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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Unless the context otherwise requires, references herein to “we,” “us,” “our” or “group” are to EDAP TMS S.A. and its consolidated subsidiaries and references herein to the “Company,” “EDAP” or “EDAP TMS” are to EDAP TMS S.A.

We prepare our consolidated financial statements in conformity with United States generally accepted accounting principles (“U.S. GAAP”). In this annual report, references to “euro” or “€” are to the legal currency of the countries of the European Monetary Union, including the Republic of France, and references to “dollars,” “U.S. dollars” or “$” are to the legal currency of the United States of America. Solely for the convenience of the reader, this annual report contains translations of certain euro amounts into dollars at specified rates. These translations should not be construed as representations that the euro amounts actually represent such dollar amounts or could be converted into dollars at those rates. See Item 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^® and Focal.One^®. This annual report also makes references to trade names and trademarks of companies other than the Company.

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CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This annual report includes certain forward-looking statements within the meaning of applicable federal securities laws, including 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,” “can,” “contemplate,” “could,” “plan,” “intend,” “is designed to,” “may,” “might,” “potential,” “objective,” “target,” “project,” “predict,” “forecast,” “ambition,” “guideline,” “should,” “will,” “estimate,” “expect” and “anticipate,” or the negative of these and 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:

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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. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. Moreover, 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. These forward-looking statements are based upon information, assumptions and estimates available to us as of the date of this annual report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

You should read this annual report and the documents that we reference in this annual report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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PART I

Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.

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Item 2. Offer Statistics and Expected Timetable

Not applicable.

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Item 3. Key Information

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Risk Factors

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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 inflationary environment could have a material adverse effect on our business, results of operations and financial condition.

Current geopolitical instability including the conflict in Ukraine and the related sanctions, and other factors including, but not limited to, global supply chain constraints, key components sourcing issues, increase in prices and disruptions of energy supply, and labor shortages, have led to higher worldwide inflation, which is likely, in turn, to lead to an increase in costs and may cause additional changes in tax and governmental policies. We may be unable to raise the prices of our devices and services in a higher inflationary environment and to keep up with the rate of inflation. Such inflationary pressures may materially impact our business, for example in contracts where we committed to contractual fixed costs. We may not be able to adjust pricing, reduce our costs or implement counter measures. Our customers (i.e. hospitals and clinics) are also experiencing financial and operational pressures directly related to this inflationary environment, which may impact their ability or willingness to spend on capital equipment and may have an adverse impact our business, financial condition, results of operations, or cash flows.

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Our future revenue growth and income depend, among other things, on the success of our HIFU technology and our capacity to scale up to meet demand.

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 but not limited to the Focal One, to generate significant additional revenues, achieve, and sustain profitability in the future. Our focus is currently to

expand our HIFU business in the U.S. as HIFU is FDA approved and reimbursed at an acceptable level. Should HIFU adoption be successful and our HIFU business grow dramatically, we may have some difficulties to scale up and adapt our U.S. structure to our growth. Inability to adequately staff and structure our U.S. business to respond to such growth may impact our business and stock price, with a negative adverse effect on our results of operations and reputation. Although we are particularly dependent on the success of our HIFU technology to grow our business through our HIFU division, other revenues, generated by our Extracorporeal ShockWave Lithotripsy (“ESWL”) division and our Distribution (“Distribution”) division directly linked to the distribution of other complementary products on behalf of third-party medical companies, continue to increase significantly and contribute to our revenue growth. While we regularly evaluate any new product opportunities and anticipate potential distribution terminations, we have no assurance that our existing distribution agreements will be renewed. While we believe that our Distribution 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—Distribution Division—Distribution Division Sales and Distribution of Products.”

Although we achieved operational profitability in 2019 and 2020, we incurred operating losses in 2021 and 2022 and in every 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 High Intensity Focused Ultrasound (“HIFU”)  devices and particularly with the acceleration of our U.S. HIFU expansion plan. In this respect, we may not, 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.”

