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ANNUAL
REPORT
EDAP TMS - 4, rue du Dauphiné - PA La Poudrette Lamartine - 69120 Vaulx-en-Velin - FRANCE
Tel: +33 (0)4 72 15 31 50 - Fax: +33 (0)4 72 15 31 51 - www.edap-tms.com - contact@edap-tms.com
Dear fellow Shareholders,
June 23st, 2020
We are proud of a successful 2019 during which we generated record company revenues, achieved
profitability and positive cash flow for the full year, and maintained a very strong balance sheet. We
grew our U.S. installed base with several additional Focal One HIFU customers, including the Mayo
Clinic, Houston Methodist, University of California Irvine and University of Chicago. The acceptance
in the U.S. of a new Category 1 CPT code, which will facilitate reimbursement for the ablation of
malignant prostate tissue with HIFU technology, could represent a significant catalyst to further
adoption of Focal One in 2021 and beyond. We also continued to grow our Focal One HIFU customer
base outside of the U.S., including top urology centers in Russia, Singapore and Brazil. Importantly,
many of the institutions that we added in 2019 are highly renowned hospitals that we can now point
to as reference sites as we continue to build a robust sales pipeline.
Through the first months of 2020, with the COVID-19 outbreak, we expected and did experience a
deceleration in both procedure volumes and new system sales as hospitals around the world worked
to fight the pandemic. However, we are now seeing early signs that certain markets are returning to a
more normalized business environment. During this pandemic, we did our best to maintain the safety
of our employees around the world. Now, we have partially resumed activites at our manufacturing
facility in France with all possible safety precautions in place.
As recently announced, we signed a global exclusive distribution agreement with Exact Imaging,
a leading innovator in advanced ultrasound technologies. With this agreement, we continue to
implement strategic initiatives intended to provide a superior customer offering and drive long-term
growth. By combining their ExactVu™ imaging product with our Focal One® treatment device, EDAP
becomes the first and only company to offer urologists a complete end-to-end solution from diagnosis
through treatment in the modern management of prostate cancer.
Finally, we recently decided to strengthen and refocus our development efforts towards HIFU for both
prostate applications and beyond. As a part of this initiative, we will be revisiting our lithotripsy research
and development investment strategy, including the discontinuation of the Endo-UP platform. Based
on recent trends, we believe it is important to shift and narrow our R&D and marketing resources
towards HIFU. HIFU, in addition to our Distribution business, have shown strong performance
and have the potential for sustained growth and contribution. We will continue to commercialize
our existing range of Sonolith lithotripters, which generate significant and steady cash flow for the
Company without additional R&D or marketing investment. Given the vast opportunities in HIFU that
are in front of us, together with our technology leadership position, we believe now is the right time to
pivot more fully toward that business and to accelerate HIFU expansion.
In closing, I would like to thank the entire EDAP team without whom our success would not have
been possible. I would also like to thank our physician partners who continue to champion our
technology and you, our shareholders, for your continued support. I look forward to keeping you
apprised of our progress.
Sincerely,
Marc Oczachowsk
Chairman & Chief Executive Officer
EDAP TMS S.A.
As filed with the Securities and Exchange Commission on April 16, 2020
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934,
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of the event requiring this shell company report_______________________
000-29374
(Commission file number)
EDAP TMS S.A.
(Exact name of registrant as specified in its charter)
France
(Jurisdiction of incorporation or organization)
Parc d’Activites la Poudrette-Lamartine
4/6, rue du Dauphiné
69120 Vaulx-en-Velin, France
(Address of principal executive offices)
Mrs. Blandine Confort -Tel. +33 4 72 15 31 50, E-mail: bconfort@edap-tms.com
Parc d’Activites la Poudrette-Lamartine, 4/6, rue du Dauphiné, 69120 Vaulx-en-Velin, France
(Name, Telephone, E-mail and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
American Depositary Shares, each representing
One Ordinary Share
(Ordinary Shares, nominal value €0.13 per share)
Name of each exchange on which registered
NASDAQ Global Market
Trading Symbol: EDAP
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2019: 29,141,566 Ordinary Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes __ No_X
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
Yes __ No _X
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter ) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth
company. See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one):
Yes _X No __
Yes _X No __
Large accelerated filer __ Accelerated filer _X Non-accelerated filer __ Emerging growth company __
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant
to Section 13(a) of the Exchange Act. __
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its
Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP _X International Financial Reporting Standards as issued by the International Accounting Standards Board __ Other __
If "Other" has been checked in response to the previous question indicate by check mark which financial statement item, the registrant has
elected to follow. Item 17 __ Item 18 __
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes __ No _X
TABLE OF CONTENTS
Page
Presentation of Financial and Other Information
Cautionary Statement on Forward-looking Information
PART I
Item 1. Identity of Directors, Senior Management and Advisors
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on the Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Item 12. Description of Securities Other than Equity Securities
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert.
Item 16B. Code of Ethics
Item 16C. Principal Account Fees and Services
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F. Change in Registrant’s Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
PART III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
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[THIS PAGE INTENTIONALLY LEFT BLANK]
3
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Unless the context otherwise requires, references herein to “we,” “us,” “our” or “group” are to EDAP TMS S.A. and
its consolidated subsidiaries and references herein to the “Company,” “EDAP” or “EDAP TMS” are to EDAP TMS S.A.
We prepare our consolidated financial statements in conformity with United States generally accepted accounting
principles (‘‘U.S. GAAP’’). In this annual report, references to ‘‘euro’’ or ‘‘€’’ are to the legal currency of the countries of the
European Monetary Union, including the Republic of France, and references to ‘‘dollars,’’ ‘‘U.S. dollars’’ or ‘‘$’’ are to the
legal currency of the United States of America. Solely for the convenience of the reader, this annual report contains translations
of certain euro amounts into dollars at specified rates. These translations should not be construed as representations that the euro
amounts actually represent such dollar amounts or could be converted into dollars at those rates. See Item 11, ‘‘Quantitative and
Qualitative Disclosures about Market Risk’’ for a discussion of the effects of fluctuations in currency exchange rates on the
Company.
The following are registered trademarks of the Company in the United States: EDAP®, Ablatherm®, Ablasonic®,
Ablapak®, , Sonolith i-move®, Focal.One®. This annual report also makes references to trade names and trademarks of
companies other than the Company.
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This annual report includes certain forward-looking statements within the meaning of Section 27A of the U.S.
Securities Act of 1933 (the “Securities Act”) or Section 21E of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”),
which may be identified by words such as ‘‘believe,’’ ‘‘plan,’’ ‘‘intend,’’ “should,” ‘‘estimate,’’ ‘‘expect’’ and ‘‘anticipate’’ or
similar expressions, which reflect our views about future events and financial performance. Forward-looking statements involve
inherent known and unknown risks and uncertainties including matters not yet known to us or not currently considered material
by us. Actual events or results may differ materially from those expressed or implied in such forward-looking statements as a
result of various factors that may be beyond our control. Factors that could affect future results or cause actual events or results
to differ materially from those expressed or implied in forward-looking statements include, but are not limited to:
-
-
-
-
-
-
risks associated with the current uncertain worldwide economic, political and financial environment, in
particular with respect to the COVID-19 pandemic and its related impact on our business operations;
the success of our High Intensity Focused Ultrasound (“HIFU”) technology;
the uncertainty of market acceptance for our HIFU devices;
the clinical and regulatory status of our devices in various geographical territories;
the uncertainty in the regulatory agencies review and approval process for any of our devices and changes in
their recommendations and guidance;
the impact of government regulation, particularly relating to public healthcare systems and the commercial
distribution of medical devices;
effects of intense competition in the markets in which we operate;
the uncertainty of reimbursement status of procedures performed with our products;
the market potential for our lithotripters’ range and our HIFU devices;
-
-
-
- dependence on our strategic suppliers and distribution partners;
- difficulties to attract and recruit high-level experts in software, design, and development of high technology
devices such as our HIFU and ESWL products
any event or other occurrence that would interrupt operations at our primary production facility;
reliance on patents, licenses and key proprietary technologies;
cybersecurity risks and incidents,
-
-
-
- product liability risk;
-
risk of exchange rate fluctuations, particularly between the euro and the U.S. dollar and between the euro and the
Japanese yen;
fluctuations in results of operations due to the cyclical nature of demand for medical devices;
risks relating to ownership of our securities; and
risks relating to securities litigations involving class actions.
-
-
-
You should also consider the information contained in Item 3, ‘‘Key Information—Risk Factors’’ and Item 5,
‘‘Operating and Financial Review and Prospects,’’ or further discussion of the risks and uncertainties that may cause such
differences to occur. Forward-looking statements speak only as of the date they are made. Other than required by law, we do
not undertake any obligation to update them in light of new information or future developments.
4
PART I
Item 1. Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
Selected Financial Data
The following table sets forth selected consolidated financial data for the periods indicated. This information is
qualified by and should be read in conjunction with the consolidated financial statements and the Notes thereto included in Part
III of this annual report, as well as Item 5, ‘‘Operating and Financial Review and Prospects.’’ The selected balance sheet data
as of December 31, 2019 and 2018 and the selected income statement data for the years ended December 31, 2019, 2018 and
2017 set forth below have been derived from our consolidated financial statements included in this annual report. Our
consolidated financial statements have been prepared in accordance with U.S. GAAP. To date, we have not been required, and
presently are not required under French law, to prepare consolidated financial statements under French GAAP or IFRS, nor
have we done so.
Year Ended and at December 31,
In thousands of euro, except
per share data in euro
2019
2018
2017
2016
2015
INCOME STATEMENT DATA
Total revenues
Total netsales
Gross profit
Operating expenses
Income (loss) from operations
Basic Income (loss) from operations per common
share
Diluted Income (loss) from operations per common
share
Income (loss) before income taxes
Income tax (expense) benefit
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Dividends per share(1)
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
BALANCE SHEET DATA
Total current assets
Property and equipment, net
Total assets
Total current liabilities
Financing lease obligations, less current portion(2)
Long-term debt, less current portion
Common stock, €0.13 par value; 29,433,994 and
29,368,394 shares issued and 29,141,566 and
28,997,866 shares outstanding; at December 31,
2019 and 2018 respectively
Total shareholders’ equity
(1)
44,912
44,859
21,002
(18,802 )
2,201
39,183
39,163
16,917
(18,232 )
(1,315 )
35,746
35,686
14,808
(16,835 )
(2,027 )
35,611
35,579
16,411
(16,019 )
392
32,253
32,218
13,785
(13,298 )
488
0.08
(0.05 )
(0.07 )
0.01
0.02
0.07
2,191
(679 )
1,512
0.05
0.05
0.02
(907 )
(759 )
(1,667 )
(0.07 )
(0.07 )
—
29,016,118 28,997,866 28,961,928 27,823,313 25,021,966
29,615,466 28,997,866 28,961,928 29,365,583 25,021,966
(0.07 )
(294 )
(388 )
(681 )
(0.02 )
(0.02 )
—
(0.05 )
20
(358 )
(338 )
(0.01 )
(0.01 )
—
0.01
4,444
(602 )
3,842
0.14
0.13
—
42,097
4,069
53,068
17,493
653
957
40,376
4,208
48,740
16,812
852
1,339
39,574
3,682
46,897
16,134
528
834
40,502
2,770
46,591
15,010
313
3,665
32,992
2,123
38,581
16,271
294
4,798
3,348
14,430
No dividends were paid with respect to fiscal years 2015 through 2018 and subject to approval of the annual shareholders’ meeting to be held in
2018 the Company does not anticipate paying any dividend with respect to fiscal year 2019. See Item 8, ‘‘Financial Information — Dividends and
Dividend Policy.’’
Financing lease obligations for 2019 and capital lease obligations for previous years
3,818
25,158
3,818
24,964
3,826
27,359
3,783
24,451
(2)
5
RISK FACTORS
In addition to the other information contained in this annual report, the following risk factors should be carefully
considered in evaluating us and our business. These statements are intended to highlight the material risk factors that may cause
actual financial, business, research or operating results to differ materially from expectations disclosed in this annual report. See
also factors disclosed under “Cautionary statement on forward-looking information”.
Risks Relating to Our Business
Worldwide contagious, epidemic diseases may impact our international activities and could have a material adverse effect
on our business, results of operations and financial condition.
Epidemic, contagious and even pandemic diseases, such as the current coronavirus, which started in China in December
2019 and has spread throughout Europe and around the world, is expected to impact the development of our business worldwide
as we have taken the previously announced steps of requiring the majority of our employees to work remotely, maintaining
minimum supply chain activity and curtailing all business travel. Further, from April 1, 2020, our facility in Lyon, France has
been closed with only minimal staff to expedite shipments of disposals at planned intervals. The pandemic may result in further
postponement and/or cancelation of the sale and installation of new devices and disposables in hospitals or clinics situated in
an infected area. These occurrences could also prevent us from servicing our installed base of devices and we have noted
cancelations of treatments in certain circumstances. The pandemic could also result in the postponement of clinical trials using
our devices. An outbreak of a contagious disease could also negatively affect hospital admission rates and disrupt our global
business, including our ability to manufacture and distribute our devices, for example due to quarantine measures. Although we
are monitoring the impact across our businesses of the recent coronavirus outbreak which has already caused disruption of our
activities, the severity of the operational and financial impact will depend on how long and widespread the disruption proves to
be. Finally, we cannot predict the impact that COVID-19 will have on our customers, suppliers and other business partners, and
the financial conditions of these actors; however, any material effect on these parties could adversely impact us. The impact of
COVID-19 may also exacerbate other risks discussed in this section, any of which could have a material effect on us. This
situation is changing rapidly and additional impacts may arise that we are not aware of currently.
We have a history of operating losses and although we achieved profitability in 2019, it is uncertain whether we can maintain
profitability in the future.
Although we achieved operational profitability in 2019, we have incurred operating losses in 2018 and 2017 and in
each previous fiscal year prior to 2015, since 1998. We expect that our marketing, selling and research and development
expenses will increase as we attempt to further develop and commercialize our lithotripsy and particularly our HIFU devices.
We may not, however, generate a sufficient level of revenue to offset these expenses and may not be able to adjust spending in
a timely manner to respond to any unanticipated decline in revenue. We cannot guarantee that we will realize sufficient revenue
to sustain profitability in the future. See Item 5, ‘‘Operating and Financial Review and Prospects.’’
Our future revenue growth and income depend, among other things, on the success of our HIFU technology.
We depend on the success of our HIFU technology for future revenue growth and net income. In particular, we are
dependent on the successful development and commercialization of other product lines, such as medical devices based on HIFU
particularly but not limited to the Focal One, to generate significant additional revenues, achieve, and sustain profitability in the
future. Our Extracorporeal Shockwave Lithotripsy (“ESWL”) line of products competes in a mature market that has experienced
overall declining unit sales prices in recent years.
Although we are particularly dependent on the success of our HIFU technology to grow our business, other revenues,
generated by our Urology Devices and Services (“UDS”) division and directly linked to the distribution of other complementary
products on behalf of medical companies, continue to increase significantly and contribute to our revenue growth. While we
believe that our UDS division can successfully pursue the marketing of its worldwide distribution platform, any termination of
distribution commitments from such medical third parties could have a material adverse effect on our business, financial
condition or results of operations. See “—Item 4, “Information on the Company—UDS Division— UDS Division Sales and
Distribution of Products.”
We utilize distributors for our sales abroad, which subjects us to a number of risks that could harm our business.
We have developed strategic relationships with a number of distributors for sales and service of our devices in certain
foreign countries where we are not directly represented by a subsidiary. If these relationships are terminated and not replaced,
6
our revenues and/or ability to market or service our devices in the related territories could be adversely affected. Our distributors’
actions may affect our ability to effectively market our devices in certain foreign countries if, for example, a distributor holds
the regulatory authorizations in such countries and causes, by action or inaction, the suspension of such regulatory authorizations
or sanctions for non-compliance. It may be difficult, expensive, and time consuming for us to re-establish reputation, market
access or regulatory compliance in such case. Moreover, our distributors must be in compliance with anti-corruption laws, such
as the U.S. Foreign Corrupt Practices Act, and other local laws prohibiting corrupt payments to governmental officials or to
customers and we may not be able to trace or be kept informed of such corruption. In addition, we may be named as a defendant
in lawsuits against our distributors related to sales or service of our devices performed by these distributors. See our risk factor
below: “We face a significant risk of exposure to product liability claims in the event that the use of our products results in
personal injury or death.”
We operate in a highly regulated industry and our future success depends on obtaining and maintaining government
regulatory approval of our products, which we may not receive or be able to maintain or which may be delayed for a
significant period of time.
Government regulation significantly impacts the development and marketing of our products, particularly in the United
States, EU and Japan. We are regulated in each of our major markets with respect to preclinical and clinical testing,
manufacturing, labeling, distribution, sale, marketing, advertising and promotion of our products. To market and sell products,
we are required to obtain approval or clearance from the relevant regulatory agencies, including the FDA with respect to the
United States. The regulatory agencies may not act favorably or quickly in their review of our submissions, or we may encounter
significant difficulties in our efforts to obtain their clearance or approval, or to maintain our existing approvals, all of which
could delay or preclude the sale of new or existing products in the related territories. In the European Union, the regulation of
medical devices is being updated by the European Medical Device Regulation (“MDR”) effective as of May 26, 2020, following
the expiration of the three-year transition period, imposing stricter requirements on the conformity assessment and the
commercialization of our products. An MDR compliance action plan is currently being performed in preparation of MDR
enforcement within the expected timelines. We are implementing regulatory actions to ensure our HIFU & ESWL devices may
be distributed on the European and international market after May 2020.
The process of applying for regulatory approval is often lengthy and requires the expenditure of substantial resources.
Further, there can be no assurance that we will receive the required approvals for our products from the required regulatory
authorities or, if we do receive the required approvals, that we will receive them on a timely basis, on the conditions and for the
indications we seek, or that we will otherwise be able to satisfy the conditions of such approval, if any.
Even if regulatory approval to market a product is granted, it may include limitations on the indicated uses for which
the product may be marketed. Failure to comply with regulatory requirements can result in fines, suspension or withdrawal of
regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecutions. Regulatory policy
may change and additional government regulations may be established that could prevent or delay regulatory approval of our
products. Any delay, failure to receive regulatory approval or the loss of previously received approvals could have a material
adverse effect on our business, financial condition and results of operations. For more information on the regulation of our
business, see Item 4, ‘‘Information on the Company—Government Regulation’’ and “Information on the Company—HIFU
Division—HIFU Division Clinical and Regulatory Status.”
Moreover, we may also be required to abandon previous strategies for regulatory approval, despite having made
significant financial and time investments, or refocus our efforts on alternative regulatory strategies, resulting in increased costs
and efforts of management, without any guarantee of success, which could materially adversely affect our business, financial
condition and results of operations.
Furthermore, we are also subject to healthcare laws and regulations pertaining to physician payment transparency,
privacy and regulations. These regulations include, but are not limited to (i) the U.S. federal Health Insurance Portability and
Accountability Act (“HIPAA”) of 1996, as amended by the Health Information Technology for Economic and Clinical Health
Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected
health information; (ii) the U.S. federal Physician Payment Sunshine Act (the “Sunshine Act”), which requires manufacturers
of medical devices for which payment is available under Medicare, Medicaid, to report annually to the Centers for Medicare &
Medicaid Services (“CMS”) information related to payments or other “transfers of value” made to physicians, (iii) two main
sets of laws enacted in France about transparency requirements: “The French Anti-Gift Law” which regulates the provision of
gifts, discounts and other incentives to physicians and the “Bertrand law” which imposes disclosure obligations on companies
relating to benefits and remunerations granted to, and agreements concluded with, physicians. Any failure to comply with these
regulations may have a material adverse effect on our business, financial condition and results of operations.
7
Finally, changes to regulatory policies or the adoption of additional statutes or regulations that affect our business could
impose substantial additional costs or otherwise have a material adverse effect on our business, financial condition and results
of operations.
Our clinical trials related to products using HIFU technology may not be successful and we may not be able to obtain
regulatory approvals necessary for commercialization of all of our HIFU products.
Before obtaining regulatory approvals for the commercial sale of any of our devices under development, we must
demonstrate through preclinical testing and clinical trials that the device is safe and effective for use in each indication. Product
development, including pre-clinical studies and clinical trials is a long, expensive and uncertain process, and is subject to delays
and failures at any stage. We or the relevant regulatory authorities may suspend or terminate clinical trials at any time and
regulating agencies may even refuse to grant exemptions to pursue clinical trials. The results from preclinical testing and early
clinical trials may not predict the results that will be obtained in large-scale clinical trials. Companies can suffer significant
setbacks in advanced clinical trials, even after promising results in earlier trials. Furthermore, data obtained from a trial can be
insufficient to demonstrate that our products are safe, effective, and marketable. The commencement, continuation or
completion of any of our clinical trials may be delayed or halted, or inadequate to support approval of an application to regulatory
authorities for numerous reasons including, but not limited to:
•
that regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold, discussions
with regulatory authorities to improve our clinical protocols may prove difficult and lengthy; see Item 4, ‘‘Information on
the Company—HIFU Division Clinical and Regulatory Status.’’
• slower than expected rates of patient recruitment and enrolment;
inability to adequately monitor patient during or after treatment;
•
failure of patients to complete the clinical trial;
•
• prevalence and severity of adverse events and other unforeseen safety issues;
•
• governmental and regulatory delays or changes in regulatory requirements, policies or guidelines;
•
that regulatory authorities conclude that our trial design is inadequate to demonstrate safety and efficacy.
third-party organizations not performing data collection and analysis in a timely and accurate manner;
The data we collect from our current clinical trials, our preclinical studies and other clinical trials may not be sufficient
to support requested regulatory approval. Additionally, certain regulatory authorities may disagree with our interpretation of the
data from our preclinical studies and clinical trials, or may find the clinical trial design, conduct or results inadequate to prove
safety or efficacy, and may require us to pursue additional preclinical studies or clinical trials, which would increase costs and
could further delay the approval of our products. If we are unable to demonstrate the safety and efficacy of our products in our
clinical trials, we will be unable to obtain regulatory approval to market our products.
Our robotic HIFU devices that have not received regulatory approval may not prove to be effective or safe in clinical
trials or may not be approved by the appropriate regulatory authorities. If our HIFU devices do not prove to be effective and
safe in clinical trials to the satisfaction of the relevant regulatory authorities, our business, financial condition and results of
operations could be materially adversely affected.
The commercial success of our products depends on whether procedures performed by those products are eligible for
reimbursement approved by national health authorities and third-party payers.
Our success depends, among other things, on the extent to which reimbursement can be obtained from healthcare payers
for procedures performed with our products. In the United States, we are dependent upon favorable decisions by CMS for
Medicare reimbursement, individual managed care organizations, private insurers and other payers. These decisions may be
revised from time to time, which could negatively affect reimbursement for procedures performed using our devices. In May
2017, CMS granted a C-code for the use of HIFU for prostate tissue ablation, effective July 1st, 2017. This C-code covers
hospital practical fees and remains temporary. In May 2019, the American Medical Association’s CPT Editorial Panel accepted
our request to establish a new Category 1 CPT code that will facilitate reimbursement for the ablation of malignant prostate
tissue with HIFU. The CPT specific code description selected by the panel is “Ablation of malignant prostate tissue, transrectal
with high intensity focused ultrasound guidance.” The establishment of a CPT code allows for reimbursement for both the
technical fee as well as additional reimbursement to the surgeon. We are currently in discussion with private insurers to advance
on the reimbursement of HIFU procedures for prostate tissue ablation. Outside the United States, and in particular in the
European Union and Japan, third-party reimbursement is generally conditioned upon decisions by national health authorities.
In the European Union, there is no harmonized procedure for obtaining reimbursement and, consequently, we must seek
regulatory approval in each Member State. Procedures performed with our HIFU devices are not reimbursed in the European
Union with the exception of Italy, Germany, in the United Kingdom (where procedures are partially reimbursed by either public
8
healthcare systems or private insurers) and in France under certain conditions. In 2014, the French healthcare government
authorities announced the reimbursement of prostate cancer treatment procedures using HIFU as part of a specific process
(“Forfait Innovation”) to further validate breakthrough therapies and to accelerate their related reimbursement process based on
clinical trials and data registries. HIFU patients are still being treated and entered into the dedicated registry. Under this specific
process, French healthcare government authorities will review the clinical data gathered following this decision in view of
granting definitive reimbursement for HIFU. However, we cannot guarantee that a definitive reimbursement code will finally
be granted.
Lithotripsy procedures currently are reimbursed by public healthcare systems in the European Union, in Japan and in
the United States. However, a decision in any of those countries to modify reimbursement policies for these procedures could
have a material adverse effect on our business, financial conditions and results of operations. For example, in April 2016, the
Japanese authorities decided to stop reimbursing lithotripters’ disposables (electrodes) necessary to perform a lithotripsy
procedure. This decision had and will have a material effect on our current and future sales of lithotripsy disposables in Japan.
We cannot assure investors that additional reimbursement approvals will be obtained in the near future. If
reimbursement for our products is unavailable, limited in scope or amount, or if pricing is set at unsatisfactory levels, and if we
fail to establish or maintain a certain level of reimbursement or full reimbursement from healthcare payers or governments and
private healthcare payers’ policies change, it could have a material adverse effect on our business, financial condition and results
of operations.
HIFU technology may not be adopted by the medical community and may never become a standard of care.
Our robotic HIFU devices represent new therapies for the conditions that they are designed to treat. Notwithstanding
any positive clinical results that our HIFU devices may have achieved or may achieve in the future in terms of safety and efficacy
and any marketing approvals that we have obtained or may obtain in the future, there can be no assurance that such products
will gain adoption by the medical community. Physician adoption depends, among other things, on evidence of the cost
effectiveness of a therapy as compared to existing therapies and on adequate reimbursement from healthcare payers.
Furthermore, acceptance by patients depends in part on physician recommendations, as well as other factors, including the
degree of invasiveness, the rate and severity of complications and other side effects associated with the therapy as compared to
other therapies.
If our robotic HIFU devices do not achieve an adequate level of acceptance by physicians, patients, health care payers
and the medical community and never become a standard of care, we may not generate or maintain positive cash flows and we
may not become profitable or be able to sustain profitability. If we do achieve market acceptance of our products, we may not
be able to sustain it or otherwise achieve it to a degree, which would support the ongoing viability of our operations.
Our cash flow is highly dependent on demand for our products.
Our cash flow has historically been subject to significant fluctuations over the course of any given financial year due
to cyclical demand for medical devices, and the resulting annual and quarterly fluctuations in trade and other receivables and
inventories. This has in the past resulted in significant variations in working capital requirements and operating cash flows.
Since we anticipate relying on cash flow from operating activities to meet our liquidity requirements, a decrease in the demand
for our products, or the inability of our customers or distributors to meet their financial obligations to us, would reduce the funds
available to us. In the future, our liquidity may be constrained and our cash flows may be uncertain, negative or significantly
different from period to period. Our future cash flow will be affected by increased expenses in clinical trials, sales efforts as
well as marketing campaigns and promotional tools, particularly to implement our expanded U.S. and global strategy following
the FDA clearance of Ablatherm, and Focal One, while there is no assurance that this will result in an increase in the demand
for our products and services. Our future cash flow may also be affected by the decrease in revenues directly linked to delay
and postponing of treatments and sales projects due to COVID-19 crisis. It may also be affected by the increase in expenses
linked to the management of the COVID-19 virus.
Competition in the markets in which we operate is intense and is expected to increase in the future.
Competition in the markets in which we operate is intense and is expected to increase in the future. In each of our main
businesses, we face competition both directly from other manufacturers of medical devices that apply the same technologies
that we use, as well as indirectly from existing or emerging therapies for the treatment of urological disorders.
In the markets that we target for our robotic HIFU products, competition comes from new market entrants and
alternative therapies, as well as from current manufacturers of robotic medical devices. In the HIFU market, our devices, in
9
particular the Ablatherm and the Focal One, compete with all current treatments for localized tumors, including surgery, external
beam radiotherapy, brachytherapy and cryotherapy. Other energies addressing prostate cancer ablation are also currently being
developed such as electroporation and microwave. Other companies working with HIFU technology for the minimally invasive
treatment of tumors include SonaCare Medical, a U.S. company that markets a device called the Sonablate for the ablation of
prostatic tissue. Sonablate was approved by the FDA for commercialization in the U.S. in October 2015. Profound Medical, a
Canadian company, is developing transurethral ultrasound therapy for prostate cancer. Profound Medical acquired Philips
Healthcare’s HIFU activity, integrating the development of HIFU devices addressing uterine fibroids, breast tumors and drug
delivery activated by HIFU. Insightec, an Israeli company owned mainly by General Electric, Elbit Medical Imaging and Koch
Industries, has developed a device using HIFU technology to treat uterine fibroids, painful bone tumors and brain disorders.
Theraclion, a French company licensed by EDAP to use of some of our HIFU patents, is currently marketing the Echopulse
HIFU device to treat thyroid tumors, benign breast tumors and varicose veins. Haifu, a Chinese company, is developing HIFU
products addressing various types of cancers. In addition, we believe that because ESWL has long been the standard treatment
for urinary tract calculus disease, competition in that market comes principally from current manufacturers of lithotripters,
including Wolf, Storz and Dornier. See Item 4, ‘‘Information on the Company—HIFU Division— HIFU Competition’’ and
Item 4, ‘‘Information on the Company—UDS Division.’’
Many of our competitors have significantly greater financial, technical, research, marketing, sales, distribution and
other resources than we have and may have more experience in developing, manufacturing, marketing and supporting new
medical devices. In addition, our future success will depend in large part on our ability to maintain a leading position in
technological innovation, and we cannot assure investors that we will be able to develop new products or enhance our current
ones to compete successfully with new or existing technologies. Rapid technological development by competitors may result in
our products becoming obsolete before we recover a significant portion of the research, development and commercialization
expenses incurred with respect to those products.
We also face competition for our maintenance and service contracts. Larger hospitals often utilize their in-house
maintenance departments instead of contracting with equipment manufacturers like us to maintain and repair their medical
equipment. In addition, third-party medical equipment maintenance companies increasingly compete with equipment
manufacturers by offering broad repair and maintenance service contracts to hospitals and clinics. This increased competition
for medical devices and maintenance and service contracts could have a material adverse effect on our business, financial
condition and results of operations.
Our manufacturing operations are highly regulated and failure to comply with those regulations would harm our business.
Our manufacturing operations must comply with regulations established by regulatory agencies in the United States,
the European Union and other countries, and in particular with the Current Good Manufacturing Practices (‘‘CGMP’’) mandated
by the FDA and European Union standards for quality assurance and manufacturing process control. Since such standards may
change, we may not, at all times, comply with all applicable standards and, as a result would be unable to manufacture our
products for commercial sale. Our manufacturing facilities are subject to inspection by regulatory authorities at any time. If any
inspection by the regulatory authorities reveals deficiencies in manufacturing, we could be required to take immediate remedial
actions, suspend production or close the current and future production facilities, which would disrupt our manufacturing
processes. Accordingly, failure to comply with these regulations could have a material adverse effect on our business, financial
condition and results of operations.
We depend on a single site to manufacture our products, and any interruption of operations could have a material adverse
effect on our business.
Most of our manufacturing currently takes place in a single facility located in Vaulx-en-Velin, on the outskirts of Lyon,
France. In the event of a significant interruption in the operations of our sole facility for any reason, such as fire, flood or other
natural disaster or pandemic diseases such the COVID-19 virus necessitating quarantine implementation or a failure to obtain
or maintain required regulatory approvals, we would have no other means of manufacturing our products until we were able to
restore the manufacturing capabilities at our facility or develop alternative facilities, which could take considerable time and
resources and have a material adverse effect on our business, financial condition and results of operations. Since mid-March
2019, we have taken the previously announced steps of requiring the majority of our employees to work remotely, maintaining
minimum supply chain activity and curtailing all business travel. If we are unable to manufacture a sufficient or consistent
supply of our products or products we are developing, or if we cannot do so efficiently, our revenue, business and financial
prospects would be adversely affected.
10
For certain components or services, we depend on a single supplier who, due to events beyond our control may fail to deliver
sufficient supplies to us or increase the cost of items supplied, which would interrupt our production processes or negatively
impact our results of operations.
We purchase the majority of the components used in our products from a number of suppliers, but rely on a single
supplier for some key components. In addition, we rely on single suppliers for certain services. If the supply of these components
or services were interrupted for any reason, our manufacturing and marketing of the affected products would be delayed. These
delays could be extensive, especially in situations where a component substitution would require regulatory approval. In
addition, such suppliers could decide unilaterally to increase the price of supplied items and therefore cause additional charges
for the Company. We expect to continue to depend upon our suppliers for the foreseeable future. Failure to obtain adequate
supplies of components or services in a timely manner and at the agreed price could have a material adverse effect on our
business, financial condition and results of operations.
We may have difficulties in attracting and recruiting highly qualified experts in software, design and development of high
technology devices such as our HIFU and ESWL products
Our devices require highly qualified individuals as well as high-level of expertise and experience in design, software,
mechanics and electronics. We are highly dependent on our ability to attract and retain qualified personnel and engineers to
develop our devices. In addition, the learning curve required to master our systems is lengthy and, if we do not find qualified
experts and engineers, we may not be able to meet our development schedule and obtain market approval in due time, which in
time may delay market introduction of new products. Failure to recruit and attract experts in a timely manner may have a
material adverse effect on our development, business, financial condition and results of operations.
New device developments and introductions may adversely impact our financial results.
From time to time, we develop and introduce new devices with enhanced features and extended capabilities, targeting
new clinical applications or improving existing approaches. The success of new device introductions depends on a number of
factors including, but not limited to, timely and successful research and development, regulatory clearances or approvals,
pricing, competition, market and consumer acceptance, the manufacturing and supply costs, and the risk that new devices may
have quality or other defects in the early stages of introduction.
We invest in various research and development projects to expand our product offerings. Our research and development
efforts are critical to our success, and our research and development projects may not be successful. We may be unable to
develop and market new products successfully, and the products we invest in and develop may not be well-received by customers
or meet our expectations. Our research and development investments may not generate significant operating income or
contribute to our future operating results for several years, and such contributions may not meet our expectations or even cover
the costs of such investments.
If we fail to effectively develop new products, obtain regulatory clearances or approval and manage new product
introductions in the future, our business, financial condition, results of operations, or cash flows could be materially and
adversely impacted.
Our gross profit margins may vary overtime and could adversely impact our financial results.
Our gross profit margins may be adversely impacted by various factors, including but not limited to: changes in product
mix, in business models (sales of devices, treatment procedures or leases), introduction of new devices which may generate
lower margins than our existing products, changes in manufacturing and labor costs, sale prices, market conditions.
If we fail to actively reduce or mitigate the potential negative impact of the above factors our gross profit margins, our
business, financial condition, results of operations, or cash flows could be materially adversely affected.
Intellectual property rights are essential to protect our medical devices, and any dispute with respect to these rights could be
costly and have an uncertain outcome.
Our success depends in large part on our ability to develop proprietary products and technologies and to establish and
protect the related intellectual property rights, without infringing the intellectual property rights of third parties. The validity
and scope of claims covered in medical technology patents involve complex legal and factual questions and, therefore, the
outcome of such claims may be highly uncertain. The medical device industry has been characterized by extensive patents and
other intellectual property rights litigation. From time to time we may receive letters from third parties drawing our attention to
11
their patent rights. Our products, including our HIFU devices, may be subject to litigation involving claims of patent
infringement or violation of other intellectual property rights of third parties. The defense and prosecution of intellectual
property suits, patent opposition proceedings and related legal and administrative proceedings are both costly and time
consuming and may result in a significant diversion of effort and resources by our technical and management personnel. An
adverse determination in any such litigation or proceeding to which we become a party could subject us to significant liability
to third parties, require us to seek licenses from third parties and pay ongoing royalties, require us to redesign certain products
or subject us to injunctions preventing the manufacture, use or sale of the affected products. In addition to being costly, drawn-
out litigation to defend or prosecute intellectual property rights could cause our customers or potential customers to defer or
limit their purchase or use of our products until the litigation is resolved. See Item 4, ‘‘Information on the Company—HIFU
Division—HIFU Division Patents and Intellectual Property’’ and Item 4, ‘‘Information on the Company—UDS Division—
UDS Division Patents and Intellectual Property.’’
We own patents covering several of our technologies and have additional patent applications pending in the United
States, the European Union, Japan and elsewhere. The process of seeking patent protection can be long and expensive and there
can be no assurance that our patent applications will result in the issuance of patents. We also cannot assure investors that our
current or future patents are or will be sufficient to provide meaningful protection or commercial advantage to us. Our patents
or patent applications could be challenged, invalidated or circumvented in the future. Failure to maintain or obtain necessary
patents, licenses or other intellectual property rights from third parties on acceptable terms or the invalidation or cancellation of
material patents could have a material adverse effect on our business, financial condition or results of operations. Litigation may
be necessary to enforce patents issued to us or to determine the enforceability, scope and validity of the proprietary rights of
others. Our competitors, many of which have substantial resources and have made substantial investments in competing
technologies, may apply for and obtain patents that will interfere with our ability to make, use or sell certain products, including
our HIFU devices, either in the United States or in foreign markets.
We also rely on trade secrets and proprietary know-how, which we seek to protect through non-disclosure agreements
with employees, consultants and other parties. It is possible, however, that those non-disclosure agreements will be breached,
that we will not have adequate remedies for any such breach, or that our trade secrets will become known to, or independently
developed by, competitors. Litigation may be necessary to protect trade secrets or know-how owned by us. In addition, effective
copyright and trade secret protection may be unavailable or limited in certain countries.
The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and
result of operations.
We face a significant risk of exposure to product liability claims in the event that the use of our products results in personal
injury or death.
Our products are designed to be used in the treatment of severe affections and conditions. Despite the use of our
products, patients may suffer personal injury or death, and we may, as a result, face significant product liability claims. We
maintain separate product liability insurance policies for the United States and Canada and for the other markets in which we
sell our products. Product liability insurance is expensive and there can be no assurance that it will continue to be available on
commercially reasonable terms or at all. In addition, our insurance may not cover certain product liability claims or our liability
for any claims may exceed our coverage limits. A product liability claim or series of claims brought against us with respect to
uninsured liabilities or in excess of our insurance coverage, or any claim or product recall that results in significant cost to or
adverse publicity against us could have a material adverse effect on our business, financial condition and results of operations.
Also, if any of our products prove to be defective, we may be required to recall or redesign the product which could result in
costly corrective actions and harm to our business reputation, which could materially affect our business, financial condition
and results of operations.
We are exposed to risks related to cybersecurity threats and incidents.
