………..……………. Net book value……………...………………………….. Properties Equipment 1,298,569 (841,684) 456,885 88,844 (75,740) 13,104 Page 42 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes Year ended December 31, 2022 Opening net book amount……………………………… Depreciation charge…………………………………….. Effect of lease modifications…………………………… Closing net book amount…………..……………....... Properties Equipment Total 456,885 (277,069) 173,281 353,097 13,104 (14,504) 5,916 4,516 469,989 (291,573) 179,197 357,613 As of December 31, 2022 Cost…………………......……………............................ Accumulated depreciation………………..……………. Net book value……………...………………………….. Properties Equipment 1,471,850 (1,118,753) 353,097 13,542 (9,026) 4,516 Total 1,485,392 (1,127,779) 357,613 For the year ended December 31, 2022, the Group recorded a depreciation charge of CHF 0.2 million (2021: CHF 0.2 million) as part of research and development expenses and CHF 0.1 million (2021: CHF 0.1 million) as part of general and administration expenses. The total cash outflows for the principal element of lease payment amounted to CHF 0.3 million for the years ended December 31, 2022 and 2021. The maturity analysis of lease liabilities is presented under note 3.2. 9. Property, plant and equipment Year ended December 31, 2021 Opening net book amount…..………………………….. Additions………..………………………………………... Depreciation charge…...……………………………….. Closing net book amount…...………………………... As of December 31, 2021 Cost………………………………………………………. Accumulated depreciation……..………………………. Net book value………..………………………………... Year ended December 31, 2022 Opening net book amount……..……………………….. Additions……………..…………………………………... Depreciation charge…….…..………………………….. Closing net book amount…….................................. As of December 31, 2022 Cost………………..……………………………………... Accumulated depreciation………................................ Net book value………..………………………………... Equipment Furniture & fixtures Chemical library 67,760 31,549 (27,198) 72,111 Equipment 1,713,828 (1,641,717) 72,111 Equipment 72,111 581 (31,571) 41,121 Equipment 1,714,409 (1,673,288) 41,121 - - - - Furniture & fixtures 7,564 (7,564) - Furniture & fixtures - - - - Furniture & fixtures 7,564 (7,564) - - - - Chemical library 1,207,165 (1,207,165) - Chemical library - - - - Chemical library 1,207,165 (1,207,165) Total 67,760 31,549 (27,198) 72,111 Total 2,928,557 (2,856,446) 72,111 Total 72,111 581 (31,571) 41,121 Total 2,929,138 (2,888,017) - - 41,121 For the year ended December 31, 2022, the Group recorded a depreciation charge of CHF 26,615 (2021: CHF 19,934) as part of research and development expenses and CHF 4,956 (2021: CHF 7,264) as part of general and administration expenses. 10. Non-current financial assets Security rental deposits.………………………………... December 31, 2022 54,355 December 31, 2021 57,908 Total non-current financial assets………………….. 54,355 57,908 Security rental deposits relate to laboratory and office space. The applicable interest rate to such deposits is immaterial, and therefore, the value approximates amortized cost. Page 43 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes 11. Payables and accruals Trade payables………………………………………….. Social security and other taxes……………..………….. Accrued expenses………..…………………………….. December 31, 2022 1,276,546 120,875 1,598,583 December 31, 2021 1,787,287 203,288 1,856,570 Total payables and accruals…………………………. 2,996,004 3,847,145 All payables mature within 3 months. Accrued expenses and trade payables primarily relate to R&D services from contract research organizations, consultants and professional fees. The decrease of CHF 0.9 million in payables and accruals as of December 31, 2022, compared to December 31, 2021, includes CHF 0.4 million of capital increase costs of the offering executed on December 16, 2021 and CHF 0.3 million for dipraglurant clinical development activities. The carrying amounts of payables do not materially differ from their fair values, due to their short-term nature. 12. Share capital Balance as of January 1, 2021…….….…………….... Issue of shares- treasury shares………………………. Issue of shares - third parties…………………………... Sale of shares under shelf registration………………… Sale of shares under sale agency agreement…….….. Settlement of supplier invoices……………………….... Net purchase of treasury shares under liquidity agreement……………………………………………….. Balance as of December 31, 2021.….………..……... Issue of shares - treasury shares………………………. Issue of shares - exercise ESOP & ESC……………… Sale of shares under shelf registration………………… Exercise of pre-funded warrants………………………. Sale of shares under sale agency agreement…….….. Net purchase of shares under liquidity agreement…… Balance as of December 31, 2022….………………... Shares reclassed as treasury shares under IFRS 2…. Number of shares Common shares 32,848,635 9,524,317 6,900,000 - - - - 49,272,952 48,636,476 17,438,883 - - - - 115,348,311 - Treasury shares (5,729,861) (9,524,317) - 3,759,402 39,940 116,914 (36,881) (11,374,803) (48,636,476) - 4,500,000 15,978,570 1,355,248 (36,830) (38,214,291) (17,438,883) Total 27,118,774 - 6,900,000 3,759,402 39,940 116,914 (36,881) 37,898,149 - 17,438,883 4,500,000 15,978,570 1,355,248 (36,830) 77,134,020 (17,438,883) Balance as of December 31, 2022 IFRS 2…………... 115,348,311 (55,653,174) 59,695,137 As of December 31, 2022, 77,134,020 shares were outstanding excluding 38,214,291 treasury shares directly held by Addex Pharma SA and including the 17,438,883 shares issued on the exercise of equity incentive units on October 26, 2022 which are considered as treasury shares under IFRS 2 (See note 13). All shares have a nominal value of CHF 0.01 following the reduction of the nominal value effective on July 26, 2022. As of December 31, 2021, 37,898,149 shares were outstanding excluding 11,374,803 treasury shares directly held by Addex Pharma SA. All shares had a nominal value of CHF 1.00. The Group maintains a liquidity agreement with Kepler Cheuvreux. Under the agreement, the Group has provided Kepler with cash and shares to enable them to buy and sell the Company’s shares. As of December 31, 2022, 128,200 (December 31, 2021: 91,370) treasury shares are recorded under this agreement in the treasury share reserve and CHF 3,165 (December 31, 2021: CHF 17,145) is recorded in other financial assets. On December 15, 2022, the Group increased its capital from CHF 979,094 to CHF 1,153,483 through the issuance of 17,438,883 new registered shares at a nominal value of CHF 0.01 per share from its conditional capital following the exercise of 17,438,883 equity incentive units at a strike price of CHF 0.13 by Board Members, Executive Managers and employees on October 26, 2022. The payment of the strike price has been deferred under the Group’s staff retention deferred strike price payment plan (“DSPPP”) and consequently, under IFRS 2, the 17,438,883 shares issued from the exercise of equity incentive units are considered as treasury shares. The 17,438,883 shares are considered to be legally owned by the exercising equity incentive unit holders on October 26, 2022. On October 31, 2022, the Group increased its capital from CHF 652,730 to CHF 979,094 through the issuance of 32,636,476 new registered shares from its authorized capital to its fully owned subsidiary, Addex Pharma SA, at CHF 0.01 per share. These shares are held as treasury shares, hence the operation does not impact the outstanding share capital. Page 44 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes On July 22, 2022, the Group entered into a securities purchase agreement with Armistice Capital LLC and sold 4,500,000 treasury shares in the form of 750,000 ADSs at a price of USD 1.70 per ADS (CHF 0.27 per share). In addition, 10,500,000 pre-funded warrants, in the form of 1,750,000 ADSs, were sold at a price of USD 1.69 per ADS (CHF 0.27 per share) with a strike price of USD 0.01 per ADS. As of December 31, 2022 all pre-funded warrants have been exercised at a total exercise price of USD 17,500 (CHF 16,812). The total gross proceeds from the offering amounted to USD 4.2 million (CHF 4.1 million) and directly related share issuance costs of CHF 0.4 million were recorded as a deduction in equity. The Group additionally granted Armistice Capital LLC, 15,000,000 warrants, in the form of 2,500,000 ADSs, with a strike price of USD 1.90 per ADS (CHF 0.30 per share) and an exercise period of 5 years. The fair value of each of the warrants issued is CHF 0.07 per share or CHF 0.40 per ADS calculated using the Black-Scholes valuation model. The fair value calculation assumptions included volatility of 64.61% and an annual risk-free rate of +0.05%. The total fair value of the warrants issued is CHF 1.0 million and has been recorded in equity as a cost of the offering. On July 19, 2022, the nominal value of the issued, conditional and authorized share capital has been reduced from CHF 1.00 to CHF 0.01 effective on the SIX Swiss Exchange and Nasdaq stock market on July 26, 2022. As a consequence, the share capital was reduced to CHF 652,730. The decrease of CHF 64.6 million in share capital remains in equity and has been reclassed to other equity. The total number of issued, outstanding, conditional and authorized shares remained the same. On June 21, 2022, the Group entered into a new sale agency agreement with Kepler Cheuvreux whose substantive terms are aligned with the agreement entered into on August 24, 2020, that expired on December 31, 2021. In July 2022, 1,355,248 treasury shares were sold at an average price of CHF 0.34 per share with a gross proceed of CHF 464,954 (39,940 treasury shares for a gross proceed of CHF 80,944 during the year 2021). On February 2, 2022, the Company issued 16,000,000 new shares from the authorized capital to its 100% owned subsidiary, Addex Pharma SA, at CHF 1.00. These shares are held as treasury shares, hence the operation does not impact the outstanding share capital. Directly related share issuance costs of CHF 0.2 million