We utilize distributors for our sales abroad, which subjects us to a number of risks that could harm our business.

We have developed strategic relationships with a number of distributors for sales and service of our devices in certain foreign countries where we are not directly represented by a subsidiary. If these relationships are terminated and not replaced, our revenues and/or ability to market or service our devices in the related territories could be adversely affected. Our 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 and applicable sanctions, such as the U.S. Foreign Corrupt Practices Act, sanctions imposed by the U.S. Department of the Treasury’s Office of Foreign Assets Control, the European Union, His Majesty’s Treasury, or other governmental or supranational entities, 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.”

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, receipt of regulatory clearances or approvals, pricing, competition, market and consumer acceptance, manufacturing and supply costs, and the risk that new devices may have quality or other defects.

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.

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 process of applying for regulatory approval or clearance is often lengthy and requires the expenditure of substantial resources. Further, there can be no assurance that we will receive the required approvals or clearance for our products from the required regulatory authorities or, if we do receive the required approvals, that we will receive them on a timely basis, on the conditions and for the indications we seek, or that we will otherwise be able to satisfy the conditions of such approval, if any.

The regulatory agencies may not act favorably or quickly in their review of our submissions, or we may encounter significant difficulties in our efforts to obtain their clearance or approval, or to maintain our existing approvals, all of which could delay or preclude the sale of new or existing products in the related territories. In the European Union, the regulation of medical devices is being updated by the European Medical Device Regulation (“MDR”) imposing stricter requirements on the conformity assessment and the commercialization of our products. A transition period to conform MDR requirement has been adopted based on MDR classification of devices with a latest application date of December 31, 2028. The extension of the period during which the devices can be placed on the market is subject to conditions. To benefit from the new provisions, the manufacturer must have implemented and must maintain a Quality Management System that complies with the MDR requirements before May 26, 2024. An MDR compliance action plan is currently being performed in preparation of MDR enforcement within the expected timelines. We are implementing regulatory actions to ensure our devices may be distributed on the European and international market to conform to MDR, if applicable.

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 or clearance, despite having made significant financial and time investments, or refocus our efforts on alternative regulatory strategies, resulting in increased costs and efforts of management, without any guarantee of success, which could materially adversely affect our business, financial condition and results of operations.

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”) and other standards for quality assurance and manufacturing process control under applicable regulatory authorities. Since such standards may change, we may not, at all times, comply with all applicable standards and, as a result would be unable to manufacture our products for commercial sale or for clinical trial supply. Our manufacturing facilities are 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.

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 or clearance 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 later-stage clinical trials, even after promising results in earlier trials. Furthermore, data obtained from a trial can be insufficient to demonstrate that our products are

safe, effective, and marketable. The commencement, continuation or completion of any of our clinical trials may be delayed or halted, or inadequate to support approval of an application to regulatory authorities for numerous reasons including, but not limited to:

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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 coverage and benefit decisions by Centers for Medicare and Medicaid Services (CMS) for Medicare reimbursement, state Medicaid agencies, individual managed care organizations, private insurers and other payers. With the support of the American Urological Association, and the American Association of Clinical Urologists, the American Medical Association (AMA) established a new Category 1 CPT code for the ablation of malignant prostate tissue with HIFU technology, effective January 1, 2021. In late 2022, CMS published its final rules for the calendar year 2023 for ambulatory payment classification (APC) procedures and physician fee schedule established reimbursement rates that recognize both facility or hospital payment and physician professional service payments for HIFU procedures. CMS final rule was updated in late 2022, with a reimbursement level close to surgery, effective on January 1, 2023. For private insurers, policy coverage decisions supporting coverage and reimbursement related to HIFU procedures are limited given that HIFU is a new technology. With expanded third party coverage decisions, our Focal One HIFU procedure will have broader market access in the United States. However, public or private payors may decide to limit coverage or reimbursement of HIFU technologies that are available to individuals, including potentially modifying existing guidance to further limit available coverage. Changes to coverage decisions, which may be revised from time to time, could negatively impact reimbursement for procedures performed using our devices and may result in a material adverse effect on our business, financial conditions and results of operations. Outside the United States, and in particular in the European Union and Japan, third-party reimbursement is generally conditioned upon decisions by national health authorities and we cannot guarantee that a definitive reimbursement will be granted. See Item 4, “Information on the Company——HIFU Division—HIFU Reimbursement Status.”Lithotripsy procedures currently are reimbursed by public healthcare systems in the European Union, in Japan and in the United States. However, a decision in any of those countries to modify reimbursement policies for these procedures could have a material adverse effect on our business, financial conditions and results of operations. For example, in April 2016, the Japanese authorities decided to stop reimbursing lithotripters’ disposables (electrodes) necessary to perform a lithotripsy procedure. This decision had and will have a material effect on our current and future sales of lithotripsy disposables in Japan.