In the conduct of our business, we collect, use, transmit and store data on information technology systems. This data
includes confidential information belonging to us, our customers and other business partners, as well as personally identifiable
information of individuals. We also store data related to our clinical trials on our information technology systems. We also rely
in part on the reliability of certain tested third parties' cybersecurity measures, including firewalls, virus solutions and backup
solutions. Cybersecurity incidents, such as breaches of data security, disruptions of information technology systems and cyber
threats, may result in business disruption, the misappropriation, corruption or loss of confidential information and critical data
(ours or that of third parties), reputational damage, litigation with third parties, diminution in the value of our investment in
research and development, data privacy issues and increased cybersecurity protection and remediation costs. Like many
companies, we may experience certain of these incidents given that the external cyber-attack threat continues to grow. Moreover,
12
we devote significant resources to network security, data encryption and other measures to protect our systems and data from
unauthorized access or misuse, including meeting certain information security standards that may be required by our customers,
all of which increases cybersecurity protection costs. We have not experienced any significant or material cybersecurity threats
or incidents through the date of this annual report. As these threats, and government and regulatory oversight of associated risks,
continue to grow, we may be required to expend additional resources to enhance or expand upon the security measures we
currently maintain.
There can be no assurance that our efforts or those of our third-party service providers to implement adequate security
and control measures would be sufficient to protect against breakdowns, service disruption, data deterioration or loss in the
event of a system malfunction, or prevent data from being stolen or corrupted in the event of a cyber-attack, security breach,
industrial espionage attacks or insider threat attacks which could result in financial, legal, business or reputational harm. Future
cybersecurity breaches or incidents or further increases in cybersecurity protection costs may have a material adverse effect on
our business, financial condition or results of operations.
The expansion of social media platforms and new technologies present risks and challenges for our business and reputation.
We increasingly rely on social media and new technologies to communicate about our products and technologies. The
use of these media requires specific attention. Unauthorized communications, such as press releases or posts on social media,
purported to be issued by the Company, may contain information that is false or otherwise damaging and could have an adverse
impact on our stock price. Negative or inaccurate posts or comments about the Company, our business, directors or officers on
any social networking website could seriously damage our reputation. In addition, our employees and partners may use social
media and mobile technologies inappropriately, which may give rise to liability for the Company, or which could lead to
breaches of data security, loss of trade secrets or other intellectual property or public disclosure of sensitive information,
including information about our employees, clinical trials or customers. Such uses of social media, mobile technologies, or
information technology more generally could have a material adverse effect on our reputation, business, financial condition and
results of operations.
Our French and international operations expose us to additional costs and legal and regulatory risks, which could have a
material adverse effect on our business, results of operations and financial condition.
We have significant French and international operations. We have direct distribution channels in over fifty countries
outside of France, our country of incorporation, and through our foreign subsidiaries. Compliance with complex foreign and
French laws and regulations that apply to our international operations increases our cost of doing business. These regulations
include, among others, U.S. laws such as the U.S. Foreign Corrupt Practices Act (FCPA) and other U.S. federal laws and
regulations established by the Office of Foreign Asset Control, laws such as the UK Bribery Act 2010 or other local laws, which
prohibit corrupt payments to governmental officials or certain payments or remunerations to customers. We have adopted a
Code of Ethics that requires employees to comply with applicable laws and regulations and particularly with Article 8 of law
n°2016-1691 (known as Sapin II law). In accordance with Sapin II law, we have implemented a whistle-blowing policy. These
numerous and sometimes conflicting laws and regulations include, among others, data privacy requirements, labor relations
laws, tax laws, anti-competition regulations, “Know Your Customer” requirements, import and trade restrictions, export
requirements.
Given the high level of complexity of these laws, there is a risk that we may inadvertently breach some provisions, for
example, through fraudulent or negligent behavior of individual employees, our failure to comply with certain formal
documentation requirements, or otherwise. Our success depends, in part, on our ability to anticipate these risks and manage
these challenges. We have a dispersed international sales organization, and this structure makes it more difficult for us to ensure
that our international selling operations comply with our global policies and procedures.
Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our
employees, requirements to obtain export licenses, cessation of business activities in sanctioned countries and prohibitions on
the conduct of our business. Violations of laws and regulations also could result in prohibitions on our ability to offer our
products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts,
our ability to attract and retain employees, or our business, results of operations and financial condition.
In May 2018, the new EU data protection framework, the General Data Protection Regulation (“GDPR”) took effect.
The GDPR significantly increases the level of data protection and imposes a greater compliance burden on companies. In
particular, it now also treats clinical data as personal data, requiring us or our subcontractors to implement more extensive
procedures in the collection and processing of clinical trial data. Furthermore, the GDPR significantly increases the level of
sanctions for non-compliance. The European Union data protection authorities have the power to impose administrative fines
13
of up to a maximum of €20 million or 4% of the Company’s consolidated revenues for the preceding financial year, whichever
is higher. We believe that the regulation did not have a material impact on our business or the way our technologies operate.
However, due to the small size of the Company, we may not be able to adequately document all data collection, to obtain related
consents in due time, to adequately protect private collected data or to react in due time to address an individual request linked
to the GDPR application.
We sell our products in many parts of the world and, as a result, our business is affected by fluctuations in currency exchange
rates.
We are exposed to foreign currency exchange rate risk because the mix of currencies in which our costs are
denominated is different from the mix of currencies in which we earn our revenue. In 2019, approximately 74% of our total
costs of sales and operating expenses were denominated in euro, while approximately 51% of our sales were denominated in
currencies other than euro (primarily the U.S. dollar and the Japanese yen). Our operating profitability could be materially
adversely affected by large fluctuations in the rate of exchange between the euro and other currencies. For instance, a decrease
in the value of the U.S. dollar or the Japanese yen against the euro would have a negative effect on our revenues, which may
not be offset by an equal reduction in operating expenses and would therefore negatively impact operating profitability. From
time to time we enter into foreign exchange forward sale contracts to hedge against fluctuations in the exchange rates of the
principal foreign currencies in which our receivables are denominated (in particular, the U.S. dollar and the Japanese yen), but
there can be no assurance that such hedging activities will limit the effect of movements in exchange rates on our results of
operations. As of December 31, 2019, we had no outstanding hedging instruments. In addition, since any dividends that we may
declare will be denominated in euro, exchange rate fluctuations will affect the U.S. dollar equivalent of any dividends received
by holders of ADSs. For more information concerning our exchange rate exposure, see Item 11. “Quantitative and Qualitative
Disclosures about Market Risk.”
Our results of operations have fluctuated significantly from quarter to quarter in the past and may continue to do so in the
future, as we experience long and variable product sales cycles which are long and seasonal
Our results of operations have fluctuated in the past and are expected to continue to fluctuate significantly from quarter
to quarter depending upon numerous factors, including, but not limited to, the timing and results of clinical trials, changes in
healthcare reimbursement policies, cyclicality of demand for our products, changes in pricing policies by us or our competitors,
new product announcements by us or our competitors, customer order deferrals in anticipation of new or enhanced products
offered by us or our competitors, product quality problems and exchange rate fluctuations. Furthermore, because our main
products have relatively high unit prices, the amount and timing of individual orders can have a substantial effect on our results
of operations in any given quarter.
The sales cycle of our products is lengthy as our products are high value capital items for our customers that purchase
generally requires the approval of management or Boards of hospitals, purchasing groups and government authorities if
applicable. In addition, some sales are subject to public tender offer processes and approvals which could happen to be lengthy
and as a result, hospitals may delay their purchase orders according to their timelines and budget allocation. It is difficult to
predict the exact timing for closing product sales directly linked to the length of capital expenditure cycles. Historically, our
sales of products have tended to be stronger during the fourth quarter of each fiscal year.
Our results of operations and financial condition could be adversely affected by the adverse economic, geo-political and
financial developments.
The current geo-political, economic and financial environment has affected the level of public and private spending in
the healthcare sector generally. A cautious or negative outlook may cause our customers to further delay or cancel investment
in medical equipment, which would adversely affect our revenues.
In addition, we rely on the credit market to secure dedicated lease financings to fund the development of our Revenue-
Per-Procedure (“RPP”) business model related to the sale of treatments’ procedures. Due to the limited availability of lending,
we may be unable to access sufficient lease financing. Without lease financing, we may be unable to continue the development
of our RPP model or we may need to fund such activity out of our existing working capital. Similarly, some of our clients rely
on lease financing to finance their purchases of equipment. Limited availability of lease financing facilities may also affect their
purchasing decisions and may adversely impact our equipment sales.
The United Kingdom (the “UK”) held a referendum in 2016 in which voters approved an exit from the European Union
(the “EU”), commonly referred to as “Brexit.” On March 29, 2017, the UK formally notified the EU of its intention to withdraw
pursuant to Article 50 of the Lisbon Treaty. The EU and UK have negotiated a withdrawal agreement, which was ratified by
14
the British Parliament on January 9, 2020. The UK left the EU on January 31, 2020There will then be a transition period with
negotiations between UK and EU to determine future relationship between the UK and EU countries. It is possible that there
will be greater restrictions on imports and exports (i.e. custom duties) between the UK and EU countries, increased regulatory
complexities (in particular in terms of approval of devices), and economic and political uncertainty in the region. We sell devices
and spare parts in the UK and need to regularly maintain and service our installed base of equipment. Such restrictions on
imports and exports may have a significant impact on our business in the UK. This impact will depend on the trade negotiations
and the length of the transition period.
We have been and we may in the future be the target of securities class action or other litigation, which could be costly and
time consuming to defend.
In the past, securities class action litigation has often been brought against companies following a decline in the market
price of its securities. This risk is especially relevant for us because innovative life sciences and medical device companies have
experienced significant stock price volatility in recent years.
Any litigation, if instituted, could cause us to incur substantial costs and our management resources may be diverted
to defending such litigation, which could adversely affect our financial condition or results of operations.
We have identified a material weakness in our internal controls over financial reporting and, if we fail to remediate
adequately this material weakness and achieve an effective system of internal controls, we may not be able to report our
financial results accurately. In addition, the trading price of our securities may be adversely affected by a related negative
market reaction.
As a publicly traded company, we are subject to the reporting requirements of the Exchange Act and the Sarbanes-
Oxley Act of 2002. We have incurred, and expect to continue to incur, significant continuing costs, including accounting fees
and staffing costs, to maintain compliance with the internal control requirements of the Sarbanes-Oxley Act of 2002. As of
December 31, 2019, as part of our internal control over financial reporting and following the re-assessment of the material
weakness reported in our Annual Report on 20-F for 2018 under item 15, we have reviewed our remediation plan and found
that although we have implemented certain new controls during 2019, some of these controls were not considered as sufficiently
robust. Also, part of the remediation plan was delayed due to IT staff shortage. As such, we considered that the 2018 material
weakness was not fully remediated. Based on this evaluation, management identified a material weakness in our 2019 internal
control over financial reporting with respect to this not fully executed 2018 remediation plan. Execution was found deficient as
it related to the implementation of IT program development changes and more specifically the logging of change requests, the
tracking of application change validations, the acceptance testing documentation and a lack of segregation of duties upon IT
changes implementation due to small size of our IT structure and organization.
Although we have started additional remediation actions to close this material weakness, we may not be able, or our
auditors may find that we have not been able, to fully address the identified deficiencies and consistently execute on the
Company’s internal controls over financial reporting in a satisfactory manner.
Furthermore, the ongoing requirements of the Sarbanes-Oxley Act may place a strain on our systems and resources.
Our management is required to evaluate the effectiveness of our internal control over financial reporting as of each year-end,
and we are required to disclose management’s assessment of the effectiveness of our internal control over financial reporting,
including any material weakness in our internal control over financial reporting.
Our internal control over financial reporting has been designed to provide our management and Board of Directors
with reasonable assurance regarding the preparation and fair presentation of our consolidated financial statements. On an on-
going basis, we are reviewing, documenting and testing our internal control procedures. In order to maintain and improve the
effectiveness of our disclosure controls and procedures and internal control over financial reporting, and as our business
develops, additional resources and management oversight may be required.
Additional procedures were performed for year-end 2019 to demonstrate that no inappropriate use of our IT occurred
as of December 31, 2019, and that this material weakness did not result in a material misstatement of the consolidated financial
statements for the year ended December 31, 2019 or restatement of any prior period previously reported by the Company.
Any failure to complete our assessment of our internal control over financial reporting, to remediate any material
weaknesses that we have identified or may identify in the future, any failure to implement new or improved controls, or
difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting
obligations or result in material misstatements in our financial statements. Any failure to maintain adequate internal controls
15
over financial reporting and provide accurate financial statements may subject us to litigation, render future financings more
difficult or expensive, and could cause the trading price of our common stock to decrease substantially. Inferior controls and
procedures could cause investors to lose confidence in our reported financial information, which may give rise to a class action
and have a negative effect on the trading price of our common stock. Any such failure could also adversely affect the results
of the periodic management evaluations of our internal controls and, in the case of a failure to remediate any material
weaknesses that we have identified or may identify in the future, would adversely affect the annual auditor attestation reports
regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-
Oxley Act.
Risks Relating to Ownership of Securities
Our securities may be affected by volume fluctuations, and may fluctuate significantly in price, causing you to lose some or
all of your investment.
Our ADSs are currently traded on the NASDAQ Global Market. The average daily trading volume of our ADSs in
2019 was 177,251, the high and low bid price of our ADSs for the last two financial years ended on December 31, 2019 and
December 31, 2018, was $5.42 and $1.78, and $4.25 and $1.35, respectively. Our ADSs have experienced, and are likely to
experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our ADSs
without regard to our operating performance. For example, average daily trading volume of our ADSs in December 2018 was
90,875 as opposed to 120,648 for the same period of 2019. The price of our securities and our ADSs in particular, may fluctuate
as a result of a variety of factors, including changes in our business, operations and prospects, and factors beyond our control,
including regulatory considerations, results of clinical trials of our products or those of our competitors, developments in patents
and other proprietary rights, general market and economic conditions and results of operations being below analysts’ or
investors’ expectations. Any downward pressure on the price of ADSs caused by the sale of ADS’s could also encourage short
sales by third parties. In a short sale, a prospective seller borrows shares from a shareholder or broker and sells the borrowed
shares. The prospective seller hopes that the share price will decline, at which time the seller can purchase shares at a lower
price for delivery back to the lender. The seller profits when the share price declines because it is purchasing shares at a price
lower than the sale price of the borrowed shares. Such sales could place downward pressure on the price of our ADSs by
increasing the number of ADSs being sold, which could further contribute to any decline in the market price of our ADSs.
These broad market and industry factors may adversely affect the market price of our ADSs, regardless of our operating
performance. If you invest in our ADSs, you could lose some or all of your investment.
In addition, following periods of volatility in the market price of a company's securities, securities class action litigation
has often been instituted. Any additional litigation, if instituted, causes and could cause us to incur substantial costs and our
management resources are and could be diverted to defending such litigation, which could adversely affect our financial
condition or results of operations.
We may issue additional securities that may be dilutive to our existing shareholders.
On June 28, 2019, our shareholders adopted resolutions allowing the Board of Directors to issue new shares in an
aggregate maximum amount of 10 million shares in order to meet any fundraising opportunities that may be necessary to finance
the Company’s development. On June 28, 2019, our shareholders also adopted a resolution allowing the Board of Directors to
issue 1 million new shares under the form of subscription options to motivate and reward teams dedicated to successfully
implementing our U.S. and worldwide expansion plans. As of December 31, 2019, no additional shares were issued nor options
allocated as authorized under this Plan.
The issuance of additional ordinary shares, including any additional ordinary shares issuable pursuant to the exercise
of preferential subscription rights that may not be available to all of our shareholders, would reduce the proportionate ownership
and voting power of the then-existing shareholders.
We are subject to different corporate disclosure standards that may limit the information available to holders of our ADSs.
As a foreign private issuer, we are not required to comply with the notice and disclosure requirements under the
Exchange Act relating to the solicitation of proxies for shareholder meetings. Although we are subject to the periodic reporting
requirements of the Exchange Act, the periodic disclosure required of foreign private issuers under the Exchange Act is more
limited than the periodic disclosure required of U.S. issuers. Therefore, there may be less publicly available information about
us than is regularly published by or about other public companies in the United States.
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We currently do not intend to pay dividends, and cannot assure shareholders that we will make dividend payments in the
future.
We have never paid any dividend on our shares and do not anticipate paying any dividends for the foreseeable future.
Thereafter, declaration of dividends on our shares will depend upon, among other things, future earnings, if any, the operating
and financial condition of our business, our capital requirements, general business conditions and such other factors as our
Board of Directors deems relevant. See Item 8, “Financial Information—Dividends and Dividend Policy.”
Judgments of U.S. courts, including those predicated on the civil liability provisions of the federal securities laws of the
United States, may not be enforceable in French courts.
An investor in the United States may find it difficult to:
• effect service of process upon or obtain jurisdiction over us or our non-U.S. resident directors and officers in the United
States;
• enforce U.S. court judgments based upon the civil liability provisions of the U.S. federal securities laws against us and our
non-U.S. resident directors and officers in France; or the United States; or
• bring an original action in a French court to enforce liabilities based upon the U.S. federal securities laws against us and our
non-U.S. resident directors and officers.
Holders of ADSs have fewer rights than shareholders and must act through the Depositary to exercise those rights.
Holders of ADSs do not have the same rights as shareholders and accordingly, cannot exercise rights of shareholders
against us. The Bank of New York Mellon, as Depositary (the “Depositary”), is the registered shareholder of the deposited
shares underlying the ADSs, and therefore holders of ADSs will generally have to exercise the rights attached to those shares
through the Depositary. We have used and will continue to use reasonable efforts to request that the Depositary notify the
holders of ADSs of upcoming votes and ask for voting instructions from them. If a holder fails to return a voting instruction
card to the Depositary by the date established by it for receipt of such voting instructions, or if the Depositary receives an
improperly completed or blank voting instruction card, or if the voting instructions included in the voting instruction card are
illegible or unclear, then such holder will be deemed to have instructed the Depositary to vote its shares and the Depositary shall
vote such shares in favor of any resolution proposed or approved by our Board of Directors and against any resolution not so
proposed or approved.
Preferential subscription rights may not be available for U.S. persons.
Under French law, shareholders have preferential rights to subscribe for cash issuances of new shares or other securities
giving rights to acquire additional shares on a pro rata basis. U.S. holders of our securities may not be able to exercise
preferential subscription rights for their shares unless a registration statement under the Securities Act is effective with respect
to such rights or an exemption from the registration requirements imposed by the Securities Act is available. We may, from
time to time, issue new shares or other securities giving rights to acquire additional shares (such as warrants) at a time when no
registration statement is in effect and no Securities Act exemption is available. If so, U.S. holders of our securities will be unable
to exercise their preferential rights and their interests will be diluted. We are under no obligation to file any registration statement
in connection with any issuance of new shares or other securities.
For holders of ADSs, the Depositary may make these rights or other distributions available to holders after we instruct
it to do so and provide it with evidence that it is legal to do so. If we fail to do this and the Depositary determines that it is
impractical to sell the rights, it may allow these rights to lapse. In that case, the holders of ADSs will receive no value for them.
Holders of our ADSs may be exposed to increased transaction costs as a result of proposed European financial transaction
taxes.
On February 14, 2013, the EU Commission adopted a proposal for a Council Directive (the "Draft Directive") on a
common financial transaction tax (the "FTT"). According to the Draft Directive, the FTT should have been implemented and
should have entered into effect in 10 EU Member States (Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal,
Spain, Slovakia, and Slovenia, each a “Participating Member State”). In March of 2016, Estonia indicated its withdrawal from
enhanced cooperation.
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Pursuant to the Draft Directive, the FTT was to be payable on financial transactions provided at least one party to the
financial transaction was established or deemed established in a Participating Member State and there was a financial institution
established or deemed established in a Participating Member State which was a party to the financial transaction, or was acting
in the name of a party to the transaction. Under the Draft Directive, the FTT should not have applied, however, to (inter alia)
primary market transactions referred to in Article 5(c) of Regulation (EC) No 1287/2006, including the activity of underwriting
and subsequent allocation of financial instruments in the framework of their issue. The rates of the FTT were to be fixed by
each Participating Member State but for transactions involving financial instruments other than derivatives would have
amounted to at least 0.1 per cent of the taxable amount. The taxable amount for such transactions would have been generally
determined by reference to the consideration paid or owed in return for the transfer. The FTT would have been payable by each
financial institution established or deemed established in a Participating Member State which was either a party to the financial
transaction, or acting in the name of a party to the transaction or where the transaction had been carried out on its account.
Where the FTT due had not been paid within the applicable time limits, each party to a financial transaction, including persons
other than financial institutions, would have become jointly and severally liable for the payment of the FTT due.
The Draft Directive has not been adopted. The FTT proposal is still subject to negotiation between the Participating
Member States and therefore may be changed at any time. In this respect, a new FTT proposal was submitted in December
2019. Under this new proposal, the FTT would be imposed at a 0.2 per cent rate on the purchase of shares in domestically listed
companies with a market capitalization in excess of €1.0 billion, and would also apply to depositary receipts issued domestically
and abroad and which are backed by shares in these companies.
Moreover, once a final agreement on such FTT proposal will be reached (the "FTT Directive"), it will need to be
implemented into the respective domestic laws of the Participating Member States and the domestic provisions implementing
the FTT Directive might deviate from the FTT Directive itself. See Item 10, "Additional Information - Certain Income Tax
Considerations."
Prospective holders should therefore note, in particular, that any sale, purchase, or exchange of the Shares or ADSs
could become subject to the FTT at a minimum rate of 0.1 per cent. The holder may be liable to itself pay this charge or
reimburse a financial institution for the charge, and / or may affect the value of the Shares or ADSs.
In any case, prospective holders should consult their own advisers in relation to the consequences of the FTT associated
with subscribing for, purchasing, holding and disposing of ADSs.
Item 4. Information on the Company
We develop and market robotic HIFU devices, advanced choices for the treatment of localized prostate cancer. HIFU
treatment is shown to be a minimally invasive and effective treatment option for localized prostate cancer (T1-T2) with a low
occurrence of side effects. Our HIFU devices are also used for patients who failed a radiotherapy treatment. In addition, we are
developing a HIFU platform for the treatment of various types of tumors including rectal endometriosis, liver and pancreatic
cancer, but also breast and gynecological tumors. We also produce and commercialize medical equipment for the treatment of
urinary tract stones using ESWL and distribute other types of urology devices in certain countries.
History and Development of the Company
Our legal name is EDAP TMS S.A. and our commercial name is EDAP TMS. EDAP TMS S.A. was incorporated on
December 3, 1979 as a société anonyme organized under the laws of the Republic of France for a duration of 60 years from the
date of incorporation. Our principal executive offices are located at Parc d’Activités la Poudrette- Lamartine, 4/6, rue du
Dauphiné, 69120 Vaulx-en-Velin, France and our telephone number is +33 (0) 4 72 15 31 50. Corporation Service Company,
251 Little Falls Drive, Wilmington, DE19808-1674, United States, is our agent for service of process in the United States. The
SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding the
Company’s electronic filings with the SEC. Such electronic filings can be found by visiting the SEC web site at
http://www.sec.gov or the Company’s web site at http://www.edap-tms.com, section “Investor Relations”.
On September 11, 2017, we submitted a (510K) application for our Focal One HIFU device in accordance with FDA
guidance.
On June 7, 2018, we obtained FDA clearance for our Focal One device dedicated to the focal ablation of prostate
cancer. It incorporates our proprietary fusion software, which merges MRI and ultrasound images, providing increased accuracy
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during planning and prostate treatment for physicians. Focal approach in the treatment of localized prostate cancer reduces side
effects and improves patients’ quality of life.
In May 2019, the American Medical Association’s (“AMA”) CPT Editorial Panel accepted our request to establish a
new Category 1 CPT code that will facilitate reimbursement for the ablation of malignant prostate tissue with HIFU. The
establishment of a CPT code allows for reimbursement for both the technical fee as well as additional reimbursement to the
surgeon. AMA’s decision is expected in January 2021.
On October 30, 2019, we introduced a new concept of endourology multi-modality Platform Endo-UP designed for the
management of urinary stones, responding to the rapidly evolving urinary calculi paradigm. Endo-UP Platform is expected to
be commercially available in 2020 in Europe, when CE mark is granted,
Additional information regarding the principal capital expenditures and divestitures can be found in Item 5, ‘‘Operating
and Financial Review and Prospects’’.
Business Overview & Strategy
EDAP TMS S.A. is a holding company and is responsible for providing common services to its subsidiaries, including
preparation and consolidation of the financial statements for the group, complying with the requirements of various regulatory
agencies and maintaining the listing of its publicly held securities and, in conjunction with its Board of Directors, directing the
overall strategy of our group.
Our activity is organized in two divisions: HIFU and UDS (including lithotripsy activities). Through these two
divisions, we develop, produce and market minimally invasive medical devices, mainly for urological diseases. We believe that
the creation of these two divisions has allowed us to expand our market share by optimizing worldwide distribution capabilities,
all of which is coordinated through our subsidiaries.
Our HIFU and UDS divisions operate in Europe, the Americas, Asia and the rest of the world. Total net sales for the
HIFU division (in net contributions to total consolidated sales) were €14.1 million, €11.0 million and €9.5 million for 2019,
2018 and 2017, respectively. Those sales are generated in Europe, the United States and the rest of the world, excluding certain
countries in Asia (including Japan) where our HIFU devices are not approved yet. Total net sales for the UDS division were
€30.8 million (including €17.5million in Asia and €13.3 million in Europe and the rest of the world), €28.1 million (including
€13.9 million in Asia and €14.2 million in Europe and the rest of the world), and €26.2 million (including €13.4 million in Asia
and €12.8 million in Europe and the rest of the world), each for 2019, 2018 and 2017, respectively.
See Note 28 to our consolidated financial statements for a breakdown of total sales and revenue during the past three
fiscal years by operating division and Item 5, “Operating and Financial Review and Prospects.”
HIFU Division
The HIFU division is engaged in the development, manufacturing and marketing of medical devices based on HIFU
technology for the minimally invasive treatment of urological and other clinical indications. Our HIFU business is cyclical and
generally linked to lengthy hospital decision and investment processes. Hence, our quarterly revenues are often impacted and
fluctuate according to these parameters, possibly resulting in a higher purchasing activity in the last quarter of the year. The
HIFU division contributed €14.1 million to our consolidated net sales during the fiscal year ended December 31, 2019.
HIFU Division Business Overview
The HIFU division currently develops, manufactures and markets robotic devices for the minimally invasive ablation
of certain types of localized tumors using HIFU technology. HIFU technology uses a high-intensity convergent ultrasound beam
generated by high power transducers to produce heat. HIFU technology is intended to allow the surgeon to destroy a well-
defined area of diseased tissue without damaging surrounding tissue and organs, thereby eliminating the need for incisions,
transfusions and general anesthesia and associated complications. The HIFU division markets three HIFU devices: the
Ablatherm, the Ablatherm Fusion and the Focal One. The Ablatherm and Ablatherm Fusion are dedicated to the treatment of
organ-confined prostate cancer, referred to as T1-T2 stage. The Focal One high-end device is a HIFU fully robotic device
dedicated to the focal therapy of localized prostate cancer of T1-T2 stage, thereby destroying targeted cancer cells only. The
robotic features of our HIFU devices make the treatment procedure much safer for the patient and less operator dependent. All
three devices can be used for patients who are not candidates for surgery or who have failed a radiotherapy treatment.
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In addition to selling HIFU devices, the HIFU division also records revenues driven from HIFU treatments performance
(“HIFU Treatment Driven Revenues”) which include net sales of (i) disposables, (ii) leases (iii) revenue-per-procedure (“RPP”)
and (iv) treatment related services. The HIFU mobile treatment option provides access to our HIFU devices without requiring
hospitals and clinics to make an up-front investment in the equipment. Instead, hospitals and clinics perform treatments using
these devices and remunerate us on a RPP basis (i.e., on the basis of the number of individual treatments provided). With this
model, once the treatment is established in the medical community, a permanent installation may become more attractive,
leading to the sale of the device in some of the larger locations.
In addition, the HIFU division also generates revenues from net sales of maintenance services associated to our HIFU
devices installed base. As of December 31, 2019, the HIFU division had an installed base of 153 HIFU devices of which 44
Focal One machines.
HIFU Division Business Strategy
The HIFU division’s business strategy is to capitalize on its expertise in HIFU and its position in urology to achieve
long-term growth as a leader in the development, manufacturing, marketing and distribution of minimally invasive medical
devices for urological and other indications, using HIFU technology, while preserving patient quality of life. The HIFU division
believes that minimally invasive treatments using HIFU could provide an alternative to current invasive therapies on the basis
of reduced cost and reduced morbidity for a number of different indications. The key elements of the HIFU division’s strategy
to achieve that objective are:
• Provide Minimally Invasive Solutions to Treat Localized Prostate Cancer using HIFU. Building upon our established
position in the ESWL market, our HIFU division is striving to become the leading provider of our minimally invasive
HIFU treatment option for prostate cancer. We believe that there is a large market opportunity with an increase in
incidence linked to the aging male population, an increase in screening and recent campaigns to increase awareness
about prostate cancer. We also believe that HIFU could represent a credible alternative to surgery, external beam
radiotherapy, brachytherapy and cryotherapy for the treatment of organ-confined prostate cancer without the cost, in-
patient hospitalization and adverse side effects associated with those therapies. With the growing demand for more
focused treatments destroying the tumor only (focal therapy) while continuously controlling the disease, HIFU and its
focused approach, is well positioned to address this new clinical approach. The HIFU division intends to achieve this
through a direct sales network in key European countries and the United States and through selected distributors in
other European countries and in Asia. The HIFU division has built a strong clinical credibility based on clinical articles
published in peer-reviewed journals. We ensure effective patient and physician education through a focused
communication program.
• Achieve Long-Term Growth by Expanding HIFU Applications Beyond Prostate Cancer. The HIFU division’s long-
term growth strategy is to apply our HIFU technology toward the treatment of other medical conditions beyond prostate
cancer. We believe that HIFU could represent an alternative to surgery and radiotherapy for the treatment of many
tumors without the cost, in-patient hospitalization and adverse side effects associated with those therapies. The HIFU
division is working on various other applications such as rectal endometriosis, liver, pancreatic cancers, breast and
gynecological tumors where HIFU could provide an alternative to current therapies. In 2019, the HIFU division
maintained gross expenses at levels similar to 2018 on research and development (“R&D”) projects to develop HIFU
applications beyond prostate cancer. The division is considering increasing levels of R&D spending in 2020 and future
years to strengthen its technological leadership in HIFU and expand its application beyond urology.
HIFU Products
Currently, we commercialize three products utilizing the HIFU technology. Cell destruction by HIFU is accomplished by a
combination of thermal and cavitation effects caused by focused application of piezoelectric-generated high-intensity
ultrasound; HIFU procedures are performed under general or spinal anesthesia.
• The Ablatherm is an ultrasound guided robotic HIFU device for the treatment of organ-confined prostate cancer. It
consists of a treatment module, including a HIFU endorectal probe, a control table with a computer and a computer
screen, and a diagnostic ultrasound device connected to the treatment module. After insertion of an endorectal probe,
the physician visualizes the prostate using ultrasound imaging and defines the area to be treated. The computer
automatically calculates the optimum treatment distribution of lesions. During the treatment, the probe automatically
moves and fires HIFU beams at each predefined lesion until the entire targeted area has been treated. At the same time,
the physician is able to control and visualize the treatment in real time due to the integrated imaging system.
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• Ablatherm Fusion is an evolution of Ablatherm, and incorporates the Company’s proprietary fusion software which
merges MRI and ultrasound images providing physicians with increased accuracy during planning and treatment.
• The Focal One is a HIFU fully robotic device dedicated to the focal therapy of prostate cancer. Focal One combines
the three essential components to efficiently perform a focal treatment of localized prostate cancer: (i) high-quality
imaging to localize tumors with the use of magnetic resonance imaging (MRI) combined with real-time ultrasound,
(ii) high precision of HIFU treatment focused on identified targeted cancer areas and (iii) immediate feedback on
treatment efficacy utilizing Contrast-Enhanced Ultrasound Imaging. Focal One provides an effective and accurate
ablative treatment of localized tumors with the capacities of being flexible and repeatable, while preserving patient
quality of life.
HIFU Division Patents and Intellectual Property
As of December 31, 2019, the HIFU division’s patent portfolio contained 40 patents consisting of 12 granted patents
in the United States, 22 patents in the European Union and Japan and 6 patents in both Israel and the rest of the world. They
belong to 16 groups of patents covering key technologies related to therapeutic ultrasound principles, systems and associated
software.
During 2019, one patent, covering ultrasound imaging of HIFU lesions within the liver has been granted in the United
States. Two additional patents were granted in France. One covers a specific transducer cooling process adapted to high
ultrasound energy emission and the other one concerns the design of a detachable probe part, used to easily fix disposable
coupling covers or engineering tools servicing the probe.
Nine additional patents covering certain other aspects of our HIFU technology in the European Union and Japan (five),
the United States (two), and the rest of the world (two) are currently under review. Our ongoing research and development
objectives are to maintain our leadership position in the treatment of prostate cancer and to extend the HIFU technology to new
applications and minimally invasive systems. These research projects are conducted in cooperation with the French National
Institute for Health and Medical Research (“INSERM”) which give rise in some cases to the filing of patents, followed by the
grant of co-owned patents. We have entered into various license agreements with INSERM whereby we commit to pay a fixed
amount of royalties to INSERM based on the net revenues generated from the sales of HIFU devices using co-owned patents.
Under these agreements, which last for the life of each co-owned patent, we have the exclusive right to the commercial use of
the co-owned patents, including the right to out-license such commercial rights.
In August 2004, we licensed our HIFU technology for the specific treatment of the ‘‘cervicofacial’’ lesions, including
the thyroid, to Theraclion, a French company created by our former director of research and development. On January 11, 2011,
we extended the above license by granting Theraclion exclusivity for the treatment of benign breast tumors and by granting a
non-exclusive license for the treatment of malignant breast tumors. This license agreement provides for the payment of certain
royalties calculated on the basis of Theraclion’s sales of devices. We determined that we could not invest in these specific
applications at that time and this license agreement therefore allows Theraclion to pursue the development of HIFU for these
applications. We own no interest in Theraclion.
Although we believe that our HIFU patents are valid and should be enforceable against third parties and that our patent
applications should, if successfully pursued, result in the issuance of additional enforceable patents, there can be no assurance
that any or all of these patents or patent applications will provide effective protection for the HIFU division’s proprietary rights
in such technology. HIFU devices, as they are currently or may in the future be designed, may also be subject to claims of
infringement of patents owned by third parties, which could result in an adverse effect on our ability to market HIFU systems.
See Item 3, “Risk Factors – Risks relating to Intellectual Property Rights.”
HIFU Division Clinical and Regulatory Status
Clinical and Regulatory Status in Europe
Ablatherm devices previously placed on the market are maintained for use according to applicable regulation and any
new placement of HIFU devices, in Europe or in territory covered by CE Marking, is being addressed with a Focal One new
generation device. Based on clinical study results, we obtained a CE Marking for Focal One in June 2013, which allowed us to
market the Focal One in the European Union and in worldwide territories where CE Marking is required. Our current notified
body has recently expanded our Focal One CE certificate until May 2024.
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Clinical and Regulatory Status in the United States
In 2005, EDAP started an Investigational Device Exemption (“IDE”) study (G050103) to assess the safety and
effectiveness of Ablatherm HIFU in the U.S. for the treatment of low risk, localized prostate cancer. This study was designed
as a pivotal study to support PMA approval. This study was planned as a multicentric, prospective, non-randomized,
concurrently controlled clinical trial comparing Ablatherm HIFU to cryotherapy in patients with low risk, localized prostate
cancer. Due to accrual difficulties, particularly in the cryosurgery arm, this planned study was not completed. Of the planned
205 patients per arm, 136 and five patients were recruited to the Ablatherm HIFU and cryosurgery arms, respectively. We
completed the treatment of 134 patients in June 2010, the required two years’ follow-up phase was completed in June 2012.
Clinical outcomes from these patients combined with our strong European long-term database formed the foundation of our
PMA submission to the FDA on January 31, 2013.
On March 9, 2015, we announced that based on our collaborative discussions with the FDA, we planned to seek
clearance of Ablatherm HIFU by way of a direct de novo 510(k) application as opposed to the PMA application amendment we
had been considering. The FDA indicated that while PMA approval would be required for specific claims regarding treatment
of prostate cancer, a prostate tissue ablation claim could be cleared via a direct de novo 510(k) application.
In November 2015, we received 510(k) clearance from the FDA to market Ablatherm® Integrated Imaging HIFU in
the U.S. for the ablation of prostate tissue and in October 2017, we were granted a 510(k) clearance for our Ablatherm Fusion
device.
On June 7, 2018, based on Ablatherm clearance and European pre-market and post-market clinical data, we obtained
FDA 510(k) clearance for our Focal One device.
Clinical and Regulatory Status in Japan
We have initiated discussions with the Japanese authorities (“PMDA”) on the best process to apply to obtain Japanese
approval for our Focal One device. We will need to conduct a clinical trial in Japan to obtain clearance for our HIFU Focal One
device. The process of requesting approval to market the Focal One in Japan may be long and may never result in the approval
to market the Focal One in Japan. See Item 3, ‘‘Risk Factors—Our future revenue growth and income depend, among other
things, on the success of our HIFU technology— and — Our clinical trials related to products using HIFU technology may not
be successful and we may not be able to obtain regulatory approvals necessary for commercialization of all of our HIFU
products.”
Clinical and Regulatory Status in China
We did not obtain marketing clearance of our HIFU devices by Chinese authorities due to lengthy and complex
processes. We are currently reviewing our regulatory strategy to address the China market.
Clinical and Regulatory Status in the Rest of the World
The Ablatherm is cleared for distribution in Canada, Costa Rica, Peru, Russia, Taiwan, Australia, Brazil, South Korea
and Ecuador.
The Focal One device is cleared for distribution in Saudi Arabia, Argentina, Brazil, Canada, South Korea, Costa Rica,
United Arab Emirates, Malaysia, Mexico, Peru, Russia, Singapore, Ukraine and Venezuela.
See Item 3, “Risk Factors” – “We operate in a highly regulated industry and our future success depends on government
regulatory approval of our products, which we may not receive or which may be delayed for a significant period of time.”
HIFU Clinical Developments
HIFU in Prostate Cancer
The clinical study initiated in 2015 within the scope of “Forfait Innovation” (the “HIFI” study) and piloted by the
French Association of Urology (“AFU”) aimed at evaluating the reimbursement of HIFU in France. The patients’ inclusion
period closed on September 30, 2019. Patients included in the HIFI study will be followed for 30 months ahead of data analysis
and results publication. During that follow-up period, we will be able to pursue patient treatments using HIFU under the specific
Forfait Innovation coverage process, but these patients will not be followed as part of HIFI Study.