were recorded as a deduction in equity. During the year 2022, the Group did not use its treasury shares to pay consultants, whilst during the year 2021, the Group used 116,914 treasury shares to purchase services from consultants including 60,638 treasury shares for Roger Mills, the Group’s Chief Medical Officer. The total value of consulting services settled in shares was CHF 164,980. On December 16, 2021, the Group entered into a securities purchase agreement with Armistice Capital LLC and sold 3,752,202 treasury shares in the form of 625,367 American depositary share (ADS) listed on the Nasdaq stock market at a price of USD 1.08 (CHF 1.00) per share, equivalent to USD 6.50 (CHF 6.00) per ADS. In addition, 5,478,570 pre-funded warrants in the form of 913,095 ADSs were sold at a price of USD 1.08 (CHF 0.99) per share, equivalent to USD 6.49 (CHF 5.99) per ADS with a strike price of USD 0.01 per ADS. The total gross proceeds of this offering amounted to USD 10 million (CHF 9.2 million) and directly related share issuance costs of CHF 1.4 million were recorded as a deduction in equity for the year ended December 31, 2021 of which CHF 0.5 million has been paid during the first quarter of 2022. In July 2022, Armistice Capital LLC exercised all the pre-funded warrants in the form of 913,095 ADSs for a total strike price of USD 9,131 (CHF 8,429). The Group additionally issued to Armistice Capital LLC, 9,230,772 warrants to purchase 1,538,462 ADSs with a strike price of USD 1.08 (CHF 1.00) per share, equivalent to USD 6.5 (CHF 6.00) per ADS. The fair value of each of the warrants issued is CHF 0.40 per share, CHF 2.4 per ADS, and has been calculated using the Black-Scholes valuation model and recorded in equity as a cost of the offering for the year ended December 31, 2021. Fair value calculation assumptions included volatility of 55.57% and an annual risk- free rate of -0.64%. The total fair value of the warrants issued of CHF 3.7 million has been recorded in equity as a cost of the offering. On April 23, 2021, the Company issued 9,524,317 new shares from the authorized capital to its 100% owned subsidiary, Addex Pharma SA, at CHF 1.00. These shares are held as treasury shares, hence the operation does not impact the outstanding share capital. On January 8, 2021, the Company issued 6,900,000 registered shares, with a nominal value of CHF 1.00 each, at an issue price of CHF 1.46. Out of the total new shares, 6,750,000 are in the form of ADS. The gross proceeds amounted to CHF 10.1 million (USD 11.5 million) and directly related share issuance costs of CHF 1.8 million were recorded as a deduction in equity. During the year ended December 31, 2021, the Group sold 7,000 shares under its ATM program initiated on June 29, 2021. 13. Share-based compensation The total share-based compensation expense recognized in the statement of comprehensive loss for equity incentive units granted to Board Members, Executive Managers, employees and consultants has been recorded under the following headings: Research and development………………...………….. General and administration…….…………………….... 2022 1,047,398 2,634,675 2021 467,812 710,532 Total share-based compensation..…………………. 3,682,073 1,178,344 Page 45 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes Analysis of share-based compensation by equity incentive plan is detailed as follows: Equity sharing certificate plan……………...………….. Share purchase plan……..…….……………………..... Share option plans………………………………………. 2022 44,244 - 3,637,829 2021 4,476 23,498 1,150,370 Total share-based compensation..…………………. 3,682,073 1,178,344 The share-based compensation expense increased by CHF 2.5 million in 2022 compared to 2021 primarily due to the increase in the fair value of equity incentive units (ESC and employee share options) following reductions in their strike price. The table below describes the changes in granting conditions of the equity sharing certificates and the employee share option plans in 2022: Equity Sharing Certificate as of December 31 2021……………………………………………….. Employee share options as of December 31 2021……………………………………………….. Employee share options granted in 2022 at a strike price above CHF 0.13…………………….. Employee share options granted in 2022 at a strike price of CHF 0.13………………………….. Total………………………………………………. Equity Sharing Certificate Equity Incentive Plan Number of Equity incentive units Number of Equity incentive units repriced to CHF 1.00 on January 4, 2022 Number of Equity incentive units repriced to CHF 0.19 on August 2, 2022 Number of Equity incentive units repriced to CHF 0.13 on October 5, 2022 Number of equity incentive units exercised under the DSPPP 198,750 108,000 198,750 198,750 198,750 8,615,885 8,186,045 8,383,306 8,320,836 8,154,651 4,011,325 5,425,753 - 3,852,657 3,852,657 3,750,258 - 8,294,045 - 12,434,713 - 12,372,243 5,335,224 17,438,883 On June 1, 2010, the Company established an equity incentive plan based on equity sharing certificates (“ESCs”) to provide incentives to Board Members, Executive Managers, employees and consultants of the Group. Each ESC provides the holder (i) a right to subscribe for 1,000 shares in the Company, and (ii) a right to liquidation proceeds equivalent to that of shareholders. All rights of the ESCs expire after their defined exercise period with the ownership of the ESCs reverting to the Group. ESCs granted are subject to certain vesting conditions based on the service period defined in each grant agreement. The holder of vested ESCs has the right to subscribe to shares at the subscription price if the underlying share price has reached the floor price. The floor and subscription price are defined by the Board of Directors in each grant agreement at the time of issuance. In the event of a change in control, all ESCs are automatically vested. The Group has no legal or constructive obligation to repurchase or settle ESCs in cash. Movements in the number of share subscription rights attached to the ESCs outstanding are as follows: At January 1……………………………………… Exercised under the DSPPP……………… At December 31…………………………………. Average subscription prices / floor prices (CHF) 1.54 0.13 - Average subscription prices / floor prices (CHF) 1.54 - 1.54 2022 198,750 (198,750) - 2021 198,750 - 198,750 At December 31, 2022, there are no subscription rights attached to the ESCs (2021: 198,750 were exercisable and outstanding). The outstanding subscription rights as at December 31, 2021 have the following expiry dates, subscription prices and floor prices: At December 31, 2021 Expiry date 2024……………………………..................................... 2027……………………………..................................... Total subscription rights……………………………... Subscription prices / floor prices (CHF) 1.00 / 2.30 90,750 - 90,750 2.00 / 2.30 - 108,000 108,000 Total 90,750 108,000 198,750 Page 46 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes Employee share option plans (ESOP) The Company established an employee share option plan to provide incentives to directors, executives, employees and consultants of the Group. During 2022, the Group granted the following options with vesting over 4 years and a 10-year exercise period at the grant date as described in the table below. Grant conditions relating to the strike price have been amended during the year ended December 31, 2022. April 12, 2022……… April 12, 2022……… April 12, 2022……... May 2, 2022……….. October 5, 2022…... October 6, 2022…… December 29, 2022. Total 2022….…….... Strike price at grant date Expiry date at grant date 1.00 April 11, 2032 1.00 Dec. 31, 2031 1.04 Dec. 31, 2031 May 1, 2032 1.00 Oct. 4, 2032 0.13 Oct. 5, 2032 0.13 June 30, 2032 0.20 Number of share options granted 3,840,657 6,000 49,713 6,000 5,423,076 2,677 108,955 9,437,078 Number of share options repriced to CHF 0.19 on August 2 2022 3,840,657 6,000 - 6,000 - - - 3,852,657 Number of share options repriced to CHF 0.13 on October 5 2022 3,840,657 6,000 - 6,000 - - - 3,852,657 Number of options exercised under the DSPPP 3,738,258 6,000 - 6,000 5,332,547 2,677 - 9,085,482 In 2022, the Group granted 9,437,078 share options of which 3,852,657 were repriced at a strike price of CHF 0.13 on October 5, 2022 and 9,085,482 have been exercised on October 26, 2022 under the DSPPP. During 2021, the Group granted the following options with vesting over 4 years and a 10-year exercise period as described in the table below. Grant conditions relating to the strike price and grant conditions have been amended during the year ended December 31, 2022. April 1, 2021………… May 17, 2021……….. July 1, 2021…………. October 1, 2021…….. Total 2021…………... Strike price at grant date Expiry date at grant date 1.99 Dec. 31, 2030 1.45 May 16, 2031 1.60 June 30, 2031 1.45 Sept. 30, 2031 Number of share options granted 27,492 1,791,000 44,408 6,000 1,868,900 Number of share options repriced to CHF 1.00 on Jan. 4 , 2022 - 1,786,000 30,000 6,000 1,822,000 Number of share options repriced to CHF 0.19 on Aug. 2 , 2022 - 1,756,000 30,000 6,000 1,792,000 Number of share options repriced to CHF 0.13 on Oct. 5, 2022 - 1,756,000 30,000 6,000 1,792,000 Number of options exercised under the DSPPP - 1,716,000 30,000 6,000 1,752,000 Movements in the number of options outstanding are as follows: At January 1………………………………………. Exercised under the DSPPP…………………… Granted…………………………………………… Forfeited…………………………………………... Expired……………………………………………. At December 31…………………………………. Average strike price (CHF) 2.01 0.13 0.49 1.00 - 0.55 2022 8,615,885 (17,240,133) 9,437,078 (35,830) - 777,000 Average strike price (CHF) 2.16 - 1.46 1.93 2 2.01 2021 6,768,460 - 1,868,900 (11,475) (10,000) 8,615,885 At December 31, 2022, of the outstanding 777,000 share options (2021: 8,615,885), 389,668 were exercisable (2021: 5,954,115). Page 47 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes The outstanding share options as at December 31, 2022 and 2021 have the following expiry dates: At December 31, 2022 Expiry date 2025…………………………………………… 2027…………………………………………… 2028…………………………………………… 2029…………………………………………… 2030…………………………………………… 2031…………………………………………… 2032…………………………………………… Total…………………………………………... 