We cannot assure investors that expanded coverage decisions or additional reimbursement approvals will be obtained in the near future, if ever. If payor coverage or reimbursement for procedures related to our products is unavailable, limited in scope or amount, or if certain levels of public or private payor reimbursement or coverage 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 coverage policies supporting reimbursement from healthcare payers. Furthermore, acceptance by patients depends in part on physician recommendations, as well as other factors, including the degree of invasiveness, the rate and severity of complications and other side effects associated with the therapy as compared to other therapies.

If our robotic HIFU devices do not achieve an adequate level of acceptance by physicians, patients, health care payers and the medical community and never become a standard of care, we may not generate or maintain positive cash flows and we may not become profitable or be able to sustain profitability. If we do achieve market acceptance of our products, we may not be able to sustain it or otherwise achieve it to a degree which would support the ongoing viability of our operations.

Our cash flow is highly dependent on cyclical demand for our products.

Our cash flow has historically been subject to significant fluctuations over the course of any given financial year due to cyclical demand for medical devices, and the resulting annual and quarterly fluctuations in trade and other receivables and inventories. This has in the past resulted in significant variations in working capital requirements and operating cash flows. Since we anticipate relying on cash flow from operating activities to meet our liquidity requirements, a decrease in the demand for our products, or the inability of our customers or distributors to meet their financial obligations to us, would reduce the funds available to us. In the future, our liquidity may be constrained and our cash flows may be uncertain, negative or significantly different from period to period. Our future cash flow will be affected by increased expenses in clinical trials, sales efforts and other market costs related to implementing our expanded U.S. and global strategy following the FDA clearance of Focal One and CMS reimbursement which will require significant additional resources. However, there is no assurance that this will result in an increase in the demand for our products and services.

Competition in the markets in which we operate is intense and is expected to increase in the future.

Competition in the markets in which we operate is intense and is expected to increase in the future. In each of our main businesses, we face competition both directly from other manufacturers of medical devices that apply the same technologies that we use, as well as indirectly from existing or emerging therapies for the treatment of urological disorders.

In the markets that we target for our robotic HIFU products, competition comes from new market entrants and alternative therapies, as well as from current manufacturers of robotic medical devices. In the HIFU market, our devices, in particular the Ablatherm and the Focal One, compete with all current treatments for localized tumors, including surgery, external beam radiotherapy, brachytherapy and cryotherapy. See Item 4, “Information on the Company—HIFU Division— HIFU Competition” and Item 4, “Information on the Company—ESWL Division.”

Many of our competitors have significantly greater financial, technical, research, marketing, sales, distribution and other resources than we have and may have more experience in developing, manufacturing, marketing and supporting new medical devices. In addition, our future success will depend in large part on our ability to maintain a leading position in technological innovation, and we 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.

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 would be 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.

For certain components or services, we depend on a single supplier who, due to events beyond our control may fail to deliver sufficient supplies to us or increase the cost of items supplied, which would interrupt our production processes or negatively impact our results of operations.