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In July 2017, we, together with our academic, scientific and clinical partners, initiated a collaborative project (the
“PERFUSE” project) under the “French National Investment Program for the Future”. The overall objective of the PERFUSE
project is two-fold: (i) to set-up several clinical studies to assess focal therapy using the Focal One device in view of a better
understanding of focal therapy in prostate cancer management and, (ii) to prepare a change of paradigm in the treatment of
prostate cancer via technical innovations such as focal therapy. The whole project was awarded funding of €8 million over five
years. We, as a partner of the PERFUSE project, are to receive €1.2 million over the period as a non-refundable grant.
As part of PERFUSE project, several studies have already been initiated and sponsored by academic partner Edouard
Herriot Hospital. In September 2018, we launched a phase 2 multicentric study to evaluate the efficacy and safety of HIFU focal
therapy in patients with intermediate-risk single-lobed prostate cancer (the “FOCAL” study). 170 patients are to be included in
the FOCAL study. In October 2018, we initiated a phase 3, multicentric, randomized study aiming at evaluating the efficacy of
focal HIFU versus active surveillance hence reducing the need for radical treatment for low-risk prostate cancer patients (the
“HIFUSA” study). 146 patients are to be included in the study. In February 2020, French regulatory authorities authorized the
initiation of a phase 1 study aiming at evaluating the use of HIFU guided by a new imaging modality (“PSMA-PET-MRI”) to
evaluate prostate cancer recurrence after radiotherapy (the “PMSA” study). 40 patients are to be included in the study.
In early 2018, a new database, called the Focal Robotic Ultrasound Ablation Registry (“FoR-UsA”), has been
established to initially collect high quality clinical data of U.S. patients treated with Ablatherm Robotic HIFU. Clinical data
from Focal One treatments is now being added to the Registry. The FoR-UsA Registry is the first in the U.S. that specifically
collects data on patients who have had HIFU focal therapy for prostate tissue ablation, giving urologists around the U.S. greater
access to short and long-term HIFU outcomes. The registry also holds the potential for the FDA, which cleared HIFU for prostate
tissue ablation in 2015, to re-evaluate the technology in the future for a prostate cancer indication. Likewise, health insurance
reimbursements on a wider scale are also possible with a registry documenting HIFU data from patients in the U.S.
HIFU in Liver Cancer
In June 2015, we entered into a multi-partner liver cancer development project organized by the HECAM consortium.
This project aims at developing innovative diagnostic, imaging and therapeutic technologies to address liver cancer. Our focus
within the HECAM consortium is on developing a novel HIFU treatment for liver cancer. To fund this development program,
EDAP is to receive a maximum of €2.4 million in non-dilutive financing from Bpifrance over the five-year project period. We
received the first instalment of €0.7 million in June 2015 and a second installment of €0.8 million in June 2017 (i.e. a total of
€1.5 million including €1.0 million as a conditional subsidy and €0.5 million as a grant). The HECAM project is currently being
finalized and a multicentric phase II study will be initiated based on a first mono-centric study successfully implemented with
Lyon’s Centre Leon Bérard cancer center.
HIFU in Deep Endometriosis
In 2020, we plan to initiate a multicentric study to investigate further the use of Focal One HIFU in the treatment of
certain types of deep endometriosis situated in the low rectum. This study will complement a phase I study successfully finalized
in 2019 which reported promising results with a significant improvement of the outcomes and in patient quality of life at six
months.
HIFU Clinical Publications
To date, clinical results related to our HIFU devices have been published in renowned peer-reviewed journals.
In October 2016, clinical results were published in the European Urology journal (Rischmann et al.). They validated a
new focal HIFU strategy in the treatment of prostate cancer localized in a single lobe of the prostate (hemi-ablation treatment).
The goal of focal treatment as opposed to “radical” treatment is to reduce the complications associated with standard treatments,
particularly the risks of incontinence and impotence.
In December 2016, Professor Roland van Velthoven from Institut Bordet Oncology Center, Brussels, Belgium
published in the Journal of Endourology a matched pair analysis of HIFU Hemi-ablation vs robotic assisted laparoscopic
prostatectomy. In this study, 55 patients with prostate cancer localized in a single lobe of the prostate were treated using
Ablatherm-HIFU and their outcomes were compared 1:1 with patients having similar clinical criteria but who underwent
robotic-assisted laparoscopic prostatectomy.
23
In 2017, Crouzet et al. from Edouard Herriot Hospital, Lyon, France, reported in the British Journal of Urology (BJU),
oncological outcomes of salvage HIFU for locally recurrent prostate cancer after External Beam Radiotherapy (“EBRT”). This
retrospective study comprises patients from nine centers with local recurrent cancer after EBRT treated with HIFU from 1995
to 2009. The publication is the largest series of salvage treatment confirming very positive oncological outcomes.
More recently, Ganzer & al., Germany, evaluated focal HIFU Hemi-ablation in a prospective trial. Their data were
published in the Journal of Urology in April 2018. In their conclusion, they reported that focal therapy Hemi-ablation is safe
with acceptable oncologic outcome.
In November 2019, Philip CA et al, from Croix Rousse Hospital, Lyon, France, published in Ultrasound Obstet
Gynecology journal, the results of the treatment of 20 patients with deep rectal endometriosis using Focal One HIFU. This study
is the first one on the use of HIFU in this indication. The authors reported very promising results with low morbidity and
significant efficiency on intestinal and gynecological symptoms as well as in the quality of life.
In September 2019, Dupré et al. from Leon Bérard Cancer Center, Lyon, France, published in the Journal of Visualized
Experiments an evaluation of the feasibility, safety and accuracy of an Intraoperative HIFU device for treating liver metastases.
Results are promising and a multicentric phase II study is to be initiated.
In February 2020, Tourhino-Barbosa et al. from Institut Mutualiste Monsouris, Paris, France, published in the Journal
of Urology a retrospective study presenting their results of focal prostate cancer treatments (HIFU and cryotherapy) in their
institution.
HIFU Division Market Potential
Prostate cancer is currently the first or second most common form of cancer among men in many populations. In the
United States, the American Cancer Society estimates the number of new prostate cancers diagnosed for 2020 to be
approximately 191,930, of which approximately 70% are diagnosed with localized stage prostate cancer. Additionally, the HIFU
division believes, based on figures provided by the World Health Organization that the worldwide incidence of localized prostate
cancer is approximately twice this U.S. figure. A more effective diagnostic method for prostate cancer, the PSA test, has
increased public awareness of the disease in developed countries since its introduction. PSA levels jump sharply when cancer
is present. Prostate cancer is an age-related disease, and its incidence in developed countries is expected to increase as the
population ages.
Management believes that HIFU therapy could be expanded to other medical conditions, such as rectal endometriosis,
liver, certain localized thyroid, breast, gynecological, bladder, kidney, brain, pancreatic and retroperitoneal tumors. We decided
to focus on developing HIFU for certain types of pathologies.
For example, in 2019 we successfully finalized a clinical phase 1 study using Focal One HIFU to address certain types
of deep endometriosis located in the low rectum. The study results are promising and show a decrease of symptoms in the treated
patients. A multi-centric study is to be initiated in 2020 to investigate further the use of HIFU in this pathology. As per the
European Society of Human Reproduction and Embryology, endometriosis is estimated to affect approximately one in 10
women of reproductive age.
In view of addressing liver cancer using HIFU technology, we entered into a multi-partner liver cancer development
project named the HECAM consortium in 2015 to develop a novel HIFU approach to treat liver metastasis. The HECAM project
is being finalized and a multicentric study is to be initiated based on a first mono-centric study implemented with Lyon’s Centre
Leon Bérard cancer center.
We also anticipate to develop HIFU technology to address pancreatic, breast and gynecological tumors. However, the
expansion of the use of HIFU to other areas of treatment will require a significant investment in research and development, an
investment we will undertake gradually while focusing on the acceptance of HIFU as a treatment for localized prostate cancer.
HIFU Competition
The principal current therapies for prostate cancer carry side effects that can seriously affect a patient’s quality of life.
One of the current therapies is radical prostatectomy (surgery), which involves the ablation of the entire prostate gland. Radical
prostatectomy requires several days of hospital stay and several weeks of recovery, usually with catheterization, and may result
in partial and/or total urinary incontinence. In addition, it almost invariably renders patients impotent. A new surgical technique,
nerve-sparing prostatectomy, has been developed to address that problem. However, the procedure can only be applied when
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the tumor is not located close to the surface of the prostate and it requires a very skilled surgeon. Other therapies for localized
prostate cancer include brachytherapy, a therapy that involves the implantation of radioisotopes into the prostate gland, EBRT
and cryotherapy.
Our robotic HIFU devices compete with all current treatments for localized tumors, which include surgery,
brachytherapy, radiotherapy, cryotherapy and electroporation. We believe that HIFU competes against those treatments on the
basis of efficacy, limited side effects and cost-effectiveness.
We also believe that Focal One will be well positioned to address the growing demand for a “focal” approach of
localized prostate cancer which cannot be answered by surgery or radiation therapy. “Focal” treatment (also known as “partial”
or “zonal” treatment, as opposed to “radical” treatment) provides an effective and accurate ablative treatment of localized tumors
with the capacities of being flexible and repeatable, while preserving patient quality of life.
Other companies are working with HIFU for the minimally invasive treatment of tumors. See Item 3, “Risk Factors –
Competition in the markets in which we operate is intense and is expected to increase in the future.”
Certain existing and potential competitors of our HIFU division may have substantially greater financial, research and
development, sales and marketing and personnel resources than us and may have more experience in developing, manufacturing,
marketing and supporting new products. We believe that an important factor in the potential future market for HIFU treatments
will be the ability to make the substantial investments in research and development required to advance the technology beyond
the treatment of prostate cancer. These future investments are wholly dependent on the successful acceptance of the device for
the treatment of prostate cancer.
HIFU Division Sales and Distribution of Products
The HIFU division markets and sells its products through our own direct marketing and sales organization as well as
through selected third-party distributors and agents in several countries. Using our direct subsidiaries or representative offices
network, the HIFU division maintains direct marketing and sales forces in France, the United States, Germany, Russia and Italy,
which currently represent its largest HIFU markets. Additionally, the HIFU division markets and sells its products through our
distribution platform in the Middle East, South Korea and South East Asia.
The HIFU division’s customers are located worldwide and have historically been principally public and private
hospitals and urology clinics. The HIFU division believes that as it increases its customer base it will gain further access to the
medical community, which will enable it to monitor the urological market as well as other new targeted markets, introduce new
products and conduct trials addressing new pathologies under satisfactory conditions. No single customer of the HIFU division
represents a significant portion of the division’s installed base.
The HIFU division’s marketing efforts currently include the organization of information and training programs for
urologists, mainly in key European countries and in the United States where HIFU awareness is growing, comprehensive media
and web programs to educate patients on the availability of HIFU technology to treat localized prostate cancer and strong
participation in focused dedicated urological events. Our dedicated web site www.hifu-prostate.com for patients and physicians
is visited regularly. The information contained on that website is not incorporated by reference herein.
The HIFU division is also committed to exclusively distribute HIFU products on behalf of Theraclion, in France,
including the Echopulse device dedicated to the treatment of benign breast tumors and thyroid tumors.
UDS Division
The UDS division is engaged in the development, marketing, manufacturing and servicing of medical devices for the
minimally invasive diagnosis or treatment of urological disorders, mainly urinary stones, and other clinical indications. The
UDS division contributed €30.8 million to our consolidated net sales during the fiscal year ended December 31, 2019.
Our UDS business is quite cyclical and generally linked to lengthy hospital decision and investment processes and their
activities. Hence our quarterly revenues are often impacted and fluctuate according to these parameters, generally resulting in a
possible higher selling activity in the last quarter of the year.
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UDS Division Business Overview
The UDS division’s primary business is producing and marketing devices, known as lithotripters, for the treatment of
urinary tract stones by means of ESWL technology. ESWL uses extracorporeal shockwaves, which can be focused at urinary
stones within the human body to fragment the stones, thereby permitting their natural elimination and preventing the need for
incisions, transfusions, general anesthesia, and the resulting complications. The UDS division currently markets two models of
lithotripters: the Sonolith i-move and the Sonolith i-sys high-end model. The Company will stop manufacturing the Sonolith i-
sys in 2020 as the UDS division recently introduced a new high-end endourology platform Endo-UP® designed for the complete
stone management; Endo-UP platform is to be commercially available in 2020. As of December 31, 2019, the UDS division
has an actively maintained or otherwise serviced installed base of 753 lithotripters.
In addition to its manufacturing and selling of lithotripters, the UDS division also generates revenues from the leasing
of lithotripters, as well as from the sale of disposables, spare parts and maintenance services. It also derives revenues from the
distribution of urodynamics products and urology lasers.
UDS Division Business Strategy
The business strategy for the UDS division is to capitalize on its expertise in ESWL and its position in urology to
achieve long-term growth as a leader in the development, production, marketing and distribution of minimally invasive medical
devices for urological and other clinical indications. The UDS division manufactures its own products as part of EDAP TMS
France SAS (“EDAP TMS France”), our wholly owned subsidiary. The key elements of the UDS division’s strategy are:
•
•
•
Capitalize on the Current ESWL Installed Base. The UDS division’s long-term growth strategy relies on its ability to
capitalize on its extensive installed base of ESWL lithotripters to recognize ongoing revenue from sales of disposables,
accessories, services and replacement machines. We believe that offering highly innovative units that are easily
adaptable to various treatment environments, as well as a commitment to quality and service will allow the UDS
division to achieve this goal. See ‘‘Information on the Company—UDS Division Products’’.
Capitalize on an Established Distribution Platform in Urology by Expanding Distribution Possibilities. We believe
that we can achieve additional long-term growth by offering our established distribution platform in urology to other
developers of medical technologies and acting as a distributor for their devices. Our distribution platform in urology
consists of a series of well-established subsidiaries in Europe, the United States, the Middle East and Asia as well as a
network of third-party distributors worldwide.
Provide Manufacturing Solutions to Other Developers of Medical Technologies. Building upon its established position
in the high-tech medical devices market, we believe that the UDS division can become a provider of manufacturing
alternatives to other developers of medical technologies that do not have or do not wish to invest in their own
manufacturing facilities. We believe that our FDA-inspected and ISO 13485: 2016 certified facilities allow us to offer
manufacturing services to a wide range of potential medical equipment developers.
UDS Division Products
The UDS division currently offers the Sonolith i-move extracorporeal shockwave lithotripter to small and mid-size
hospitals, and will offer the Endo-UP platform, when cleared and commercially available, to various sized hospitals and clinical
sites as a complete stone management platform. The UDS division also sells disposable parts for lithotripters, including the
piezoelectric elements of the LT02, (a machine we discontinued manufacturing in 2002) and the electrodes of the Sonolith line,
which need to be replaced approximately every ten treatments. These parts incorporate key proprietary technologies, and the
UDS division has retained sole marketing rights for these parts.
The Sonolith i-move and the shockwave generator integrated in the Endo-UP platform rely on the electroconductive
technology for shockwave generation. The electroconductive technology, which is derived from the electrohydraulic technology
on which the first ESWL lithotripters were based, permits improved focusing of the shockwave, reduces the variability in the
shockwave pressure and allows a better transfer of energy to the calculus. These features result in a faster, more effective
treatment as compared to electrohydraulic lithotripters.
The UDS division’s ESWL customers are located worldwide and have historically been principally large hospitals,
urology clinics and research institutions. To increase its penetration of the market segment of smaller hospitals and outpatient
clinics, the UDS division developed the Sonolith i-move, an electroconductive lithotripter designed for smaller clinics. It is
more compact than the Sonolith i-sys, which is more fully integrated and dedicated to larger hospitals and can be used as a
26
urological workstation to perform endourological procedures. The Sonolith i-move offers a wide range of configurations to suit
various budgets and various local market needs. Our ESWL range has also been very successful thanks to its innovative Visio-
Track ultrasound stone localization: a unique three-dimensional virtual system that uses infrared stereovision proprietary
technology to guide the treatment robotically.
The recently introduced Endo-UP platform is designed for the management of urinary stones. EDAP’s new complete
urology platform combines a fully dedicated endourology table with X-ray and Ultrasound imaging systems, an integrated
shockwave generator together with an Holmium laser source. This unique all-in-one concept will allow surgeons to choose from
among multiple stone treatment strategies, including ESWL, Ureteroscopy (URS), Percutaneous Nephrolithotomy (PCNL), or
even a combination of therapeutic approaches.
UDS Division Patents and Intellectual Property
As of December 31, 2019, the UDS division’s patent portfolio contained 12 granted patents consisting of two patents
in the United States, eight patents in the European Union and Japan and two patents in Israel and the rest of the world. During
2019, one patent covering ultrasound stone tracking has been delivered in the United States.
These patents belong to five groups of patents covering key technologies relating to ESWL systems and associated
software capabilities. The UDS division’s patents cover both piezoelectric and electroconductive technologies associated to
ESWL generator, localization systems and device design. The UDS division’s ongoing R&D objectives in ESWL are to further
increase the clinical efficacy, the cost-effectiveness and the ease of use of its products to make them accessible to wider patient
and user populations.
As with the development of our HIFU technology, we cooperated with INSERM to develop our ESWL technology.
This cooperation gave rise to co-owned patents in some cases. We have entered in the past into various license agreements with
INSERM whereby we committed to pay a fixed amount of royalties to INSERM based on the net revenues generated from the
sales of ESWL devices using co-owned patents. Under these agreements, we had the exclusive right to the commercial use of
the co-owned patents, including the right to out-license such commercial rights. These license agreements expired in 2016,
allowing EDAP to freely use the related patents.
UDS Division Regulatory Status
The Sonolith i-move is cleared and available for commercial distribution in the European Union, South Korea,
Malaysia, Thailand, Taiwan, Singapore, Russia, Serbia, Peru, Colombia, Costa Rica, Argentina, Japan, the United States, Saudi
Arabia,Mexico, Egypt, India, Indonesia, Koweit, Palestine and Brazil.
The Sonolith i-sys is cleared and under active registration in the European Union, South Korea, Canada, the United
States, Peru, Colombia, Mexico, Costa Rica, Chile, Russia, Serbia, Japan, Malaysia, Singapore, Vietnam, Saudi Arabia, China,
Australia and Taiwan.
The UDS division continues to provide disposables, replacement parts and services for the current installed base of
Sonolith Praktis, even though we discontinued the manufacture of these machines.
Endo-UP platform is not yet CE cleared. The file to be submitted to European authorities for CE clearance is being
finalized.
UDS Division Market Potential
We estimate that roughly 5% of the world population suffers from kidney or ureteric stones during their lifetime and
that urinary calculi are responsible for 10% of urological hospital admissions worldwide. Although urinary calculi may be
eliminated naturally by the body, natural elimination is frequently accompanied by considerable pain and very often by serious
complications, such as obstruction and infection of the urinary tract.
Since its introduction in clinical practice more than 35 years ago, ESWL has become the standard treatment for urinary
calculi. ESWL consists of fragmenting calculi within the body using extracorporeal shockwaves without any surgery. We
believe that the market for lithotripters includes both buyers looking for a sophisticated, higher-priced machine (generally
hospitals and larger urology clinics) and buyers looking for simpler and less expensive machines (typically smaller clinics). We
also believe that after a period of fast growth in the mid-1980s and early 1990s, the market for lithotripters is now mature and
has become primarily a replacement and service and maintenance market in most of the world. We believe that companies with
27
a large installed base of ESWL lithotripters will be most successful in the replacement market. Consequently, we intend to
capitalize on our share of the installed base of ESWL lithotripters to gain a significant position in the replacement market for
those machines. Several geographical opportunities remain in under-equipped countries or in some countries where the national
health system strategy is being reviewed for hospitals and clinics equipment. ESWL is today in competition with less costly
stone laser devices. Consequently, in order to remain competitive, EDAP integrated stone laser products into its ESWL product
range.
Finally, responding to the rapidly evolving urinary stone treatment paradigm, the Company’s new complete Endo-UP
urology platform combines a fully dedicated endourology table with X-ray and Ultrasound imaging systems, an integrated
shockwave generator and an Holmium laser source. The idea of having all the tools instantaneously available to surgeons, and
providing surgeons with the ability to select the best approach or combination of treatment approaches depending on the patient
and the stone represents a true breakthrough in the management of urinary stones.
We expect the ESWL business to continue to contribute, at historically consistent levels, to the UDS division’s financial
results despite the mature nature of the market, due to revenues from maintenance contracts and demand for replacement
machines. See Item 5, ‘‘Operating and Financial Review and Prospects’’.
UDS Division Competition
The ESWL market is characterized by severe price competition among manufacturers, with the result that, in recent
years, the average unit price of ESWL lithotripters has declined. The UDS division expects this trend to continue. See Item 5,
‘‘Operating and Financial Review and Prospects.’’ The UDS division’s major competitors in developed countries are Wolf,
Storz Medical and Dornier Medtech.
UDS Division Sales and Distribution of Products
The UDS division markets, sells and services its products through our direct sales and service platform in France, Italy,
Germany, the United States, Japan, South Korea, Malaysia and, most recently, in the United Arab Emirates through our
representative office in Dubai. The UDS division also markets its products through agents and third-party distributors in several
other countries.
The UDS division’s customers are located worldwide and have historically been mainly public and private hospitals
and urology clinics. We believe that the division’s customer base provides it with excellent access to the urological community
and enables it to introduce new products and conduct trials under satisfactory conditions.
No single customer of the UDS division represents a significant portion of the division’s installed base. The UDS
division’s marketing efforts include the organization of training programs for urologists worldwide.
The UDS division is also pursuing various distribution options that use its strong network of worldwide subsidiaries
and agents. In Japan, the UDS division distributes urodynamics products on behalf of Laborie Company and also distributes x-
ray imaging systems for the diagnosis of musculoskeletal pathologies and orthopedic surgical care on behalf of French company
EOS Imaging (recently acquired by the U.S. based company Alphatec Holdings). In France, the UDS division distributes laser
urology solutions from Lumenis and from Quanta System in Asia and the Middle East. It also distributes Innovex flexible
ureterorenoscopes products in France on behalf of the Chinese company Shanghai Anqing Medical Instrument Co. Ltd. We
believe that the laser use in endo-urology will increase in the coming years, for both the treatment of urinary stones and for
other urological procedures such as HoLEP (Holmium Laser Enucleation of Prostate). We believe that the UDS division can
successfully market its worldwide distribution platform to a wide range of medical equipment development companies, thus
allowing for quick, easy and economically sound entry for these companies into markets covering most of the world.
Manufacturing
Our current manufacturing operations consist of manufacturing medical products in our facility, which is FDA-
approved and certified under international ISO 13485: 2016 standards. We believe that this facility could possibly extend its
outsourced services to provide device and disposable development and manufacturing services to a range of medical equipment
development companies. Each division manufactures its own products through EDAP TMS France.
We manufacture the critical components for our devices and accessories, unless a subcontractor can manufacture the
component more cost-effectively, and we also perform final assembly and quality control processes and maintain our own set
of production standards. We purchase the majority of the raw materials used in our products from a number of suppliers, but for
28
several components of our products, we rely on a single source. Furthermore, we conduct regular quality audits of suppliers’
manufacturing facilities. Our principal suppliers are located in France, Germany, Denmark, South Korea and the United States.
Management believes that the relationships with our suppliers are good.
Quality and Design Control
The manufacturing operations of EDAP TMS France must comply with all regulations of countries where we market
our products, including the GMP regulations enacted by the FDA, which establish requirements for assuring quality by
controlling components, processes and document traceability and retention, among other things. EDAP TMS France’s facilities
are also subject to inspections performed by the FDA. EDAP TMS France is ISO 13485: 2016 certified which indicates
compliance by EDAP TMS France’s manufacturing facilities with international standards for quality assurance, design and
manufacturing process control. EDAP TMS France also complies with the applicable requirements that will allow it to affix the
CE Marking to certain of its products. Our manufacturing site also complies with Taiwanese, Japanese and Canadian regulations,
as well as with the U.S. Quality System Regulation. See ‘‘Information on the Company—Government Regulation—Healthcare
Regulation in the United States’’ and ‘‘—Government Regulation—Healthcare Regulation in the European Union.’’
Organizational Structure
The following table sets forth the fully consolidated subsidiaries of the Company as of the date of this annual report:
Name of the Company
EDAP TMS France SAS
EDAP Technomed Inc.
EDAP Technomed Co. Ltd
EDAP Technomed Sdn Bhd
EDAP Technomed Srl(2)
EDAP TMS GmbH
Jurisdiction of
Establishment
Percentage
Owned(1)
France
United States
Japan
Malaysia
Italy
Germany
100%
100%
100%
100%
100%
100%
(1) Percentage of equity capital owned by EDAP TMS S.A. directly or indirectly through subsidiaries (percentage of capital owned and
voting rights are the same).
(2) EDAP Technomed Srl is currently in liquidation process
Property and Equipment
We have one principal facility, which is located in Vaulx-en-Velin, on the outskirts of Lyon, France. The premises
comprise 4,150 square meters and are leased to us under a renewable ten-year commercial lease agreement signed on July 1,
2015. We use this facility to manufacture our device portfolio. We believe the terms of the lease reflect commercial practice
and market rates. We are not aware of any environmental issues that could affect utilization of the facility.
In addition, we lease office and/or warehouse facilities in Kuala Lumpur (Malaysia), Rome (Italy), Flensburg
(Germany), Austin (U.S.), Moscow (Russia), Seoul (South Korea), Fukuoka, Osaka, Sapporo and Tokyo (Japan) and Dubai
(United Arab Emirates).
Government Regulation
Government regulation in our major markets, in particular the United States, the European Union and Japan, is a
significant factor in the development and marketing of our products and in our ongoing research and development activities.
See Item 3, “Risk Factors –Risks Related to Government Regulations.”
Regulation in the United States
We and our products are regulated in the United States by the FDA under a number of statutes including the Federal
Food, Drug and Cosmetic Act (‘‘FDC Act’’). Pursuant to the FDC Act, the FDA regulates the preclinical and clinical testing,
manufacturing, labeling, distribution, sale, marketing, advertising and promotion of medical devices in the United States.
Medical devices are classified in the United States into one of three classes - Class I, II or III - on the basis of the controls
reasonably necessary to ensure their safety and effectiveness. Class I devices are those whose safety and effectiveness can be
ensured through general controls, such as establishment and registration, medical device listing, FDA-mandated CGMP and
labeling. Most Class I devices are exempt from premarket notification (510(k)). Class II devices are those whose safety and
effectiveness can reasonably be ensured through the use of general controls and ‘‘special controls,’’ such as special labeling
29
requirements, mandatory performance standards, and post-market surveillance. Class II medical devices require 510(k)
submission and clearance. The FDA may also require the submission of clinical data as part of the 510(k) for Class II devices.
The FDA introduced the de novo 510(k) process for novel devices that present low to moderate risk where there is no suitable
predicate device to support a standard 510(k) submission. Class III devices are those that require submission of a PMA by the
FDA to ensure their safety and effectiveness. The PMA process is expensive and often lengthy, typically requiring several years,
and may not necessarily result in approval. The manufacturer or the distributor of the device must obtain an IDE approval from
the FDA before commencing human clinical trials in the United States in support of the PMA. Some newer PMA devices must
also go before a clinical review panel before FDA approval. Our lithotripsy range of products is now classified by the FDA as
Class II devices. As far as our Ablatherm or Focal One HIFU devices are concerned, they also have been classified as Class II.
Advertising and promotional activities in the United States are subject to regulation by the FDA and, in certain instances, by the
U.S. Federal Trade Commission. The FDC Act also regulates quality and manufacturing procedures by requiring us to
demonstrate and maintain compliance with current Quality System Regulations (QSR). Our manufacturing facilities are in
compliance with the requirements of the QSR.
Regulation in the European Union
In the European Union, we annually perform ISO 13485: 2016 certification audits, showing that we comply with
standards for quality assurance, manufacturing and design control.
In 2017, the European Union enacted the new Medical Device Regulation (“MDR”). Manufacturers with currently
approved medical devices in their portfolio have had a transition time of three years, i.e. until May 26, 2020 to meet new MDR
requirements. The MDR introduces substantial changes to the way medical device manufacturers bring their devices to the
European market and how they maintain compliance throughout the product's life cycle. MDR will replace the EU’s current
Medical Device Directive (93/42/EEC) (“MDD”). We are currently updating our organization and quality system as well as our
product development to be able to handle the MDR enforcement within the expected timelines for our existing devices ranges
and the devices under development. We have implemented regulatory actions to ensure our devices may be marketed in the
European and international markets after May 2020.
The MDD and the MDR provide that medical devices that meet certain safety standards must bear a certification of
conformity, the European Community approval ‘‘CE Marking.’’ Except in limited circumstances, member states of the
European Union may not prohibit or restrict the sale, free movement or use for its intended purpose of a medical device bearing
the CE Marking. Medical devices marketed throughout the European Union must comply with the requirement of the MDD and
MDR as applicable to bear a CE Marking (subject to certain exceptions).
Pursuant to the MDD and MDR, medical devices are classified into different classes on the basis of their invasiveness
and the duration of their use. The classification serves as a basis for determining the conformity assessment procedures that
apply to medical devices to be eligible to receive a CE Marking. The conformity assessment procedures for Class I devices can
be carried out, as a general rule, under the sole responsibility of the manufacturer, while for devices of other classes, the
involvement of a notified body is required. The extent of the involvement of such body in the development and manufacturing
of a device varies according to the class under which it falls, with Class III devices being subject to the greatest degree of
supervision. All of the devices currently marketed by us are Class IIb devices.
Regulation in Japan
The import and sales of medical devices in Japan is regulated by the Japanese Ministry of Health, Labor and Welfare
(‘the “MHLW’’) under the license “Marketing Authorization Holder” Our Japanese subsidiary has obtained a general license
as well as specific approvals to import our products that have been approved in Japan. Our Japanese subsidiary is also operating
under the statute of Designated Marketing Authorization Holder (“DMAH”) on behalf of some companies to act as their
representative in the Japanese Territory, before Japanese regulatory authorities. The MHLW also administers various national
health insurance programs to which each Japanese citizen is required to subscribe. These programs cover, among other things,
the cost of medical devices used in operations. The MHLW establishes a price list of reimbursable prices applicable to certain
medical devices under the national health insurance programs and until a new device is included in this list its costs are not
covered by the programs. The LT02, the Sonolith Praktis, the Sonolith Vision, the Sonolith i-sys and the Sonolith i-move are
all included on the MHLW’s list for reimbursement.
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Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The following discussion of our results of operations and liquidity and capital resources for the fiscal years ended
December 31, 2019, 2018 and 2017 is based on, and should be read in conjunction with, our consolidated financial statements
and the notes thereto included in Item 18 of this annual report. The consolidated financial statements have been prepared in
accordance with U.S. GAAP and refer to the new topic-based FASB Accounting Standards Codification.
The following discussion contains certain forward-looking statements that involve risks and uncertainties. Actual
results may differ materially from those contained in such forward-looking statements. See ‘‘Cautionary Statement on Forward-
Looking Information’’ at the beginning of this annual report.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon the consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, including those related to revenue recognition, accounts receivable, bad debts, inventories, warranty
obligations, employee stock-option plans, goodwill impairment, provisions for retirement indemnities, litigation and deferred
tax assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
We believe our more significant judgments and estimates used in the preparation of our consolidated financial
statements are made in connection with the following critical accounting policies.
Revenue Recognition
The Company adopted ASC Topic 606, Revenue from Contracts with Customers, on January 1, 2018.
The Company’s revenue consists of:
• Sales of goods (devices and consumables), where invoicing takes place upon delivery.
• Revenue-per-Procedures (“RPP”) and leases: they comprise (i) revenues on a per treatment basis which are invoiced after
each treatment, or in advance, or on a periodic basis, (ii) leases of devices, which are generally invoiced on a monthly or
quarterly basis, and (iii) lease components arising from multiple-element arrangements, where specific sales terms are
negotiated in accordance with each customer’s individual requirements and which are generally invoiced based on contract
terms,
• Sales of spare parts and services (maintenance, upgrades, mobility and others). Spare parts are invoiced when delivered.
Regarding services, invoicing is performed either on a subscription basis (in advance or at the end of the period) or when
services are performed.
The Company invoices its customers based on the billing schedules in its sales arrangements. Payments are generally
due between one to three months from the date of invoice.
The Company accounts for a contract with a customer when there is a legally enforceable contract between the
Company and its customer, the rights of the goods or services and their payment terms can be identified, the contract has
commercial substance, collectability of the contract consideration is probable, it is approved and the parties are committed to
their obligations.
Our sale arrangements may contain multiple elements, including device(s), consumables and services. For these
multiple-element arrangements, the Company accounts for individual goods and services as separate performance obligations:
(i) if they are a distinct good or service that is separately identifiable from other items in the multiple-element arrangement; and
(ii) if a customer can benefit from the good or service on its own or with other resources that are readily available to the
31
customer. The Company’s sale arrangements may include a combination of the following performance obligations: device(s),
consumables, leases and services (such as, but not limited to, warranty extension).
For multiple-element arrangements, revenue is allocated to each performance obligation based on its relative
standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the
goods or services. If a standalone selling price is not directly observable, then the Company estimates the standalone selling
price considering market conditions and entity-specific factors including, but not limited to, features and functionality of the
goods and services, geographies, and type of customer. The Company regularly reviews standalone selling prices and updates
these estimates as necessary.
The Company recognizes revenue when the performance obligations are satisfied by transferring control over the good
or service to a customer.
The Company’s revenue consists of the following:
Sales of goods:
Sales of goods are and have historically been comprised of net sales of medical devices (ESWL lithotripters and HIFU
devices) and net sales of disposables (mostly Ablapaks and Focalpaks in the HIFU division and electrodes in the UDS division).
Sales of goods also includes products such as urology laser and urodynamics devices distributed through our agents and third-
party distributors.
For devices and disposables, revenue is recognized when the Company transfers control to the customer (i.e. when the
customer has the ability to direct the use of, and obtain substantially all of the remaining benefit from, the device or disposables),
which is generally at the point of delivery or installation, depending on the terms of the arrangement (i.e. when the customer
can use the good to provide services or sell or exchange the good), and based on contractual incoterms.
The Company’s sales arrangements do not provide a right of return. The goods are generally covered by a period of
one to two years standard warranty upon installation. The Company also provides training associated with the sales of goods;
such training-related costs are immaterial in the context of the contract with the customer and do not constitute a distinct
performance obligation.
Sales of RPPs and leases:
Sales of RPP and leases include the revenues from the sale of treatment procedures and from the leasing of machines.
We provide machines to clinics and hospitals for free for a limited period, rather than selling the devices. These hospitals and
clinics perform treatments using the devices and usually pay us based on the number of individual treatments provided.
Revenues related to the sale of treatments invoiced on a ‘‘Revenue-Per-Procedure’’ (‘‘RPP’’) basis are recognized
when the treatment procedure has been completed. Revenues from devices leased to customers under operating leases are
recognized on a straight-line basis.
Regarding multiple-element arrangements with a lease component, a portion of the contract is allocated to the lease
component on the basis of observable market prices applied by the Company for similar devices under operating leases. The
lease component is recognized on a straight line basis over the contractual period. Other components under the contract are
recognized in accordance with their nature.
Sales of spare parts and services:
Revenues related to spare parts are recognized when spare parts are delivered to distributors who perform their own
maintenance services. Spare parts used in the performance of EDAP’s own maintenance and repair services are generally not
recognized separately, unless specified in the contract.
Revenues related to services mainly consist of maintenance contracts which rarely exceed one year and are recognized
on a straight line basis over the term of the service period as the customer benefits from the service throughout the service
contract period. For services rendered when no maintenance contract is in place or for services not included in the scope of a
maintenance contract, revenues are recorded when services are performed.
32
The Company recognizes revenue for extended warranties included in the multiple-element arrangements as a separate
performance obligation in sales of services on a straight-line basis over the extended warranty period. In the majority of countries
in which the Company operates, the statutory warranty period is one to two years and the extended warranty covers periods
beyond this statutory period. Standard warranties do not constitute a separate performance obligation. The Company accrues
for the warranty costs at the time of sale of the device through the multiple-element arrangement.
Agents and distributors:
As part of its sale process in countries other than continental France, when the Company does not have a local
subsidiary, sales of goods to end-customers are performed through agent and distributors. Such agent and distributors are
primarily responsible for the sales’ process, bear the inventory risk, and are free to determine the sale prices. Sales of goods to
agents and distributors are recognized at the time of the sale to the related agent or distributor, based on contractual incoterms.
Deferred revenue:
Deferred revenue for the periods presented primarily relates to service contracts where the service fees are billed up-
front, generally quarterly or annually, prior to those services having been performed, and consists primarily of billing or cash
receipts in advance of services due under maintenance contracts or extended warranty contracts. The associated deferred revenue
is generally recognized ratably over the service period.
Disaggregation of revenue:
Disaggregation by primary geographical market, and timing of revenue recognition is reported in Note 17.
Contract Balances:
Details on contract liabilities are reported on Note 10.
The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about
remaining performance obligations that have original expected durations of one year or less. This relates mainly to maintenance
services.
Allowance for Doubtful Accounts
We evaluate the collectability of our accounts receivable based on the individual circumstances of each customer on a
quarterly basis. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us
(e.g., bankruptcy filings, substantial downgrading of credit scores), we record a specific reserve for bad debts against amounts
due to reduce the net recognized receivable to the amount we reasonably believe we will collect. If circumstances change (i.e.
higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial
obligations to us), our estimates of the recoverability of amounts due to us could be reduced by a material amount.
Operating Results
Overview
Total revenues include sales of our medical devices and sales of disposables (“sales of goods”), sales of RPPs and
leases, and sales of spare parts and services, all net of commissions, as well as other revenues.
Sales of goods have historically been comprised of net sales of medical devices (ESWL lithotripters and HIFU devices)
and net sales of disposables (mostly Ablapaks and Focalpaks in the HIFU division and electrodes in the UDS division). Sales
of goods also included products such as urology laser and urodynamics devices distributed through our agents and third-party
distributors. The sale price of our medical devices is subject to variation based on a number of factors, including market
competition, warranties and payment terms. Consequently, a particular sale of a medical device may, depending on its terms,
result in significant fluctuations in the average unit sale price of the product for a given period, which may not be indicative of
a market trend.