0.13 - 56,655 59,530 - 10,000 40,000 192,928 359,113 Range of strike prices (CHF) 0.14 to 0.99 1.00 to 1.50 1.51 to 2.50 2.51 to 3.00 - - 5,292 - - - - 25,000 11,385 26,085 - - - 108,955 4,687 7,241 - 38,487 27,492 14,408 - - - - 72,013 17,362 59,480 - 171,425 148,855 92,315 5,292 At December 31, 2021 Expiry date 2024…………………………………………… 2025…………………………………………… 2026…………………………………………… 2027…………………………………………… 2028…………………………………………… 2029…………………………………………… 2030…………………………………………… 2031…………………………………………… 1.00 to 1.50 - - - 292,261 - 184,883 1,189,373 1,792,727 Range of strike prices (CHF) 2.01 to 2.50 - - 50,000 - 243,506 - - - 1.51 to 2.00 506,351 49,687 95,000 1,606,820 - 68,487 27,492 44,408 2.51 to 3.00 - - - - 2,464,890 - - - Total…………………………………………... 3,459,244 2,398,245 293,506 2,464,890 Total 29,687 75,281 90,907 110,500 54,854 113,888 301,883 777,000 Total 506,351 49,687 145,000 1,899,081 2,708,396 253,370 1,216,865 1,837,135 8,615,885 The weighted average fair value of share options granted during 2022 determined using a Black-Scholes model was CHF 0.18 (2021: CHF 0.72). The significant inputs to the model were: Weighted average share price per share at the grant date…………….... Weighted average strike price per share………………………………….. Weighted average volatility……..……………………............................... Dividend yield………………………………………………………………... Weighted average annual risk-free rate…………………………………… Deferred Strike Price Payment Plan (DSPPP) 2022 CHF 0.41 CHF 0.49 50.34% - 0.75% 2021 CHF 1.58 CHF 1.46 47.07% - 0.44% The Group has implemented a staff retention plan which includes a DSPPP which encourages Board Members, Executive Managers and employees to exercise their share options or equity sharing certificates and become shareholders of the Company by allowing the deferral of the obligation to pay the strike price until the earlier of the sale of the shares or 10 years. Shares received through the exercise of unvested share options are subject to sales restrictions reflecting the remaining vesting period of exercised equity incentive units. In the event of a change of control, bankruptcy of the Company or forced sale of the shares at a price below the strike price, the deferred strike price payment obligation is waived. Under IFRS 2, the DSPPP is considered to be a non-recourse loan and consequently the options are deemed to be exercised on the date that the loan is repaid. Therefore, neither the shares nor the loan, are outstanding until either the options are exercised by paying the exercise price for the shares (repaying the loan) or the options expire entirely after 10 years without any remaining obligation from the option holders. The DSPPP is considered to be a modification of the equity incentive plan and consequently, the 17,438,883 shares (“DSPPP Shares”) issued from the exercise of equity incentive units are recorded as treasury shares and associated share-based compensation is recognized over the remaining vesting period as if the equity incentive units had not been exercised. The modification of the equity incentive plan results in an increase in the fair value of CHF 63,399 of which CHF 52,216 has been recognized in 2022. Page 48 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes Movements in the number of DSPPP shares are as follows: At January 1………………………………………. Granted - exercise of ESOP & ESC…………….. At December 31…………………………………. Average deferred strike price payment (CHF) 0.13 0.13 2022 - 17,438,883 17,438,883 On October 26, 2022, Board Members, Executive Managers and employees exercised a total of 17,438,883 equity incentive units at a strike price of CHF 0.13. At December 31, 2022, of the 17,438,883 DSPPP Shares, 7,726,415 are not subject to sales restrictions and all DSPPP Shares expire in 2032. Share purchase plan The Group established a share purchase plan under which services are settled for shares. Under the plan Board Members, Executive Managers, employees and consultants may receive fully paid ordinary shares from the Group’s treasury share reserve for services rendered. During the year ended December 31, 2022, the Group did not use its treasury shares to pay consultants whilst during the year ended December 31, 2021, 116,914 shares were transferred to settle CHF 164,980 of consulting fees. 14. Revenue from contract with customer License & research agreement with Indivior PLC On January 2, 2018, the Group entered into an agreement with Indivior for the discovery, development and commercialization of novel GABAB PAM compounds for the treatment of addiction and other CNS diseases. This agreement included the selected clinical candidate, ADX71441. In addition, Indivior agreed to fund a research program at the Group to discover novel GABAB PAM compounds. The contract contains two distinct material promises and performance obligations: (1) the selected compound ADX71441 which falls within the definition of a licensed compound, whose rights of use and benefits thereon was transferred in January 2018 and, (2) the research services to be conducted by the Group and funded by Indivior to discover novel GABAB PAM compounds for clinical development that may be discovered over the research term of the agreement and selected by Indivior. Indivior has sole responsibility, including funding liability, for development of selected compounds under the agreement through preclinical and clinical trials, as well as registration procedures and commercialization, if any, worldwide. Indivior has the right to design development programs for selected compounds under the agreement. Through the Group’s participation in a joint development committee, the Group reviews, in an advisory capacity, any development programs designed by Indivior. However, Indivior has authority over all aspects of the development of such selected compounds. Under terms of the agreement, the Group granted Indivior an exclusive license to use relevant patents and know-how in relation to the development and commercialization of product candidates selected by Indivior. Subject to agreed conditions, the Group and Indivior jointly own all intellectual property rights that are jointly developed and the Group or Indivior individually own all intellectual property rights that the Group or Indivior develop individually. The Group has retained the right to select compounds from the research program for further development in areas outside the interest of Indivior including Charcot-Marie-Tooth type 1A neuropathy, or CMT1A, Chronic Cough and pain. Under certain conditions, but subject to certain consequences, Indivior may terminate the agreement. In January 2018, the Group received, under the terms of the agreement, a non-refundable upfront fee of USD 5.0 million for the right to use the clinical candidate, ADX71441, including all materials and know-how related to this clinical candidate. In addition, the Group is eligible for payments on successful achievement of pre-specified clinical, regulatory and commercial milestones totaling USD 330 million and royalties on net sales of mid-single digits to low double-digits. On February 14, 2019, Indivior terminated the development of their selected compound, ADX71441. Separately, Indivior funds research at the Group, based on a research plan to be mutually agreed between the parties, to discover novel GABAB PAM compounds. These future novel GABAB PAM compounds, if selected by Indivior, become licensed compounds. The Group agreed with Indivior to an initial research term of two years, which can be extended by twelve month increments and a minimum annual funding of USD 2 million for the Group’s R&D costs incurred. R&D costs are calculated based on the costs incurred in accordance with the contract. Following Indivior’s selection of one newly identified compound, the Group has the right to also select one additional newly identified compound. The Group is responsible for the funding of all development and commercialization costs of its selected compounds and Indivior has no rights to the Group’s selected compounds. The initial two-year research term was expected to run from May 2018 to April 2020. In 2019, Indivior agreed to an additional research funding of USD 1.6 million, for the research period. On October 30, 2020, the research term was extended until June 30, 2021 and Indivior agreed to additional research funding of USD 2.8 million. Effective May 1, 2021, the research term was extended until July 31, 2022 and Indivior agreed additional research funding Page 49 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes of CHF 3.7 million, of which CHF 2.7 million has been paid to the Group and CHF 1.0 million paid directly by Indivior to third party suppliers that are supporting the funded research program. In August 2022, the research agreement was extended until March 31, 2023 and Indivior agreed to additional research funding of CHF 0.85 million. The reserved indications, where Addex retains exclusive rights to develop its own independent GABAB PAM program, have also been expanded to include chronic cough. Effective November 1, 2022, the research term was extended until June 30, 2023 and Indivior agreed to additional research funding of CHF 0.95 million. For the year ended December 31, 2022, the Group recognized CHF1.4 million as revenue (2021: CHF 2.9 million) and recorded a combined amount of CHF 0.4 million in contract asset and trade receivable as of December 31, 2022 (December 31, 2021: CHF 0.2 million). Janssen Pharmaceuticals Inc. (formerly Ortho-McNeil-Janssen Pharmaceuticals Inc.) On December 31, 2004, the Group entered into a research collaboration and license agreement with Janssen Pharmaceuticals Inc. (JPI). In accordance with this agreement, JPI has acquired an exclusive worldwide license to develop mGlu2 PAM compounds for the treatment of human health. The Group is eligible to receive up to EUR 109 million in success-based development and regulatory milestone, and low double-digit royalties on net sales. The Group considers these various milestones to be variable considerations as they are contingent upon achieving uncertain, future development stages and net sales. For this reason, the Group considers the achievement of the various milestones as binary events that will be recognized as revenue upon occurrence. No amounts have been recognized under this agreement in 2022 and 2021. 