We purchase the majority of the components used in our products from a number of suppliers, but rely on a single supplier for some key components. In addition, we rely on single suppliers for certain services. If the supply of these components or services were interrupted for any reason, including geopolitical tensions or instability, a pandemic and implied restrictions, our manufacturing and marketing of the affected products would be delayed. Certain of these key suppliers may be exposed to variations in the costs of raw materials and components, included in our products and, consequently, may suffer issues or delays in sourcing these components which would harm their business and operations. 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, therefore causing additional charges for the Company and impacting our margins. We are currently renegotiating a supply agreement concerning a key component for our HIFU devices as prices increased dramatically, unilaterally, following a strategic shift in our supplier’s marketing strategy. We expect to continue to depend upon our suppliers for the foreseeable future, while we pursue exploration of new sourcing alternatives. Failure to obtain adequate supplies of components or services in a timely manner and at an acceptable price could have a material adverse effect on our business, financial condition and results of operations.

We may have difficulties in attracting and recruiting highly qualified experts in software, design and development of high technology devices such as our HIFU and ESWL products

Our devices require highly qualified individuals as well as high-level of expertise and experience in design, software, mechanics and electronics. We are highly dependent on our ability to attract and retain qualified personnel and engineers to develop our devices. In addition, the learning curve required to master our systems is lengthy and, if we do not find qualified experts and engineers, we may not be able to meet our development schedule and obtain market approval in due time, which in time may delay market introduction of new products. Failure to recruit and attract experts in a timely manner may have a material adverse effect on our development, business, financial condition and results of operations.

Intellectual property rights are essential to protect our medical devices, and any dispute with respect to these rights could be costly and have an uncertain outcome.

Our success depends in large part on our ability to develop proprietary products and technologies and to establish and protect the related intellectual property rights, without infringing the intellectual property rights of third parties. The validity and scope of claims covered in medical technology patents involve complex legal and factual questions and, therefore, the outcome of such claims may be highly uncertain. The medical device industry has been characterized by extensive patents and other intellectual property rights litigation. We may receive letters from third parties drawing our attention to their patent rights, or patent grant contestations may be filed. Third parties also may challenge our patents before administrative bodies in the United States or abroad. Such mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation or cancellation of or amendment to our patents in such a way that they no longer cover our product candidates or provide any competitive advantage. The outcome of future such challenges is unpredictable, and the loss of patent protection could have a material adverse impact on our business, financial condition and result of operations.

Our products, including our HIFU devices, may be subject to litigation involving claims of patent infringement or violation of other intellectual property rights of third parties. The defense and prosecution of intellectual property suits, patent opposition proceedings and related legal and administrative proceedings are both costly and time consuming and may result in a significant diversion of effort and resources by our technical and management personnel. An adverse determination in any such litigation or proceeding to which we become a party could subject us to significant liability to third parties, require us to seek licenses from third parties and pay ongoing royalties, require us to redesign certain products or subject us to injunctions preventing the manufacture, use or sale of the affected products. In addition to being costly, drawn-out litigation to defend or prosecute intellectual property rights could cause our customers or potential customers to defer or limit their purchase or use of our products until the litigation is resolved. See Item 4, “Information on the Company—HIFU Division—HIFU Division Patents and Intellectual Property” and Item 4, “Information on the Company—ESWL Division—ESWL Division Patents and Intellectual Property.”

We own or co-own patents covering several of our technologies and have additional patent applications pending in the United States, the European Union, Japan and elsewhere. The process of seeking patent protection can be long and expensive and there can be no assurance that our patent applications will result in the issuance of patents. We also cannot assure investors that our current or future patents are or will be sufficient to provide meaningful protection or commercial advantage to us. Our patents or patent applications could be challenged, invalidated or circumvented in the future. 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 and/or our ESWL medical equipment, either in the United States or in foreign markets.

Certain of our patents may also expire and fall into the public domain, as has already occurred with certain patents in the HIFU division’s patent portfolio. See Item 4, “Information on the Company—HIFU Division—HIFU Division Patents and Intellectual Property.”. 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. We also rely on copyright protection. Litigation may be necessary to protect trade secrets, know-how or copyrights  owned by us. In addition, effective copyright and trade secret protection may be unavailable or limited in certain countries.