Sales of RPP and leases include the revenues from the sale of Ablatherm and Focal One treatment procedures and from
the leasing of Ablatherm and Focal One devices. We provide Ablatherm and Focal One devices to clinics and hospitals for free
33
for a limited period, rather than selling the devices. These hospitals and clinics perform treatments using the devices and usually
pay us based on the number of individual treatments provided. With this business model, the hospital or clinic does not make
an initial investment until the increase in patient demand justifies the purchase of a HIFU device. Consequently, we are able to
make Ablatherm or Focal One treatments available to a larger number of hospitals and clinics, which we believe should serve
to create more long-term interest in the product. Compared to the sale of devices, this business model initially generates a
smaller, although more predictable stream of revenue and, if successful, should lead to more purchases of Ablatherm and Focal
One devices by hospitals and clinics in the long term.
In 2019, 2018 and 2017, our UDS sales activity benefited from the success of our ESWL devices, together with a
sustained commercial effort in distributing additional urology devices which allowed us to capture market share worldwide. We
believe that the market for ESWL lithotripters is now mature and has become primarily a replacement and maintenance market,
with intense competition. As a result, we expect total market volumes for our UDS Division to remain stable in the foreseeable
future. The commercialization of our high-end Endo-UP platform for the management of stone diseases should contribute to the
stability of our UDS Division’s activity.
Sales of spare parts and services include revenues arising from maintenance services furnished by us for the installed
base of ESWL lithotripters and HIFU devices.
We derive a significant portion of both net sales of medical devices and disposables and net sales of spare parts and
services from our operations in Asia, through our wholly-owned subsidiaries or representative offices in Japan (Edap
Technomed Co. Ltd), Malaysia (Edap Technomed Sdh Bhd) and South Korea (Edap Technomed Korea). Net sales derived from
our operations in Asia represented approximately 40% of our total consolidated net sales in 2019. Net sales of goods in Asia
represented approximately 46% of such sales in 2019 and consisted mainly of sales of urology devices and disposables. Net
sales of spare parts, supplies and services in Asia represented approximately 39% of such sales in 2019 and related primarily to
ESWL lithotripters, reflecting the fact that approximately 50% of the installed base of our ESWL lithotripters that we actively
maintain or otherwise serve is located in Asia. See Note 28 of our consolidated financial statements. We sell our products in
many parts of the world and, as a result, our business is affected by fluctuations in currency exchange rates. We are exposed to
foreign currency exchange rate risk because the mix of currencies in which our costs are denominated is different from the mix
of currencies in which we earn revenues. In 2019, approximately 57% of our costs of sales and research and development,
selling, marketing and general and administrative expenses were denominated in euro, while approximately 51% of our sales
were denominated in currencies other than euro (primarily the U.S. Dollar and Japanese yen). Our operating profitability could
be materially affected by large fluctuations in the rate of exchange between the euro and such other currencies. To minimize
our exposure to exchange rate risks, we sometimes use certain financial instruments for hedging purposes. See Item 3, ‘‘Risk
Factors—We sell our products in many parts of the world and, as a result, our business is affected by fluctuations in currency
exchange rates’’ and Item 11, ‘‘Quantitative and Qualitative Disclosures About Market Risk’’ for a description of the impact
of foreign currency fluctuations on our business and results of operations.
Reserves for slow-moving and obsolete inventory are determined based upon quarterly reviews of all inventory items.
Items which are not expected to be sold or used in production, based on management’s analysis, are written down to their net
realizable value, which is their fair market value or zero in the case of spare parts or disposable parts for devices that are no
longer in commercial production.
Consolidated research and development expenses include all costs related to the development of new technologies and
products and the enhancement of existing products, including the costs of organizing clinical trials and of obtaining patents and
regulatory approvals. We do not capitalize any of our research and development expenses, except for the expenses relating to
the production of machines to be used in clinical trials and that have alternative future uses as equipment or components for
future research projects.
Consolidated research and development expenses, as described above, amounted to €3.7 million, €4.1million and €3.9
million in 2019, 2018 and 2017, respectively, representing approximately 8.3%, 10.4% and 10.9% of total revenues in 2019,
2018 and 2017, respectively. Research and development government grants and tax credits are deducted from our consolidated
research and development expenses for amounts of €1.0 million, €0.8 million and €0.7 million in 2019, 2018 and 2017,
respectively. Beginning in 2020, management expects the budget for research and development expenses in Europe to increase
at approximately 10.6% of total revenues, which we expect will allow us to maintain our strategy to launch new clinical studies
(thus strengthening our clinical credibility), to continue to focus our efforts on obtaining regulatory approvals in Japan in
particular, and reimbursement in key countries, to continue to develop our HIFU and ESWL product range and to fund projects
to expand the use of HIFU beyond the treatment of prostate cancer.
34
Consolidated selling and marketing expenses amounted to €10.9 million in 2019, €10.6 million in 2018 and €9.5
million in 2017. Selling and marketing expenses included net impact of allowances for doubtful accounts of €0.1 million in
2019, €0.4 million in 2018 and €0.1 million in 2017. The €0.3 million or 2.8% increase in selling and marketing expenses from
2018 to 2019 was primarily a result of the increase in global sales and marketing activity. Management expects marketing and
sales efforts to stay at significant levels in the future to consolidate the Ablatherm and Focal One HIFU technology’s status as
a standard of care for prostate pathologies, and to sustain the Company’s worldwide market position in urology. Beginning in
2020, management expects selling and marketing expenses to continue to increase in view of the Company’s expansion.
The novel COVID-19 virus which has profoundly impacted the whole worldwide economy in early 2020 represents a
new challenge for us all. We are currently closely monitoring the situation and have implemented numerous precautions and
protective measures to safeguard our employees and to ensure an uninterrupted supply of our devices and disposables, including
requiring the majority of our employees to work remotely, maintaining minimum supply chain activity and curtailing all business
travel. Further, from April 1, 2020, our facility in Lyon, France has been closed with only minimal staff to expedite shipments
of disposals at planned intervals. In the near term, we expect this situation to continue to cause decreased activity in our recurring
usual business activity with some cancellations of ESWL and HIFU treatments. We also anticipate that device sales projects
may be postponed on a near-term basis as hospital purchase and investment decisions are put on hold. However, our sales cycles
are long and we have in inventory several devices and accessories that are ready to be shipped when order activity resumes. The
Company therefore hopes to be well positioned to resume delivery activities as soon as that becomes possible. Importantly, in
this unique and unknown global crisis, EDAP has a solid cash position, which is expected to minimize disruption to the extent
possible. . See Item 3. ‘‘Risk Factors” and “—Liquidity and Capital Resources.’’
Fiscal Year Ended December 31, 2019 Compared to Fiscal Year Ended December 31, 2018
We report our segment information on a “net contribution” basis, so that each segment’s results comprise the
elimination of our intra-group revenues and expenses and thus reflect the true contribution to consolidated results of the segment.
See Note 28 to our consolidated financial statements.
(in millions of euros)
Total revenues
Total net sales
Of which HIFU
Of which UDS
Total cost of sales
Gross profit
Gross profit as a percentage of total net sales
Total operating expenses
Income (loss) from operations
Net income (loss)
Total revenues
2019
2018
44.9
44.9
14.1
30.8
(23.9 )
21.0
46.8%
(18.8 )
2.2
1.5
39.2
39.2
11.0
28.1
(22.3 )
16.9
43.2%
(18.2 )
(1.3 )
(0.3 )
Our total revenues increased 14.6% from €39.2 million in 2018 to €44.9 million in 2019.
HIFU division. The HIFU division’s total revenues increased by 28.1% from €11.0 million in 2018 to €14.1 million in
2019.
The HIFU division’s net sales of medical devices increased 63.8% to €5.9 million in 2019, with two Ablatherm units
and eleven Focal One units sold, as compared to €3.6 million, with one Ablatherm and six Focal One units sold in 2018. This
growth is primarily driven by the US market activity since we sold nine HIFU devices in the U.S. in 2019 as compared to two
in 2018.
Treatment-driven revenue, which includes net sales of RPP & leases, net sales of disposables and treatments related
services, increased by 15.3% to €7.0 million in 2019.
Net sales of HIFU maintenance services slightly decreased from €1.3 million in 2018 to €1.2 million in 2019 in spite
of the increase of the installed base, since new sold machines are still under warranty.
35
Other HIFU-related revenues increased to €52 thousand in 2019 from €19 thousand in 2018 and were comprised of
license-based revenues from Theraclion and training to customers.
UDS division. The UDS division’s total revenues increased 9.3 % from €28.1 million in 2018 to €30.8 million in 2019,
mostly due to the increase in distribution products both in machines and consumables revenues.
The UDS division’s net sales of medical devices increased 6.3% from €15.3 million in 2018 to €16.3 million in 2019
with 28 ESWL devices sold in 2019 compared to 33 ESWL units sold in 2018. The increase was driven by a 15% growth in the
sales of distribution machines.
Net sales of UDS-related consumables, spare parts, supplies, RPP, leasing and services increased 13.0% from €12.8
million in 2018 to €14.5 million in 2019, as a result of the larger installed base of UDS machines and the development of the
distribution products revenues.
Cost of sales.
Cost of sales increased 7.4% from €22.3 million in 2018 to €23.9 million in 2019, and represented 53.3% as a
percentage of net sales in 2019, down from 56.9% as a percentage of net sales in 2018. This improvement is driven primarily
by the increase in the percentage of HIFU revenue to overall revenue (since HIFU activity has better margin than UDS); and
the effect of the increase of net sales on the fixed costs.
Operating expenses.
Operating expenses increased 3.1%, or €0.6 million, from €18.2 million in 2018 to €18.8 million in 2019.
Marketing and sales expenses increased €0.3 million, or 2.8% at €10.9 million, reflecting the sales and marketing
efforts on expanding the business.
Research and development expenses decreased 8.8% at €3.7 million in 2019 from €4.1 million in 2018, which included
regulatory expenses for the Focal One clearance in the U.S., and are net of R&D grants and tax credits of €1.0 million in 2019
and €0.8 million 2018.
General and administrative expenses increased 17.6% to €4.2 million in 2019, mainly due to the higher level of activity
and the implementation of the SAP program.
Operating profit (loss).
As a result of the factors discussed above, we recorded a consolidated operating income of €2.2 million in 2019, as
compared to a consolidated operating loss of €1.3 million in 2018.
We realized an operating profit in the HIFU division of €0.5 million in 2019, as compared with an operating loss of
€2.3 million in 2018, and an operating profit in the UDS division of €3.0 million in 2019, as compared to an operating profit of
€2.3 million in 2018.
Financial (expense) income, net.
Net financial expense was €0.1 million in 2019, compared with a net financial income of €0.8 million in 2018, including
a €0.9 million income due to fair value adjustments of warrants. There were no more outstanding warrants at the end of 2018
and 2019.
In 2019, we recorded a net foreign currency exchange income of €0.1 million, mainly due to the variation of the Euro
against the U.S. Dollar and the Japanese Yen, compared to an income of €0.5 million in 2018.
Income taxes.
Income tax was an expense of €0.7 million in 2019, compared to an expense of 0.4 million in 2018, reflecting the
growth of the Income before taxes
36
Net income / (loss)
As a result of the above, we realized a consolidated net income of €1.5 million in 2019 compared with a consolidated
net loss of €0.3 million in 2018.
Fiscal Year Ended December 31, 2018 Compared to Fiscal Year Ended December 31, 2017
The discussion of our operating and financial review and prospects for the years ended December 31, 2018 and
December 31, 2017 can be found in Part I, Item 5 ‘‘Operating and Financial Review and Prospects – Operating Results’’ of our
Annual Report on Form 20-F filed on April 12, 2019, which is available on our Company’s website, in the Investors section
(www.edap-tms.com/investors information / Financial Information / SEC filings”) and on the SEC’s website via EDGAR. The
contents of our website is not incorporated by reference or otherwise included in this Annual Report on Form 20-F.
Effect of Inflation
Management believes that the impact of inflation was not material to our net sales or loss from operations in the three
years ended December 31, 2019.
Liquidity and Capital Resources
Our cash flow has historically been subject to significant fluctuations over the course of any given financial year due
to cyclical demand for medical devices. Cyclical demand has historically resulted in significant annual and quarterly fluctuations
in trade and other receivables and inventories, and therefore led to significant variations in working capital requirements and
operating cash flows that were not necessarily indicative of changes in our business. We believe our working capital is sufficient
for our present working capital requirements although we have in the past experienced negative cash flows and associated risks
to liquidity, and may in the future experience the same. Our cash flow situation is described in more detail below.
We anticipate that cash flow in future periods will be derived mainly from ongoing operations. As of the date of this
annual report we do not employ any off-balance sheet financing. Because we anticipate relying principally on cash and cash
equivalent balances to meet our liquidity requirements, a decrease in the demand for our products, or the inability of our
customers to meet their financial obligations to us due to operating difficulties or adverse market conditions, would reduce the
availability of funds to us.
(in thousands of euros)
2019
2018
2017
Net cash generated by/(used in) in operating activities
Net cash generated by/(used in) in investing activities
Net cash generated by/(used in) in financing activities
Net effect of exchange rate changes
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
3,800
(1,532 )
(664 )
(182 )
1,422
19,464
20,886
175
(1,569 )
1,178
(323 )
(539 )
20,004
19,464
(3,059 )
(2,032 )
2,871
235
(1,985 )
21,989
20,004
Our cash position as of December 31, 2019, 2018 and 2017, was €20.9 million (with no short-term treasury
investments), €19.5 million (with no short-term treasury investments) and €20.0 million (with no short-term treasury
investments), respectively. We experienced positive cash flows of €1.4 million in 2019, negative cash flows of €0.5 million in
2018 and negative cash flows of €2.0 million in 2017.
In 2019, our positive net cash flow was primarily due to the high level of cash generated by operating activities, partly
offset by cash used in investing activities and net cash used in financing activities which included a repayment of long term
borrowing (€1.1 million). In 2018, our negative net cash flow was primarily due to the high level of cash used in investing
activities partly offset by net cash generated by financing activities which included the new Long Term debt (€1.0 million)
granted during the year. In 2017, our negative net cash flow was primarily due to the negative cash flow from operations and
the high level of cash used in investing activities.
In 2019, net cash generated by operating activities was €3.8 million compared with net cash generated by operating
activities of €0.2 million in 2018 and compared with net cash used in operating activities of €3.1 million in 2017.
37
-
-
-
-
-
-
In 2019, net cash generated by operating activities reflected principally:
a net income of €1.5 million;
elimination of €2.3 million of net loss without effects on cash, including €1.9 million of depreciation and amortization and
€0.3 million of non-cash compensation linked to stock-options plans;
an unchanged level in working capital reflecting the growth of activity on the inventories level, offset by the lower level
of net sales recorded in December 2019 as compared to December 2018.
In 2018, net cash generated by operating activities reflected principally:
a net loss of €0.3million;
elimination of €1.8 million of net loss without effects on cash, including a gain of €0.9 million due to fair value variations
of financial instruments, €1.6 million of depreciation and amortization, and €0.3 million of non-cash compensation linked
to stock-options plans;
an increase in working capital of €1.3 million reflecting the higher level of activity and the high level of net sales recorded
in December 2018 which has been collected in 2019.
In 2017, net cash used in operating activities reflected principally:
-
-
-
-
-
-
a net loss of €0.7 million;
elimination of €0.7 million of net gain without effects on cash, including a gain of €2.7 million due to fair value variations
of financial instruments, €1.6 million of depreciation and amortization, and €0.4 million of non-cash compensation
linked to stock-options plans;
an increase in trade accounts and other receivables of €1.7 million;
a decrease in inventories of €0.7 million;
an increase in payables of €0.4 million;
a decrease in accrued expenses and other current liabilities of €1.0 million.
In 2019, net cash used in investing activities was €1.5 million compared with net cash used in investing activities of
€1.6 million in 2018 and compared with net cash used in investing activities of €2.0 million in 2017.
Net cash used in investing activities of €1.5 million in 2019 reflected mainly:
-
investments of €1.0 million in capitalized assets produced by the Company (devices), mostly for RPP activity
(€0.3 million), HIFU treatments probes (€0.4 million) and R&D program (€0.3 million);
investment of €0.4 million in property, equipment (including €0.2 million of equipment for demo) and IT and
offices equipment (€0.2 million).
-
Net cash used in investing activities of €1.6 million in 2018 reflected:
-
investments of €0.8 million in capitalized assets produced by the Company (devices), mostly for RPP activity
(€0.3 million) and R&D program (€0.5 million),
investment of €1.1 million in property, equipment (including €0.3 million of equipment for mobile activity) and
software (including new Enterprise Resource Planning “ERP” implementation for €0.4 million),
and net proceeds from sales of leased-back assets of €0.4 million.
Net cash used in investing activities of €2.0 million in 2017 reflected:
-
investments of €1.0 million in capitalized assets produced by the Company (devices), mostly for RPP activity
(€0.5 million) and R&D program (€0.3 million)
investment of €1.0 million in property, equipment and software (including new Enterprise Resource Planning
“ERP” implementation for €0.5 million),
and net proceeds from sales of leased-back assets of €0.1 million.
-
-
-
-
In 2019, net cash used in financing activities was €0.7 million compared with net cash generated in financing activities
of €1.2 million in 2018 compared with a net cash generated in financing activities of €2.9 million in 2017.
Net cash used in financing activities of €0.7 million in 2019 reflected principally the net proceeds of €0.3 million from
the exercise of stock options, the new long term borrowings of €0.7 million in Japan, the repayments of long-term borrowings
and financing lease for €1.5 million (including €0.7 million of early repayment in Japan) and a decrease of short-term borrowings
of €0.2 million.
Net cash generated in financing activities of €1.1 million in 2018 reflected principally the new long term borrowings
of €1.0 million in Germany and Japan, repayment of long-term borrowings and lease financing for €0.8 million and an increase
of short-term borrowings of €0.9 million.
38
Net cash generated in financing activities of €2.9 million in 2017 reflected principally the net proceeds of €0.7 million
from the exercise of stock options and warrants, but also new long term borrowings of €0.8 million related to new investments
financing, €0.8 million of conditional advances to finance the HECAM research project, repayment of long-term borrowings
and lease financing for €0.5 million and an increase of short-term borrowings of €1.1 million.
Our policy is that our treasury department should maintain liquidity with the use of short-term borrowings and the
minimal use of long-term borrowings. The treasury department currently adheres to this objective by using fixed-rate debt,
which normally consists of long-term borrowing and with certain long-term borrowings consisting of sale and leaseback
equipment financing. Currently the short-term debt consists of account receivables factored and for which the Company is
supporting the collection risk. We maintain bank accounts for each of our subsidiaries in the local currencies of each subsidiary.
The primary currencies in which we maintain balances are the euro, the U.S. dollar and the Japanese yen. To minimize our
exposure to exchange rate risks, we may use certain financial instruments for hedging purposes from time to time. As of
December 31, 2019, there were no outstanding hedging instruments. See Notes 13 and 14 to the consolidated financial
statements for further information on our borrowings.
Contractual Obligations and Commercial Commitments as of December 31, 2019 (in thousands of euro)
Payments Due by Period
Total
Less than 1
year
3,513
1,419
1,044
2,684
144
3,513
462
392
958
62
1-3 years
4-5 years
More than 5
years
592
502
1,210
63
215
151
516
16
150
—
2
Short-Term Debt
Long-Term Debt
Financing Lease Obligations
Operating Leases Obligations
Interest
Recent Accounting Pronouncements
See “NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- 1.25 Recent Accounting
Pronouncements” of the Notes to Consolidated Financial Statements for a description of recent accounting pronouncements
including the respective expected dates of adoption and estimated effects, if any, on our Consolidated Financial Statements.
Research and Development, Patents and Licenses
See “Item 5—Operating and Financial Review and Prospects—Operating Results—Overview” and Item 4,
‘‘Information on the Company—HIFU Division—HIFU Division Patents and Intellectual Property’’ and ‘‘Information on the
Company—UDS Division—UDS Division Patents and Intellectual Property.’’
The French government provides tax credits to companies for innovative research and development. This tax credit is
calculated based on a percentage of eligible research and development costs and it can be refundable in cash.
Off-Balance Sheet Arrangements
At December 31, 2019, we had no off-balance sheet arrangements other than those specified in Note 13-1 of our
consolidated financial statements.
39
Item 6. Directors, Senior Management and Employees
Senior Executive Officers
The following table sets forth the name, age and position of each of our Senior Executive Officers as of April 16, 2020.
The Chief Executive Officer and the Chief Financial Officer listed below have entered into employment contracts with us or
our subsidiaries (which permit the employee to resign subject to varying notice periods). In addition, in case of a change of
control of the Company, or of a termination of their employment contract by the Company without cause, the Senior Executive
Officers are entitled to receive severance packages totaling approximately €0.8 million.
Name
Position
Marc Oczachowski
Age: 50
François Dietsch
Age: 44
Chief Executive Officer of EDAP TMS S.A. and Chairman of the Board of Directors
President of EDAP TMS France SAS and EDAP Technomed, Inc.
Marc Oczachowski joined the Company in May 1997 as Area Sales Manager, based in
Lyon, France. From March 2001 to January 2004, he held management positions as
General Manager of EDAP Technomed Malaysia. He was appointed Chief Operating
Officer of EDAP TMS in November 2004 and became Chief Executive Officer of the
Company on March 31, 2007. From July 2012 to July 2017, he relocated to Austin,
Texas to manage EDAP’s U.S. operations. On March 25, 2020, he was appointed
Chairman of the Board of Directors following Philippe Chauveau’s decision to step
down from this position. Previously he worked for Sodem Systems, which
manufactures orthopedic power tools, as Area Sales Manager. He is a graduate of
Institut Commercial de Lyon, France.
Chief Financial Officer of EDAP TMS S.A.
François Dietsch joined EDAP in 2005 as Internal Audit and Consolidation Manager,
leading the implementation of internal controls for Sarbanes-Oxley Compliance,
consolidation of financial statements from the Company's subsidiaries and preparation
of financial statements in accordance with U.S. GAAP, including EDAP's Annual
Report on Form 20-F. In 2012, he was promoted to Group Financial Control Manager
and Finance Manager of EDAP's French subsidiary where, in addition to his previous
responsibilities, he managed accounting firm relationships at the subsidiary level and
was the primary liaison between the Company and its external auditors. He also
managed the Finance department at EDAP France. He was appointed Chief Financial
Officer of the Company on July 14, 2015. Prior to joining EDAP he held finance
positions at Valeo, a leading global supplier of components and systems to the
automotive industry. He holds Master's Degrees in Management and Corporate Finance
from University of Paris Dauphine.
Board of Directors
The following table sets forth the names and backgrounds of the members of the Board of Directors. On March 25,
2020, the Board of Directors accepted the resignation of Mr. Philippe Chauveau as Chairman of the Board and, upon the
recommendation of the Company’s Nomination Committee, the Board decided to combine the roles of Chairman of the Board
and Chief Executive Officer, as permitted by the Company’s bylaws, and elected Mr. Marc Oczachowski as the new Chairman
of the Board of Directors. None of the directors has service contracts with the Company or any of its subsidiaries providing for
benefits upon termination of employment. Four Board members out of five are independent within the meaning of NASDAQ
Marketplace Rule 5605(2). The mandate of four of our Directors terminate in June 2020 at the General Meeting of Shareholders
approving the 2019 accounts. Mr. Philippe Chauveau’ will not renew his mandate as a Director in June 2020. Proposals with
respect to these positions on the Board of Directors will be made in due course and submitted to the vote of the shareholders at
the General Meeting of Shareholders approving the 2019 accounts.
Marc Oczachowski
Age: 50
Chairman of the Board. See Marc Oczachowski’s biography above.
Mandate: 6 years
Appointment: July 1, 2017
Expiration: 2022
40
Philippe Chauveau
Age: 84
Mandate: 6 years
Appointment: April. 8,
1997 (renewed in 2014)
Expiration: 2019
Philippe Chauveau was named chairman of EDAP TMS S.A.'s Supervisory Board in 1997 and
resigned from his position of Chairman of the Board on March 25, 2020, when Marc Oczachowski
was appointed Chairman. In 2002, the Company’s two-tiered board structure was replaced by a single
Board of Directors with Philippe Chauveau serving as Chairman and CEO until 2004 when he was
succeeded as CEO. From 2000 to 2007, Philippe Chauveau served as founding Chairman of the
Board of Scynexis Inc., funded by private equity, which is an innovative drug discovery company
based in the United States. He was Vice-President of research and development at AT&T Bell Labs
and has also served as Chairman of Apple Computer Europe, preceded by increasing marketing roles
in ITT and in Procter & Gamble. He has an Honours Degree from Trinity College Dublin with a B.A.
and a Bsc.
Pierre Beysson
Age: 78
Mandate: 6 years
Appointment:
September 27, 2002
(renewed in 2014)
Expiration: 2019
Argil Wheelock
Age: 72
Mandate: 6 years
Appointment: June 25,
2009
(renewed in 2014)
Expiration: 2019
Rob Michiels
Age: 70
Mandate: 6 years
Appointment: July 16,
2009
(renewed in 2014)
Expiration: 2019
Compensation
Pierre Beysson was appointed as a member of the Board of Directors in September 2002. Pierre
Beysson was then the Chief Financial Officer of Compagnie des Wagons-Lits ("CWL"), the on-board
train service division of Accor, a French multinational Hotel and Business Services Group. In this
capacity, he sat on a number of boards of companies related to the Accor Group. Before his
assignment at CWL, Pierre Beysson held a number of senior financial positions with Nixdorf
Computers, Trane (Air Conditioning), AM International (Office Equipment) and FMC (Petroleum
Equipment). Pierre Beysson was trained as a CPA, has auditing experience and holds an MBA from
Harvard Business School.
Dr. Argil Wheelock was elected as a member of the Company's Board of Directors in June 2009. Dr.
Wheelock, a U.S. board certified urologist, is currently Senior Physician at the University of
Tennessee Department of Urology at Erlanger Medical Center, a tertiary care and teaching hospital
in Chattanooga, Tennessee. He is Chief Medical Advisor to HealthTronics Inc., a privately held
company. HealthTronics is a leading U.S. provider of urological services and products. From 1996
to 2005, Dr. Wheelock served as Chairman and CEO of HealthTronics, a publicly traded NASDAQ
company where he was a founder. He has built a successful track record introducing new medical
devices to the U.S. and navigating the FDA approval process. He is widely known among the U.S.
urological community for bringing clinical benefits to patients and economic value to urology
practices. Dr. Wheelock graduated from the University of Tennessee College of Medicine and
completed urological training at Mount Sinai Hospital in New York City.
Rob Michiels was elected as a member of the Company's Board of Directors in July 2009. He is a
40-year U.S. veteran of the medical device industry. He most recently serves as Chief Executive
Officer (CEO) of CardiAQ Valve Technologies, a venture funded start-up developing Transcatheter
Mitral Valve Implantation which was acquired by Edwards Lifesciences during the second half of
2015. He previously served as Chief Operating Officer (COO) of CoreValve (acquired by
Medtronic); and as President and COO of InterVentional Technologies (acquired by Boston
Scientific). He helped drive both companies from cardiovascular start-ups to established market
leaders, using new and innovative technologies which have strong synergies to the HIFU story. Rob
Michiels is a director of Conveyor Ltd and FEops NV, all privately held companies developing
cutting edge cardio-vascular less-invasive Technologies. Rob Michiels is a founding partner of
CONSILIUM, a medical device market research company active in identifying, funding and
greenhousing start-up technologies. Fluent in English, French and Dutch languages, he holds a
bachelor's degree in economics from Antwerp University in Belgium and a Master’s in business
administration (MBA) from Indiana University.
Aggregate compensation paid or accrued for services in all capacities by the Company and its subsidiaries to Senior
Executive Officers and to the Board of Directors as a group for the fiscal year 2019 was approximately €562 thousand including
performance bonuses of €124 thousand and benefits in kind of €9 thousand (benefits in kind comprise car allowances for senior
management). No amount was set aside or accrued by us to provide pension, retirement or similar benefits for Senior Executive
Officers and to the Board of Directors as a group in respect of the year 2019. For information regarding compensation paid in
the form of stock options, see “Directors, Senior Management and Employees -- Share Ownership” and “Directors, Senior
Management and Employees -- Options to Purchase or Subscribe for Securities.”
41
Compensation Committee
The Compensation Committee is comprised of the following independent members: Mr. Philippe Chauveau, Mr. Pierre
Beysson, Dr. Argil Wheelock and Mr. Rob Michiels. The Committee gathers once a year to review the compensation of our
Chief Executive Officer, as per the approved charter of the Compensation Committee, and to propose to the Board of Directors
any changes to the Chief Executive Officer’s compensation. The Chief Executive Officer is not present when the Compensation
Committee reviews his compensation. In August 2014, the Compensation Committee updated its charter which was
subsequently approved by the Board of Directors. Following the next General Meeting of shareholders approving the financial
statements for the year ended December 31, 2019 and the elections of members of our Board of Directors, scheduled in June
2020, the newly composed Board of Directors will elect a new independent Compensation Committee.
Audit Committee
The Board of Directors’ Audit Committee comprises four independent members of the Board: Mr. Pierre Beysson,
acting as Head of the Audit Committee and financial expert, Mr. Philippe Chauveau, Dr. Argil Wheelock and Mr. Rob Michiels.
The purpose of the Audit Committee, in accordance with its annually approved charter, is as stated below, but not limited to:
-
Provide assistance to the Board of Directors in fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community and others relating to: the integrity of our financial statements, our compliance
with legal and regulatory requirements, our accounting practices and financial reporting processes, the effectiveness of our
disclosure controls and procedures and internal control over financial reporting,
- Review the independent auditor’s qualifications, compensation and independence, and the performance of our internal audit
function and independent auditors,
- Recommend the appointment of the independent auditors for consideration and approval by the Company’s shareholders
in accordance with French law.
- Review and discuss annual financial statements with Management and independent auditors and prepare the Audit
Committee report, prior to SEC filings, as well as review related press releases.
- Request any officer or employee of the Company or our outside counsel or independent auditor to attend a meeting of the
Audit Committee or to meet with any members of, or consultants to, the Audit Committee.
For more information on the missions of our Audit Committee, please refer to our web site www.edap-tms.com, under the
Investor Relations Section, where our Audit Committee Charter is available.
Following the next General Meeting of shareholders approving the financial statements for the year ended December
31, 2019 and the elections of members of our Board of Directors, scheduled in June 2020, the newly composed Board of
Directors will elect a new independent Audit Committee.
Nomination Committee
The Company’s Board of Directors recommends for the Board’s selection director nominees to submit to the vote of
the Company’s shareholders. In addition, under specified circumstances and in accordance with French law, shareholders may
also submit resolutions to the general meeting to appoint directors.
The Company’s nominations practice is formalized in a Board resolution and at its Board meeting in February 2015,
the Board resolved that in the event that one or more directors is or are no longer independent, the Board will create a
Nominations Committee (composed exclusively of independent Directors). A Nominations Committee Charter was approved
accordingly, the terms of which apply to the Board of Directors when considering director nominees including evaluation of
potential candidates, and recommendations to the Board of Directors prior to submitting the candidates to the vote of
shareholders. As per this Charter, upon the appointment of Mr. Marc Oczachowski to the Board as a non-independent Director,
on June 30, 2017, the Board of Directors, was convened on July 10, 2017, and decided to create a Nomination Committee
composed exclusively of independent Directors. Following the next General Meeting of shareholders approving the financial
statements for the year ended December 31, 2019 and the elections of members of our Board of Directors, scheduled in June
2020, the newly composed Board of Directors will elect a new independent Nomination Committee.
42
Employees
As of December 31, 2019, we employed 216 individuals on a full-time basis, as follows:
Sales &
Marketing
Manufac-
turing
Service
Research
& Dvpt
Regula-
tory
Clinical
Affairs
Adminis-
trative
Total
23
2
7
24
2
2
6
66
31
0
0
0
0
0
0
31
24
0
0
16
3
4
1
48
21
0
0
0
0
0
0
21
7
0
0
3
0
0
0
10
9
0
0
0
0
0
0
9
15
2
2
6
2
1
3
31
130
4
9
49
7
7
10
216
France
Italy
Germany
Japan
Malaysia
South Korea
USA
Total
As of December 31, 2018, we employed 215 individuals on a full-time basis, as follows:
Sales &
Marketing
Manufac-
turing
Service
Research
& Dvpt
Regula-
tory
Clinical
Affairs
Adminis-
trative
Total
25
3
4
21
2
2
7
64
32
0
0
0
0
0
0
32
20
0
3
16
3
3
2
47
18
0
0
0
0
0
0
18
6
0
0
3
0
0
1
10
9
0
0
0
0
0
2
11
16
2
2
6
2
1
4
33
126
5
9
46
7
6
16
215
France
Italy
Germany
Japan
Malaysia
South Korea
USA
Total
As of December 31, 2017, we employed 200 individuals on a full-time basis, as follows:
Sales &
Marketing
Manufac-
turing
Service
Research
& Dvpt
Regula-
tory
Clinical
Affairs
Adminis-
trative
Total
21
4
4
18
2
2
7
58
32
0
0
0
0
0
0
32
21
0
3
15
3
3
3
48
17
0
0
0
0
0
0
17
4
0
0
2
0
0
0
6
9
0
0
0
0
0
1
10
14
2
2
4
2
1
4
29
118
6
9
39
7
6
15
200
France
Italy
Germany
Japan
Malaysia
South Korea
USA
Total
Management considers labor relations to be good. Employee benefits are in line with those specified by applicable
government regulations.
Share Ownership
As of April 16, 2020, the total number of shares issued was 29,433,994 with 292,428 shares held as treasury shares,
thus bringing the total number of shares outstanding to 29.141.566.
As of April 16, 2020, the Board of Directors and the Senior Executive Officers of the Company held a total of 77,923
Shares. The Board of Directors and Senior Executive Officers beneficially own, in the aggregate less than 1% of the Company's
shares.
As of April 16, 2020, Senior Executive Officers held a total of 32,001 Shares and an aggregate of 540,000 options to
purchase or to subscribe a total of 540,000 ordinary shares, with a weighted average exercise price of €2.78 per share. Of these
options, 200,000 expire on January 18, 2023, 220,000 expire on April 26, 2026, 55,000 expire on April 25, 2027, 25,000 expire
on August 29, 2028 and 40,000 expire on April 4, 2029.
43
Options to Purchase or Subscribe for Securities
On June 24, 2010, the shareholders authorized the Board of Directors to grant up to 229,100 options to purchase pre-
existing shares at a fixed price to be set by the Board of Directors. All of the shares that may be purchased through the exercise
of stock options are currently held as treasury stock.
On December 19, 2012, the shareholders authorized the Board of Directors to grant up to 500,000 options to subscribe
to 500,000 new shares at a fixed price to be set by the Board of Directors.
On February 18, 2016, the shareholders authorized the Board of Directors to grant up to 1,000,000 options to subscribe
to 1,000,000 new shares at a fixed price to be set by the Board of Directors.
On June 28, 2019, the shareholders authorized the Board of Directors to grant up to a maximum of 358,528 options to
purchase pre-existing shares at a fixed price to be set by the Board of Directors. All of the shares that may be purchased through
the exercise of stock options are currently held as treasury stock. On June 28, 2019, the shareholders also authorized the Board
of Directors to grant up to 1 million options to subscribe to 1 million new shares at a fixed price to be set by the Board of
Directors. No options were granted under these two plans as of April 16, 2020.
As of April 16 2020, we had sponsored four stock purchase and subscription option plans open to employees of EDAP
TMS group.
On December 31, 2019, the expiration of our stock option contracts was as follows:
Date of expiration
June 25, 2020
January 18, 2023
April 25, 2026
April 26, 2027
August 25, 2028
April 4, 2029
Number of
Options
42,000
282,500
485,000
189,400
145,000
130,000
As of December 31, 2019, a summary of stock option activity to purchase or to subscribe to shares under these plans
is as follows:
2019
2018
2017
Weighted
average
exercise
price
(€)
Weighted
average
exercise
price
(€)
Weighted
average
exercise
price
(€)
Outstanding on January 1,
Granted
Exercised
Forfeited
Expired
Outstanding on December 31,
Exercisable on December 31,
Share purchase options available for grant
on December 31
Options
1,347,600
155,000
(143,700 )
(85,000 )
-
1,273,900
818,900
Options
2.61 1,207,600
3.90 165,000
-
2.16
(25,000 )
1.94
-
-
2.78 1,347,600
2.60 772,600
-
Options
2.61 1,427,438
2.65 260,000
(60,000 )
3.05 (134,750 )
- (285,088 )
2.61 1,207,600
2.44 598,850
250,428
250,428
250,428
2.94
2.39
1.91
3.09
3.99
2.61
2.29
44
The following table summarizes information about options to purchase existing shares held by the Company, or to
subscribe to new Shares, as of December 31, 2019:
Outstanding options
Weighted
average
remaining
contractual
life
Weighted
average
exercise
price
(€)
Fully vested options (1)
Options
Aggregate
Intrinsic
Value
(2)
-
5,954
3.90
3.22 352,013 363,750
36,250
2.65 187,891
94,400
2.39 294,669
42,000
65,764
2.38
1.91 575,114 282,500
2.78 1,481,405 818,900
Weighted
average
exercise
price
(€)
Aggregate
Intrinsic
Value
(2)
-
-
3.22 264,010
2.65
46,973
2.39 146,868
65,764
2.38
1.91 575,114
2.60 1,098,728
Exercise price (€)
3.90
3.22
2.65
2.39
2.38
1.91
1.91 to 3.90
Options
130,000
485,000
145,000
189,400
42,000
282,500
1,273,900
9.3
6.3
8.7
7.3
0.5
3.0
7.0
Fully vested options are all exercisable options
(1)
(2) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $4.43 at December 31, 2019, which would have been received by the
option holders had all in-the-money option holders exercised their options as of that date.
Item 7. Major Shareholders and Related Party Transactions
Major Shareholders
To our knowledge, we are not directly or indirectly owned or controlled by another corporation, by any foreign
government, or by any other natural or legal person or persons acting severally or jointly.
To the best of our knowledge and on the basis of the notifications received or filed with the SEC, there are no
shareholders who have been or are beneficial owners of more than 5% of our shares over the past three years and as of April
16, 2020, except for Opaleye Management Inc. which increased its holding in the Company to 1,785,000 ADRs, representing
6.1% of our outstanding ADRs,
There are no arrangements known to us, the operation of which may at a later date result in a change of control of the
Company. All shares issued by the Company have the same voting rights, except the treasury shares held by the Company,
which have no voting rights.
As of April 16, 2020, 29,433,994 shares were issued, including 29,141,566 outstanding and 292,428 treasury shares.
At March 16, 2020, there were 29,395,894 ADSs, each representing one Share, all of which were held of record by 20 registered
holders in the United States (including The Depository Trust Company).