15. Other income Under a grant agreement with Eurostars/Innosuisse the Group is required to complete specific research activities within a defined period of time. The Group’s funding is fixed and received based on the satisfactory completion of the agreed research activities and incurring the related costs. The Group was awarded a grant by Eurostars/Innosuisse in 2019 for CHF 0.5 million of which CHF 0.38 million were paid as of December 31, 2022 and CHF 0.12 million in February 2023. As of December 31, 2022 the Group recognized CHF 0.12 million as other receivables (CHF 0.13 million as of December 31, 2021). For the year ended December 31, 2022, the amount recognized in other income is nil (CHF 0.2 million for the year ended December 31, 2021). The Group additionally recognized other income from IT consultancy agreements. 16. Operating costs Staff costs (note 17)…………………………………...... Depreciation (notes 8/9)…..……................................. External research and development costs………….... Laboratory consumables…………………...………….. Patent maintenance and registration costs.………...... Professional fees………………………………………... Short term leases……………………………………….. D&O insurance………………………………………….. Other operating costs……………………………........... Total operating costs……………………………….… 2022 7,053,102 323,144 10,029,786 319,305 318,194 1,424,333 47,283 1,591,231 858,788 21,965,166 2021 4,737,138 347,613 9,014,083 295,377 266,043 1,379,734 37,512 1,591,882 989,840 18,659,222 The evolution of the total operating costs is mainly driven by external research and development expenses, staff costs, D&O insurance, professional fees and other operating costs. During the year ended December 31, 2022, total operating costs increased by CHF 3.3 million compared to the year ended December 31, 2021, primarily due to increased staff costs for CHF 2.3 million mainly due to higher share-based compensation costs. During the same period, the external research and development costs increased by CHF 1.0 million primarily due to dipraglurant clinical development activities for CHF 0.4 million and discovery activities for CHF 0.6 million. Page 50 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes 17. Staff costs Wages and salaries.…………………………………….. Social charges and insurances….…………...………... Value of share-based services (note 13)………......…. Retirement benefit (note 19)….…………………..…… Total staff costs………………...…….…..................... 2022 3,343,645 394,797 3,034,740 279,920 7,053,102 2021 3,280,004 396,149 946,632 114,353 4,737,138 Total staff costs increased by CHF 2.3 million for the year ended December 31, 2022 compared to the same period in 2021, primarily due to higher share-based compensation cost including CHF 1.8 million for the increase in fair value of equity incentive units due to the reduction of their strike price (see note 13). 18. Taxes Loss before tax…………………………………….......... Tax calculated at a tax rate of 13.99% ………………... Effect of different tax rates in USA and France……….. Deductible expenses charged against equity / deferred costs for issuance of shares…………………. Sale of treasury shares by a subsidiary, recognized as financial loss (income) in standalone financial statements……………………………………………….. Expenses not deductible for tax purposes……………. Temporary differences………………………………….. Total tax losses not recognized as deferred tax asset.. Income tax expense…………………………….……... December 31, 2022 December 31, 2021 20,804,213 2,910,509 3,801 178,015 1,666,594 (514,017) (1,324) (4,243,578) - 15,351,914 2,147,733 5,398 382,829 (8,556) (145,195) (954) (2,381,255) - The Group has decided not to recognize any deferred income tax assets at December 31, 2022 or 2021. The key factors which have influenced management in arriving at this evaluation are the fact that the Group has not yet a history of making profits and product development remains at an early stage. The amount of deferred income tax assets that arises from sources other than tax losses carried forward and the amount of deferred income tax liabilities are insignificant compared to the unrecognized tax losses carried forward. The tax losses carried forward by the Group and their respective expiry dates are as follows: 2022………………………………………………………. 2023………………………………………………………. 2024………………………………………………………. 2025………………………………………………………. 2026………………………………………………………. 2027………………………………………………………. 2028………………………………………………………. 2029………………………………………………………. Total unrecorded tax losses carry forwards…….... December 31, 2022 - 141,425,567 290,949 3,586,490 23,467,840 12,590,566 28,427,419 65,367,349 275,156,180 December 31, 2021 3,540,541 141,425,567 290,949 3,586,490 23,467,840 9,831,196 24,391,568 - 206,534,151 Tax losses carried forward expiring in 2027 and 2028, have been increased by CHF 4.0 million and CHF 2.8 million respectively due to final tax returns for the fiscal years ended December 31, 2020 and 2021 received from Swiss tax administration in 2022. As of December 31, 2022, the unrecorded tax losses carried forward increased to CHF 275,156,180 (2021: CHF 206,534,151). 19. Retirement benefit obligations Apart from the social security plans fixed by the law, the Group sponsors an independent pension plan. The Group has contracted with Swiss Life for the provision of occupational benefits. All benefits in accordance with the regulations are reinsured in their entirety with Swiss Life within the framework of the corresponding contract. This pension solution fully reinsures the risks of disability, death and longevity with Swiss Life. Swiss Life invests the vested pension capital and provides a 100% capital and interest guarantee. The pension plan is entitled to an annual bonus from Swiss Life comprising the effective savings, risk and cost results. Although, as is the Page 51 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes case with many Swiss pension plans, the amount of ultimate pension benefit is not defined, certain legal obligations of the plan create constructive obligations on the employer to pay further contributions to fund an eventual deficit; this results in the plan nevertheless being accounted for as a defined benefit plan. All employees are covered by this plan, which is a defined benefit plan. Retirement benefits are based on contributions, computed as a percentage of salary, adjusted for the age of the employee and shared approximately 46% / 54% by employee and employer. In addition to retirement benefits, the plans provide death and long-term disability benefits to its employees. Liabilities and assets are revised every year by an independent actuary. Assets are held in the insurance company. In accordance with IAS 19 (revised), plan assets have been estimated at fair market values and liabilities have been calculated according to the "projected unit credit" method. The Group recorded a pension benefit charge in 2022 of CHF 279,920 (2021: CHF 114,353) as part of staff costs. Employment benefit obligations The amounts recognized in the balance sheet are determined as follows: Defined benefit obligation………..…………...………... Fair value of plan assets…………………….………….. Effect of asset ceiling…...….…………………………… Funded status surplus/ (shortfall)………..………… December 31, 2022 (7,682,529) 7,867,835 (185,306) - December 31, 2021 (9,276,675) 7,995,150 - (1,281,525) As of December 31, 2022, the funded status had a surplus of CHF 0.2 million that has not been recorded as an asset in accordance with the asset ceiling rules and minimum funding requirements whilst they were in a shortfall situation of CHF 1.3 million as of December 2021. The decrease of the present value of the defined benefit obligation is primarily due to the increase of the discount rate to 2.30% as of December 31, 2022 compared to 0.35% as of December 31, 2021. The amounts recognized in the statement of comprehensive loss are as follows: Current service cost……………….……………………. Past service cost……………….………………..……… Interest cost………………………..………...………….. Interest income…………………..……………….…...... Company pension amount (note 17)……................. 2022 (306,491) 36,459 (98,639) 88,751 (279,920) 2021 (325,144) 219,104 (23,742) 15,429 (114,353) The conversion rates have changed in April 2022 and January 2021 which has led to a positive past service cost during the years ended December 31, 2022 and 2021. The movements in the defined benefit obligations during the year are as follows: Defined benefit obligation at beginning of year............ Current service cost……………………….................... Past service cost………………………………………... Interest cost………………………………...………..….. Employee contributions……………………….………... Actuarial gain arising from changes in financial assumptions.…………………………………………….. Actuarial gain arising from changes in demographic assumptions……………………………………………... Actuarial gain/ (loss) on experience adjustment……… Benefits paid……………..…………...…………………. Defined benefit obligations at end of year……….... 2022 (9,276,675) (306,491) 36,459 (98,639) (244,097) 2021 (9,406,967) (325,144) 219,104 (23,742) (222,772) 1,923,273 295,480 51,085 6,850 225,706 (7,682,529) 186,583 (115,175) 115,958 (9,276,675) Page 52 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes The movements in the fair value of plan assets during the year are as follows: Fair value of plan assets at beginning of year……....... Interest income………………………………………...... Employee contributions……..…………………..…....... Employer contributions………..