The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and result of operations.

Our use of “open source” software could negatively affect our ability to sell our products and subject us to possible litigation.

Our products incorporate so-called “open source” software, and we may incorporate additional open source software in the future. Open source software is generally licensed by its authors or other third parties under open source licenses. According to certain of these licenses, we may be subject to certain conditions, including requirements that we offer our products that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and/or that we license such modifications or derivative works under the terms of the particular open source license. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our products that contained the open source software and required to comply with the foregoing conditions, which could disrupt the distribution and sale of our products.

We face a significant risk of exposure to product liability claims in the event that the use of our products results in personal injury or death.

Our products are designed to be used in the treatment of severe afflictions 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.

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 almost 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 the applicable provisions of the French law known as the Sapin II law, and the related implementing decrees, and notably the requirements of Article 8 of the law, which requires the establishment of a whistle-blowing policy. These numerous and sometimes conflicting laws and regulations include, among others, data privacy requirements, labor relations laws, tax laws, anti-competition regulations, “Know Your Customer” requirements, import and trade restrictions, export requirements.

We are also subject to healthcare laws and regulations pertaining to physician payment transparency, privacy and data protection regulations. These regulations include, but are not limited to (i) the U.S. federal Health Insurance Portability and Accountability Act (“HIPAA”) of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; (ii) the U.S. federal Physician Payment Sunshine Act (the “Sunshine Act”), which requires manufacturers of medical devices for which payment is available under Medicare, Medicaid, to report annually to the CMS information related to payments or other “transfers of value” made to physicians, (iii) two main sets of laws enacted in France about transparency requirements: “The French Anti-Gift Law” –updated in 2020 and 2022- which regulates the provision of gifts, discounts and other incentives to physicians and the “Bertrand law” which imposes disclosure obligations on companies relating to benefits and remunerations granted to, and agreements concluded with, physicians and (iv) the provisions of the French Public Health Code relating to the processing and/or hosting of health-related personal data. Any failure to comply with these regulations may have a material adverse effect on our business, financial condition and results of operations.

Furthermore, in addition to HIPAA we are subject to other data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of personally identifying information, which among other things, impose certain requirements relating to the privacy, security and transmission of personal information. The legislative and regulatory landscape for privacy and data protection continues to evolve in jurisdictions worldwide, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. There are numerous European, French, U.S. federal and U.S. state laws and regulations related to the privacy and security of personal information. For example, in the European Union, the collection and use of personal data is governed by the provisions of the General Data Protection Regulation (“GDPR”) which took effect in May 2018. The GDPR significantly increases the level of data protection and imposes a greater compliance burden on companies. In particular, it treats clinical data as personal data, requiring us or 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 of up to a maximum of €20 million or 4% of the Company’s consolidated revenues for the preceding financial year, whichever is higher. The GDPR is also supplemented by the provisions of the French data protection act (law n°78 17 of 6 January 1978), in particular in respect of the processing of personal data in the field of healthcare. We believe that the GDPR did not have a material impact on our business or the way our technologies operate. However, due to the small size of the Company, we may not be able to adequately document all data collection, to obtain related consents in due time, to adequately protect personal data or to react in due time to address an individual request linked to the GDPR.

Given the high level of complexity of these laws, and the fact that we do business in regions where regulatory compliance is less robust, including in Russia and parts of Asia, there is a risk that we may inadvertently breach some provisions, for example, through fraudulent or negligent behavior of individual employees or business partners, our failure to comply with certain formal documentation requirements, or otherwise. See “— General Risk Factors—“Our results of operations and financial condition could be adversely affected by the adverse economic, geopolitical and financial environment, the impact of climate change or pandemics such as COVID-19”.Our success depends, in part, on our ability to anticipate these risks and manage these challenges. We have a decentralized 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.