Related Party Transactions
In 2019, EDAP Technomed Co. Ltd. (Japan) contracted a loan amounting 80,000,000 JPY. As a current practice in
Japan, this loan required a personal warranty from the representative director, president and CEO of the subsidiary Mr. Jean-
François Bachelard. EDAP TMS S.A., as the mother company, counter-warranted this personal loan and agreed to indemnify
Mr. Bachelard, in an indemnification letter dated September 12, 2019.
In 2019, EDAP Technomed Sdn Bdh (Malaysia) contracted with Maybank to establish a fixed deposit amounting
65,464.85 MYR. As a current practice in Malaysia, any fixed deposit requires a personal warranty from the representative
director, president and CEO of the subsidiary Mr. Hervé de Soultrait. EDAP TMS S.A., as the mother company, counter-
warranted this deposit and agreed to indemnify Mr. de Soultrait, in an indemnification letter dated September 13, 2019.
45
In 2019, EDAP Technomed Inc. contracted a car lease amounting $28,756.44. This lease required a personal warranty
from the president of the subsidiary Mr. Marc Oczachowski. EDAP TMS S.A., as the parent company, counter-warranted this
personal lease warranty and agreed to indemnify Mr. Marc Oczachowski, in an indemnification letter dated July 1, 2019.
Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information
Consolidated Financial Statements
See Item 18, ‘‘Financial Statements.’’
Export Sales
As of December 31, 2019, total consolidated export net sales, which we define as sales made outside of mainland
France, were €33.5 million, which represented 75% of total net sales.
As part of our business, we are engaged in sales and marketing activities with hospitals, clinics, distributors or agents
in countries on a worldwide basis where we can provide our minimally invasive therapeutic solutions to patients with prostate
cancer or urinary stones. The following information complies with the sub-section “Disclosure of Certain Activities Relating to
Iran” of the Section 13 of the U.S. Securities Exchange Act of 1934 as amended: in 2015 we honored warranty contracts on
previous sales of lithotripsy devices to three Iranian public hospitals in order to provide the hospitals with the necessary
disposables and services to treat patients with kidney stones using our devices. As part of these warranty commitments, in 2017,
2018 and 2019 we did not invoice any medical equipment to the hospitals.
Legal Proceedings
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course
of our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs,
diversion of management resources and other factors.
Dividends and Dividend Policy
The payment and amount of dividends depend on our earnings and financial condition and such other factors that our
Board of Directors deems relevant. Dividends are subject to recommendation by the Board of Directors and a vote by the
shareholders at the shareholders’ ordinary general meeting. Dividends, if any, would be paid in euro and, with respect to ADSs,
would be converted at the then-prevailing exchange rate into U.S. dollars. Holders of ADSs will be entitled to receive payments
in respect of dividends on the underlying shares in accordance with the Deposit Agreement.
No dividends were paid with respect to fiscal years 2015 through 2018, and we do not anticipate paying any dividends
for the foreseeable future. Thereafter, any declaration of dividends on our shares as well as the amount and payment will be
determined by majority vote of the holders of our shares at an ordinary general meeting, following the recommendation of our
Board of Directors. Such declaration will depend upon, among other things, future earnings, if any, the operating and financial
condition of our business, our capital requirements, general business conditions and such other factors as our Board of Directors
deems relevant in its recommendation to shareholders.
Significant Changes as of April 16, 2020
On February 27, 2020, we decided to liquidate out Italian wholly-owned subsidiary EDAP Technomed Srl as the
financial situation of the subsidiary continued to record financial losses. Liquidation process is currently being rolled out. Sales,
distribution and service activities will be pursued through a dedicated distributor.
On March 25, 2020, the Board of Directors accepted the resignation of Mr. Philippe Chauveau as Chairman of the
Board and, upon the recommendation of the Company’s Nomination Committee, the Board decided to combine the roles of
46
Chairman of the Board and Chief Executive Officer and elected Mr. Marc Oczachowski as the new Chairman of the Board of
Directors.
The novel COVID-19 virus which has profoundly impacted the whole worldwide economy early 2020 represents a
new challenge for us all. We are currently closely monitoring the situation and have implemented numerous precautions and
protective measures to safeguard our employees and to ensure an uninterrupted supply of our devices and disposables. In the
near term, we expect this situation to cause decreased activity in our recurring usual activity with some cancellations of ESWL
and HIFU treatments, which may have some impact on our recurring business. We also anticipate that device sales projects may
be postponed on a near-term basis as hospital purchase and investment decisions are put on hold. However, our sales cycles are
long, and our current understanding is that sale projects, currently in process, may be delayed but are expected to eventually be
completed. It is possible that the short-term impact might not affect the pipeline of projects nor the long-term momentum of
market adoption of HIFU and its numerous added value for patients including quality of life preservation. We have in inventory
several devices and accessories that are ready to be shipped, so the Company hopes to be well positioned to resume delivery
activities as soon as that becomes possible. Importantly, in this unique and unknown global crisis, EDAP has a solid cash
position, which is expected to minimize disruption to the extent possible.
Item 9. The Offer and Listing
Description of Securities
The shares are traded solely in the form of ADSs, each ADS representing one ordinary share. Each ADS may be
evidenced by an American Depositary Receipt issued by The Bank of New York, our Depositary. The principal United States
trading market for the ADSs, which is also the principal trading market for the ADSs overall, is the NASDAQ Global Market
of the NASDAQ Stock Market, Inc. (‘‘NASDAQ”), on which the ADSs are quoted under the symbol ‘‘EDAP.’’
Item 10. Additional Information
Memorandum and Articles of Association
Set forth below is a brief summary of significant provisions of our by-laws (or statuts) and applicable French laws.
This is not a complete description and is qualified in its entirety by reference to our by-laws, a translation of which is provided
in Exhibit 1.1 to this annual report. Each time they are modified, which can only occur with the approval of a two third majority
of the shareholders present or represented at a shareholders’ meeting, we file copies of our statuts with, and such by-laws are
publicly available from, the Registry of Commerce and Companies in Lyon, France, under number 316 488 204.
Our corporate affairs are governed by our by-laws and by Book II of the French Commercial Code, as amended.
Our by-laws were last updated on January 24, 2020 to reflect the latest increases in share capital related to the issuance
of additional shares following the exercise of warrants and options.
Corporate Purposes
Pursuant to Article 2 of the by-laws, the corporate purpose of the Company is:
-
-
-
-
-
the taking of financial interests, under whatever form, in all French or foreign groups, companies or businesses which
currently exist or which may be created in the future, mainly through contribution, subscription or purchasing of stocks
or shares, obligations or other securities, mergers, holding companies, groups, alliances or partnerships;
the management of such financial investments;
the direction, management, control and coordination of its subsidiaries and interests;
the provision of all administrative, financial, technical or other services; and
generally, all transactions of whatever nature, whether financial, commercial, industrial, civil, relating to property
and/or real estate, which may be connected directly or indirectly, in whole or in part, to the Company’s purposes or to
any similar or related purposes which may favor the extension or development of such purpose.
47
Board of Directors
The Board of Directors is currently composed of five members, four of which were appointed by the shareholders for
a period of six years expiring on the date of the annual general shareholders’ meeting approving the accounts for fiscal year
2019. Mr. Marc Oczachowski, Chief Executive Officer, and newly elected Chairman of the Board as of March 25, 2020, was
appointed director of the Company by the shareholders on June 30, 2017, effective July 1, 2017, for a period of six years expiring
on the date of the annual general shareholders’ meeting approving the accounts for the fiscal year 2022. See Item 6, ‘‘Directors,
Senior Management and Employees.’’ A director’s term ends at the end of the ordinary general shareholders” meeting convened
to vote on the accounts of the then-preceding fiscal year and held in the year during which the term of such director comes to
an end. Directors may be re-elected; a director may also be dismissed at any time at the shareholders’ meeting.
Each director must own at least one share during his/her term of office. If, at the time of his/her appointment, a director
does not own the required number of shares or if during his/her term, he/she no longer owns the required number of shares,
he/she will be considered to have automatically resigned if he/she fails to comply with the shareholding requirement within
three months.
An individual person may not be a member of more than five Boards of Directors or Supervisory Boards in corporations
(société anonyme) registered in France; directorships held in controlled companies (as defined by Section L.233-16 of the French
Commercial Code) by the Company are not taken into account.
In the event of the death or resignation of one or more directors, the Board of Directors may make provisional
appointments to fill vacancies before the next general shareholders’ meetings. These provisional appointments must be ratified
by the next ordinary shareholders meeting. Even if a provisional appointment is not ratified, resolutions and acts previously
approved by the Board of Directors nonetheless remain valid.
If the number of Directors falls below the compulsory legal minimum, the remaining directors must immediately
convene an ordinary general shareholders’ meeting to reach a full Board of Directors.
Any director appointed in replacement of another director whose term has not expired remains in office only for the
remaining duration of the term of his predecessor.
One of our employees may be appointed to serve as a director. His/her employment contract must include actual work
obligations. In this case, he/she does not lose the benefit of his/her employment contract.
The number of directors that have employment contracts with the Company may not exceed one third of the directors
then in office and in any case, a maximum of five members.
Pursuant to our by-laws, a director may not be over eighty-five years old. If a director reaches this age limit during
his/her term, such director is automatically considered to have resigned at the next general shareholders meeting.
A director cannot borrow money from the Company.
The Board of Directors determines the direction of our business and supervises its implementation. Within the limits
set out by the corporate purposes and the powers expressly granted by law to the general shareholders’ meeting, the Board of
Directors may deliberate upon our operations and make any decisions in accordance with our business. A director must abstain
from voting on matters in which the director has an interest. The resolutions passed in a meeting of the Board of Directors are
valid only if a quorum of half of the Directors is reached.
French law provides that the functions of Chairman of the Board and Chief Executive Officer in a French société
anonyme may be distinct and held by two separate individuals or combined. The choice between these two methods of
management belongs to the Board of Directors and must be made pursuant to our by-laws and applicable French law.
The Chairman of the Board
The Board of Directors must elect one of its members as Chairman of the Board of Directors, who must be an individual.
The Board of Directors determines the duration of the term of the Chairman, which cannot exceed that of his/her tenure as a
director. The Board of Directors may revoke the Chairman at any time. The Chairman’s compensation is determined by the
Board of Directors, upon recommendation of the Compensation Committee.
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The Chairman represents the Board of Directors and organizes its work. The Chairman reports on the Board’s behalf
to the general shareholders’ meeting. The Chairman is responsible for ensuring the proper functioning of our governing bodies
and that the Board members have the means to perform their duties.
Pursuant to Section 706-43 of the French Criminal Proceedings Code, the Chairman may validly delegate to any person
he/she chooses the power to represent us in any criminal proceedings that we may face.
As with any other director, the Chairman may not be over eighty-five years old. In case the Chairman reaches this age
limit during his/her tenure, he/she will automatically be considered to have resigned. However, his/her tenure is extended until
the next Board of Directors meeting, during which his/her successor will be appointed. Subject to the age limit provision, the
Chairman of the Board may also be re-elected.
The Chief Executive Officer
We are managed by the Chairman of the Board of Directors or by an individual elected by the Board of Directors
bearing the title of Chief Executive Officer. On March 31, 2007, the Board of Directors appointed Mr. Marc Oczachowski as
Chief Executive Officer Officer and on March 25, 2020, the Board of Directors decided to combine the roles of Chairman of
the Board and Chief Executive Officer and elected Mr. Marc Oczachowski as the new Chairman of the Board of Directors.
The Chief Executive Officer is vested with the powers to act under all circumstances on behalf of the Company, within
the limits set out by the Company’s corporate purposes, and subject to the powers expressly granted by the law to the Board of
Directors and the general shareholders’ meeting.
The Chief Executive Officer represents the Company with respect to third parties. The Company is bound by any acts
of the Chief Executive Officer even if they are contrary to corporate purposes, unless it is proven that the third party knew such
act exceeded the Company’s corporate purposes or could not ignore it in light of the circumstances. Publication of the by-laws
alone is not sufficient evidence of such knowledge.
The Chief Executive Officer’s compensation is set by the Board of Directors, upon recommendation of the
Compensation Committee. The Chief Executive Officer can be revoked at any time by the Board of Directors. If such
termination is found to be unjustified, damages may be allocated to the Chief Executive Officer, except when the Chief
Executive Officer is also the Chairman of the Board.
The Chief Executive Officer may not hold another position as Chief Executive Officer or member of a Supervisory
Board in a corporation (société anonyme) registered in France except when (a) such company is controlled (as referred to in
Section L.233-16 of the French Commercial Code) by the Company and (b) when this controlled company’s shares are not
traded on a regulated market.
Pursuant to our by-laws, the Chief Executive Officer may not be over seventy years old. In case the Chief Executive
Officer reaches this age limit during his/her office, he/she is automatically considered to have resigned. However, his/her tenure
is extended until the next Board of Directors meeting, during which his/her successor must be appointed.
Dividend and Liquidation Rights (French Law)
Net income in each fiscal year, increased or reduced, as the case may be, by any profit or loss of the Company carried
forward from prior years, less any contributions to legal reserves, is available for distribution to our shareholders as dividends,
subject to the requirements of French law and our by-laws.
Under French law, we are required to allocate at least 5% of our unconsolidated net profits in each fiscal year to a legal
reserve fund before dividends may be paid with respect to that year. Such allocation is compulsory until the amount in such
reserve fund is equal to 10% of the nominal amount of the registered capital. The legal reserve is distributable only upon the
liquidation of the Company.
Our shareholders may, upon recommendation of the Board of Directors, decide to allocate all or a part of distributable
profits, if any, among special or general reserves, to carry them forward to the next fiscal year as retained earnings, or to allocate
them to the shareholders as dividends.
Our by-laws provide that, if so agreed by the shareholders, reserves that are available for distribution under French law
and our by-laws may be distributed as dividends, subject to certain limitations.
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If we have made distributable profits since the end of the preceding fiscal year (as shown on an interim income
statement certified by our statutory auditors), the Board of Directors has the authority under French law, without the approval
of shareholders, to distribute interim dividends to the extent of such distributable profits. We have never paid interim dividends.
Under French law, dividends are distributed to shareholders pro rata according to their respective shareholdings.
Dividends are payable to holders of shares outstanding on the date of the annual shareholders' meeting deciding the distribution
of dividends, or in the case of interim dividends, on the date of the Board of Directors meeting approving the distribution of
interim dividends. However, holders of newly issued shares may have their rights to dividends limited with respect to certain
fiscal years. The actual dividend payment date is decided by the shareholders in an ordinary general meeting or by the Board of
Directors in the absence of such a decision by the shareholders. The payment of the dividends must occur within nine months
from the end of our fiscal year. Under French law, dividends not claimed within five years of the date of payment revert to the
French State.
If the Company is liquidated, our assets remaining after payment of our debts, liquidation expenses and all of our
remaining obligations will be distributed first to repay in full the nominal value of the shares, then the surplus, if any, will be
distributed pro rata among the shareholders based on the nominal value of their shareholdings and subject to any special rights
granted to holders of priority shares, if any. Shareholders are liable for corporate liabilities only up to the par value of the shares
they hold and are not liable to further capital calls of the Company.
Changes in Share Capital (French Law)
Our share capital may be increased only with the approval of two thirds of the shareholders voting or represented at an
extraordinary general meeting, following a recommendation of the Board of Directors. Increases in the share capital may be
effected either by the issuance of additional shares (including the creation of a new class of shares) or by an increase in the
nominal value of existing shares or by the exercise of rights attached to securities giving access to the share capital. Additional
Shares may be issued for cash or for assets contributed in kind, upon the conversion of debt securities previously issued by the
Company, by capitalization of reserves, or, subject to certain conditions, by way of offset against indebtedness incurred by the
Company. Dividends paid in the form of shares may be distributed in lieu of payment of cash dividends, as described above
under ‘‘—Dividend and Liquidation Rights (French law).’’ French law permits different classes of shares to have liquidation,
voting and dividend rights different from those of the outstanding ordinary shares, although we only have one class of shares.
Our share capital may be decreased only with the approval of two thirds of the shareholders voting or represented at
an extraordinary general meeting. The share capital may be reduced either by decreasing the nominal value of the shares or by
reducing the number of outstanding shares. The conditions under which the registered capital may be reduced will vary
depending upon whether or not the reduction is attributable to losses incurred by the Company. The number of outstanding
shares may be reduced either by an exchange of shares or by the repurchase and cancellation by the Company of its shares.
Under French law, all the shareholders in each class of shares must be treated equally unless the inequality in treatment is
accepted by the affected shareholder. If the reduction is not attributable to losses incurred by us, each shareholder will be offered
an opportunity to participate in such capital reduction and may decide whether or not to participate therein.
Repurchase of Shares (French Law)
Pursuant to French law, the Company may not acquire its own shares except (a) to reduce its share capital under certain
circumstances with the approval of the shareholders at an extraordinary general meeting or (b) to provide shares for distribution
to employees under a profit sharing or a stock option plan. However, the Company may not hold more than 10% of its shares
then-issued. A subsidiary of the Company is prohibited by French law from holding shares of the Company and, in the event it
becomes a shareholder of the Company, such shareholder must transfer all the shares of the Company that it holds.
Attendance and Voting at Shareholders’ Meetings (French Law)
In accordance with French law, there are two types of general shareholders’ meetings, ordinary and extraordinary.
Ordinary general meetings are required for matters such as the election of directors, the appointment of statutory auditors, the
approval of the report prepared by the Board of Directors, the annual accounts and the declaration of dividends.
Extraordinary general meetings are required for approval of matters such as amendments to the Company’s by-laws,
modification of shareholders’ rights, approval of mergers, increases or decreases in share capital (including a waiver of
preferential subscription rights), the creation of a new class of shares, the authorization of the issuance of investment certificates
or securities convertible or exchangeable into shares and for the sale or transfer of substantially all of the Company’s assets.
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The Board of Directors is required to convene an annual ordinary general shareholders’ meeting, which must be held
within six months of the end of our fiscal year, for approval of the annual accounts. Other ordinary or extraordinary meetings
may be convened at any time during the year. Shareholders’ meetings may be convened by the Board of Directors or, if the
Board of Directors fails to call such a meeting, by our statutory auditors or by a court-appointed agent. The court may be
requested to appoint an agent either by one or more shareholders holding at least 5% of the our registered capital or by an
interested party under certain circumstances, or, in case of an urgent matter, by the Work Council (Comité d’entreprise)
representing the employees. The notice calling a meeting must state the agenda for such meeting.
French law provides that, at least 15 days before the date set for any general meeting on first notice, and at least ten
days before the date set for any general meeting on second notice, notice of the meeting (avis de convocation) must be sent by
mail to all holders of properly registered shares who have held such shares for more than one month before the date of the notice.
A preliminary written notice (avis de réunion) must be sent to each shareholder who has requested to be notified in writing.
Under French law, one or several shareholders together holding a specified percentage of shares may propose resolutions to be
submitted for approval by the shareholders at the meeting. Upon our request, the Bank of New York Mellon will send to holders
of ADSs notices of shareholders’ meetings and other reports and communications that are made generally available to
shareholders. The Work Council may also require the registration of resolution proposals on the agenda.
Attendance and exercise of voting rights at ordinary and extraordinary general shareholders’ meetings are subject to
certain conditions. Shareholders deciding to exercise their voting rights must have their shares registered in their names in the
shareholder registry maintained by or on behalf of the Company before the meeting. An ADS holder must timely and properly
return its voting instruction card to the Depositary to exercise the voting rights relating to the shares represented by its ADSs.
The Depositary will use its reasonable efforts to vote the underlying shares in the manner indicated by the ADS holder. In
addition, if an ADS holder does not timely return a voting instruction card or the voting instruction card received is improperly
completed or blank, that holder will be deemed to have given the Depositary a proxy to vote, and the Depositary will vote in
favor of all proposals recommended by the Board of Directors and against all proposals that are not recommended by the Board
of Directors.
All shareholders who have properly registered their shares have the right to participate in general shareholders’
meetings, either in person, by proxy, or by mail, and to vote according to the number of shares they hold. Each share confers on
the shareholder the right to one vote. Under French law, an entity we control directly or indirectly is prohibited from holding
shares in the Company and, in the event it becomes a shareholder, shares held by such entity would be deprived of voting rights.
A proxy may be granted by a shareholder whose name is registered on our share registry to his or her spouse, to another
shareholder or to a legal representative, in the case of a legal entity, or by sending a proxy in blank to the Company without
nominating any representatives. In the latter case, the Chairman of the shareholders’ meeting will vote such blank proxy in favor
of all resolutions proposed by the Board of Directors and against all others.
The presence in person or by proxy of shareholders having not less than 20% (in the case of an ordinary general meeting
or an extraordinary general meeting deciding upon any capital increase by capitalization of reserves) or 25% (in the case of any
other extraordinary general meeting) of the shares entitled to vote is necessary to reach a quorum. If a quorum is not reached at
any meeting, the meeting is adjourned. Upon reconvening of an adjourned meeting, there is no quorum requirement in the case
of an ordinary general meeting or an extraordinary general meeting deciding upon any capital increase by capitalization of
reserves. The presence in person or by proxy of shareholders having not less than 20% of the shares is necessary to reach a
quorum in the case of any other type of extraordinary general meeting.
At an ordinary general meeting or an extraordinary general meeting deciding upon any capital increase by capitalization
of reserves, a simple majority of the votes of the shareholders present or represented by proxy is required to approve a resolution.
At any other extraordinary general meeting, two-thirds of the votes cast is required. However, a unanimous vote is required to
increase liabilities of shareholders.
As a result of a recent change in French law, as of the General Meeting of Shareholders approving the 2019 accounts,
abstention from voting, blank votes and null votes by those present or those represented by proxy or voting by mail are no longer
counted as votes against the resolution submitted to a shareholder vote at any of the two types of meetings.
In addition to his/her rights to certain information regarding the Company, any shareholder may, during the two-week
period preceding a shareholders’ meeting, submit to the Board of Directors written questions relating to the agenda for the
meeting. The Board of Directors must respond to such questions during the meeting.
Under French law, shareholders can nominate individuals for election to the Board of Directors at a shareholders’
meeting. When the nomination is part of the agenda of the shareholders’ meeting, the nomination must contain the name, age,
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professional references and professional activity of the nominee for the past five years, as well as the number of shares owned
by such candidate, if any. In addition, if the agenda for the shareholders’ meeting includes the election of members of the Board
of Directors, any shareholder may require, during the meeting, the nomination of a candidate for election at the Board of
Directors at the shareholders’ meeting, even if such shareholder has not followed the nomination procedures. Under French law,
shareholders cannot elect a new member of the Board of Directors at a general shareholders meeting if the agenda for the
meeting does not include the election of a member of the Board of Directors, unless such nomination is necessary to fill a
vacancy due to the previous resignation of a member.
As set forth in our by-laws, shareholders’ meetings are held at the registered office of the Company or at any other
locations specified in the written notice. We do not have staggered or cumulative voting arrangements for the election of
Directors.
Preferential Subscription Rights (French Law)
Shareholders have preferential rights to subscribe for additional shares issued by the Company for cash on a pro rata
basis (or any equity securities of the Company or other securities giving a right, directly or indirectly, to equity securities issued
by the Company). Shareholders may waive their preferential rights, either individually or at an extraordinary general meeting
under certain circumstances. Preferential subscription rights, if not previously waived, are transferable during the subscription
period relating to a particular offering of shares. U.S. holders of ADSs may not be able to exercise preferential rights for Shares
underlying their ADSs unless a registration statement under the Securities Act is effective with respect to such rights or an
exemption from the registration requirement thereunder is available.
Form and Holding of Shares (French Law)
Form of Shares
Our by-laws provide that shares can only be held in registered form.
Holding of Shares
The shares are registered in the name of the respective owners thereof in the registry maintained by or on behalf of the
Company.
Stock certificates evidencing shares, in a manner comparable to that in the United States, are not issued by French
companies, but we may issue or cause to be issued confirmations of shareholdings registered in such registry to the persons in
whose names the shares are registered. Pursuant to French law, such confirmations do not constitute documents of title and are
not negotiable instruments.
Ownership of ADSs or Shares by Non-French Residents (French Law)
Under current French law, there is no limitation on the right of non-French residents or non-French security holders to
own, or where applicable, vote securities of a French company. A non-resident of France must file a déclaration administrative,
or administrative notice, with French authorities in connection with the acquisition of a controlling interest in any French
company. Under existing administrative rulings, ownership, by a non-resident of France or a French corporation which is itself
controlled by a foreign national, of 33.33% or more of a company’s share capital or voting rights is regarded as a controlling
interest, but a lower percentage may be held to be a controlling interest in certain circumstances (depending upon such factors
as the acquiring party’s intentions, its ability to elect directors or financial reliance by the French company on the acquiring
party).
Also, certain foreign investments in companies incorporated under French laws are subject to the prior authorization
from the French Minister of the Economy, where all or part of the target’s business and activity relate to a strategic sector, such
as energy, transportation, public health, telecommunications, etc.
Certain Exemptions (French Law)
Under the U.S. securities laws, as a foreign private issuer, we are exempt from certain rules that apply to domestic U.S.
issuers with equity securities registered under the U.S. Securities Exchange Act of 1934, including the proxy solicitation rules
and the rules requiring disclosure of share ownership by directors, officers and certain shareholders. We are also exempt from
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certain of the current NASDAQ corporate governance requirements. For more information on these exemptions, see Item 16 G,
‘‘Corporate Governance —Exemptions from Certain NASDAQ Corporate Governance Rules.’’
Enforceability of Civil Liabilities (French Law)
We are a société anonyme, or limited liability corporation, organized under the laws of the Republic of France. The
majority of our directors and executive officers reside in the Republic of France. All or a substantial portion of our assets and
the assets of such persons are located outside the United States. As a result, it may not be possible for investors to effect service
of process within the United States upon such persons or to enforce, either inside or outside the United States, judgments against
such persons obtained in U.S. courts or to enforce in U.S. court judgments obtained against such persons in courts in jurisdictions
outside the United States, in each case, in any action predicated upon the civil liability provisions of the federal securities laws
of the United States. In an original action brought in France predicated solely upon the U.S. federal securities laws, French
courts may not have the requisite jurisdiction to grant the remedies sought, and actions for enforcement in France of judgments
of U.S. courts rendered against French persons referred to in the second sentence of this paragraph would require such French
persons to waive their right under Article 15 of the French Civil Code to be sued in France only. We believe that no such French
persons have waived such right with respect to actions predicated solely upon U.S. federal securities laws. In addition, actions
in the United States under the U.S. federal securities laws could be affected under certain circumstances by the French law of
July 16, 1980, which may preclude or restrict obtaining evidence in France or from French persons in connection with such
actions.
Material Contracts
None.
Exchange Controls
Under current French foreign exchange control regulations, there are no limitations on the amount of cash payments
that we may remit to residents of foreign countries. Laws and regulations concerning foreign exchange controls do require,
however, that all payments or transfers of funds made by a French resident to a non-resident be handled by an accredited
intermediary.
Certain Income Tax Considerations
The following generally summarizes the material French and U.S. tax consequences of purchasing, owning and
disposing of shares or ADS (the “Securities”). The statements set forth below are based on the applicable laws, treaties and
administrative interpretations of France and the United States as of the date hereof, all of which are subject to change.
This discussion is intended only as a descriptive summary and does not purport to be a complete analysis or listing of
all potential tax effects of the purchase, ownership or disposition of Securities. It does not constitute legal or tax advice.
Investors should consult their own tax advisors regarding the tax consequences of the purchase, ownership and
disposition of Securities in light of their particular circumstances, including especially the laws of all jurisdictions in which they
are resident for tax purposes.
French Taxation
The following summary of the French tax consequences of purchasing and disposing of Securities does not address the
treatment of Securities that are held by a resident of France (except for purposes of describing related tax consequences for other
holders) or in connection with a permanent establishment or fixed base through which a holder carries on business or performs
personal services in France, or by a person that owns, directly or indirectly, 5% or more of the stock of the Company. Moreover,
the following discussion of the tax treatment of dividends only deals with distributions made on or after January 1, 2020.
There are currently no procedures available for holders that are not U.S. residents to claim tax treaty benefits in respect
of dividends received on Securities registered in the name of a nominee. Such holders should consult their own tax advisors
about the consequences of owning and disposing of Securities.
French law provides for specific rules relating to trusts, in particular specific tax and filing requirements as well as
modifications to wealth, estate and gift taxes as they apply to trusts. Given the complex nature of these rules and the fact that
their application varies depending on the status of the trust, the grantor, the beneficiary and the assets held in the trust, the
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following summary does not address the tax treatment of Securities held in a trust. If Securities are held in trust, the grantor,
trustee and beneficiary are urged to consult their own tax adviser regarding the specific tax consequences of acquiring, owning
and disposing of Securities.
Taxation of Dividends on Securities - Withholding Tax
Dividends paid by a French corporation, such as EDAP, to non-residents normally are subject to a 30% French
withholding tax (reduced to 12.8% when non-residents are individuals and 15% for distributions made to not-for-profit
organizations with a head office in a Member State of the European Economic Area which would be subject to the tax regime
set forth under article 206-5 of the French Tax Code, or FTC, if their head office was located in France and which meet the
criteria set forth in the administrative guidelines BOI-RPPM-RCM-30-30-10-70-20191224, n°130).
Dividends paid by a French corporation transferred to non-cooperative States or territories (Etat ou territoire non
coopératif), within the meaning of Article 238-0 A of the FTC (a “Non-Cooperative State”), will be subject to French
withholding tax at a rate of 75% irrespective of the tax residence of the beneficiary of the dividends, if the dividends are received
in such States or territories (subject to certain exceptions and the more favorable provisions of an applicable double tax treaty,
provided that the double tax treaty is found to apply and the relevant conditions are fulfilled). The list of Non-Cooperative States
is published by ministerial executive order, which is updated from time to time. However, non-resident holders that are entitled
to and comply with the procedures for claiming benefits under an applicable tax treaty may be subject to a reduced rate (generally
15%) of French withholding tax. If a non-resident holder establishes its entitlement to treaty benefits prior to the payment of a
dividend, then French tax generally will be withheld at the reduced rate provided under the treaty.
Taxation on Sale or Disposition of Securities
Generally, holders who are not residents of France for tax purposes, will not be subject to any French income tax or
capital gains tax upon the sale or the disposal of Securities provided such holders have not held more than 25% of EDAP
dividend rights, known as (“droits aux bénéfices sociaux”), at any time during the preceding five years, either directly or
indirectly, and, as relates to individuals, alone or with relatives (as an exception holders who are established or incorporated in
a Non-Cooperative State are subject to a 75% withholding tax in France on any such capital gain, regardless of the fraction of
the dividend rights they hold).
If the holders are resident in a State with which France has signed a double tax treaty that contains more favorable
provisions, the holders may be exempt from any French income or capital gains tax when they sell or dispose of any Securities
even if one of the above statements applies to them.
Pursuant to Article 235 ter ZD of the FTC, purchases of certain securities issued by a French company, including
ordinary shares and ADSs, which are listed on a regulated market of the EU or an exchange market formally acknowledged by
the AMF (in each case within the meaning of the French Monetary and Financial Code, or the FMFC) are subject in France to
a 0.3% tax on financial transactions, or the TFT, provided inter alia that the issuer’s market capitalization exceeds €1.0 billion
as of December 1 of the year preceding the taxation year.
A list of companies whose market capitalization exceeds €1.0 billion as of December 1 of the year preceding the
taxation year within the meaning of Article 235 ter ZD of the FTC has been published by the French tax authorities in its official
guidelines on December 18, 2019 (BOI-ANNX-000467-20191218). EDAP was not included in such list as its market
capitalization did not exceed €1.0 billion as at December 1, 2019. Please note that such list may be updated from time to time,
or may not be published anymore in the future. Furthermore, NASDAQ is not currently acknowledged by the French AMF, but
this may change in the future. Therefore, purchases of the Securities are not subject to the TFT.
In the case where the TFT is not applicable, transfers of shares issued by a French company which are not listed on a
regulated or organized market within the meaning of the FMFC are subject to uncapped registration duties at the rate of 0.1%
notwithstanding the existence of a written statement (acte). Although the official guidelines published by the French tax
authorities are silent on this point, ADSs should remain outside of the scope of the aforementioned 0.1% registration duties.
Estate and Gift Tax
France imposes estate and gift tax on Securities of a French company that are acquired by inheritance or gift. The tax
applies without regard to the tax residence of the transferor. However, France has entered into estate and gift tax treaties with a
number of countries pursuant to which, assuming certain conditions are met, residents of the treaty country may be exempted
from such tax or obtain a tax credit.
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Wealth Tax
The French Wealth tax (“impôt de solidarité sur la fortune”) has been replaced with a French real estate wealth tax
(“impôt sur la fortune immobilière”) with effect from January 1, 2018. Individuals who are not residents of France for purposes
of French taxation are not subject to a real estate wealth tax in France as a result of owning an interest in the share capital of a
French corporation, provided that such individuals do not own directly or indirectly a shareholding exceeding 10% of the
financial rights and voting rights of the corporation. Double taxation treaties may provide for a more favorable tax treatment.
Taxation of U.S. Holders
Shares
The following is a summary of the material French and U.S. federal income tax consequences of the purchase,
ownership and disposition of Securities by a U.S. holder (as defined above). It deals principally with U.S. holders that are
residents of the United States for purposes of the Convention between the Government of the United States of America and the
Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect
to Taxes on Income and Capital of August 31, 1994, (the “Treaty”), which entered into force on December 30, 1995 (as amended
by the protocol described below and any subsequent protocols), and the tax regulations issued by the French tax authorities, and
are fully eligible for benefits under the Treaty.
This summary does not deal with Securities that are not held as capital assets, and does not address the tax treatment
of holders of ADSs that acquire them in “pre-release” transactions or holders that are subject to special rules, such as banks,
insurance companies, dealers in securities or currencies, regulated investment companies, persons that elect mark-to-market
treatment, persons holding Securities as a position in a synthetic security, straddle or conversion transaction, persons that own,
directly or indirectly, 5% or more of our voting stock or 5% or more of our outstanding capital and persons whose functional
currency is not the U.S. dollar.
This summary does not discuss the treatment of Securities that are held in connection with a permanent establishment
or fixed base through which a holder carries on business or performs personal services in France. The summary is based on
laws, treaties, regulatory interpretations and judicial decisions in effect on the date hereof, all of which are subject to change.
Such changes could apply retroactively and could affect the consequences described below.
In particular, the United States and France signed a protocol on January 13, 2009, that entered into force on December
23, 2009 and made several significant changes to the Treaty, including changes to the “Limitation of Benefits” provision. U.S.
holders are advised to consult their own tax advisors regarding the effect the protocol may have on their eligibility for Treaty
benefits in light of their own particular circumstances.
A “U.S. holder” includes (1) a citizen or individual resident of the United States; (2) a corporation or other entity
taxable as a corporation created or organized in the United States or under the laws of the United States, any state thereof or the
District of Columbia; (3) an estate whose income is subject to U.S. federal income tax regardless of its source; and (4) a trust
(i) whose administration is subject to the primary supervision of a U.S. court and which has one or more “U.S. persons” who
have the authority to control all substantial decisions of the trust or (ii) which has made an election under applicable Treasury
regulations to be treated as a U.S. person.
A U.S. holder generally will be entitled to Treaty benefits in respect of Securities if he is concurrently: (1) the beneficial
owner of Securities (and the dividends paid with respect thereto); (2) an individual resident of the United States, a U.S.
corporation, or a partnership, estate or trust to the extent its income is subject to taxation in the United States in its hands or in
the hands of its partners or beneficiaries; (3) not also a resident of France for French tax purposes; and (4) not subject to an anti-
treaty shopping article that applies in limited circumstances.
Special rules apply to pension funds and certain other tax-exempt investors.
If a partnership holds Securities, the tax treatment of a partner generally will depend on the status of the partner and
the activities of the partnership. If a U.S. holder is a partner in a partnership that holds Securities, the holder is urged to consult
its own tax advisor regarding the specific tax consequences of owning and disposing of its Securities.
For U.S. federal income tax purposes, a U.S. holder’s ownership of our ADSs will be treated as ownership of
our underlying ordinary shares.
55
Holders should consult their own tax advisors regarding the U.S. tax consequences of the purchase, ownership
and disposition of Securities in light of their particular circumstances, including the effect of any state or local laws.
Dividends and Paying Agents
Generally, dividend distributions to non-residents of France are subject to French withholding tax at a 28% rate
(reduced to 12.8% when non-residents are individuals or to 75% if paid in a Non-Cooperative State, regardless of the tax
residence of the beneficiary of the dividends if the dividends are received in such Non-Cooperative State). Eligible U.S. holders
providing evidence of the entitlement to Treaty benefits with respect to the dividend (article 30) under the ‘‘Limitation on
Benefits’’ provision contained in the Treaty who are U.S. residents, as defined pursuant to the provisions of the Treaty, will not
be subject to this 28% or 75% withholding tax rate, but may be subject to the withholding tax at a reduced rate (as described
below).
Under the Treaty, the rate of French withholding tax on dividends paid to an eligible U.S. holder as defined pursuant
to the provisions of the Treaty and whose ownership of Securities is not effectively connected with a permanent establishment
or fixed base that such U.S. holder has in France is reduced to 15%, or to 5% if such U.S. holder is a corporation and owns
directly or indirectly at least 10% of the share capital of the issuing company; such U.S. holder may claim a refund from the
French tax authorities of the amount withheld in excess of the Treaty rates of 15% or 5%, if any. For U.S. holders that are not
individuals, the requirements for eligibility for Treaty benefits, including the reduced 5% or 15% withholding tax rate, contained
in the “Limitation on Benefits” provision of the Treaty are complicated, and certain technical changes were made to these
requirements. U.S. holders are advised to consult their own tax advisers regarding their eligibility for Treaty benefits in light of
their own particular circumstances.
French withholding tax will be withheld at the domestic rates mentioned above or the 5% or 15% Treaty rate if a U.S.
holder has established before the date of payment that the holder is a resident of the United States under the Treaty by following
the simplified procedure described below.
The gross amount of dividends that a U.S. holder receives (before the deduction of French withholding tax) generally
will be subject to U.S. federal income taxation as ordinary dividend income to the extent paid or deemed paid out of the current
or accumulated earnings and profits of the Company (as determined under U.S. federal income tax principles). Such dividends
will not be eligible for the dividends that received deduction generally allowed to U.S. corporations. To the extent that an amount
received by a U.S. holder exceeds the allocable share of current and accumulated earnings and profits of the Company, such
excess will be applied first to reduce such U.S. holder’s tax basis in its Securities and then, to the extent it exceeds the U.S.
holder’s tax basis, it will constitute capital gain from a deemed sale or exchange of such Securities. As the Company does not
maintain “earnings and profits” computations, holders should assume that all distributions constitute dividends.