………………………... Plan assets loss……………………...…………..……... Benefits paid……………...…………….……..……….... Fair value of plan assets at end of year…………….. 2022 7,995,150 88,751 244,097 291,313 (525,770) (225,706) 7,867,835 2021 7,714,430 15,429 222,772 264,817 (106,340) (115,958) 7,995,150 As of the date of the preparation of these consolidated financial statements, the 2022 annual report of the pension fund has not yet been issued, and therefore the detailed structures and assets held at December 31, 2022, are not currently available for presentation. However, the detailed assets held at December 31, 2021, which were reported to the Group on May 3, 2022 by its plan administrator, are as follows: Cash……………………………………………………… Bonds…………………………………………................ Equity instruments………………………………………. Real estate……………………………………................ Mortgages……………………………………................. Others……………………………………………………. Total……………………………………………………… The principal actuarial assumptions used were as follows: December 31, 2021 1.79% 52.36% 11.16% 22.75% 10.22% 1.72% 100.00% Discount rate………………………...…………….......... Mortality tables………………..…………………………. Salary growth rate………………………………………. Pension growth rate….…………………………………. December 31, 2022 2.30% BVG2020 GT 1.20% 0.00% December 31, 2021 0.35% BVG2020 GT 1.00% 0.00% The following sensitivity analysis shows the impact of increasing or decreasing certain assumptions on the defined benefit obligation of the Swiss pension plan: - 0.25% increase or decrease in the discount rate would lead to a decrease of 3.09% (2021: 3.93%) or an increase of 3.48% (2021: 4.52%) in the defined benefit obligation. 0.25% increase or decrease in the interest rate on retirement savings capital would lead to an increase of 1.06% (2021: 0.58%) or a decrease of 1.03% (2021: 0.52%) in the defined benefit obligation. 0.25% increase or decrease in salaries would lead to an increase of 0.09% (2021: 0.01%) or a decrease of 0.09%(2021: no decrease) in the defined benefit obligation; and +/-1 year in the life expectancy would lead to an increase of 1.02% (2021: 1.63%) or a decrease of 1.07% (2021: 1.69%) in the defined benefit obligation. - - - The discount rate and life expectancy were identified as significant actuarial assumptions for the Swiss pension plan. The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligations to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as that used in calculating the pension liability recorded on consolidated balance sheets. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period. Page 53 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes The estimated employer contributions to pension plans for the financial year 2023 amount to CHF 288,000. The following table shows the funding of the defined benefit pensions and the components of the costs recognized in other comprehensive income: Present value of defined benefit obligation………........ Fair value of plan assets………………………………... Effect of asset ceiling…..…………………….…………. Surplus / (Deficit) in the plan…………………………. Actuarial gain on defined benefit obligation…………… Actuarial loss on plan assets…………….…………….. Change in the effect of the asset ceiling ……………… Total ……………...……………………………………… 2022 (7,682,529) 7,867,835 (185,306) - 1,981,208 (525,770) (185,306) 1,270,132 2021 (9,276,675) 7,995,150 - (1,281,525) 366,888 (106,340) - 260,548 The following table shows the estimated benefit payments for the next ten years where the number of employees remains constant: 2023….........….........….........…................................... 2024….........….........….........…................................... 2025….........….........….........…................................... 2026….........….........….........…................................... 2027….........….........….........…................................... 2028-2032................….........…................................... 20. Finance result, net Interest income …………………………………………. Interest expense on leases…………………………...... Interest cost……………………………..………............ Foreign exchange (losses)/gains, net……….…..……. Finance result, net..………...…………………………. 374,000 748,000 501,000 357,000 358,000 2,238,000 2022 29,251 (23,019) (25,878) (264,360) (284,006) 2021 5,322 (23,866) (39,146) 211,693 154,003 The evolution of the finance result is mainly driven by foreign exchange losses and gains on our U.S Dollar cash deposits due to the evolution of the exchange rate of U.S Dollar compared to the Swiss franc. Finance result was a net loss of CHF 0.3 million for the year ended December 31, 2022 whilst it was a net gain of CHF 0.2 million for the year ended December 31, 2021. 21. Loss per share Basic and diluted loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of shares in issue during the year excluding treasury shares. Loss attributable to equity holders of the Company….. Weighted average number of shares in issue………… Basic and diluted loss per share……………………. 2022 (20,804,213) 45,184,865 (0.46) 2021 (15,351,914) 34,119,666 (0.45) The Company has four categories of dilutive potential shares: treasury shares, equity sharing certificates (“ECSs”), share options and warrants which have been ignored in the calculation of the loss per share for the year ended December 31, 2022 and 2021, as they would be antidilutive. In addition to treasury shares, the total number of dilutive instruments as of December 31, 2022 is 30,874,670 (2021: 29,590,875) which consists of 777,000 ESOP, 5,866,898 warrants granted to investors on March 28, 2018 and 24,230,772 warrants granted to one investor (9,230,772 warrants on December 21, 2021 and 15,000,000 on July 26, 2022 respectively). As of December 31, 2021, dilutive instruments primarily consist of 198,750 ESCs, 8,615,885 ESOP, 5,866,898 warrants granted to investors on March 29, 2018, 9,230,772 warrants and 5,478,570 pre-funded warrants granted to one investor on December 21, 2021. These options could potentially dilute basic earnings per share in the future. Page 54 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Notes 22. Commitments and contingencies Capital commitments As at December 31, 2022 and 2021, the Group has no contracted capital expenditure. Contingencies As part of the ordinary course of business, the Group is subject to contingent liabilities in respect of certain litigation. Currently, there is no outstanding litigation with a possible negative effect on the Group. 23. Related party transactions Related parties include members of the Board of Directors and the Executive Management of the Group. The following transactions were carried out with related parties: Key management compensation Salaries, other short-term employee benefits and post-employment benefits……………………………… Consulting fees………………………………………….. Share-based compensation….………………………... Total……………………………………………………… 2022 1,619,186 151,639 3,196,353 4,967,178 2021 1,502,377 224,091 955,051 2,681,519 Salaries, other short-term employee benefits and post-employment benefits relate to members of the Board of Directors and Executive Management who are employed by the Group. Consulting fees relate mainly to Roger Mills, a member of the Executive Management who delivers his services to the Group under a consulting contract. The Group has a net payable to the Board of Directors and Executive Management of CHF 0.1 million as of December 31, 2022 (December 31, 2021: CHF 0.2 million). Share-based compensation relates to the fair value of equity incentive units recognized through profit and loss following their vesting plan. 24. Events after the balance sheet date The Group sold 3,742,506 treasury shares for a gross amount of CHF 1.2 million under the sale agency agreement with Kepler Cheuvreux, between the closing date and the approval of these consolidated financial statements. The number of outstanding shares amounts to 80,879,591 on March 28, 2023 excluding 34,468,720 treasury shares directly held by Addex Pharma SA. Page 55 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Phone +41 22 322 24 24 www.bdo.ch geneve@bdo.ch BDO AG Rte de Meyrin 123 P.O. Box 150 1215 Genève 15 STATUTORY AUDITOR'S REPORT To the general meeting of Addex Therapeutics Ltd,Plan-les-Ouates Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of Addex Therapeutics Ltd and its subsidiaries (the Group), which comprise the consolidated balance sheet as at December 31, 2022, and the consolidated statement of comprehensive loss, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion the accompanying consolidated financial statements (pages 28 to 55) give a true and fair view of the consolidated financial position of the Group as at December 31, 2022 and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law. Basis for Opinion We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Standards on Auditing (SA-CH). Our responsibilities under those provisions and standards are further described in the "Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements" section of our report. We are independent of the Group in accordance with the provisions of Swiss law, together with the requirements of the Swiss audit profession, as well as those of the International Code of Ethics for Professional Accountants (including International Independence Standards) of the International Ethics Standards Board for Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 4 in the consolidated financial statements, which indicates that the Group future viability is dependent on its ability to raise additional capital through public or private financings or collaboration agreements to finance its future operations. The Group expects that its existing cash and cash equivalents be sufficient to fund its operations and meet all of its obligations as they fall due, through the third quarter of 2023. As stated in Note 4, these events or conditions, along with other matters as set forth in Note 4, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Page 56 