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 2022, 60% of our total costs of sales and operating expenses were denominated in euro, while 59% 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, 2022, 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 and are partly dependent on access to sufficient lease financing

Our results of operations have fluctuated in the past and are expected to continue to fluctuate significantly from quarter to quarter depending upon numerous factors, including, but not limited to, the timing and results of clinical trials, changes in healthcare reimbursement policies, cyclicality of demand for our products, changes in pricing policies by us or our competitors, new product announcements by us or our competitors, customer order deferrals in anticipation of new or enhanced products offered by us or our competitors, product quality problems and exchange rate fluctuations. Furthermore, because our main products have relatively high unit prices, the amount and timing of individual orders can have a substantial effect on our results of operations in any given quarter.

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.

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.

We have identified material weaknesses in our internal controls over financial reporting with respect to our U.S. subsidiary and if we fail to remediate these material weaknesses or if we experience additional material weaknesses in the future or otherwise fail to 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.  

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As a publicly traded company, we are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002. We have incurred, and expect to continue to incur, significant continuing costs, including accounting fees and staffing costs, to maintain compliance with the internal control requirements of the Sarbanes-Oxley Act of 2002. As described in Item 15, we have identified material weaknesses with respect to internal controls in our U.S. subsidiary, Edap Technomed Inc, which were due to insufficient resources in the finance department of the subsidiary, leading to insufficient segregation of duties and inability to perform certain controls. Our management has concluded that, as a result, our internal control over financial reporting was not effective as of December 31, 2022. Nevertheless, we have concluded that these material weaknesses did not result in a material misstatement of the consolidated financial statements for the year ended December 31, 2022, or require a restatement of consolidated financial statements with respect to any prior period previously reported by the Company.

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Although we have initiated remediation actions to address these material weaknesses, as a small company, we may have insufficient personnel to allow us to segregate duties, and consistently execute the Company’s internal controls.

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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.

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Our internal control over financial reporting has been designed to provide our management and Board of Directors with reasonable assurance regarding the preparation and fair presentation of our consolidated financial statements. On an on-going basis, we are reviewing, documenting and testing our internal control procedures. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, and as our business develop, additional resources and management oversight may be required.

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In an effort to remediate the material weaknesses that were identified as of December 31, 2022, and to enhance our overall control environment, the Company has hired a Chief Financial Officer in our U.S. subsidiary on December 5^th, 2022 and hired a person responsible for financial planning and analysis in January 2023. Controls are being designed and/or implemented, including appropriate segregation of duties. We believe this will allow us to remediate these deficiencies in the short term.

               Any failure to complete our assessment of our internal control over financial reporting, to remediate any material weaknesses that we have identified or may identify in the future, any failure to implement new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any failure to maintain adequate internal controls over financial reporting and provide accurate financial statements may subject us to litigation, render future financings more difficult or expensive, and could cause the trading price of our common stock to decrease substantially. Inferior controls and procedures could cause investors to lose confidence in our reported financial information, which may give rise to a class action and have a negative effect on the trading price of our common stock. Any such failure could also adversely affect the results of the periodic management evaluations of our internal controls and, in the case of a failure to remediate any material weaknesses that we have identified or may identify in the future, would adversely affect the annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act of 2002.

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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 2022 was 72,813, the high and low bid price of our ADSs for the last two financial years ended on December 31, 2022 and December 31, 2021, was $11.53 and $10.68, and $5.54 and $5.28, 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 2021 was 6,943  as opposed to 101,126 for the same period of 2022. 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.

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.

General Risk Factors

Our results of operations and financial condition could be adversely affected by the adverse economic, geopolitical and financial environment, the impact of climate change or pandemics such as the COVID-19

As of the date of filing of this report, the global economy remains impacted by geopolitical tensions and instability and, in particular, the conflict between Russia and Ukraine. Since February 24, 2022, Russia has engaged in a military conflict against Ukraine. It is difficult to predict the consequences and outcomes of such military action, which could lead to significant disruptions, including impacts on the prices and supply of energy resources, on purchases from customers who may defer their orders or change their purchase preferences. Should such military conflict continue, it may entail instability in financial markets and impact political and economic situations in Europe and worldwide. Russia’s military action against Ukraine has led to implementation of sanctions by the United States, the European Union, the United Kingdom, Canada, Switzerland, Japan, and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic.