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an
individual with respect to the Securities is currently subject to taxation at a maximum rate of 20% if the dividends are “qualified
dividends.” Dividends paid on the Securities will be treated as qualified dividends if (i) the issuer is eligible for the benefits of
a comprehensive income tax treaty with the United States that the IRS has approved for the purposes of the qualified dividend
rules and (ii) the Company was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which
the dividend is paid, a passive foreign investment company, or PFIC. The Treaty has been approved for the purposes of the
qualified dividend rules. Based on our audited financial statements and relevant market and shareholder data, we do not believe
we were a PFIC for U.S. federal income tax purposes with respect to our 2019 taxable year. In addition, we do not anticipate it
becoming a PFIC for the 2020 taxable year (as described under “—Passive Foreign Investment Company Rules” below).
Accordingly, dividends, if any, paid by us in 2019 to a U.S. holder would constitute “qualified dividends.”
Holders of Securities should consult their own tax advisers regarding the availability of the reduced dividend tax rate
in light of their own particular circumstances.
Dividends distributed with respect to the Securities generally will be treated as dividend income from sources outside
of the United States, and generally will be treated as “passive category” (or, in the case of certain U.S. holders, “general
category”) income for U.S. foreign tax credit purposes. Subject to certain limitations, French income tax withheld in connection
with any distribution with respect to the Securities may be claimed as a credit against the U.S. federal income tax liability of a
U.S. holder if such U.S. holder elects for that year to credit all foreign income taxes. Alternatively, such French withholding tax
may be taken as a deduction against taxable income. Foreign tax credits will not be allowed for withholding taxes imposed in
respect of certain short-term or hedged positions in securities and may not be allowed in respect of certain arrangements in
56
which a U.S. holder’s expected economic profit is insubstantial. U.S. holders should consult their own tax advisors concerning
the implications of these rules in light of their particular circumstances.
Dividends paid in euro will be included in the income of a U.S. holder in a U.S. dollar amount calculated by reference
to the exchange rate in effect on the date of receipt by the holder (or, in the case of the ADSs, by the Depositary), regardless of
whether the payment is in fact converted into U.S. dollars. If such a dividend is converted into U.S. dollars on the date of receipt,
a U.S. holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income.
Capital Gains
Under the Treaty, a U.S. holder will not be subject to French tax on any gain derived from the sale or exchange of
Securities, unless the gain is effectively connected with a permanent establishment or fixed base maintained by the holder in
France.
For U.S. federal income tax purposes, gain or loss realized by a U.S. holder on the sale or other disposition of Securities
will be capital gain or loss, and will be long-term capital gain or loss if the Securities were held for more than one year. The net
amount of long-term capital gain recognized by an individual U.S. holder generally is currently subject to taxation at a maximum
rate of 20%. U.S. holders’ ability to offset capital losses against ordinary income is limited.
Additional Issues For U.S. Holders
Procedures for Claiming Treaty Benefits
Pursuant to the official guidelines published by the French tax authorities (BOI-INT-DG-20-20-20-20-20120912), U.S.
holders can either claim Treaty benefits under a simplified procedure or under the normal procedure. The procedure to be
followed depends on whether the application for Treaty benefits is filed before or after the dividend payment.
Under the simplified procedure, in order to benefit from the lower rate of withholding tax applicable under the Treaty
before the payment of the dividend, a U.S. holder must complete and deliver to the paying agent (through its account holder) a
treaty form (Form 5000), to certify in particular that:
-
-
-
-
the U.S. holder is beneficially entitled to the dividend;
the U.S. holder is a U.S. resident within the meaning of the Treaty;
the dividend is not derived from a permanent establishment or a fixed base that the U.S. holder has in France; and
the dividend received is or will be reported to the tax authorities in the United States.
For partnerships or trusts, claims for Treaty benefits and related attestations are made by the partners, beneficiaries or
grantors who also have to supply certain additional documentation.
In order to be eligible for Treaty benefits, pension funds and certain other tax-exemptions, U.S. holders must comply
with the simplified procedure described above, though they may be required to supply additional documentation evidencing
their entitlement to those benefits.
If Form 5000 is not filed prior to the dividend payment, a withholding tax will be levied at the 28% rate, and a holder
would have to claim a refund for the excess under the normal procedure by filing both Form 5000 and Form 5001 no later than
December 31 of the second calendar year following the year in which the dividend is paid.
Pension funds and certain other tax-exempt entities are subject to the same general filing requirements as other U.S.
holders except that they may have to supply additional documentation evidencing their entitlement to these benefits.
Copies of Form 5000 and Form 5001 may be downloaded from the French tax authorities’ website
(www.impots.gouv.fr) and are also available from the U.S. Internal Revenue Service and from the Centre des Impôts des Non-
Résidents in France (10 rue du Centre 93160, Noisy-le-Grand).
57
Medicare Tax
Certain U.S. holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other
things, dividends on and capital gains from the sale or other disposition of stock. U.S. holders that are individuals, estates or
trusts should consult their tax advisors regarding the effect of this legislation on their ownership and disposition of the Securities.
Passive Foreign Investment Company Rules
Unfavorable U.S. tax rules such as the PFIC rules, apply to companies that are considered PFICs. The Company will
be classified as a PFIC in a particular taxable year if either (a) 75% or more of its gross income is treated as passive income for
purposes of the PFIC rules; or (b) the average percentage of the value of its assets that produce or are held for the production of
passive income is at least 50%.
As explained above, the Company believes that it was not a PFIC for U.S. tax purposes with respect to the year 2019,
and also does not anticipate becoming a PFIC with respect to the year 2020. However, as discussed in our Annual Report on
Form 20-Fs filed by the Company with respect to certain prior years the Company believes that it was a PFIC in the past.
Moreover, because the PFIC determination is made annually and is dependent upon a number of factors, some of which are
beyond the Company's control (including whether the Company continues to earn substantial amounts of operating income as
well as the market composition and value of the Company's assets), there can be no assurance that the Company will not become
a PFIC in future years.
U.S. holders that held Securities at any time during the years when the Company was a PFIC and did not make certain
U.S. tax elections (a "mark-to-market election" or a "QEF election") will be subject to adverse tax treatment. For instance, such
holders will be subject to a special tax at ordinary income tax rates on certain dividends that the Company pays and on gains
realized on the sale of Securities (“excess distributions”) in all subsequent years, even though the Company ceased to qualify
as a PFIC. The amount of this tax will be increased by an interest charge to compensate for tax deferral, calculated as if the
excess distributions had been earned ratably over the period the U.S. holder held its Securities. It may be possible, in certain
circumstances, for a holder to avoid the application of the PFIC rules by making a "deemed sale" election for its taxable year
that includes the last day of the Company’s last taxable year during which it qualified as a PFIC. The PFIC rules are extremely
complex, and holders should consult their own tax advisers regarding the possible application of the PFIC rules to their Securities
and the desirability and availability of the above elections.
French Estate and Gift Tax
Under the estate and gift tax convention between the United States and France dated November 24, 1978 (as amended
by the protocol signed on December 8, 2004), a transfer of Securities by gift or by reason of the death of a U.S. holder entitled
to benefits under that convention generally will not be subject to French gift or inheritance tax, so long as the donor or transferor
was not domiciled in France at the time of the transfer, and Securities were not used or held for use in the conduct of a business
or profession through a permanent establishment or fixed base in France.
French Real Estate Wealth Tax
The French real estate wealth tax (“impôt sur la fortune immobilière”), which replaced the French wealth tax (“impôt
de solidarité sur la fortune”) with effect from January 1, 2018, does not generally apply to Securities of a U.S. holder if the
holder is a resident of the United States for purposes of the Treaty and does not own directly or indirectly a shareholding
exceeding 10% of the financial rights and voting rights of EDAP.
U.S. Information Reporting and Backup Withholding Rules
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related
financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (i) is
a corporation or other exempt recipient or (ii) provides a taxpayer identification number and certifies that no loss of exemption
from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or
backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with
payments received within the United States or through a U.S.-related financial intermediary.
58
Information with Respect to Foreign Financial Assets
In addition, U.S. holders that are individuals (and, to the extent provided in future regulations, entities) are subject to
reporting obligations with respect to the shares, securities, debt instruments and other obligations of a French corporation if the
aggregate value of such assets and certain other “specified foreign financial assets” exceeds $50,000. Significant penalties can
apply if a U.S. holder fails to disclose its specified foreign financial assets.
U.S. holders should also consider their possible obligation to file online a FinCEN Form 114 Foreign Bank and
Financial Accounts Report as a result of holding the Securities. U.S. holders are urged to consult their tax advisors regarding
these and any other reporting requirements that may apply with respect to their Securities.
The discussion above is a general summary. It does not cover all tax matters that may be important to you. You
should consult your tax advisors regarding the application of the U.S. federal tax rules to your particular circumstances,
as well as the state, local, non-U.S. and other tax consequences to you of the purchase, ownership and disposition of the
Securities.
Statement by Experts
Not applicable.
Documents on Display
We file annual, periodic, and other reports and information with the SEC. These materials, including this annual report
and the exhibits hereto, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in
the United States at +1 800 SEC 0330. Certain of our public filings are also available on the SEC’s website at http://www.sec.gov
(such documents are not incorporated by reference in this annual report).
Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in both foreign currency exchange rates and interest rates. We do not hold
or issue derivative or other financial instruments. During 2019 and as of December 31, 2019, we had no outstanding foreign
exchange sale or purchase contracts.
Exchange Rate Risk
Revenues and Expenses in Foreign Currencies
We are exposed to foreign currency exchange rate risk because a significant portion of our costs are denominated in
currencies other than those in which we earn revenues. In 2019, approximately 74% of our total costs of sales and operating
expenses were denominated in euro. During the same period, approximately 49% of our net sales were denominated in euro,
the rest being denominated primarily in U.S. dollars and Japanese yen.
A uniform 10% strengthening in the value of the euro as of December 31, 2019 relative to the U.S. dollar and the
Japanese yen would have resulted in an decrease in income before taxes of approximately €67,000 for the year ended December
31, 2019, compared to an increase of approximately €60,000 for the year ended December 31, 2018. A uniform 10% decrease
in the value of the euro as of December 31, 2019 relative to the U.S. dollar and the Japanese yen would have resulted in an
increase in income before taxes of approximately €73,000 for the year ended December 31, 2019 as compared to an increase of
approximately €66,511 for the year ended December 31, 2018. This calculation assumes that the U.S. dollar and Japanese yen
exchange rates would have changed in the same direction relative to the euro. In addition to the direct effect of changes in
exchange rates quantified above, changes in exchange rates also affect the volume of sales.
We regularly assess the exposure of our receivables to fluctuations in the exchange rates of the principal foreign
currencies in which our sales are denominated (in particular, the U.S. dollar and the Japanese yen) and, from time to time, hedge
59
such exposure by entering into forward sale contracts for the amounts denominated in such currencies that we expect to receive
from our local subsidiaries. As of December 31, 2019, we had no outstanding hedging instruments.
Financial Instruments and Indebtedness
Over the past three years, we also had exchange rate exposures with respect to indebtedness and assets denominated in
Japanese yen and U.S. dollars. Approximately €0.6 million, €0.6 million and €40 thousand of our outstanding indebtedness at
December 31, 2019, 2018 and 2017, respectively, were denominated in Japanese yen. Approximately €0 million, €0 million and
€0.8 million of our outstanding indebtedness at December 31, 2019, 2018 and 2017, respectively, were denominated in U.S.
dollars. In addition, we had approximately €4.0 million, €1.3 million and €2.1 million of cash denominated in U.S. dollars at
December 31, 2019, 2018 and 2017, respectively, and €1.3 million, €3.7 million and €3.9 million of cash denominated in
Japanese yen at December 31, 2019, 2018 and 2017, respectively.
Equity Price Risk
Not applicable.
Item 12. Description of Securities Other than Equity Securities
American Depositary Shares
Fees Payable to ADS Holders
The Bank of New York Mellon, as the Company’s Depositary, currently collects its fees for the delivery and surrender
of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries
acting for them.
The Depositary may collect fees for making distributions to investors by deducting those fees from the amounts
distributed or by selling a portion of distributable property to pay the fees. The Depositary may collect its annual fee for
Depositary services by deductions from cash distributions or by directly billing investors or by charging the book-entry system
accounts of participants acting for them. The Depositary may generally refuse to provide fee-attracting services until the fees
for those services are paid.
Fees:
For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
-
Issuance of ADSs, including issuances resulting
from a distribution of shares or rights or other
property,
- Cancellation of ADSs for the purpose of
withdrawal, including if the deposit agreement
terminates.
$0.2 (or less) per ADS
- Any cash distribution to ADS registered
holders.
A fee equivalent to the fee that would be payable if securities
distributed to you had been shares and the shares had been
deposited to issuance of ADSs
- Distribution of securities distributed to holders
of deposited securities which are distributed by
the Depositary to ADS registered holders.
60
Registration or transfer fees
Expenses of the Depositary
- Transfer and registration of shares on our share
register to or from the name of the Depositary
or its agent when you deposit or withdraw
shares
- Cable, telex and facsimile transmissions (when
expressly provided in the deposit agreement)
- Converting foreign currency to U.S. dollars
Taxes and other governmental charges the Depositary or the
custodian have to pay on any ADS or share underlying an ADS, for
example, stock transfer taxes, stamp duty or withholding taxes
- As necessary
Any charges incurred by the Depositary or its agents for servicing
the deposited securities
- As necessary
Fees Payable to the Company by the Depositary
From January 1, 2019 to March 15, 2020, the following amounts were paid by the Depositary to the Company: $90,000
and $10,491 respectively for the administration of the ADR program and for expenses linked to the assistance in identifying
shareholders of the Company.
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
PART II
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Not applicable.
Item 15. Controls and Procedures
Disclosure Controls and Procedures
The Company's management, with the participation of the Chief Executive Officer and Chief Financial Officer,
conducted an evaluation, pursuant to Rule 13a-15(e) promulgated under the Securities Act of 1934, as amended (the "Exchange
Act"), of the effectiveness of our disclosure controls and procedures as of December 31, 2019. Based on this evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective
because of the material weakness described below.
In response to the identification of the material weakness described below, the Company performed additional analysis
and other post-closing procedures. Based upon the work performed, management believes that the Company’s consolidated
financial statements included in this Annual Report on Form 20-F fairly present in all material respects the Company’s financial
position, results of operations and cash flows, in conformity with U.S. generally accepted accounting principles.
61
Disclosure controls and procedures means controls and other procedures that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC’s rules and forms, and that such information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management,
including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosures. The Company’s disclosure controls and procedures are designed to
provide reasonable, not absolute, assurance that the objectives of its disclosure control system are met. Because of inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within
a company have been detected.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and for the assessment of the effectiveness of our internal
control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
The Company’s internal controls over financial reporting include those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of the Company’s management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on the financial statements.
Because of inherent limitations, internal controls over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of internal control over financial reporting as of December 31, 2019 based
upon the internal control framework as set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 COSO). Based on management’s assessment, management concluded that the Company’s internal control over financial
reporting was not effective as of December 31, 2019.
Based on this evaluation, management identified a material weakness in our internal control with respect to general IT
controls, in particular related to change activities. Execution was found deficient related to the implementation of IT program
development changes and more specifically the logging of change requests, the tracking of application change validations, the
acceptance testing documentation and a lack of segregation of duties upon IT changes implementation due to small size of our
IT structure and organization.
In our Annual Report on Form 20-F for the year ended December 31, 2018, we reported a material weakness in our
internal control with respect to the implementation of a new integrated information management system (SAP version 4HANA)
which we launched in production on July 1, 2018, and that includes our accounting, as well as our production and inventory
processes. This material weakness resulted from several significant deficiencies in the development and change program which,
considered in aggregation, gave rise to a material weakness and to the conclusion that our internal control over financial
reporting was not effective as of December 31, 2018. Specifically, these significant deficiencies related to (i) inappropriate
documentation of program change request authorizations, (ii) inappropriate documentation of data migration testing, (iii) IT and
user acceptance of program changes prior to migration to production is not systematically obtained or documented, (iv)
inappropriate segregation of duties between development and production, and (v) inappropriate configuration of change request
and change testing authorizations as changes and authorizations are not logged.
Following the identification of this material weakness as reported in the Annual Report on Form 20-F for the year
ended December 31, 2018 under Item 15 and as part of our re-assessment thereof as of December 31, 2019, we have reviewed
the implementation of our 2018 material weakness remediation plan. Although we have implemented certain new controls
62
during 2019, some of these controls were not considered as sufficiently robust. Also, part of the remediation plan was delayed
due to IT staff shortage. As such, we considered that the 2018 material weakness was not fully remediated.
Remediation Activities
To further supplement our initial 2018 remediation plan, the Company plans to implement a formal “Ticketing tool”
in the course of 2020 in order to log change requests, to track validation of change requests by the IT team, managers and users,
and to archive the acceptance testing documentation in a digitalized way.
The Company also decided to strengthen its IT team to ensure a better segregation of duties upon IT changes
implementation.
Additional procedures were performed for year-end 2019 to demonstrate that no inappropriate use of our IT occurred
as of December 31, 2019, and that this material weakness did not result in a material misstatement of the consolidated financial
statements for the year ended December 31, 2019 or restatement of any prior period previously reported by the Company.
Change in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting as of the end of the period covered
by this report that has materially affected, or is reasonably likely to materially affect the Company’s internal control over
financial reporting.
Attestation Report of Registered Public Accounting Firm
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, has been audited
by KPMG S.A., an independent registered public accounting firm, as stated in its report on the Company’s internal control over
financial reporting included on page F-2 of this Annual Report.
Its report on the effectiveness of internal control over financial reporting as of December 31, 2019, expresses an opinion
that the Company did not maintain effective internal control over financial reporting as of December 31, 2019 because of the
effect of the material weakness described above.
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
Our Board of Directors has determined that the chair of the Board’s Audit Committee, Mr. Pierre Beysson, an
independent director, qualifies as an audit committee financial expert.
Item 16B. Code of Ethics
We have adopted a code of ethics applicable to our Chief Executive Officer, Chief Financial Officer, principal
accounting officers and to any persons performing similar functions. The code of ethics is reviewed every year by the Board of
Directors, and an update of the code of ethics was approved by the Board of Directors on January 25, 2017. Our code of ethics
is filed herewith as Exhibit 11.1 and we have made it available on our website at http://www.edap-tms.com. You may request a
copy of our code of ethics free of charge upon request to Blandine Confort, Investor Relations Officer, at bconfort@edap-
tms.com.
63
Item 16C. Principal Accountant Fees and Services
The following table summarizes the aggregate fees of our independent registered accounting firms, billed to us for the
fiscal years ended December 31, 2019 and December 31, 2018 for audit and other services. KPMG S.A. (“KPMG”) served as
the Company’s independent registered accounting firm for the fiscal years ended December 31, 2019 and 2018.
Nature of the Fees
Audit fees (1)
Audit-related fees
Tax fees
All other fees
Total
Fees for
2019
(in €)
Fees for
2018
(in €)
358,902 398,177
19,700
-
5,000
-
363,902 417,877
(1)
“Audit fees” for 2019 and 2018 include 13,000 € and 19,000 € paid to PriceWaterhouseCoopers Audit in relation with
their consent and audit report related to the Annual Report on Form 20-F for the fiscal years ended December 2019 and
2018.
Audit Fees
The following services were billed under the category ‘‘audit services’’: audit of financial statements and services
performed in relation to legal obligations, including the formulation of audit opinions, consents and reports, domestic and
international legal audits and support in the preparation.
Audit-Related Fees
Audit-related services billed under this category only consist of attestation services related to financial reporting that
are not required by statute or regulation.
Pre-approval policy
The ‘‘Audit and Non-Audit Services Pre-Approval Policy’’ was approved by our Audit Committee on December 22,
2003 (the “2003 Rules”) and reviewed on November 20, 2012. This requires all services which are to be performed by our
external auditors to be pre-approved. Pre-approval may be in the form of a general pre-approval or as pre-approval on a case-
by-case basis. All services to be performed by the external auditors were subjected to the above policy and approved in advance.
The Audit Committee has been regularly informed of the services and the fees to be paid.
Item 16D. Exemptions from the Listing Standards for Audit Committees
None.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance Requirements
Exemptions from Certain NASDAQ Corporate Governance Rules
EDAP is incorporated under the laws of France, with securities listed on the NASDAQ Global Market in the United
States. As a foreign private issuer listed on the NASDAQ, under the NASDAQ corporate governance requirements, we may
follow French law corporate governance practices in lieu of following certain NASDAQ corporate governance rules. We
summarize below the main practices we follow in lieu of the NASDAQ corporate governance rules.
64
We are exempt from NASDAQ’s quorum requirements applicable to meetings of shareholders. In keeping with French
law and generally accepted business practices in France, the presence in person or by proxy of shareholders having not less than
20% (in the case of an ordinary general meeting or an extraordinary general meeting deciding upon any capital increase by
capitalization of reserves) or 25% (in the case of an extraordinary general meeting) of the shares is necessary for a quorum. If a
quorum is not present at any meeting, the meeting is adjourned. Upon recommencement of an adjourned meeting, there is no
quorum requirement in the case of an ordinary general meeting or an extraordinary general meeting deciding upon any capital
increase by capitalization of reserves. The presence in person or by proxy of shareholders having not less than 20% of the shares
is necessary for a quorum in the case of any other type of extraordinary general meeting.
Under French law, the committees of our Board of Directors are advisory only, and where the NASDAQ requirements
would vest certain decision-making powers with specific committees by delegation (e.g., nominating, compensation or audit
committees), our Board of Directors is, pursuant to French law the only competent body to take such decisions, albeit taking
into account the recommendation of the relevant committees. Additionally, under French corporate law, it is the shareholder
meeting of the Company that is competent to appoint our auditors upon the proposal of our Board of Directors. On February 4,
2015, in order to conform with NASDAQ rules, the Board approved the creation of a Nominations Committee (composed
exclusively of independent Directors), should one or more Directors become non-independent. A Nominations Committee
Charter was approved accordingly. As per this Charter, upon the appointment of a non-independent Director to the Board on
June 30, 2017, the Board of Directors, was convened on July 10, 2017 and decided to create a Nominations Committee composed
exclusively of independent Directors.
Our Compensation Committee is composed of four members who meet the definition of independence contained in
NASDAQ Listing Rule 5602(a) and is governed by a charter which sets forth its composition and defines its scope of authority.
However, in accordance with French law, the Compensation Committee is not vested with the same scope of authority and
responsibilities as set out in the NASDAQ Listing Rules.
Item 16H. Mine Safety Disclosure
Not applicable.
Item 17. Financial Statements.
See Item 18, "Financial Statements."
Item 18. Financial Statements
PART III
The financial statements listed in the Index to Financial Statements are filed as a part of this annual report.
Item 19. Exhibits
The exhibits listed in the Index to Exhibits are filed or incorporated by reference as a part of this annual report.
65
INDEX TO EXHIBITS
Pursuant to the rules and regulations of the Securities and Exchange Commission, the Company has filed certain
agreements as exhibits to this Annual Report on Form 20-F. These agreements may contain representations and warranties by
the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such
agreements and (i) may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to
such agreements if those statements turn out to be inaccurate; (ii) may have been qualified by disclosures that were made to
such other party or parties and that either have been reflected in the Company’s filings or are not required to be disclosed in
those filings; (iii) may apply materiality standards different from what may be viewed as material to investors; and (iv) were
made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to
more recent developments. Accordingly, these representations and warranties may not describe the Company’s actual state of
affairs at the date hereof.
Exhibit Description
Number:
1.1
4.1
4.2
4.3
By-laws (statuts) of EDAP TMS S.A. as amended as of January 24, 2020
French version of Commercial Lease dated July 1, 2015 between Maison Antoine Baud and EDAP TMS France(1)
English language summary of Commercial Lease dated July 1, 2015 between Maison Antoine Baud and EDAP TMS
France(1)
Form of Amended and Restated Depositary Agreement between EDAP TMS SA and The Bank of New York
Mellon, as depositary (incorporated herein by reference to Exhibit 1.2 to Form F-6 dated September 15, 2011, SEC
File No. 333-176843). (1)
8.1
List of subsidiaries of EDAP TMS S.A. as of April 16, 2020
11.1
Code of Ethics as amended as of January 25, 2017. (1)
12.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes- Oxley
Act of 2002.
15.1
Consent of KPMG.
15.2
Consent of PricewaterhouseCoopers Audit for the year ended December 31,2017
101
Interactive Data File
(1)
Previously filed.
66
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
Dated: April 16, 2020
Dated: April 16, 2020
EDAP TMS S.A.
/s/ Marc Oczachowski
Marc Oczachowski
Chief Executive Officer
/s/ François Dietsch
François Dietsch
Chief Financial Officer
67
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm on the Internal Control over Financial
Reporting
Report of Independent Registered Public Accounting Firm
Consolidated balance sheets
Consolidated statements of income (Loss)
Consolidated statements of comprehensive income (Loss)
Consolidated statements of Shareholders’ equity
Consolidated statements of cash flows
Notes to consolidated financial statements
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-10
F-11
F-1
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
To the Shareholders and Board of Directors
EDAP TMS S.A.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of EDAP TMS S.A. and subsidiaries (the Company)
as of December 31, 2019 and 2018, the related consolidated statements of income (loss), comprehensive income
(loss), shareholders’ equity, and cash flows for each of the years in the two year period ended December 31, 2019, and
the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and
2018, and the results of its operations and its cash flows for each the years in the two year period ended December 31,
2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission”, and our report dated April 16, 2020 expressed an adverse opinion on the effectiveness
of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Notes 1-2, 1-24 and 1-25 to the consolidated financial statements, the Company has changed its
method of accounting for leases in 2019 due to the adoption of ASU No. 2016-02 Leases (Topic 842).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Lyon, April 16, 2020
KPMG Audit
A division of KPMG S.A.
/s/ Sara Righenzi de Villers
Partner
We have served as the Company’s auditor since 2018.
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE INTERNAL
CONTROL OVER FINANCIAL REPORTING
To the Shareholders and Board of Directors
EDAP TMS S.A.
Opinion on Internal Control Over Financial Reporting
We have audited EDAP TMS S.A.S and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the
material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not
maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related
consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity, and cash flows for each
of the years in the two year period ended December 31, 2019, and the related notes (collectively, the consolidated
financial statements), and our report dated April 16, 2020 expressed an unqualified opinion on those consolidated
financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis. A material weakness related to general IT controls, in
particular related to change activities, has been identified and included in management’s assessment. The material
weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019
consolidated financial statements, and this report does not affect our report on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
F-3
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Lyon, April 16, 2020
KPMG Audit
A division of KPMG S.A.
/s/ Sara Righenzi de Villers
Partner
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of EDAP TMS S.A.,
Opinion on the Financial Statements
We have audited the consolidated statements of income (loss), the related consolidated comprehensive income (loss),
shareholders’ equity and cash flows for the year ended December 31, 2017, including the related notes (collectively
referred to as the “consolidated financial statements”) of EDAP TMS S.A. and its subsidiaries (the “Company”). In
our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations
and its cash flows for the year ended December 31, 2017 in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audit. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audit also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that
our audit provides a reasonable basis for our opinion.
Lyon, France,
April 30, 2018
/s/ PricewaterhouseCoopers Audit
Represented by
/s/ Elisabeth L’hermite
We served as the Company's auditor from 2012 to 2017.
F-5
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 2019 and 2018
(in thousands of euros unless otherwise noted)
ASSETS
Current assets
Cash and cash equivalents
Current portion of net trade accounts and notes receivable
Other receivables
Inventories
Other assets, current portion
Total current assets
Non-current assets
Property and equipment, net
Operating lease right-of-use assets
Intangible assets, net
Goodwill
Deposits and other non-current assets
Deferred tax assets
Net Trade accounts and notes receivable, non-current
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Trade accounts and notes payable
Deferred revenues, current portion
Social security and other payroll withholdings taxes
Employee absences compensation
Income taxes payable
Other accrued liabilities
Short-term borrowings
Current obligations under finance leases in 2019 and capital leases in
2018
Current portion of operating lease obligations
Current portion of long-term debt
Total current liabilities
Non-current liabilities
Deferred revenues, non-current
Obligations under finance leases in 2019 and capital leases in 2018,
non-current
Operating lease obligations, non-current
Long-term debt, non-current
Other long-term liabilities
Total liabilities
Shareholders’ equity
Common stock, €0.13 par value; 29,433,994 shares issued and
29,141,566 shares outstanding at December 31, 2019; 29,368,394
shares issued and 28,997,866 shares outstanding at December
31,2018
Additional paid-in capital
Retained earnings
Cumulative other comprehensive loss
Treasury stock, at cost; 292,428 at December 31, 2019 and
370,528 at December 31, 2018
Total shareholders’ equity
Total liabilities and shareholders’ equity
Notes
2019
2018
2
3
4
5
6
7
8
9
9
23-3
3
10
11
12
14
13-1
13-2
15-1
20,886
11,328
1,259
8,178
447
42,097
4,069
2,647
770
2,412
640
432
2
53,068
6,046
1,892
1,207
634
280
2,109
3,513
392
958
462
17,493
19,464
11,884
1,434
7,212
382
40,376
4,208
-
847
2,412
546
324
26
48,740
6,297
1,929
1,177
612
118
2,122
3,683
383
-
491
16,812
11
1,313
973
13-1
13-2
15-1
16
653
1,726
957
3,567
25,710
852
-
1,339
3,800
23,776
3,826
66,331
(38,435 )
(3,436 )
(928 )
27,359
53,068
3,818
65,983
(39,947 )
(3,748 )
(1,142 )
24,964
48,740
17
17
The accompanying notes are an integral part of the consolidated financial statements.
F-6
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For the years ended December 31, 2019, 2018 and 2017
(in thousands of euros except share and per share data)
Sales of goods
Sales of RPPs & leases
Sales of spare parts and services
Total sales
Other revenues
Total revenues
Cost of goods
Cost of RPPs & leases
Cost of spare parts and services
Total cost of sales
Gross profit
Research and development expenses
Selling and marketing expenses
General and administrative expenses
Income (loss) from operations
Financial (expense) income, net
Foreign currency exchange gain (loss), net
Income (loss) before taxes
Income tax (expense) benefit
Net income (loss)
Basic income (loss) per share
Diluted income (loss) per share
Basic Weighted average shares outstanding
Diluted Weighted average shares outstanding
Notes
2019
2018
2017
30,111
5,747
9,001
44,859
52
44,912
25,070
5,086
9,007
39,163
19
39,183
22,580
5,095
8,011
35,686
60
35,746
(15,442 )
(3,000 )
(5,467 )
(23,909 )
(14,053 )
(2,557 )
(5,655 )
(22,266 )
(13,170 )
(2,667 )
(5,101 )
(20,938 )
21,002
16,917
14,808
(3,728 )
(10,850 )
(4,224 )
(4,088 )
(10,551 )
(3,593 )
2,201
(146 )
136
(1,315 )
797
538
(3,881 )
(9,526 )
(3,428 )
(2,027 )
2,643
(909 )
18
19
20
21
22
23-1
23-2
2,191
(679 )
1,512
0.05
0.05
(293 )
(388 )
(681 )
(0.02 )
(0.02 )
29,016,118 28,997,866 28,961,928
29,615,466 28,997,866 28,961,928
20
(358 )
(338 )
(0.01 )
(0.01 )
24
24
24
24
The accompanying notes are an integral part of the consolidated financial statements.
F-7
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the years ended December 31, 2019, 2018 and 2017
(in thousands of euros unless otherwise noted)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustments
Provision for retirement indemnities
Comprehensive income (loss), net of tax
Notes
2019
2018
2017
17-6
17-6
1,512
-
(61 )
374
1,825
(338 )
-
(146 )
-
(483 )
(681 )
-
288
57
(336 )
The accompanying notes are an integral part of the consolidated financial statements.
F-8
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the years ended December 31, 2019, 2018 and 2017
(in thousands of euros unless otherwise noted)
Balance as of December 31, 2016
Net (loss) / income
Translation adjustment
Warrants and stock options granted or exercised
Capital increase
Provision for retirement indemnities
Balance as of December 31, 2017
Net (loss) / income
Translation adjustment
Warrants and stock options granted or exercised
Provision for retirement indemnities
Balance as of December 31, 2018
Net (loss) / income
Translation adjustment
Stock-Options granted or exercised
Capital increase
Treasury stock disposition
Provision for retirement indemnities
Balance as of December 31, 2019
Additional
paid-in
Capital
Common
Stock
Number of
Shares
-
-
382
627
-
-
-
-
270,250
-
Retained
Earnings
28,727,616 3,783 64,685 (38,927 )
(681 )
-
-
-
-
-
-
35
-
-
28,997,866 3,818 65,694 (39,608 )
(338 )
-
-
-
-
-
-
-
28,997,866 3,818 65,983 (39,947 )
- 1,512
-
-
-
-
-
232
-
-
116
8
-
-
-
-
-
-
29,141,566 3,826 66,331 38,435
-
-
-
65,600
78,100
-
-
-
289
-
-
-
-
-
Cumulative
Other
Comprehensive
Income (loss)
Treasury
Stock
Total
(1,142 ) 24,451
(681 )
-
288
-
382
-
662
-
-
57
(1,142 ) 25,158
(338 )
-
(146 )
-
289
-
-
-
(1,142 ) 24,964
- 1,512
(61 )
-
232
-
124
-
214
214
374
-
(928 ) 27,359
(3,949 )
-
288
-
-
57
(3,604 )
-
(146 )
-
-
(3,748 )
-
(61 )
-
-
-
374
(3,436 )
The accompanying notes are an integral part of the consolidated financial statements.
F-9
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2019, 2018 and 2017
(in thousands of euros unless otherwise noted)
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash generated by
(used in) operating activities:
Depreciation and amortization
Change in warrants fair value
Other non-cash compensation
Change in allowances for doubtful accounts & slow-moving inventories
Change in long-term provisions
Net capital loss on disposals of assets
Deferred tax expense (benefit)
Operating cash flow
Increase/Decrease in operating assets and liabilities:
Decrease (Increase) in trade accounts and notes and other receivables
Decrease (Increase) in inventories
Decrease (Increase) in other assets
(Decrease) Increase in trade accounts and notes payable
(Decrease) Increase in accrued expenses, other current liabilities
Net decrease in operating assets and liabilities
Net cash generated by (used in) operating activities
Cash flows from investing activities:
Additions to capitalized assets produced by the Company
Net proceeds from sale of leased back assets
Acquisitions of property and equipment
Acquisitions of intangible assets
Acquisitions of other financial assets
Increase in deposits and guarantees
Net cash generated by (used in) investing activities
Cash flow from financing activities:
Proceeds from capital increase
Proceeds from stock-option exercise
Proceeds from long term borrowings, net of financing costs
Repayment of long term borrowings
Repayment of obligations under financing leases in 2019 and capital
leases in 2018 and 2017
Increase (decrease) in bank overdrafts and short-term borrowings
Net cash generated by (used in) financing activities
Net effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2019
2018
2017
1,512
(338 )
(681 )
1,879
-
260
176
(6 )
79
(106 )
3,794
908
(1,036 )
(60 )
(249 )
445
6
3,800
(1,020 )
-
(396 )
(35 )
(14 )
(67 )
(1,532 )
-
310
688
(1,087 )
(396 )
(179 )
(664 )
(182 )
1,422
19,464
20,886
1,610
(889 )
289
591
300
37
(153 )
1,447
(983 )
(704 )
115
(70 )
370
(1,272 )
175
(827 )
359
(604 )
(438 )
-
(59 )
(1,569 )
-
-
1,032
(443 )
(358 )
946
1,178
(323 )
(539 )
20,004
19,464
1,573
(2,669 )
382
28
105
47
(153 )
(1,368 )
(1,741 )
669
(47 )
426
(998 )
(1,691 )
(3,059 )
(988 )
85
(631 )
(453 )
-
(45 )
(2,032 )
548
115
1,638
(243 )
(297 )
1,110
2,871
235
(1,985 )
21,989
20,004
The accompanying notes are an integral part of the consolidated financial statements.
F-10
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1-1 Nature of operations
EDAP TMS S.A. and its subsidiaries (‘‘the Company’’) are engaged in the development, production, marketing,
distribution and maintenance of a portfolio of minimally-invasive medical devices for the treatment of urological diseases.
The Company currently produces innovative robotic devices for treating stones of the urinary tract and localized prostate
cancer. We also derive revenues from the distribution of urodynamics products and urology lasers. Net sales consist primarily
of direct sales to hospitals and clinics in France and Europe, export sales to third-party distributors and agents, and export
sales through subsidiaries based in Germany, Italy, the United States and Asia.
Moreover, the Company develops a novel HIFU treatment for liver cancer in cooperation with its long-term
academic partner INSERM and leading cancer centers (the “HECAM” project).
The Company purchases the majority of the components used in its products from a number of suppliers but for some
components, relies on a single source. Delay would be caused if the supply of these components or other components was
interrupted and these delays could be extended in certain situations where a component substitution may require regulatory
approval. Failure to obtain adequate supplies of these components in a timely manner could have a material adverse effect on
the Company’s business, financial position and results of operations.
1-2 Basis of preparation
These consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP).
With the exception of the change in the Company’s accounting policies for leases as a result of the adoption of ASC
842, Leases as from January 1, 2019, there has been no changes to the accounting policies for the fiscal year ended
December 31, 2019, that are of significance, or potential significance, to the Company.
1-3 Management estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (‘‘U.S.
GAAP’’) requires management to make estimates and assumptions, such as business plans, stock price volatility, duration of
standard warranty per market, duration and interest rate of operating leases, price of maintenance contract used to determine
the amount of revenue to be deferred and life duration of our range of products. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
1-4 Consolidation
The accompanying consolidated financial statements include the accounts of EDAP TMS S.A. and all its domestic
and foreign owned subsidiaries after elimination of intercompany balances and transactions. We do not have any significant
interests in any variable interest entities.
1-5 Revenue recognition
The Company adopted ASC Topic 606, Revenue from Contracts with Customers, on January 1, 2018.
The Company’s revenue consists of:
- Sales of goods (devices and consumables), where invoicing takes place upon delivery.
- Revenue-per-Procedures (“RPP”) and leases: they comprise (i) revenues on a per treatment basis which are
invoiced after each treatment, or in advance, or on a periodic basis, (ii) leases of devices, which are generally invoiced on a
monthly or quarterly basis, and (iii) lease components arising from multiple-element arrangements, where specific sales terms
are negotiated in accordance with each customer’s individual requirements and which are generally invoiced based on contract
terms,
F-11
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
- Sales of spare parts and services (maintenance, upgrades, mobility and others). Spare parts are invoiced when
delivered. Regarding services, invoicing is performed either on a subscription basis (in advance or at the end of the period) or
when performed.