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Key Audit Matter How the Key Audit Matter was addressed in the audit Deferred Strike Price Payment Plan (DSPPP): The Group has implemented a staff retention plan which includes a DSPPP which encourages Board Members, Executive Managers and employees to exercise their share options or equity sharing certificates and become shareholders of the Group by allowing the deferral of the obligation to pay the strike price until the earlier of the sale of the shares or 10 years. Shares received through the exercise of unvested share options are subject to sales restrictions reflecting the remaining vesting period of exercised equity incentive units. On 26 October 2022, options holder exercised their vested and unvested options under the DSPPP. This is a significant focus point due to the complexity, judgement and estimates involved in determining the proper accounting in accordance with IFRS 2 "Share-based Payment". Refer to note 13 - Share-based compensation. We obtained an understanding of the process and controls through discussion with members of management and observation of documents. We substantively tested a sample of exercise options which is the basis for the recognition of the new options plan. We read and assessed the deferred strike price payment agreement and evaluated the transaction within the framework of IFRS 2 to determine how to account for the option exercises and whether the transaction constitute a replacement grant which should be accounted for by applying the principles of modification accounting, rather than as a separate new award and cancellation of the unvested old options. We assessed management’s judgments and estimates and evaluated the Group’s models to determine the incremental fair value as the difference between the fair value of the replacement equity instruments and the net fair value of the cancelled equity instruments, at the date the replacement by using the assistance of our valuation expert. We consulted with our internal experts regarding the accounting treatment in accordance with IFRS. We verified whether the relating disclosure in note 13 is accurate and complete. Other Information The board of directors is responsible for the other information. The other information comprises the information included in the annual report, but does not include the consolidated financial statements, the financial statements, the compensation report and our auditor’s reports thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements, or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information,we are required to report that fact. We have nothing to report in this regard. Page 57 of 70 Addex Therapeutics Annual Report 2022 │ Consolidated Financial Statements Responsibilities of the Board of Directors for the Consolidated Financial Statements The board of directors is responsible for the preparation of the consolidated financial statements, which give a true and fair view in accordance with IFRS and the provisions of Swiss law, and for such internal control as the board of directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the board of directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the board of directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law, ISAs and SA- CH will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. A further description of the auditor’s responsibilities for the audit of the consolidated financial statements is located at EXPERTsuisse's website at: https://www.expertsuisse.ch/en/audit-report-for-ordinary-audits. This description forms part of our auditor’s report. Report on Other Legal and Regulatory Requirements In accordance with Art. 728a para. 1 item 3 CO and PS-CH 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the board of directors. We recommend that the consolidated financial statements submitted to you be approved. Geneva, March 30, 2023 BDO Ltd Nigel Le Masurier Christoph Tschumi Licensed Audit Expert Licensed Audit Expert (Auditor in Charge) Enclosures Consolidated Financial statements Page 58 of 70 Addex Therapeutics Annual Report 2022 │Statutory Financial Statements Statutory Financial Statements of Addex Therapeutics Ltd as at December 31, 2022 Page 59 of 70 Addex Therapeutics Annual Report 2022 │Statutory Financial Statements Balance Sheets as at December 31, 2022 and December 31, 2021 Notes December 31, December 31, 2022 2021 Amounts in Swiss francs ASSETS Current assets Cash and cash equivalents……………………………….. Accrued income and prepayments………………………. Total current assets……………………………………… Non-current assets Investments in Subsidiaries……………...……...………... Other non-current assets Subordinated Loans to Subsidiaries……………….. Total non-current assets…………………….………….. 8 9 255,514 36,043 291,557 212,751 1,500 214,251 3 3 10,514,116 10,514,119 30,476,792 30,476,795 Total assets………………………………………..…….... 10,805,676 30,691,046 LIABILITIES AND EQUITY Current liabilities Trade payables…...…………………………………..….... Other payables - third parties…………….……................ Accruals……….………………………………….………… Total current liabilities……………………………..……. Equity Share capital……………………………………..………… Statutory capital reserve …………………………………. Reserve from capital contribution. ……………………… Pre-funded warrants reserve……………………………… Treasury shares reserve…………………………………... Non-voting equity securities (*)……………..…………….. Accumulated deficit………………………………………... Total equity………………….…………………………….. 10 10 10 10 11 10 145,754 46,475 153,001 345,230 1,153,483 29,238,702 64,620,223 - 6,104,374 p.m (90,656,336) 10,460,446 281,927 46,523 456,527 784,977 49,272,952 21,547,131 - 5,470,141 11,703,279 p.m (58,087,434) 29,906,069 Total liabilities and equity………...….…………………. 10,805,676 30,691,046 (*) p.m. = pro memoria. Non-voting equity securities have no nominal value. The accompanying notes form an integral part of these financial statements. Page 60 of 70 Addex Therapeutics Annual Report 2022 │Statutory Financial Statements Statements of Loss for the years ended December 31, 2022 and 2021 Notes December 31, December 31, 2022 2021 Amounts in Swiss francs Operating costs Professional fees…………………………………...…....... Capital increase & offering costs…………………………. Other operating costs……………………………………… Provision for loans to Subsidiaries……...………….......... Taxes………………………………………………………... 12 12 12 9 (553,152) (704,726) (1,878,923) (35,043,177) 1,471 (915,923) (2,736,448) (1,906,926) (11,444,128) (4,376) Total operating costs…………………………………….. (38,178,507) (17,007,801) Finance income…………………………………………….. Finance expenses…………………………………...…….. Finance result……………………………………………... 13 5,619,934 (10,329) 5,609,605 44,776 (23,758) 21,018 Net loss before taxes…………………………………….. (32,568,902) (16,986,783) Income tax expense…………………..……...……………. - - Net loss for the year…………………………………….... (32,568,902) (16,986,783) The accompanying notes form an integral part of these financial statements. Page 61 of 70 Addex Therapeutics Annual Report 2022 │Statutory Financial Statements Notes Notes to the Financial Statements for the years ended December 31, 2022 and 2021 (amounts in Swiss francs) 1. General Addex Therapeutics Ltd, formerly Addex Pharmaceuticals Ltd, was founded on February 19, 2007 and domiciled C/O Addex Pharma SA, Chemin des Aulx 12, CH1228 Plan-les-Ouates, Geneva, Switzerland. 2. Accounting Policies These financial statements have been prepared in accordance with the provisions of commercial accounting as set out in the Swiss follows: Code of Obligations to 963b CO). Significant balance sheet items are accounted (Art. 957 for as Cash and cash equivalents Cash and cash equivalents include cash on hand. Any bank overdrafts are not netted against cash and cash equivalents but are shown as part of current liabilities on the balance sheet. Loans and other receivables Loans and other short-term receivables are carried at their nominal value. Impairment charges are calculated for these assets on an individual basis, and no general allowance is recorded. Foreign currencies Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the remeasurement of current assets and current liabilities denominated in foreign currencies are recognized in financial income and financial expense. Net unrealized gains on non-current assets and liabilities are deferred in non-current liabilities, and net unrealized losses are recognized in financial expense. 3. Guarantees, other indemnities and assets pledged in favor of third parties As of December 31, 2022 and December 31, 2021, there were no guarantees, other indemnities or assets pledged in favor of third parties. 4. Pledges on assets to secure own liabilities As of December 31, 2022 and December 31, 2021, there were no assets pledged to secure own liabilities. 5. Lease commitments not recorded in the balance sheet As of December 31, 2022 and December 31, 2021, there were no lease commitments not recorded in the balance sheet. 6. Amounts due to pension funds As of December 31, 2022 and December 31, 2021, there were no amounts due to pension funds. 7. Full-time positions The company as the holding of the Group, did not employ any full-time equivalent employees (“FTEs”) during the years ending December 31, 2022 and December 31, 2021 8. Significant investments Addex Therapeutics Ltd as a holding company for the Addex Therapeutics Group owns: Company Addex Pharma SA, Plan-les-Ouates, Switzerland Addex Pharmaceuticals France SAS, Archamps, France Addex Pharmaceuticals Inc., Delaware, USA Business Capital Interest in capital & votes % Research & development CHF 3,987,492 Research & development EUR 37,000 Research & development USD 1 100% 100% 100% Page 62 of 70 Addex Therapeutics Annual Report 2022 │Statutory Financial Statements Notes As at December 31, 2022 and 2021, the Company has provided for its investments in Group companies as follows: Investment in Addex Pharma SA………………………. Provision for investment in Addex Pharma SA……….. Investment in Addex Pharmaceuticals France SAS…. Investment in Addex Pharmaceuticals Inc………..