In response to these international sanctions, Russian authorities have also imposed significant currency control and restrictive measures. As the situation is evolving, and additional sanctions may be implemented, such new restrictions could adversely affect the global economy, prices and energy supply, financial markets, supply chains, and could adversely affect our business, financial condition, and results of operations. As we evaluated the impact of such measures on our business, in 2022, we decided to definitively close our representative office in Moscow to avoid further difficulties in maintaining a direct administrative and operational activity in Russia. Net sales in Russia are not significant as they represented approximately 2.5% in 2021 and 1.5% in 2022 of our consolidated revenues.  Our sales in Russia are historically subject to significant variation and long purchase order periods.  We have recently established an exclusive distribution agreement with a business partner with significant experience in marketing and distributing medical equipment in Russia. This partnership will allow us to continue offering a HIFU solution to Russian patients and to maintain our existing installed base in Russia. To date, we have not experienced any material disruptions in our business with Russia, but we cannot predict outcomes that such conflict may have on our future results of operations.

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Moreover, uncertain global climate change may result in certain types of more intense and more frequent natural disasters including, but not limited to hurricanes, wildfires or flooding. Such extreme disasters could imply risks to our facilities and disrupt our supply chain and may cause us to incur additional operational costs. Such intense events may also trigger internet security threats or damage to global communication networks that would harm our global operations and our customers’ operations. Climate change may also result in new regulatory or legal obligations to address the effects of climate change on the environment. Such new obligations could imply increased compliance costs to meet the regulatory or legal requirements and may adversely affect sourcing, manufacturing operations, and the distribution of our products. Such natural disasters could have a material adverse impact on our business, financial condition, results of operations, or cash flows.

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When epidemic, contagious and even pandemic diseases such as the COVID-19 virus occur, they are expected to impact the development of our business worldwide. Upon the occurrence in 2020 of the COVID-19 virus we adopted some measures such as remote work, which was implemented for one to two days a week for some of our employees, that are still in place. The pandemic resulted in further postponement and/or cancelation of the sale and installation of new devices and disposables in hospitals or clinics as investment decisions had been put on hold or their resources refocused on COVID-19. We also experienced cancellations of treatments in certain circumstances, which had some impact on our recurring business and servicing activities. In addition, pandemics could also result in the postponement of clinical trials using our devices and may continue to impact the performance of clinical trials and recruitment of patients. Such outbreak of a contagious disease also negatively affected non-COVID-19 related hospital admission rates and disrupted our global business, and it may continue to negatively impact our activities, including our ability to manufacture and distribute our devices, for example due to potential quarantine measures, should it occur again.

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Worldwide economies and capital markets have been negatively impacted by the COVID-19 pandemic, and the impact may cause an extended local and/or global economic recession. Such economic disruption, if persisting, could have a material adverse effect on our business as clinics and hospitals would curtail and reduce capital and overall expenditures. During the pandemic, we also experienced difficulties in obtaining some materials or components used in our devices, including electronic parts, computers, plastics and mechanical parts due to supply shortage directly linked to logistics challenges, Asian manufacturing plants capacity constraints, and disrupted shipping routes impacted by port closures. These challenges had not materially impacted our ability to deliver devices and services to our customers during the COVID-19 pandemic, but future disruptions may do so. Finally, we cannot predict the impact that future pandemics 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 pandemics may also exacerbate other risks discussed in this section, any of which could have a material effect on us and may materially adversely affect the Company’s financial condition, liquidity, or results of operations is uncertain.

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We may also be unable to meet the future criteria used by rating agencies in their environmental, social and governance (ESG) assessments process, leading to a downgrading in our rating. Financial investments in companies which perform well in ESG assessments are increasingly popular, and major institutional investors have made known their interest in investing in such companies. Depending on ESG assessments and on the rapidly changing views on acceptable levels of action across a range of ESG topics from investors, we may be unable to meet society’s or investors’ expectations on these matters, which may cause reputational harm, or disappoint the expectations of our stakeholders, and we may face increased compliance or other costs and demand for securities issued by us and our ability to participate in the debt and equity markets may decrease.