Sales of our medical devices and sales of disposables, sales of RPPs and leases, and sales of spare parts and services,
are all net of commissions.
The Company invoices its customers based on the billing schedules in its sales arrangements. Payments are generally
due between one to three months from date of invoice.
The Company accounts for a contract with a customer when there is a legally enforceable contract between the
Company and its customer, the rights of the goods or services and their payment terms can be identified, the contract has
commercial substance, collectability of the contract consideration is probable, it is approved and the parties are committed to
their obligations.
Our sale arrangements may contain multiple elements, including device(s), consumables and services. For these
multiple-element arrangements, the Company accounts for individual goods and services as separate performance obligations:
(i) if they are a distinct good or service that is separately identifiable from other items in the multiple-element arrangement;
and (ii) if a customer can benefit from the good or service on its own or with other resources that are readily available to the
customer. The Company’s sale arrangements may include a combination of the following performance obligations: device(s),
consumables, leases and services (such as, but not limited to, warranty extension).
For multiple-element arrangements, revenue is allocated to each performance obligation based on its relative
standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the
goods or services. If a standalone selling price is not directly observable, then the Company estimates the standalone selling
price considering market conditions and entity-specific factors including, but not limited to, features and functionality of the
goods and services, geographies, and type of customer. The Company regularly reviews standalone selling prices and updates
these estimates as necessary.
The Company recognizes revenue when the performance obligations are satisfied by transferring control over the
goods or service to a customer.
The Company’s revenue consists of the following:
Sales of goods:
Sales of goods are and have historically been comprised of net sales of medical devices (ESWL lithotripters and
HIFU devices) and net sales of disposables (mostly Ablapaks and Focalpaks in the HIFU division and electrodes in the UDS
division). Sales of goods also includes products such as urology laser and urodynamics devices distributed through our agents
and third-party distributors.
For devices and disposables, revenue is recognized when the Company transfers control to the customer (i.e. when
the customer has the ability to direct the use of, and obtain substantially all of the remaining benefit from, the device or
disposables), which is generally at the point of delivery or installation, depending on the terms of the arrangement (i.e. when
the customer can use the goods to provide services or sell or exchange the good), and based on contractual incoterms.
The Company’s sales arrangements do not provide a right of return. The goods are generally covered by a period of
one to two years standard warranty upon installation. The Company also provides training associated with the sales of goods;
such training-related costs are immaterial in the context of the contract with the customer and do not constitute a distinct
performance obligation.
Sales of RPPs and leases:
Sales of RPP and leases include the revenues from the sale of treatment procedures and from the leasing of machines.
We provide machines to clinics and hospitals for free for a limited period, rather than selling the devices. These hospitals and
clinics perform treatments using the devices and usually pay us based on the number of individual treatments provided.
F-12
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
Revenues related to the sale of treatments invoiced on a ‘‘Revenue-Per-Procedure’’ (‘‘RPP’’) basis are recognized
when the treatment procedure has been completed. Revenues from devices leased to customers under operating leases are
recognized on a straight-line basis.
Regarding multiple-element arrangements with a lease component, a portion of the contract is allocated to the lease
component on the basis of observable market prices applied by the Company for similar devices under operating leases. The
lease component is recognized on a straight line basis over the contractual period. Other components under the contract are
recognized in accordance with their nature.
Sales of spare parts and services:
Revenues related to spare parts are recognized when spare parts are delivered to distributors who perform their own
maintenance services. Spare parts used in the performance of EDAP’s own maintenance and repair services are generally not
recognized separately, unless specified in the contract.
Revenues related to Services mainly consist of maintenance contracts which rarely exceed one year and are
recognized on a straight line basis over the term of the service period as the customer benefits from the service throughout the
service contract period. For services rendered when no maintenance contract is in place or for services not included in the
scope of a maintenance contract, revenues are recorded when services are performed.
The Company recognizes revenue for extended warranties included in the multiple-element arrangements as a
separate performance obligation in Sales of services on a straight-line basis over the extended warranty period. In the majority
of countries in which the Company operates, the statutory warranty period is one to two years and the extended warranty
covers periods beyond this statutory period. Standard warranties do not constitute a separate performance obligation. The
Company accrues for the warranty costs at the time of sale of the device through the multiple-element arrangement.
Agents and distributors:
As part of its sale process in countries other than continental France, when the Company does not have a local
subsidiary, sales of goods to end-customers are performed through agents and distributors. Such agents and distributors are
primarily responsible for the sales’ process, bear the inventory risk, and are free to determine the sale prices. Sales of goods to
agents and distributors are recognized when the control is transferred to the related agent or distributor which generally occurs
based on contractual incoterms.
Deferred revenue:
Deferred revenue for the periods presented primarily relates to service contracts where the service fees are billed up-
front, generally quarterly or annually, prior to those services having been performed, and consists primarily of billing or cash
receipts in advance of services due under maintenance contracts or extended warranty contracts. The associated deferred
revenue is generally recognized ratably over the service period.
Disaggregation of revenue:
Disaggregation by primary geographical market, and timing of revenue recognition is reported in Note 18.
Contract Balances:
Details on contract liabilities are reported on Note 12.
The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about
remaining performance obligations that have original expected durations of one year or less. This relates mainly to
maintenance services.
F-13
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
1-6 Costs of sales
Costs of sales include all direct product costs, costs related to shipping, handling, duties and importation fees, as well
as certain indirect costs such as service and supply chain departments expenses. Indirect costs are allocated by type of sales
(goods, RPP and leases, spare parts and services) using an allocation method determined by management by type of costs and
segment activities and reviewed on an annual basis.
1-7 Shipping and handling costs
Shipping and handling costs are not considered as performance obligations. Shipping and handling costs are recorded
as a component of cost of sales.
1-8 Cash equivalents and short term investments
Cash equivalents are cash investments which are highly liquid and have initial maturities of 90 days or less.
Cash investments with a maturity higher than 90 days are considered as short-term investments.
1-9 Accounts Receivables
Accounts receivables are stated at cost net of allowances for doubtful accounts. The Company makes judgments as to
its ability to collect outstanding receivables and provides allowances for the portion of receivables when collection becomes
doubtful. Provision is made based upon a specific review of all significant outstanding invoices. These estimates are based on
our bad debt write-off experience, analysis of credit information, specific identification of probable bad debt based on our
collection efforts, aging of accounts receivables and other known factors. Accounts receivable also include factored
receivables for which the Company is bearing the collection risk.
1-10 Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is either the manufacturing cost, which is
principally comprised of components and labor costs for our own manufactured products, or purchase price for urology
products we distribute. Cost is determined on a first-in, first-out basis for components and spare parts and by specific
identification for finished goods (medical devices). The Company establishes reserves for inventory estimated to be obsolete,
unmarketable or slow moving, first based on a detailed comparison between quantity in inventory and historical consumption
and then based on case-by-case analysis of the difference between the cost of inventory and the related estimated market
value.
1-11 Property and equipment
Property and equipment is stated at historical cost. Depreciation of property and equipment is calculated using the
straight-line method over the estimated useful life of the related assets, as follows:
Leasehold improvements (in years)
Equipment (in years)
Furniture, fixtures, fittings and other (in years)
10 or lease term if shorter
-
3
-
2
10
10
Equipment includes industrial equipment and research equipment that has alternative future uses. Equipment also includes
devices that are manufactured by the Company and leased to customers through operating leases related to Revenue-Per-
Procedure transactions and devices subject to sale and leaseback transactions. This equipment is depreciated over a period of
seven years.
1-12 Long-lived assets
The Company reviews the carrying value of its long-lived assets, including fixed assets and intangible assets, for
impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully
recoverable. Recoverability of long-lived assets is assessed by a comparison of the carrying amount of the assets (or the
Group of assets, including the asset in question, that represents the lowest level of separately-identifiable cash flows) to the
F-14
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
total estimated undiscounted cash flows expected to be generated by the asset or group of assets. If the future net undiscounted
cash flows is less than the carrying amount of the asset or group of assets, the asset or group of assets is considered impaired
and an expense is recognized equal to the amount required to reduce the carrying amount of the asset or group of assets to its
then fair value. Fair value is determined by discounting the cash flows expected to be generated by the assets, when the quoted
market prices are not available for the long-lived assets. Estimated future cash flows are based on assumptions and are subject
to risk and uncertainty.
1-13 Goodwill and intangible assets
Goodwill represents the excess of purchase price over the fair value of identifiable net assets of businesses acquired.
Goodwill is not amortized but instead tested annually for impairment or more frequently when events or change in
circumstances indicate that the assets might be impaired by comparing the carrying value to the fair value of the reporting
units to which it is assigned. Under ASC 350, “Goodwill and other intangible assets”, the impairment test is performed in two
steps. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value
of the reporting unit is less than its carrying amount, a second step is performed to measure the amount of impairment loss.
The second step allocates the fair value of the reporting unit to the Company’s tangible and intangible assets and liabilities.
This derives an implied fair value for the reporting unit’s goodwill. If the carrying amount of the reporting units’ goodwill
exceeds the implied fair value of that goodwill, an impairment loss is recognized equal to that excess. For the purpose of any
impairment test, the Company relies upon projections of future undiscounted cash flows and takes into account assumptions
regarding the evolution of the market and its ability to successfully develop and commercialize its products.
Changes in market conditions could have a major impact on the valuation of these assets and could result in
additional impairment losses.
Intangible assets consist primarily of purchased patents relating to lithotripters, purchased licenses, a purchased trade
name and a purchased trademark. The basis for valuation of these assets is their historical acquisition cost. Amortization of
intangible assets is calculated by the straight-line method over the shorter of the contractual or estimated useful life of the
assets, as follows:
Patents (in years)
SAP Licenses (in years)
Other licenses (in years)
Trade name and trademark (in years)
1-14 Treasury Stocks
5
10
5
7
Treasury stock purchases are accounted for at cost. The sale of treasury stocks is accounted for using the first in first
out method. Gains on the sale or retirement of treasury stocks are accounted for as additional paid-in capital whereas losses on
the sale or retirement of treasury stock are recorded as additional paid-in capital to the extent that previous net gains from sale
or retirement of treasury stocks are included therein; otherwise the losses shall be recorded to accumulated benefit (deficit)
account. Gains or losses from the sale or retirement of treasury stock do not affect reported results of operations. Treasury
stocks held by a Company cannot exceed 10% of the total number of shares issued.
1-15 Warranty expenses
The Company provides customers with a warranty for each product sold and accrues warranty expense at time of sale
based upon historical claims experience. Standard warranty period may vary from 1 year to 2 years depending on the market.
Actual warranty costs incurred are charged against the accrual when paid and are classified in cost of sales in the statement of
income. Warranty expense amounted to €131 thousand, €433 thousand and €316 thousand for the years ended December 31,
2019, 2018 and 2017, respectively.
1-16 Income taxes
The Company accounts for income taxes in accordance with ASC 740, ‘‘Accounting for Income Taxes’’ Under ASC
740, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of
assets and liabilities and are measured by applying enacted tax rates and laws to taxable years in which such differences are
expected to reverse. A valuation allowance is established if, based on the weight of available evidence, it is more likely than
F-15
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
not that some portion, or all of the deferred tax assets, will not be realized. In accordance with ASC740, no provision has been
made for income or withholding taxes on undistributed earnings of foreign subsidiaries, such undistributed earnings being
permanently reinvested.
Under ASC740, the measurement of a tax position that meets the more-likely-that-not recognition threshold must
take into consideration the amounts and probabilities of the outcomes that could be realized upon ultimate settlement using the
facts, circumstances and information available at the reporting date.
1-17 Research and development costs
Research and development costs are recorded as an expense in the period in which they are incurred.
The French government provides tax credits to companies for innovative research and development. This tax credit is
calculated based on a percentage of eligible research and development costs and it can be refundable in cash and is not
contingent on future taxable income. As such, the Company considers the research tax credits as a grant, offsetting research
and development expenses.
1-18 Advertising costs
Advertising costs are recorded as an expense in the period in which they are incurred and are included in selling and
administrative expenses in the accompanying consolidated statements of income (loss). Advertising costs amounted to €739
thousand, €719 thousand and €672 thousand for the years ended December 31, 2019, 2018 and 2017, respectively.
1-19 Foreign currency translation and transactions
Translation of the financial statements of consolidated companies
The reporting currency of EDAP TMS S.A. for all years presented is the euro (€). The functional currency of each
subsidiary is its local currency. In accordance with ASC 830, all accounts in the financial statements are translated into euro
from the functional currency at the following exchange rates:
• assets and liabilities are translated at year-end exchange rates;
• shareholders’ equity is translated at historical exchange rates (as of the date of contribution);
• statement of income items are translated at average exchange rates for the year; and
• translation gains and losses are recorded in a separate component of shareholders’ equity.
Foreign currencies transactions
Transactions involving foreign currencies are translated into the functional currency using the exchange rate
prevailing at the time of the transactions. Receivables and payables denominated in foreign currencies are translated at year-
end exchange rates. The resulting unrealized exchange gains and losses are carried to the statement of income.
Presentation in the Statement of Income
Aggregate foreign currency transactions gains and losses are disclosed in a single caption in the Statement of Income
under section “Foreign currency exchange gain (loss), net”.
1-20 Earnings per share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted average
number of shares of common stock outstanding for the period. Diluted earnings per share reflects potential dilution that could
occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Company. The dilutive effects of the Company’s common
stock options and warrants is determined using the treasury stock method to measure the number of shares that are assumed to
have been repurchased using the average market price during the period, which is converted from U.S. dollars at the average
exchange rate for the period.
F-16
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
1-21 Derivative instruments
ASC 815 requires the Company to recognize all of its derivative instruments as either assets or liabilities in the
statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative
instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type
of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company
must classify the hedging instrument, based upon the exposure being hedged, as fair value hedge, cash flow hedge or a hedge
of a net investment in a foreign operation.
Gains and losses from derivative instruments are recorded in the Statement of Income.
1-22 Employee stock option plans
At December 31, 2018, the Company had four stock-based employee compensation plans. ASC 718 requires the
recognition of fair value of stock compensation as an expense in the calculation of net income (loss).
1-23 Warrants
The Company recorded outstanding warrants issued in March 2012, May 2013 and April 2016 as a liability. Pursuant
to guidance of ASC 815-40-15-7(i), the Company determined that the said warrants could not be considered as being indexed
to the Company’s own stock, on the basis that the exercise price of the warrants was determined in U.S. dollars while the
functional currency of the Company is the Euro. As of December 31, 2018 and 2019, there were no more warrants
outstanding.
1-24 Leases
Leases as a Lessee
In accordance with ASC 842, Leases, and as from January 1, 2019, the Company classifies all leases at the inception
of a contract and assess whether the contract is, or contains, a lease. The assessment is based on: (1) whether the contract
involves the use of a distinct identified asset, (2) whether the company controls the use of the identified asset (e.g. whether the
company has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period, and
whether the company has the right to direct the use of the asset).
Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of
the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease grants an option
to purchase the asset that the lessee is reasonably certain to exercise, the lease term is for a major part of the economic life of
the underlying asset or the present value of the sum of the lease payments and any residual value guaranteed equals or exceeds
substantially all of the fair value of the underlying asset. A lease is classified as an operating lease if it does not meet any one
of these criteria. Substantially all our operating leases are comprised of office space leases, and substantially all our finance
leases are comprised of office furniture and technology equipment.
The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date. The
right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any
initial direct costs incurred, plus prepaid lease payments, less any lease incentives received. All ROU assets are reviewed for
impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the
incremental borrowing rate for assets of same duration or characteristics.
For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the
lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments. Lease expense for lease payments is
recognized on a straight-line basis over the lease term.
For finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease
commencement date to the earlier of the end of its useful life or the end of the lease term unless the lease transfers ownership
of the underlying asset to the Company or the Company is reasonably certain to exercise an option to purchase the underlying
asset. In those cases, the ROU asset is amortized over the useful life of the underlying asset. Amortization of the ROU asset is
recognized and presented separately from interest expense on the lease liability.
F-17
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
Variable lease payments associated with the Company’s leases are recognized when the event, activity, or
circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as
operating expenses in the Company’s consolidated statements of income in the same line item as expenses arising from fixed
lease payments (operating leases) or amortization of the ROU asset (finance leases).
Lease payments included in the measurement of the lease liability comprise the following: the fixed payments,
including in-substance fixed payments, variable lease payments that depend on an index or rate, payments for optional
renewal periods where it is reasonably certain the renewal period will be exercised, and payments for penalties for early
termination options unless it is reasonably certain the lease will not be terminated early, the exercise price of an option to
purchase the underlying asset if the company is reasonably certain to exercise the option, and residual value guarantees.
Our real estate leases generally include non-lease maintenance services. The consideration in the contract is allocated
to the lease and non-lease components based on standalone selling prices.
Some of our real estate leases contain variable lease payments, including payments based on an index or rate.
Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease
commencement, and changes to index and rate-based variable lease payments are recognized in profit or loss in the period of
the change. Variable payments that do not depend on an index or rate, such as rental payments based on the use of the
underlying asset or property taxes and insurance reimbursement, are recorded as operating expense when incurred. Lease
modifications result in remeasurement of the lease payments when that modification is not accounted for as a separate
contract.
Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage
commissions, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease
payments incurred in the period that were not included in the initial lease liability. Lease expense for finance leases consists of
the amortization of the right-of-use asset on a straight-line basis over the lease term and interest expense determined on an
amortized cost basis. The lease payments are allocated between a reduction of the lease liability and interest expense.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease.
We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12
months or less. The effect of short-term leases on our right-of-use asset and lease liability was not material. We have elected
not to review the classification for expired or existing leases, prior to January 1, 2019.
Leases as a Lessor:
A lessor shall classify a lease as a sales-type lease when the lease meets any of the following criteria at lease commencement:
• The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
• The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to
exercise.
• The lease term is for the major part of the remaining economic life of the underlying asset. However, if the
commencement date falls at or near the end of the economic life of the underlying asset, this criterion shall not be
used for purposes of classifying the lease.
• The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not
already reflected in the lease payments in accordance with paragraph 842-10-30-5(f) equals or exceeds
substantially all of the fair value of the underlying asset.
• The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the
end of the lease term.
When none of the criteria are met:
A lessor shall classify the lease as either a direct financing lease or an operating lease. A lessor shall classify the lease as an
operating lease unless both of the following criteria are met, in which case the lessor shall classify the lease as a direct
financing lease:
F-18
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
• The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not
already reflected in the lease payments in accordance with paragraph 842-10-30-5(f) and/or any other third party
unrelated to the lessor equals or exceeds substantially all of the fair value of the underlying asset;
• It is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value
guarantee.
1-25 Recent accounting pronouncements
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02), which supersedes ASC 840 “Leases”
and creates a new topic, ASC 842 "Leases." This update requires lessees to recognize on their balance sheet a lease liability
and a lease asset for all leases, including operating leases, with a term greater than 12 months. The update also expands the
required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after
December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. The Company adopted
the new standard as of January 1, 2019. The Company performed an analysis of all contracts to identify lease components or
rights of use. The Company determined that the new standard mostly applies to leases for facilities situated in France, Japan
and in the U.S. and for Company’s equipment, vehicles and IT equipment. The last category has been determined as being
below the threshold and not material.
The Company adopted ASC 842 using a modified retrospective transition approach for all leases existing at or
entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company
adopted the new standard as of January 1, 2019 with practical expedients, and did not restate comparative prior periods. The
adoption of ASC 842 had a material effect on our consolidated balance sheet, but did not materially affect the consolidated
statement of income (loss). The most significant impact was the recognition of the operating lease right-of-use assets and the
liability for operating leases. The accounting for finance leases (capital leases) was substantially unchanged. Accordingly,
upon adoption, leases that were classified as operating leases under ASC 840 were classified as operating leases under ASC
842, and we recorded an adjustment of €3,5 million to operating lease right-of-use assets and the related lease liability in
2019. The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 840,
discounted using our secured incremental borrowing rate at the effective date of January 1, 2019, using the original lease term
as the tenor. As permitted under ASC 842, we elected several practical expedients that permit us to not reassess (1) whether a
contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to
qualify as initial indirect costs. The application of the practical expedients did not have a significant impact on the
measurement of the operating lease liability.
As a result, the Company adapted its internal controls to identify contracts and apply the new GAAP.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses
on Financial Instruments, or ASU 2016-13, which changes the impairment model for most financial assets. The new model
uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU
2016-13 is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for
annual and interim periods beginning after December 15, 2018. The Company will adopt ASU 2016-13 on January 1, 2020.
Even if we are not yet in a position to assess the impact of the new standard on our results of operations or financial position
we are not expecting a significant impact on our accounts.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other: Simplifying the Test for
Goodwill Impairment.” This update eliminates step 2 from the goodwill impairment test, and requires the goodwill
impairment test to be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment
charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however,
the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective
for the Company in the first quarter of 2020. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing dates after January 1, 2017. The Company will adopt this pronouncement on January 1, 2020. The
Company does not expect an impact on our accounts.
F-19
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
2— CASH EQUIVALENTS
Cash and cash equivalents and short-term investments are comprised of the following:
Total cash and cash equivalents
Short term investments
Total cash and cash equivalents, and short term investments
3— TRADE ACCOUNTS AND NOTES RECEIVABLE, NET
Trade accounts and notes receivable consist of the following:
Trade accounts receivable
Notes receivable
Less: allowance for doubtful accounts
Total
Less current portion
Total long-term portion
December 31,
2019
2018
20,886
-
20,886
19,464
-
19,464
December 31,
2019
2018
11,807
1,013
(1,490 )
11,330
(11,328 )
2
12,907
408
(1,405 )
11,910
(11,884 )
26
Notes receivable usually represent commercial bills of exchange (drafts) with initial maturities of 90 days or less.
Bad debt expenses amount to a net cost of €84 thousand, a net cost of €362 thousand and €107 thousand, respectively
for the years ended December 31, 2019, 2018 and 2017.
Long term portion consists of sales type leases of medical devices.
Future minimum payments to be received over the five coming years are as follows:
2020
2021
2022
2023
2024
Total minimum payments
4— OTHER RECEIVABLES
Other receivables consist of the following:
Research and development tax credit receivable from the French State
Value-added taxes receivable
Other receivables from Government and public authorities
Others
Total
F-20
Sales type
leases
12
2
-
-
-
14
December 31,
2019
2018
766
422
26
46
1,259
685
390
233
126
1,434
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
5— INVENTORIES
Inventories consist of the following:
Components, spare parts
Work-in-progress
Finished goods – own manufactured products
Finished goods – distribution products
Total gross inventories
Less: allowance for slow-moving inventory and net realizable value
Total
December 31,
2019
2018
4,959
584
1,737
1,981
9,262
(1,085 )
8,178
3,496
576
2,672
1,442
8,186
(974 )
7,212
The provision for slow moving inventory relates to components and spare parts. The allowance for slow moving
inventory (excluding exchange rate impact), the changes in which are classified within cost of sales, amounted to a cost of
€168 thousand for the year ended December 31, 2019, a cost of €227 thousand for the year ended December 31, 2018, and an
income of €41 thousand for the year ended December 31, 2017, respectively.
6— OTHER ASSETS
Other assets consist of the following:
Prepaid expenses, current portion
Total
December 31,
2019
2018
447
447
382
382
Prepaid expenses mainly consist of rental and future congresses expenses.
7— PROPERTY AND EQUIPMENT, NET
Property and equipment consist of Property and equipment purchased or capitalized by the Company and financing
leases for 2019 or capital leases for 2018.
7-1 Property and Equipment, net
Property and equipment consist of the following:
Equipment
Furniture, fixture, and fittings and other
Total gross value
Less: accumulated depreciation and amortization
Total
December 31,
2019
2018
7,002
2,776
9,778
(6,644 )
3,134
5,973
2,641
8,614
(5,624 )
2,991
Depreciation expense related to property and equipment amounted to €1,511 thousand, €981 thousand and €935
thousand for the years ended December 31, 2019, 2018 and 2017, respectively.
Assets leased to customers:
Capitalized costs on equipment leased to customers of €342 thousand and €351 thousand are included in property
and equipment at December 31, 2019 and 2018, respectively. Accumulated amortization of these assets leased to third parties
was €95 thousand and €72 thousand, at December 31, 2019 and 2018, respectively.
F-21
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
Depreciation expense on equipment leased to customer is included in total depreciation expense and amounted to €23
thousand, €51 thousand and €24 thousand, for the years ended December 31, 2019, 2018 and 2017, respectively.
7-2 Financing leases and capital leases
Financing lease right-of-use assets in 2019 and capital leases for previous years consist of the following:
Equipment
Vehicles and IT equipment
Total gross value
Less: accumulated depreciation and amortization
Total
December 31,
2019
2018
713
1,582
2,295
1,360
935
824
1,423
2,247
1,030
1,217
Depreciation expense related to financing lease right-of-use assets amounted to €448 thousand, €386 thousand and
€218 for the years ended December 31, 2019, 2018, 2017, respectively.
The reduction to right-of-use assets resulting from reductions to financing lease obligations amounted €122 thousand
for the year ended December 31, 2019.
8— OPERATING LEASE RIGHT-OF-USE ASSETS
Operating lease right-of-use assets consist of the following:
Facilities
Equipment
Furniture, fixture, and fittings and other
Total net operating lease right of use
December 31,
2019
2018
2,387
58
202
2,647
-
-
-
The reduction to right-of-use assets resulting from reductions to operating lease obligations amounted €836 thousand
for the year ended December 31, 2019.
Variable lease costs related to above contracts amounted to €108 thousand for the year ended December 31, 2019.
Non-recognized lease liabilities for short term leases amounted to €71 thousand for the year ended December 31,
2019.
9— GOODWILL AND INTANGIBLE ASSETS
As discussed in Note 1-13, ASC 350 requires that goodwill not be amortized but instead be tested at least annually
for impairment, or more frequently when events or change in circumstances indicate that the asset might be impaired, by
comparing the carrying value to the fair value of the reporting unit to which they are assigned. The Company considers its
ASC 280 operating segment — High Intensity Focused Ultrasound (HIFU) and Urology Devices and Services (UDS) — to be
its reporting units for purposes of testing for impairment. Goodwill amounts to €1,767 thousand for the UDS division and to
€645 thousand for the HIFU division, at December 31, 2019 and 2018.
The Company completed the required annual impairment test in the fourth quarter of 2019. To determine the fair
value of the Company’s reporting units, the Company used the discounted cash flow approach for each of the two reportable
units. In both cases, the fair value of the reporting unit was in excess of the reporting unit's book value, which resulted in no
goodwill impairment.
F-22
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
Intangible assets consist of the following:
Licenses
Trade name and trademark
Patents
Organization costs
Total gross value
Accumulated amortization for licenses
Accumulated amortization for trade name and trademark
Accumulated amortization for patents
Accumulated amortization for organization costs
Less: Total accumulated amortization
Total
December 31,
2019
2018
1,466
427
412
320
2,625
(699 )
(424 )
(412 )
(320 )
(1,855 )
770
1,431
414
412
320
2,577
(587 )
(411 )
(412 )
(320 )
(1,730 )
847
Amortization expenses related to intangible assets amounted to €113 thousand, €110 thousand and €74 thousand, for
the years ended December 31, 2019, 2018 and 2017, respectively.
For the five coming years, the annual estimated amortization expense will consist of the following:
2020
2021
2022
2023
2024
Total
10— TRADE ACCOUNTS AND NOTES PAYABLE
Trade accounts and notes payable consist of the following:
Trade accounts payable
Notes payable
Total
December 31,
2019
106
97
90
83
83
460
December 31,
2019
2018
6,034
12
6,046
6,286
11
6,297
Trade accounts payable usually represent invoices with a due date of 90 days or less and invoices to be received.
Notes payable represent commercial bills of exchange (drafts) with initial maturities of 90 days or less.
F-23
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
11— DEFERRED REVENUES
Deferred revenues consist of the following:
Deferred revenues on maintenance contracts
Deferred revenue on RPP
Deferred revenue on sale of devices
Deferred revenue on extension of warranty, included in sales contracts
Deferred research and development grants
Total
Less long term portion
Current portion
December 31,
2019
2018
1,741
243
115
837
269
3,205
(1,313 )
1,892
1,246
339
289
855
173
2,902
(973 )
1,929
Deferred revenue on extension of warranty will be recognized over the following periods:
2020
2021
2022
2023
2024
Total
December 31,
2019
237
268
257
70
4
837
The components of deferred revenue on extension of warranty for the year ended December 31, 2019 are as follows:
Balance as of December 31, 2017
New extension of warranty
Recognition of revenue
Balance as of December 31, 2018
New extension of warranty
Recognition of revenue
Balance as of December 31, 2019
12— OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
Retirement indemnities
Provision for warranty costs
Accruals for payroll and associated taxes
Conditional government advances
Value added tax payable
Advances received from customers
Provision for Asset Retirement Obligation (Japan)
Provision for employee termination indemnities (Italy)
Provision for employee termination indemnities (Korea)
Others
Total
Less non-current portion
Current portion
F-24
Total
676
331
(152 )
855
254
(272 )
837
December 31,
2019
2018
2,444
370
738
1,071
557
-
117
-
56
323
5,676
(3,567 )
2,109
2,287
547
680
1,039
327
115
118
369
30
411
5,923
(3,800 )
2,122
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
We receive government conditional advances and grants for advanced research programs we conduct alone or in
connection with other unrelated entities (mainly HECAM project) which are provided for and managed by French state-
owned entities, and specifically “Banque Publique d’Investissement” (“Bpifrance”). We, alone or with other unrelated
entities, enter into multi-year contractual arrangements for the financing of specific research programs. These arrangements
consist of both grants and conditional advances which are paid in fixed instalments at predetermined contractual dates, subject
generally to milestones based on progress of the research and documentation. Grants received are non-refundable. Conditional
advances received are subject to a fixed 1.44% interest rate. If and when the research program is considered a commercial
success, contractual repayment is required. In addition, if we decide to stop the research program, the conditional advance
may be repayable. Grants that relate to expenses we incur for this research program are recognized in the line item “Research
and Development Expenses” in the period in which the expenses subject to the grants have been incurred (see Note 20).
Conditional advances as of December 31, 2019 mature as follows, should the underlying Research Program advance
as per contract:
2020
2021
2022
2023
2024 and thereafter
Total
Changes in the provision for warranty costs are as follows:
Beginning of year
Amount used during the year
New warranty expenses
End of year
Less current portion
Long term portion
13— LEASE OBLIGATIONS
13-1 Financing leases
-
6
209
209
646
1,071
December 31,
2019
2018
547
(308 )
131
370
(260 )
110
449
(335 )
433
547
(356 )
191
The Company leases certain of its equipment under finance leases. At December 31, 2019, this equipment consists of
medical devices for a liability amount of €305 thousand and vehicles and other IT equipment for a liability amount of €740
thousand. Maturities of finance leases liabilities for the years ending December 31, 2019 are as follows:
2020
2021
2022
2023
2024 and thereafter
Total undiscounted minimum lease payments
Less: amount representing interest
Present value of minimum lease payments
Less: current portion
Long-term portion
December 31,
415
299
221
122
30
1,086
(41 )
1,044
(392 )
653
Interest paid under finance lease obligations was €29 thousand the year ended December 31, 2019.
F-25
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
The weighted average remaining lease term and the weighted average discount rate for finance leases at
December 31, 2019 was: 3.2 years and 2.44%.
13-2 Operating leases
Maturities of operating leases liabilities consist of the following amounts:
2020
2021
2022
2023
2024 and thereafter
Total undiscounted minimum lease payments
Less: amount representing interest
Present value of minimum lease payments
Less: current portion
Long-term portion
December 31,
980
758
474
349
171
2,732
(48 )
2,684
(958 )
1,726
The weighted average remaining lease term and the weighted average discount rate for operating leases at
December 31, 2019 was : 3.51 years and 1.56%.
Total rent expenses under operating leases amounted to €828 thousand, €1,002 thousand and €904 thousand, for the
years ended December 31, 2019, 2018 and 2017, respectively. These total rent expenses are related to office rentals, office
equipment and car rentals.
14— SHORT-TERM BORROWINGS
As of December 31, 2019, short-term borrowings consist mainly of €3,185 thousand of factored account receivables
and for which the Company is bearing the collection risk and €328 thousand of short borrowing in Japan.
As of December 31, 2018, short-term borrowings consist mainly of €3,683 thousand of factored account receivables
and for which the Company is bearing the collection risk.
15— LONG TERM DEBT AND FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE
15-1 Long-term debt:
France term loan
Japanese term loan (YEN)
Germany term loan
Italy term loan
Malaysia term loan
Total long term debt
Less current portion
Total long-term portion
December 31,
2019
2018
351
617
438
-
13
1,420
(462 )
957
526
628
632
27
17
1,830
(491 )
1,339
F-26
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
As of December 31, 2019, long-term debt in Japan consists of two new loans in Yen with the following conditions:
EDAP Technomed Co. Ltd
EDAP Technomed Co. Ltd
Initial
Amount
80,000,000 August 2, 2026
40,000,000 April 15, 2020
Maturity
Fixed Interest rate
Frequency of
principal payments
1.98 % Monthly instalment
2.91 % Monthly instalment
As of December 31, 2018, long-term debt in Japan consists of a loan in Yen with the following conditions:
EDAP Technomed Co. Ltd
Initial
Amount
Maturity
80,000,000
November 30,
2025
Fixed Interest rate
Frequency of
principal payments
1.98 % Monthly instalment
This long-term debt was fully reimbursed in August 2019.
As of December 31, 2019 and 2018, long-term debt in Germany consists of three loans in euro with the following
conditions:
EDAP TMS GMBH
Initial
Amount
Maturity
450,000
November 30,
2020
Fixed Interest rate
Frequency of
principal payments
2.49 % Monthly instalment
This loan is pledged by an HIFU equipment with a purchase value of €450 thousand.
EDAP TMS GMBH
Initial
Amount
Maturity
136,500
December 31,
2022
Fixed Interest rate
Frequency of
principal payments
2.25 % Monthly instalment
This loan is pledged by a UDS equipment with a purchase value of €136 thousand.
EDAP TMS GMBH
400,000 April 30, 2023
This loan is pledged by an HIFU equipment with a purchase value of €438 thousand.
Initial
Amount
Maturity
Fixed Interest rate
Frequency of
principal payments
2.40 % Monthly instalment
As of December 31, 2018, long-term debt in Italy consists of a loan in euro for an initial amount of €242 thousand
with an interest rate of Euribor 1 month + 4.5% which matured on June 6, 2019.
As of December 31, 2019 and 2018, long-term debt in France consists of one loan in Euro to finance the ERP project
with the following conditions:
EDAP TMS FRANCE
Initial
Amount
Maturity
October 16,
2021
700,000
Fixed Interest rate
Frequency of
principal payments
0.40 % Quarterly instalment
As of December 31, 2019 and 2018, long-term debt in Malaysia consists of a loan in Ringgit with the following
conditions:
EDAP TECHNOMED SDN BHD
90,000 July 31, 2022
F-27
Initial
Amount
Maturity
Fixed Interest rate
Frequency of
principal payments
4.64 % Monthly instalment
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
15-2 Financial instruments carried at fair value:
On March 28, 2012, pursuant to a securities purchase agreement dated March 22, 2012, as amended, the Company
issued new ordinary shares in the form of ADSs to selected institutional investors in a registered direct placement (the “March
2012 Placement”) with warrants attached (the “March 2012 Investor Warrants”) allowing Investors to purchase up to
1,406,250 new ordinary shares of the Company. The Company also issued warrants to the placement agent, Rodman &
Renshaw LLC (the “March 2012 Placement Agent Warrants” giving rights to the Placement Agent to purchase up to 168,750
new shares of the Company (together with the March 2012 Investor Warrants: the “March 2012 Warrants”). The Company
determined that the March 2012 Warrants should be accounted for as a liability. The Company used the Black-Scholes pricing
model to value the March 2012 Warrants at inception, with subsequent changes in fair value recorded as a financial expense
or income.
On May 28, 2013, pursuant to a securities purchase agreement dated May 20, 2013, as amended, the Company issued
3,000,000 new ordinary shares in the form of ADSs to selected institutional investors in a registered direct placement (the
“May 2013 Placement”), at a price of $4.00 per share, with warrants attached (the “May 2013 Investor Warrants”). The May
2013 Investor Warrants allowed investors to purchase up to 1,500,000 shares in the form of ADSs at an exercise price of
$4.25. The May 2013 Investor Warrants were exercisable as from November 29, 2013 and expired on November 29, 2018.
The Company also issued warrants to the placement agent, H.C. Wainwright & Co., LLC with an exercise price of $5.00 per
share (the “May 2013 Placement Agent Warrants” and together with the May 2013 Investor Warrants, the “May 2013
Warrants”), The May 2013 Placement Agent Warrants were exercisable from November 29, 2013 and expired on May 28,
2016. As the May 2013 Warrants comprised the same structure and provisions than the March 2012 Warrants, including an
exercise price determined in U.S. dollars while the functional currency of the Company is the Euro, the Company determined
that the May 2013 Warrants should be accounted for as a liability. Total gross proceeds for the May 2013 Placement
amounted to $12 million (€ 9.270 million), out of which $3.817 million (€2.950 million) allocated to the Investor and
Placement Agent Warrants based on their fair value and accounted for as liability, and the remaining $8.183 million (€6.320
million) allocated to the share capital increase (see note 16-1). The Company used the Black-Scholes pricing model to value
the May 2013 Warrants at inception, with changes in fair value recorded as a financial expense or income.
On April 14, 2016, pursuant to a securities purchase agreement dated April 7, 2016, the Company issued 3,283,284
ordinary shares in the form of ADSs to selected institutional investors in a registered direct placement (the “April 2016
Placement”), at a price of $3.50 per share, with warrants attached (the “April 2016 Investor Warrants”). The April 2016
Investor Warrants allowed investors to purchase up to 3,283,284 shares in the form of ADSs at an exercise price of $4.50. The
April 2016 Investor Warrants were exercisable from October 14, 2016 and expired on October 14, 2018. As the April 2016
Warrants comprised the same structure and provisions than the March 2012 and May 2013 Warrants, including an exercise
price determined in U.S. dollars while the functional currency of the Company is the Euro, the Company determined that the
April 2016 Warrants should be accounted for as a liability. Total gross proceeds for the placement amounted to $11.5 million
(€ 10.2 million), out of which $3.578 million (€3.168 million) allocated to the Investor Warrants based on their fair value and
accounted for as liability, and the remaining $7.913 million (€7.006 million) allocated to the share capital increase (see Note
16-1). The Company used the Black-Scholes pricing model to value the April 2016 Warrants at inception, with changes in fair
value recorded as a financial expense or income.