…... December 31, 2022 3,987,492 (3,987,491) 1 1 3 December 31, 2021 3,987,492 (3,987,491) 1 1 3 9. Other non-current assets – loans to Group companies As at December 31, 2022 and 2021, the Company has provided for its loan to Addex Pharma SA as follows: Subordinated loan to Addex Pharma SA……………… Provision for loan to Addex Pharma SA……………….. December 31, 2022 236,396,139 (225,882,023) 10,514,116 December 31, 2021 221,315,638 (190,838,846) 30,476,792 The loan to Addex Pharma SA is subordinated to the claims of other creditors of the subsidiary up to CHF 236,396,139. 10. Equity January 1, 2021.... Issue of shares – capital increase….. Issue of treasury – shares…………….. Sale of pre-funded warrants…………... Transfer to treasury shares reserve………….... Net loss of the year……………….. December 31, 2021………………. Issue of shares - capital increase…. Issue of treasury shares…………….. Sale of pre-funded warrants…………... Exercise of pre- funded warrants…. Reduction of the nominal value……. Transfer to treasury shares reserve………….... Net loss of the year……………….. December 31, 2022………………. Statutory capital reserves, from… Share capital …capital contribution …retained earnings Reserves from capital contribution Pre-funded warrants reserve Treasury shares reserve Accumulated deficit Total 32,848,635 187,680,251 (163,708,099) 6,900,000 3,199,323 9,524,317 - - - - - (5,624,344) - - - - - - 49,272,952 185,255,230 (163,708,099) 174,389 2,092,666 16,326,365 - - (64,620,223) - - - - - - 5,598,905 - - - - - - - - - - - - - - - - - - 64,620,223 - - 1,153,483 192,946,801 (163,708,099) 64,620,223 6,078,935 (41,100,651) 21,799,071 - - - 5,470,141 - - - - - - - 10,099,323 9,524,317 5,470,141 - - 5,624,344 - (16,986,783) (16,986,783) 5,470,141 11,703,279 (58,087,434) 29,906,069 - - 2,841,270 (8,311,411) - - - - - - - - - (5,598,905) - - - - - - 2,267,055 16,326,365 2,841,270 (8,311,411) - - - (32,568,902) (32,568,902) 6,104,374 (90,656,336) 10,460,446 On December 15, 2022, Addex Therapeutics Ltd increased its capital from CHF 979,094 to CHF 1,153,483 through the issuance of 17,438,883 new registered shares at a nominal value of CHF 0.01 per share from its conditional capital following the exercise of 17,438,883 equity incentive units at a strike price of CHF 0.13 on October 26, 2022. On October 31, 2022, Addex Therapeutics Ltd increased its capital from CHF 652,730 to CHF 979,094 through the issuance of 32,636,476 new registered shares from its authorized capital to its fully owned subsidiary, Addex Pharma SA, at CHF 0.01 per share. These shares are held as treasury shares. On July 22, 2022, Addex therapeutics Ltd sold 10,500,000 pre-funded warrants in the form of 1,750,000 ADSs at a sale price of USD 0.28 (CHF 0.27) per share, USD1.69 (CHF 1.62) per ADS with a strike price of USD 0.01 per ADS. All pre-funded warrants have been exercised as of December 31, 2022. Page 63 of 70 Addex Therapeutics Annual Report 2022 │Statutory Financial Statements Notes On July 19, 2022, the nominal value of the issued, conditional and authorized share capital has been reduced from CHF 1.00 to CHF 0.01 effective on the SIX Swiss Exchange and Nasdaq stock market on July 26, 2022. As a consequence, the share capital was reduced to CHF 652,730. On February 2, 2022, Addex Therapeutics Ltd issued 16,000,000 new shares from the authorized capital to its 100% owned subsidiary, Addex Pharma SA, at CHF 1.00. These shares are held as treasury shares. On December 16, 2021, Addex therapeutics Ltd sold 5,478,570 pre-funded warrants in the form of 913,095 ADSs at a sale price of USD 1.08 (CHF 0.99) per share, USD 6.49 (CHF 5.99) per ADS with a strike price of USD 0.01 per ADS. All pre-funded warrants have been exercised as of December 31, 2022. On April 23, 2021, Addex Therapeutics Ltd issued 9,524,317 new shares from the authorized capital to its 100% owned subsidiary, Addex Pharma SA, at CHF 1. These shares are held as treasury shares. On January 8, 2021, Addex Therapeutics Ltd issued 6,900,000 registered shares, with a nominal value of CHF 1 each, at an issue price of CHF 1.46. Out of the total new shares, 6,750,000 are in the form of American Depositary Shares (ADS), listed on the Nasdaq stock market. At December 31, 2022 the total outstanding share capital is CHF 1,153,483 consisting of 115,348,311 shares with a nominal value of CHF 0.01. At December 31, 2021 the total outstanding share capital is CHF 49,272,952 consisting of 49,272,952 shares with a nominal value of CHF 1. The authorized capital and conditional capital as at December 31, 2022 and 2021 amounted as described below: Authorized capital……………………………………….. Conditional capital………………………………………. December 31, 2022 - 151,976 December 31, 2021 24,636,476 24,636,476 11. Treasury share reserve This reserve relates to the purchase price of shares in Addex Therapeutics Ltd held by Group companies according to SIX Swiss Exchange rules. The table shows movements in the number of shares and the treasury share reserve: Balance at January 1, 2021……………... Net purchases………………..……………. Balance at December 31, 2021…………. Net purchases………………..……………. Balance at December 31, 2022…………. 12. Operating costs Number of registered shares 5,729,861 5,644,942 % of share capital 17.44% Treasury shares reserves 6,078,935 5,624,344 11,374,803 26,839,488 38,214,291 23.09% 33.13% 11,703,279 (5,598,905) 6,104,374 Operating costs excluding provisions for loans to subsidiaries amounted to CHF 3.1 million for the year ended December 31, 2022 compared to CHF 5.6 million for the same period in 2021. The decrease of CHF 2.4 million is primarily due to decreased costs related to capital increases and offerings for CHF 2 million (see note 10 above) and to a lesser extent to decreased professional fees. 13. Finance result Sale of treasury shares (loss) / gain, net…………….. Interest expenses……..………………..………............ Foreign exchange (losses)/gains, net……….…..……. Finance result, net..………...…………………………. 2022 5,557,102 (10,329) 62,832 5,609,605 2021 - (23,758) 44,776 21,018 Finance result, net primarily relates to the resale of Addex Therapeutics shares bought by Addex Pharma SA. The net gain from the sale of treasury shares bought to Addex Pharma SA amounts to CHF 5.6 million of which CHF 5.5 million relates to offerings executed with Armistice Capital. Page 64 of 70 Addex Therapeutics Annual Report 2022 │Statutory Financial Statements Notes 14. Significant shareholders According to the information available, based on published notifications to the SIX and Nasdaq stock market, the following shareholders own 3% or more of the company’s share capital as of December 31, 2022: Addex Pharma SA2 Lock-up Group3 Growth Equity Opportunities Fund IV, LLC4 Tim Dyer5 Number of shares 38,214,291 9,941,187 5,648,690 4,505,157 December 31, 20221 Interest in capital in % 33.13% 8.62% 4.90% 3.91% Number of shares 11,374,803 - 5,648,690 435,192 December 31, 2021 Interest in capital in % 23.09% - 11.46% 0.88% 1 This table presents the shares held by the shareholders listed therein. The derivative holdings held by such shareholders are not included. 2 The beneficial owner is Addex Therapeutics Ltd, Chemin des Aulx 12, CH-1228 Plan-les-Ouates, Switzerland. 3 The beneficial owners are Tim Dyer holding 4.51% through this lock-up agreement and 25 other shareholders individually holding less than 3% of the voting rights relating to Board Members, Executive Managers and employees. This lock-up agreement will terminate on October 4, 2026. 4 The beneficial owner is New Enterprise Associates Timonium MD 21093, USA. 5 The beneficial owner is Tim Dyer, 1196 Gland, Switzerland. 15. Board of Directors and Executive Management shareholdings and equity incentive units As of December 31, 2022 and 2021, members of the Board of Directors and Executive Management held the following shares in the Company: Tim Dyer…………………………..…………………………… Robert Lütjens………………………...……………............... Jean-Philippe Rocher………………………………………… Vincent Lawton……………………………............................ Raymond Hill……..…………………………......................... Roger Mills…………………………………........................... Mikhail Kalinichev…………………………………..………… Jake Nunn……………………………………………………... Isaac Manke…………………………………………………... Total…………………………………………………………… 2022 Number of Shares 9,840,946 1,755,612 1,484,231 1,464,834 797,563 735,976 179,171 128,238 128,238 16,514,809 2021 Number of Shares 435,192 - - 500 - 393,139 - - - 828,831 As of December 31, 2022, members of the Board of Directors and Executive Management do not hold any equity incentive units. As of December 31, 2021, members of the Board of Directors and Executive Management held the following equity incentive units in the Company: Vincent Lawton…………..………………............................ Raymond Hill……..………………………………................. Jake Nunn…………………………………………………….. Isaac Manke………………………………………………….. Tim Dyer…………………………..…………..…................... Roger Mills………………………...………………………….. Robert Lütjens…………………………………..……............ Jean-Philippe Rocher……………………………………...… Mikhail Kalinichev…………………………………..