As of December 31, 2018 and 2019, there were no more warrants outstanding.
Refer to Note 24 for more details on the fair value of Financial Instruments.
15-3 Long-term debt maturity:
Long-term debt carried at fair value at December 31, 2019 mature as follows:
2020
2021
2022
2023
2024 and thereafter
Total
F-28
462
384
208
122
243
1,420
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
16— OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
Provision for retirement indemnities (Japan & France), less current portion
Provision for employee termination indemnities (Italy) less current portion
Provision for employee termination indemnities (Korea) less current portion
Provision for Asset Retirement Obligation (Japan) less current portion
Provision for warranty costs, less current portion
Conditional government advances, less current portion
Accrued interest less current portion
Total
December 31,
2019
2018
2,167
-
56
117
110
1,071
46
3,567
2,222
170
30
118
191
1,039
30
3,800
Provision for asset retirement obligation in Japan is related to subsidiary’s offices and warehouses.
Pension, post-retirement and post-employment benefits for most of the Company’s employees are sponsored by
European governments. In addition to government-sponsored plans, subsidiaries in Japan and France have defined benefit
retirement indemnity plans in place. The provision for retirement indemnities at December 31, 2019 represents an accrual for
lump-sum retirement indemnity payments to be paid at the time an employee retires if he or she is still present at the Company
at the date of retirement. This provision has been calculated taking into account the estimated payment at retirement
(discounted to the current date), turnover and salary increases.
The provision is management’s best estimate based on the following assumptions as of year-end:
Discount rate
Salary increase
Retirement age
Average retirement remaining service period
Discount rate
Salary increase
Retirement age
Average retirement remaining service period
Pension Benefits - France
2018
2019
0.90 %
2.50 %
65
24
1.60 %
2.50 %
65
24
Pension Benefits - Japan
2018
2019
0.60 %
2.50 %
60
14
0.50 %
2.50 %
60
14
The discount rate retained is determined by reference to the high quality rates for AA- rated corporate bonds for a
duration equivalent to that of the obligations. It derives from a benchmark per monetary area of different market data at the
closing date.
In 2019, provision presentation according to ASC 715 in thousands of euros:
Non-current liabilities
Current liabilities
Accumulated other comprehensive income (loss)
Total
France
Japan
960
10
(67 )
903
1,207
22
(136 )
1,093
F-29
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
In 2018, provision presentation according to ASC 715 in thousands of euros:
Non-current liabilities
Current liabilities
Accumulated other comprehensive income (loss)
Total
France
Japan
966
10
(161 )
815
1,255
55
(416 )
895
The Company does not have a funded benefit plan. Detailed reconciliation of pension cost components (in thousands
of euros) during fiscal year for each of the three years ending December 31, 2019:
France
2019
2018
2017
Change in benefit obligations:
Benefit obligations at beginning of year
Service cost
Interest cost
Net loss or (gain)
Actuarial (gain) or loss
Amortization of net prior service cost
Benefits paid
Benefit obligations at end of year (1)
Unrecognized actuarial (gain) loss (2)
Unrecognized prior service cost (2)
Accrued pension cost
976
68
16
2
(93 )
1
-
969
48
18
903
895
67
14
-
1
-
976
141
20
815
842
66
13
-
1
(27 )
895
144
22
729
(1) The accumulated benefit obligation was €693 thousand and €692 thousand at December 31, 2019 and 2018 respectively.
(2) The amount in accumulated other comprehensive income (loss) to be recognized as components of net periodic benefit costs in 2020 is €1
thousand.
Japan
2019
2018
2017
Change in benefit obligations:
Benefit obligations at beginning of year
Service cost
Interest cost
Amortization of net loss
Actuarial (gain) / loss
Benefits paid
Exchange rate impact
Benefit obligations at end of year(1)
Unrecognized actuarial (gain) loss (2)
Unrecognized prior service cost (2)
Accrued pension cost
1,311
140
6
27
(294 )
(3 )
42
1,230
136
-
1,093
1,182
131
6
26
-
(94 )
(60 )
1,311
416
-
895
1,162
118
6
24
(12 )
(17 )
(99 )
1,182
412
-
770
(1) The accumulated benefit obligation was €1,062 thousand and €960 thousand at December 31, 2019 and 2018, respectively.
(2) The amount in accumulated other comprehensive income (loss) to be recognized as components of net periodic benefit costs in 2020 is €1
thousand.
F-30
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
The benefits expected to be paid in each of the next five fiscal years, and in the aggregate for the five fiscal years
thereafter, are detailed in the table below:
2020
2021
2022
2023
2024
2025-2029
17— SHAREHOLDERS’ EQUITY
17-1 Common stock
France
Japan
10
80
-
67
-
265
22
72
109
118
163
529
As of December 31, 2019, EDAP TMS S.A.’s common stock consisted of 29,433,994 issued shares fully paid and
with a par value of €0.13 each. 29,141,566 of the shares were outstanding.
17-2 Pre-emptive subscription rights
Shareholders have preemptive rights to subscribe on a pro rata basis for additional shares issued by the Company for
cash. Shareholders may waive such preemptive subscription rights at an extraordinary general meeting of shareholders under
certain circumstances. Preemptive subscription rights, if not previously waived, are transferable during the subscription period
relating to a particular offer of shares.
17-3 Dividend rights
Dividends may be distributed from the statutory retained earnings, subject to the requirements of French law and the
Company’s by-laws. The Company has not distributed any dividends since its inception as the result of an accumulated
statutory deficit of €15,392 thousand. Dividend distributions, if any, will be made in euros. The Company has no plans to
distribute dividends in the foreseeable future.
17-4 Treasury stock
As of December 31, 2019, all 292,428 shares held as treasury stock consisted of (i) 112,138 shares acquired between
August and December 1998 and (ii) 180,290 shares acquired in June and July 2001 for a total of €718 thousand. All treasury
stocks have been acquired to cover outstanding stock options (see Note 17-5).
17-5 Stock-option plans
As of December 31, 2019, the 292,428 ordinary shares held as treasury stock were dedicated to serve stock purchase
option plans as follows: 42,000 shares which may be purchased at a price of €2.38 per share pursuant to the exercise of
options that were granted on June 25, 2010, the balance of 250,428 may be allocated by the Board of Directors in the future,
as per June 28, 2019 shareholders’ approval.
As of December 31, 2019, EDAP TMS S.A. sponsored four stock purchase and subscription option plans open to
employees of EDAP TMS group:
On June 24, 2010, the shareholders authorized the Board of Directors to grant up to 229,100 options to purchase pre-
existing Shares at a fixed price to be set by the Board of Directors. All of the Shares that may be purchased through the
exercise of stock options are currently held as treasury stock. Conforming to this stock option plan, on June 25, 2010, the
Board of Directors granted 229,100 options to purchase existing Shares to certain employees of EDAP TMS. The exercise
price was fixed at €2.38 per share. Options were to begin vesting one year after the date of grant and were fully vested as of
F-31
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
June 25, 2014 (i.e., four years after the date of grant). Shares acquired pursuant to the options cannot be sold prior to four
years from the date of grant. The options expire on June 25, 2020 (i.e., ten years after the date of grant) or when employment
with the Company ceases, whichever occurs earlier. There was no impact on 2017, 2018 and 2019 operating expenses, in
accordance with ASC 718. Under this plan, 42,000 options are outstanding and exercisable at December 31, 2019.
On December 19, 2012, the shareholders authorized the Board of Directors to grant up to 500,000 options to
subscribe to 500,000 new shares at a fixed price to be set by the Board of Directors. Conforming to this stock option plan, the
Board of Directors granted 500,000 options to subscribe Shares to certain employees of EDAP TMS on January 18, 2013. The
exercise price was fixed at €1.91 per share. Options were to begin vesting one year after the date of grant and all options were
fully vested as of January 18, 2017 (i.e., four years after the date of grant). Shares acquired pursuant to the options cannot be
sold prior to four years from the date of grant. The options expire on January 18, 2023 (i.e., ten years after the date of grant) or
when employment with the Company ceases, whichever occurs earlier. At December 31, 2013 the total fair value of the
options granted under this plan was €660 thousand. This non-cash financial charge has been recognized in the Company’s
operating expenses over a period of 48 months (using the graded vesting method). The impact on operating income, in
accordance with ASC 718, was €2 thousand, €0 thousand and €0 thousand, in 2017, 2018 and 2019, respectively. Under this
plan, 282,500 options are outstanding and exercisable at December 31, 2019.
On February 18, 2016, the shareholders authorized the Board of Directors to grant up to 1,000,000 options to
subscribe to 1,000,000 new shares at a fixed price to be set by the Board of Directors. Conforming to this stock option plan,
the Board of Directors granted 575,000 options to subscribe Shares to certain employees of EDAP TMS on April 26, 2016.
The exercise price was fixed at €3.22 per share. Options were to begin vesting one year after the date of grant and all options
will be fully vested as of April 26, 2020 (i.e., four years after the date of grant). Shares acquired pursuant to the options cannot
be sold prior to four years from the date of grant. The options expire on April 26, 2026 (i.e., ten years after the date of grant)
or when employment with the Company ceases, whichever occurs earlier. At December 31, 2016 the total fair value of the
options granted under this plan was €960 thousand. This non-cash financial charge will be recognized in the Company’s
operating expenses over a period of 48 months (using the graded vesting method).
Conforming to this February 18, 2016 stock option plan, the Board of Directors granted 260,000 options to subscribe
Shares to certain employees of EDAP TMS on April 25, 2017. The exercise price was fixed at €2.39 per share. Options were
to begin vesting one year after the date of grant and all options will be fully vested as of April 25, 2021 (i.e., four years after
the date of grant). Shares acquired pursuant to the options cannot be sold prior to four years from the date of grant. The
options expire on April 25, 2027 (i.e., ten years after the date of grant) or when employment with the Company ceases,
whichever occurs earlier. At December 31, 2017, the total fair value of the options granted on April 25, 2017 under this plan
was €335 thousand. This non-cash financial charge will be recognized in the Company’s operating expenses over a period of
48 months (using the graded vesting method).
Conforming to this February 18, 2016 stock option plan, the Board of Directors granted 165,000 options to subscribe
Shares to certain employees of EDAP TMS on August 29, 2018. The exercise price was fixed at €2.65 per share. Options
were to begin vesting one year after the date of grant and all options will be fully vested as of August 29, 2022 (i.e., four years
after the date of grant). Shares acquired pursuant to the options cannot be sold prior to four years from the date of grant. The
options expire on August 29, 2029 (i.e., ten years after the date of grant) or when employment with the Company ceases,
whichever occurs earlier. At December 31, 2018, the total fair value of the options granted on August 29, 2018 under this plan
was €219 thousand. This non-cash financial charge will be recognized in the Company’s operating expenses over a period of
48 months (using the graded vesting method).
Conforming to this February 18, 2016 stock option plan, the Board of Directors granted 155,000 options to subscribe
Shares to certain employees of EDAP TMS on April 4, 2019. The exercise price was fixed at €3.90 per share. Options were to
begin vesting one year after the date of grant and all options will be fully vested as of April 4, 2023 (i.e., four years after the
date of grant). Shares acquired pursuant to the options cannot be sold prior to four years from the date of grant. The options
expire on April 4, 2029 (i.e., ten years after the date of grant) or when employment with the Company ceases, whichever
occurs earlier. At December 31, 2019, the total fair value of the options granted on April 4, 2019 under this plan was €299
thousand. This non-cash financial charge will be recognized in the Company’s operating expenses over a period of 48 months
(using the graded vesting method).
The impact on this February 18, 2016 Plan on operating income, in accordance with ASC 718, was €380 thousand,
€289 thousand and €260 thousand in 2017, 2018 and 2019, respectively.
F-32
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
Under this 2016 plan, 949,400 options are outstanding and 494,400 options are exercisable at December 31, 2019.
On June 28, 2019, the shareholders authorized the Board of Directors to grant up to a maximum of 358,528 options
to purchase pre-existing Shares and to grant 1,000,000 options to subscribe to 1,000,000 new shares at a fixed price to be set
by the Board of Directors. As of December 31, 2019, none of the options authorized under this Plan have been allocated.
Forfeited stock-options are recognized as they occur, in accordance with ASU 2016-09.
The fair value of each stock option granted during the year is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions:
Year Ended December 31,
2018
2019
2017
Weighted-average expected life (years)
Expected volatility rates(1)
Expected dividend yield
Risk-free interest rate
Weighted-average exercise price (€)
Weighted-average fair value of options granted during the year (€)
(1) Historical volatility calculated over 10 years.
6.25
49.45 %
0 %
-0.08 %
3.90
1.93
6.25
52.6 %
0 %
0.18 %
2.65
1.33
6.25
57.4 %
0 %
0.02 %
2.39
1.29
As of December 31, 2019, a summary of stock option activity to purchase or to subscribe to Shares under these plans
is as follows:
2019
2018
2017
Outstanding on January 1,
Granted
Exercised
Forfeited
Expired
Outstanding on December 31,
Exercisable on December 31,
Share purchase options available for grant on
December 31
Weighted
average
exercise
price
(€)
2.94
2.39
1.91
3.09
3.99
2.61
2.29
Weighted
average
exercise
price
(€)
Weighted
average
exercise
price
(€)
Options
1,347,600
155,000
(143,700 )
(85,000 )
-
1,273,900
818,900
Options
2.61 1,207,600
3.90 165,000
2.16
-
(25,000 )
1.94
-
-
2.78 1,347,600
2.60 772,600
-
Options
2.61 1,427,438
2.65 260,000
(60,000 )
3.05 (134,750 )
- (285,088 )
2.61 1,207,600
2.44 598,850
250,428
250,428
250,428
F-33
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
The following table summarizes information about options to purchase existing Shares held by the Company, or to
subscribe to new Shares, at December 31, 2019:
Exercise price (€)
Outstanding options
Weighted
Weighted
average
average
exercise
remaining
price
contractual
(€)
life
Options
Aggregate
Intrinsic
Value
(2)
(€)
Fully vested options(1)
Weighted
average
exercise
price
(€)
Aggregate
Intrinsic
Value
(2)
Options
3.90
3.22
2.65
2.39
2.38
1.91
1.91 to 3.90
(1) Fully vested options are all exercisable options
(2) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $4.43 at December 31, 2019,
3.90
-
5,954
3.22 352,013 363,750
2.65 187,891 36,250
2.39 294,669 94,400
2.38 65,764 42,000
1.91 575,114 282,500
2.78 1,481,405 818,900
-
3.22 264,010
46,973
2.65
2.39 146,868
2.38
65,764
1.91 575,114
2.60 1,098,728
130,000
485,000
145,000
189,400
42,000
282,500
1,273,900
9.3
6.3
8.7
7.3
0.5
3.0
7.0
-
which would have been received by the option holders had all in-the-money option holders exercised their options as of that date.
A summary of the status of the non-vested options to purchase shares or to subscribe to new shares as of December
31, 2019, and changes during the year ended December 31, 2019, is presented below:
Non-vested at January 1, 2019
Granted
Vested
Forfeited
Non-vested at December 31, 2019
Weighted average
Grant-Date Fair
Value (€)
Options
575,000
155,000
(204,400 )
(70,600 )
455,000
1.47
1.93
1.52
1.58
1.58
As of December 31, 2019, there were €271 thousand of total unrecognized compensation expenses related to non-
vested stock-options, over a period of 3.25 years.
17-6 Accumulated other comprehensive income (loss)
The components of accumulated other comprehensive income (loss) net of tax, for the years ended December 31,
2019, and 2018, are as follows:
Beginning balance
Other comprehensive income (loss) before reclassifications
Reclassified from accumulated other comprehensive loss
Net current-period other comprehensive income (loss)
Ending balance
Year Ended December 31, 2019
Foreign currency
translation
adjustments
Provision for
retirement
indemnities
(3,173 )
-
-
(61 )
(3,234 )
(577 )
-
-
374
(203 )
Total
(3,748 )
-
-
313
(3,436 )
F-34
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
Beginning balance
Other comprehensive income (loss) before reclassifications
Reclassified from accumulated other comprehensive loss
Net current-period other comprehensive income (loss)
Ending balance
(cid:0)
Year Ended December 31, 2018
Foreign currency
translation
adjustments
Provision for
retirement
indemnities
(3,027 )
-
-
(146 )
(3,173 )
(577 )
-
-
-
(577 )
Total
(3,604 )
-
-
(146 )
(3,748 )
As there is an allowance recorded against deferred tax assets, there is no net impact of tax.
18— TOTAL SALES
Amount of net sales derived from our operations in Asia, France, the United States. and other geographical areas, are
as follows:
Primary geographical markets (€)
Asia
France
United States
Others geographical areas
(cid:0)
The amount of net sales is recognized following the timing above:
Timing of revenue recognition
Products transferred at a point in time
Products and services transferred over time
19— OTHER REVENUES
Other revenues consist of the following:
Licenses and others
Total
2019
2018
2017
17,939
11,350
5,194
10,377
44,859
14,119
11,577
2,048
11,419
39,163
13,461
10,573
1,748
9,904
35,686
2019
2018
2017
36,767
8,092
44,859
31,373
7,790
39,163
28,760
6,927
35,686
2019
2018
2017
52
52
19
19
60
60
In 2019, 2018 and 2017, other revenues mainly consist of sales of a license to Theraclion and training to customers.
20— COSTS OF SALES
Costs of sales consist of the following:
Direct costs of sales
Indirect costs of sales
Total costs of sales
2019
2018
2017
(14,919 )
(8,990 )
(23,909 )
(13,683 )
(8,583 )
(22,266 )
(12,706 )
(8,232 )
(20,938 )
F-35
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
21— RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist of the following:
Gross research and development expenses
Research Tax Credit
Grants
Net Research and development expenses
2019
2018
2017
(4,727 )
762
236
(3,728 )
(4,863 )
685
90
(4,088 )
(4,539 )
504
154
(3,881 )
In 2019 grants consisted mainly of national grants for the assessment and optimization of the focal treatments of
prostate cancer (Perfuse development project).
In 2018 and 2017 grants mainly consisted of European, national and regional grants for the development of
innovative imaging solutions for the focal treatment of liver cancer (HECAM Development project).
Research and development costs are expensed as incurred and include amortization of assets, costs of prototypes,
salaries, benefits and other headcount related costs, contract and other outside service fees, and facilities and overhead costs.
22— FINANCIAL INCOME, NET
Interest (expense) income, net consists of the following:
Interest income
Interest expense
Warrants exercised / forfeited
Changes in fair value of Financial Instrument (1)
Total
(1)
For more details on the fair value of Financial Instruments, please refer to Notes 14-2 and 25.
2019
2018
2017
20
(165 )
-
-
(146 )
19
(111 )
889
-
797
18
(44 )
625
2,044
2,643
23— INCOME TAXES
23-1 Income / (Loss) before income taxes
Income / (loss) before income taxes is comprised of the following:
France
Other countries
Total
2019
2018
2017
1,803
388
2,191
1,687
(1,667 )
20
1,003
(1,296 )
(293 )
23-2 Income tax (expense)/ benefit
Income tax (expense)/benefit consists of the following:
Current income tax expense:
France
Other countries
Sub-total current income tax expense
Deferred income tax (expense) benefit:
France
Other countries
Sub-total deferred income tax (expense) benefit
Total
F-36
2019
2018
2017
(237 )
(550 )
(787 )
(1 )
109
108
(679 )
(163 )
(351 )
(515 )
2
155
157
(358 )
(161 )
(373 )
(534 )
(15 )
161
146
(388 )
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
23-3 Deferred income taxes:
Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities
reported for financial reporting purposes and such amounts as measured in accordance with tax laws. The tax effects of
temporary differences which give rise to significant deferred tax assets (liabilities) are as follows by nature:
Net operating loss carry forwards
Elimination of intercompany profit in inventory
Elimination of intercompany profit in fixed assets
Provisions for retirement indemnities
Capital leases treated as operating leases for tax
Other items
Total deferred tax assets
Total deferred tax liabilities
Net deferred tax assets
Valuation allowance for deferred tax assets
Deferred tax assets (liabilities), net of allowance
December 31,
2019
2018
13,642
269
349
577
29
544
15,410
-
15,410
(14,977 )
432
13,675
187
343
488
10
174
14,877
-
14,877
(14,553 )
324
Net operating loss carryforwards available amounts to €57,701 thousand as of December 31, 2019, of which €31,359
thousand at EDAP TMS SA, €22,413 thousand at Edap Technomed Inc., €2,171 thousand at Edap Technomed Co Ltd Japan,
€1,758 thousand at EDAP Technomed Italia S.R.L. These net operating losses generate deferred tax assets of €13,642
thousand as at December 31, 2019. Realization of these tax assets is contingent on future taxable earnings in the applicable tax
jurisdictions. As of December 31, 2019, €55,530 thousand out of these €57,701 thousand net operating loss carry-forwards
have no expiration date but the amount of the net operating loss carry-forward, which can be used each year to offset taxable
earnings, is limited in all jurisdictions. The remaining tax loss carry-forwards expire from years 2019 through 2029. In
accordance with ASC 740, a valuation allowance is established if, based on the weight of available evidence, it is more-likely-
than-not that some portion or all of the deferred tax asset will not be realized.
The 2017 U.S. Tax Act was enacted on December 22, 2017. The 2017 U.S. Tax Act includes a number of changes in
existing tax law which impacted our business in the U.S. Starting with tax year 2018, the U.S. corporate tax rates changed
from a graduated system ranging from 15% to 39% to a flat 21% of taxable net income. For taxable net income of $100K and
greater for years 2018 and following, EDAP’s U.S. subsidiary would pay significantly lower taxes than with the previous tax
law.
Starting from tax year 2019, the French corporate tax rates of taxable net income will gradually decrease from 28% to
25% in 2022.
23-4 Effective tax income (expense)
A reconciliation of differences between the statutory French income tax rate and the Company’s effective tax income
(loss) is as follows:
Effective income / (loss) tax at French statutory tax rate
Income of foreign subsidiaries taxed at different tax rates
Effect of net operating loss carry-forwards and valuation allowances
Non-taxable debt fair value variation
Permanent differences
Effect of cancellation of intra-group positions
French business tax included in income tax (CVAE)
Other
Effective income (loss) tax
F-37
2019
2018
2017
(614 )
(51 )
189
-
(251 )
(54 )
(159 )
263
(679 )
(6 )
(124 )
(210 )
235
(392 )
35
(161 )
265
(358 )
98
64
(1,530 )
1,026
178
144
(161 )
(207 )
(388 )
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
23-5 Uncertainty in Income Taxes
According to ASC 740, the Company reviewed the tax positions of each subsidiary. On December 31, 2019 the
Company believes that there is no significant uncertainty in the Company’s tax positions.
The Company remains subject to examination by major tax jurisdictions.
Interest and penalties on income taxes are classified as a component of the provision for income taxes. There were no
interest or penalties in 2019, 2018 and 2017.
24— EARNINGS (LOSS) PER SHARE
Income (loss) available to common shareholders (in Euros)
Number of shares for the computation of basic EPS
Basic EPS (in Euros)
Effect of dilutive securities
Number of shares for the computation of diluted EPS
Diluted EPS income / (loss) (in Euros)
December 31,
2019
1,512,056
29,016,118
€0.05
604,238
December 31,
2018
(€338,382)
28,997,866
December 31,
2017
(€681,345)
28,961,928
(€0.01)
347,500
(€0.02)
581,915
29,615,466
28,997,866
28,961,928
€0.05
(€0.01)
(€0.02)
Diluted EPS income / (loss) available to common shareholders is computed including all dilutive securities that are in
the money.
The effects of dilutive securities for the years ended December 31, 2018 and 2017 were excluded from the
calculation of diluted earnings per share as a net loss was reported in these periods.
25— COMMITMENTS AND CONTINGENCIES
25-1 Commitments
The Company currently has commitments regarding its operating leases as described in Note 12-2.
25-2 Contingencies
The Company currently has contingencies relating to warranties provided to customers for products as described in
Note 1-15 and Note 11.
26— FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments was made in accordance with the
requirements of ASC 820 ‘‘Disclosure about fair value of financial instruments’’ and indicates the fair value hierarchy of the
valuation techniques utilized to determine such fair value.
ASC 820 defines three levels of inputs that may be used to measure fair value and requires that the assets or
liabilities carried at fair value be disclosed by the input level under which they were valued. The input levels are defined as
follows:
Level 1: Quoted (unadjusted) prices in active markets for identical assets and liabilities that the reporting entity can
access at the measurement date.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly.
Level 3: Unobservable inputs for the asset or liability.
F-38
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
Assets:
Cash and cash equivalents
Liabilities:
Short-term borrowings
Long-Term Debt
Investor Warrants
ASC 820
Level
December 31,
2019
December 31,
2018
Level 1
20,886
19,464
Level 1
Level 1
Level 3
3,513
1,420
-
3,683
1,830
-
The recorded amount of cash and cash equivalents and short-term borrowings are a reasonable estimate of their fair
value due to the short-term maturities of these instruments.
The fair market value (Level 1 measurement) of the Company’s long-term debt is estimated using interest rate
available to the Company in corresponding markets for debt with similar terms and maturities (see note 15-1 Long-term debt).
Concerning Investor and Placement Agent Warrants, the Company uses a Black-Scholes option pricing model. The
fair value of the Warrants changed over time depending on the volatility and share price at balance sheet date (see note 15-2 -
Financial instruments carried at fair value).
The following tables provide a reconciliation of fair value for which the Company used Level 3 inputs, for the period
from December 31, 2016 to December 31, 2019:
All amounts in
thousands Euros unless otherwise
stated
Investor
Warrants
2012
Investor
Warrants
2013
Investor
Warrants
2016
As of December 31, 2016
Warrants forfeited (see note 21)(1)
Warrants exercises (see note 21) (1)
FV adjustments (see note 21) (1)
USD/EUR exchange impact(2)
As of December 31, 2017
FV adjustments (see note 21) (1)
USD/EUR exchange impact(2)
As of December 31, 2018
As of December 31, 2019
(1) Reported in the Consolidated Statement of Income in line “Financial (expenses) income net”
(2)Reported in the Consolidated Statement of Income in line “Foreign currency exchange gain (loss), net”
640
(489 )
(136 )
-
(16 )
-
-
-
-
-
1,118
-
-
(656 )
(135 )
328
(345 )
17
-
-
2,162
-
-
(1,388 )
(262 )
512
(544 )
32
-
-
Total Financial
instruments
carried at fair
value
3,921
(489 )
(136 )
(2,044 )
(412 )
840
(889 )
49
-
-
Please refer to “Note 15 – Long term debt and financial instruments carried out at fair value” for additional details.
27— CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of
cash and cash equivalents and trade accounts and notes receivable from customers, primarily located in France, Japan and the
United States. The Company maintains cash deposits with major banks. Management periodically assesses the financial
condition of these institutions and believes that credit risk is limited.
The Company has implemented procedures to monitor the creditworthiness of its customers. The Company obtains
bank guarantees for first time or infrequent customers, and in certain cases obtains insurance against the risk of a payment
default by the customer. The Company reviewed individual customer balances considering current and historical loss
experience and general economic conditions in determining the allowance for doubtful accounts receivable of €1.5 million
and €1.4 million, for the years ended December 31, 2019 and 2018, respectively.
F-39
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
Actual losses may vary from the current estimates, and any adjustments are reported in earnings in the periods in
which they become known.
In 2019, 2018 and 2017, the Company did not generate more than 10% revenue with a single customer.
28— FOREIGN CURRENCY TRANSACTIONS
The Company generates a significant percentage of its revenues, and of its operating expenses, in currencies other
than the euro. The Company’s operating profitability could be materially adversely affected by large fluctuations in the rate of
exchange between the euro and such other currencies. The Company engages in foreign exchange hedging activities when it
deems necessary, but there can be no assurance that hedging activities will be offset by the impact of movements in exchange
rates on the Company’s results of operations. As of December 31, 2019, there were no outstanding hedging instruments.
29— SEGMENT INFORMATION
The Company currently has two reporting segments: the High Intensity Focused Ultrasound division and the
Urological Devices and Services division. The following tables set forth the key Statement of Income figures, by segment for
fiscal years 2019, 2018 and 2017 and the key balance sheet figures, by segment, for fiscal years 2019, 2018 and 2017.
The business in which the Company operates is the development and production of minimally invasive medical
devices, primarily for the treatment of urological diseases. Substantially all revenues result from the sale of medical devices
and their related license and royalty payments from third parties. The segments derive their revenues from this activity.
Segment operating profit or loss and segment assets are determined in accordance with the same policies as those
described in the summary of significant accounting policies. Interest income and expense, current and deferred income taxes
are not allocated to individual segments. A reconciliation of segment operating profit or loss to consolidated net loss is as
follows:
Segment operating income (loss)
Financial income (expense), net
Foreign Currency exchange (losses) gains, net
Income tax (expense) credit
Consolidated net profit (loss)
2019
2018
2017
2,201
(146 )
136
(679 )
1,512
(1,315 )
797
538
(358 )
(338 )
(2,027 )
2,643
(909 )
(388 )
(681 )
F-40
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
A summary of the Company’s operations by segment is presented below for years ending December 31, 2019, 2018
and 2017:
2019
Sales of goods
Sales of RPPs & leases
Sales of spare parts and services
Total sales
External other revenues
Total revenues
Total COS
Gross profit
R&D expenses
Selling and marketing expenses
G&A expenses
Total expenses
Operating income (loss) from operations
Total Assets
Capital expenditures
Long-lived assets
Goodwill
2018
Sales of goods
Sales of RPPs & leases
Sales of spare parts and services
Total sales
External other revenues
Total revenues
Total COS
Gross profit
R&D expenses
Selling and marketing expenses
G&A expenses
Total expenses
Operating income (loss) from operations
Total Assets
Capital expenditures
Long-lived assets
Goodwill
HIFU Division UDS Division
Reconciling
items(1)
Total
consolidated
8,311
4,162
1,618
14,092
52
14,144
(6,152 )
7,991
(1,962 )
(4,402 )
(1,168 )
(7,533 )
459
16,665
915
4,096
645
21,800
1,585
7,383
30,768
-
30,768
(17,757 )
13,011
(1,766 )
(6,448 )
(1,758 )
(9,972 )
3,039
32,392
617
6,875
1,767
-
-
-
-
-
-
-
-
-
(1,297 )
(1,297 )
(1,297 )
4,012
-
-
-
30,111
5,747
9,001
44,859
52
44,912
(23,909 )
21,002
(3,728 )
(10,850 )
(4,224 )
(18,802 )
2,201
53,068
1,532
10,971
2,412
HIFU Division UDS Division
Reconciling
Items(1)
Total
consolidated
5,494
3,750
1,780
11,025
19
11,044
(5,312 )
5,732
(2,394 )
(4,628 )
(1,036 )
(8,057 )
(2,325 )
13,648
1,154
2,855
645
19,576
1,336
7,227
28,139
-
28,139
(16,954 )
11,185
(1,694 )
(5,923 )
(1,311 )
(8,928 )
2,257
29,849
775
5,158
1,767
-
-
-
-
-
-
-
-
-
(1,246 )
(1,246 )
(1,246 )
5,243
-
-
-
25,070
5,086
9,007
39,163
19
39,183
(22,266 )
16,917
(4,088 )
(10,551 )
(3,593 )
(18,232 )
(1,315 )
48,740
1,928
8,013
2,412
F-41
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
HIFU Division UDS Division
Reconciling
items(1)
Total
consolidated
2017
Sales of goods
Sales of RPPs & leases
Sales of spare parts and services
Total sales
External other revenues
Total revenues
Total COS
Gross profit
R&D expenses
Selling and marketing expenses
G&A expenses
Total expenses
Operating income (loss) from operations
Total Assets
Capital expenditures
Long-lived assets
Goodwill
(1)
For year 2017, these data were reported under “EDAP TMS (Corporate)”
4,232
3,800
1,445
9,477
36
9,513
(4,732 )
4,782
(2,469 )
(4,004 )
(1,009 )
(7,482 )
(2,701 )
11,333
1,190
2,804
645
18,348
1,295
6,566
26,209
24
26,233
(16,207 )
10,026
(1,413 )
(5,521 )
(1,057 )
(7,991 )
2,035
27,803
928
4,278
1,767
-
-
-
-
-
-
-
-
-
(1,362 )
(1,362 )
(1,362 )
7,761
-
-
-
22,580
5,095
8,011
35,686
60
35,746
(20,938 )
14,808
(3,881 )
(9,526 )
(3,428 )
(16,835 )
(2,027 )
46,897
2,118
7,082
2,412
30— VALUATION ACCOUNTS
Balance as of December 31, 2016
Charges to costs and expenses
Deductions: write-off and others
Balance as of December 31, 2017
Charges to costs and expenses
Deductions: write-off and others
Balance as of December 31, 2018
Charges to costs and expenses
Deductions: write-off and others
Balance as of December 31, 2019
Allowance for
deferred tax
assets
Allowance for
doubtful
accounts
Slow-moving
inventory
Warranty
reserve
19,450
1,536
(6,720 )
14,266
515
(228 )
14,553
859
(435 )
14,977
960
69
-
1,029
365
10
1,404
94
(9 )
1,490
803
239
(319 )
723
355
(104 )
974
333
(223 )
1,085
31— SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest and income taxes paid are as follows:
Income taxes paid (refunds received)
Interest paid
Interest received
Non-cash transactions:
Financing lease obligations incurred
Operating lease obligations incurred
2019
289
87
17
2019
203
3,483
2018
407
49
12
2018
427
-
F-42
548
316
(415 )
449
433
(334 )
548
131
(308 )
370
2017
585
41
7
2017
484
-
EDAP TMS S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of euros unless otherwise noted, except per share data)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow from operating leases
Operating cash flow from finance leases
Financing cash flow from finance leases
32— RELATED PARTY TRANSACTIONS
2019
828
29
396
In 2019, EDAP Technomed Co. Ltd. (Japan) contracted a loan amounting 80,000,000 JPY. As a current practice in
Japan, this loan required a personal warranty from the representative director, president and CEO of the subsidiary Mr. Jean-
François Bachelard. EDAP TMS S.A., as the mother company, counter-warranted this personal loan and agreed to indemnify
Mr. Bachelard in an indemnification letter dated September 12, 2019.
In 2019, EDAP Technomed Sdn Bdh (Malaysia) contracted with Maybank to establish a fixed deposit amounting
65,464.85 MYR. As a current practice in Malaysia, any fixed deposit requires a personal warranty from the representative
director, president and CEO of the subsidiary Mr. Hervé de Soultrait. EDAP TMS S.A., as the mother company, counter-
warranted this deposit and agreed to indemnify Mr. de Soultrait in an indemnification letter dated September 13, 2019.
In 2019, EDAP Technomed Inc. contracted a car lease amounting 28,756.44 USD. This lease required a personal
warranty from the president of the subsidiary Mr. Marc Oczachowski. EDAP TMS S.A., as the mother company, counter-
warranted this personal lease warranty and agreed to indemnify Mr. Marc Oczachowski in an indemnification letter dated July
1, 2019.
33— SUBSEQUENT EVENTS
On February 27, 2020, we decided to liquidate our Italian wholly-owned subsidiary EDAP Technomed Srl as the
subsidiary continued to record financial losses. Liquidation process is currently being rolled out. Sales, distribution and
service activities will be pursued through a dedicated distributor.
On March 25, 2020, the Board of Directors accepted the resignation of Mr. Philippe Chauveau as Chairman of the
Board and, upon the recommendation of the Company’s Nomination Committee, the Board decided to combine the roles of
Chairman of the Board and Chief Executive Officer and elected Mr. Marc Oczachowski as the new Chairman of the Board of
Directors.
The novel COVID-19 virus which has profoundly impacted the whole worldwide economy in early 2020 represents a
new challenge for us all. We are currently closely monitoring the situation and have implemented numerous precautions and
protective measures to safeguard our employees and to ensure an uninterrupted supply of our devices and disposables,
including requiring the majority of our employees to work remotely, maintaining minimum supply chain activity and
curtailing all business travel. Further, from April 1, 2020, our facility in Lyon, France has been closed with only minimal staff
to expedite shipments of disposals at planned intervals. In the near term, we expect this situation to continue to cause
decreased activity in our recurring business activity with some cancellations of ESWL and HIFU treatments. We also
anticipate that device sales projects may be postponed on a near-term basis as hospital purchase and investment decisions are
put on hold. However, our sales cycles are long and we have in inventory several devices and accessories that are ready to be
shipped when order activity resumes.
F-43
EDAP TMS S.A.
Senior Executive Officers
Marc Oczachowski
Chairman of the Board of Directors,
Chief Executive Officer
François Dietsch
Chief Financial Officer
EDAP TMS
Board of Directors
Marc Oczachowski
Chairman & Chief Executive Officer
EDAP TMS S.A.
Pierre Beysson
Paris, France
Rob Michiels
Laguna Hills, CA, USA
Argil Wheelock
Chattanooga, TN, USA
EDAP TMS S.A.
Corporate Headquarters
Parc d’Activités - La Poudrette Lamartine
4, Rue du Dauphiné
F 69120 Vaulx-en-Velin - France
Tel : +33 (0)4 72 15 31 50
www.edap-tms.com
www.hifu-prostate.com
Blandine Confort
Investor Relations
Tel : +33 4 72 15 31 72
bconfort@edap-tms.com
EDAP TMS’s subsidiaries
Officers
Marc Oczachowski
President
EDAP TMS France S.A.S.
Nicolas Poutrain
General Manager
EDAP Technomed, Inc.
Judith Johannsen
General Manager
EDAP TMS GmbH
Germany
Jean-François Bachelard
Asia Operations Supervisor
General Manager
EDAP Technomed Co. Ltd
Tokyo, Japan
Hervé de Soultrait
General Manager
EDAP Technomed (M) Sdn, Bhd
Kuala Lumpur, Malaysia
EDAP TMS’s Branches
Officers
Jeon Jon-Hyeon
General Manager
EDAP TMS Korea
Seoul, Korea
Jean-François Bachelard
General Manager
EDAP
Moscow, Russia
Franck Lepoivre
General Manager
EDAP
Dubai, U.A.E.
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ANNUAL
REPORT
EDAP TMS - 4, rue du Dauphiné - PA La Poudrette Lamartine - 69120 Vaulx-en-Velin - FRANCE
Tel: +33 (0)4 72 15 31 50 - Fax: +33 (0)4 72 15 31 51 - www.edap-tms.com - contact@edap-tms.com