………... Number of vested equity incentive units 580,392 313,330 17,815 17,815 3,354,761 242,556 543,254 283,636 15,616 Number of unvested equity incentive units 125,625 72,364 42,185 42,185 1,168,148 50,281 278,168 300,595 84,384 Total number of equity incentive units 706,017 385,694 60,000 60,000 4,522,909 292,837 821,422 584,231 100,000 Total…………………………………………………………… 5,369,175 2,163,935 7,533,110 Page 65 of 70 Addex Therapeutics Annual Report 2022 │Statutory Financial Statements Notes 16. Uncertainties and ability to continue operations The company believes that it will be able to meet all its obligation for a further 12 months from the issuance date of the financial statements, hence, the statutory financial statements have been prepared on a going concern basis. Nevertheless, it exists a substantial doubt about the company’s ability to continue as a going concern as the existing cash and cash equivalents of the Group at the issuance date of the statutory financial statements is sufficient to fund its operations and meet all of its obligations as they fall due through the third quarter of 2023. The future viability of the Group is dependent on its ability to raise additional capital through public or private financings or collaboration agreements to finance its future operations, which may be delayed due to reasons outside of the Group’s control including the COVID-19 pandemic and the Russia’s invasion of Ukraine. The sale of additional equity may dilute existing shareholders. The inability to obtain funding, as and when needed, would have a negative impact on the Group’s financial condition and ability to pursue its business strategies. If the Group is unable to obtain the required funding to run its operations and to develop and commercialize its product candidates, the Group could be forced to delay, reduce or stop some or all of its research and development programs to ensure it remains solvent. Management continues to explore options to obtain additional funding, including through collaborations with third parties related to the future potential development and/or commercialization of its product candidates. However, there is no assurance that the Group will be successful in raising funds, closing collaboration agreements, obtaining sufficient funding on terms acceptable to the Group, or if at all, which could have a material adverse effect on the Group’s business, results of operations and financial condition. 17. Events after the balance sheet date Addex Therapeutics sold 3,742,506 treasury shares for a gross amount of CHF 1.2 million under the sale agency agreement with Kepler Cheuvreux between the closing date and the approval of these financial statements. Page 66 of 70 Addex Therapeutics Annual Report 2022 │Statutory Financial Statements Phone +41 22 322 24 24 www.bdo.ch geneve@bdo.ch BDO AG Rte de Meyrin 123 P.O. Box 150 1215 Genève 15 STATUTORY AUDITOR’S REPORT To the General Meeting of Addex Therapeutics Ltd, Plan-les-Ouates Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Addex Therapeutics Ltd (the "Company"), which comprise the balance sheet as at December 31, 2022, and the statement of loss for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion the accompanying financial statements (pages 60 to 66) comply with Swiss law and the Company's articles of incorporation. Basis for Opinion We conducted our audit in accordance with Swiss law and Swiss Standards on Auditing (SA-CH). Our responsibilities under those provisions and standards are further described in the "Auditor’s Responsibilities for the Audit of the Financial Statements" section of our report. We are independent of the Company in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 16 in the financial statements, which indicates that the Group future viability is dependent on its ability to raise additional capital through public or private financings or collaboration agreements to finance its future operations. The Group expects that its existing cash and cash equivalents be sufficient to fund its operations and meet all of its obligations as they fall due, through the third quarter of 2023. As stated in Note 16, these events or conditions, along with other matters as set forth in Note 16, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Page 67 of 70 Addex Therapeutics Annual Report 2022 │Statutory Financial Statements Key Audit Matter How the Key Audit Matter was addressed in the audit We obtained an understanding of management’s overall process for valuing loans to subsidiaries, including the related internal controls to address the risk of non- recoverability of such loans and the recording of timely provisions, where applicable. We evaluated management’s assessment of the recoverability of the loans and resulting provisions, which is based on the net asset value of its subsidiary. We also assessed the appropriateness of the related disclosures. Valuation of the loans to subsidiaries The Company has granted loans to its subsidiary Addex Pharma SA for a total gross value of CHF 236'396'139 and has recorded a corresponding provision of CHF 225'882'023. This is a significant focus point due to the loans provided by Addex significance of the Therapeutics Ltd to its subsidiary and the need of management estimates for the assessment of the carrying value of these loans in the financial statements which implies a high level of judgment. In order to determine any potential impairment of the value of the loans granted to its subsidiaries, management has assessed the financial strength (net asset value or NAV) of the subsidiaries. Refer to note 9 Other non-current assets - Loans to Group companies Other Information The board of directors is responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements, the consolidated financial statements, the compensation report and our auditor’s reports thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements, or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information,we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Board of Directors for the Financial Statements The board of directors is responsible for the preparation of the financial statements in accordance with the provisions of Swiss law and the Company's articles of incorporation, and for such internal control as the board of directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the board of directors is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the board of directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Page 68 of 70 Addex Therapeutics Annual Report 2022 │Statutory Financial Statements Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and SA-CH will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of the auditor’s responsibilities for the audit of the financial statements is located at EXPERTsuisse's website at: https://www.expertsuisse.ch/en/audit-report-for-ordinary-audits. This description forms part of our auditor’s report. Report on Other Legal and Regulatory Requirements In accordance with Art. 728a para. 1 item 3 CO and PS-CH 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the board of directors. We recommend that the financial statements submitted to you be approved. We draw attention to the fact that treasury shares have been subscribed by a group company in excess of 10 percent of the share capital, which is in breach of Article 659 paragraph 2 of the Swiss Code of Obligations. Geneva, March 30, 2023 BDO Ltd Nigel Le Masurier Christoph Tschumi Licensed Audit Expert Licensed Audit Expert Auditor in Charge Page 69 of 70 Addex Therapeutics Annual Report 2022 │Statutory Financial Statements Forward Looking Statements These materials contain forward-looking statements that can be identified by terminology such as “not approvable”, “continue”, “believes”, “believe”, “will”, “remained open to exploring”, “would”, “could”, or similar expressions, or by express or implied discussions regarding Addex Therapeutics, formerly known as, Addex Pharmaceuticals, its business, the potential approval of its products by regulatory authorities, or regarding potential future revenues from such products. Such forward-looking statements reflect the current views of Addex Therapeutics regarding future events, future economic performance or prospects, and, by their very nature, involve inherent risks and uncertainties, both general and specific, whether known or unknown, and/or any other factor that may materially differ from the plans, objectives, expectations, estimates and intentions expressed or implied in such forward-looking statements. Such may in particular, cause actual results with allosteric modulators of mGlu2, mGlu3, mGlu4, mGlu5, mGlu7, GABAB or other therapeutic targets to be materially different from any future results, performance or achievements expressed or implied by such statements. There can be no guarantee that allosteric modulators of mGlu2, mGlu3, mGlu4, mGlu5, mGlu7, GABAB or other therapeutics targets will be approved for sale in any market or by any regulatory authority. Nor can there be any guarantee that allosteric modulators of mGlu2, mGlu3, mGlu4, mGlu5, mGlu7, GABAB or other therapeutic targets will achieve any particular levels of revenue (if any) in the future. In particular, management’s expectations regarding allosteric modulators of mGlu2, mGlu3, mGlu4, mGlu5, mGlu7, GABAB or other therapeutic targets could be affected by, among other things, unexpected actions by our partners, unexpected regulatory actions or delays or government regulation generally; unexpected clinical trial results, including unexpected new clinical data and unexpected additional analysis of existing clinical data; competition in general; government, industry and general public pricing pressures; the company’s ability to obtain or maintain patent or other proprietary intellectual property protection. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. Addex Therapeutics is providing the information in these materials as of this date and does not undertake any obligation to update any forward-looking statements contained in these materials as a result of new information, future events or otherwise, except as may be required by applicable laws. For more information about the Addex Therapeutics Ltd Group please contact: Addex Therapeutics C/O Addex Pharma SA Chemin des Mines 9 1202 Geneva Switzerland Investor & Media Relations Tel: +41 22 884 15 55 Fax: +41 22 884 15 56 investor.relations@addextherapeutics.com media.relations@addextherapeutics.com Share Registry SharecommServices AG Tel: +41 44 809 58 58 Fax: +41 44 809 58 59 General Information Tel: +41 22 884 15 55 Fax: +41 22 884 15 56 info@addextherapeutics.com Addex on the Internet www.addextherapeutics.com Page 70 of 70 

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