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We may issue additional securities that may be dilutive to our existing shareholders, in view of funding our new developments and accelerating our business expansion.

On June 30, 2021, our shareholders adopted resolutions allowing the Board of Directors to issue two million new shares under the form of subscription options and 200,000 free shares to motivate and reward the teams dedicated to successfully implementing our worldwide activities, particularly in the United States. Based on the June 30, 2021 resolutions, a total of 659,000 subscription options and 101,500 free shares were granted in 2021 and 2022, under certain conditions, to members of management and U.S. employees. On June 30, 2022, our shareholders also adopted a resolution allowing the Board of Directors to issue 600,000 free shares to incentivize worldwide teams in charge of the Company’s operations. This new resolution superseded the June 2021 resolution authorizing the issuance of 200,000 free shares, cancelling the unused portion of the 2021 resolution. Based on the June 30, 2022 resolution, as of December 31, 2022, a total of 291,500 free shares were granted, under certain conditions, to members of management and EDAP’s Group’s employees.

On June 30, 2022, our shareholders renewed and extended 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 further developments and to address potential strategic moves while strengthening our long-term growth.

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.

Judgments of U.S. courts, including those predicated on the civil liability provisions of the federal securities laws of the United States, may not be enforceable in French courts.

An investor in the United States may find it difficult to:

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We may in the future be the target of securities class action or other litigation, which could be costly and time consuming to defend.

In the past, securities class action litigation has often been brought against companies following a decline in the market price of its securities. This risk is especially relevant for us because innovative life sciences and medical device companies have experienced significant stock price volatility in recent years.

Any litigation, if instituted, could cause us to incur substantial costs and our management resources may be diverted to defending such litigation, which could adversely affect our financial condition or results of operations.

We are exposed to risks related to cybersecurity threats and incidents.

In the conduct of our business, we collect, use, transmit and store data on information technology systems. This data includes confidential information belonging to us, our customers and other business partners, as well as personally identifiable information of individuals. We also store data related to our clinical trials on our information technology systems. We also rely in part on the reliability of certain tested third parties’ cybersecurity measures, including firewalls, virus solutions and backup solutions. Cybersecurity incidents, such as breaches of data security, disruptions of information technology systems and cyber threats, may result in business disruption, the misappropriation, corruption or loss of confidential information and critical data (ours or that of third parties), reputational damage, litigation with third parties, diminution in the value of our investment in research and development, data privacy issues and increased cybersecurity protection and remediation costs. Like many companies, we may experience certain of these incidents given that the external cyber-attack threat continues to grow in part due to a perceived increased vulnerability associated with current remote working conditions. In late 2020, we received fraudulent invoices, purportedly from our suppliers, submitted to us using fraudulent email addresses and made payments in connection with two such fraudulent invoices. While we have protocols in place to protect against such fraudulent transfers, we may fail to identify fraudulent payment requests that we may receive in the future and may inadvertently provide payment in connection with such requests, which may have a material adverse effect on our business, financial condition or results of operations.

We devote significant resources to network security, data encryption and other measures to protect our systems and data from unauthorized access or misuse, including meeting certain information security standards that may be required by our customers, all of which increases cybersecurity protection costs. As these threats and incidents, and government and regulatory oversight of associated risks, continue to grow, we may be required to expend additional resources to enhance or expand upon the security measures we currently maintain. Nevertheless, with the current ongoing conflict between Russia and Ukraine and the related political uncertainty, there is an increased possibility that cybersecurity incidents or cyberattacks may occur and impact our results of operations.

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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.

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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. 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 June 7, 2018, we obtained FDA clearance for our Focal One device dedicated to the focal ablation of prostate tissue. It incorporates our proprietary fusion software, which merges MRI and ultrasound images, providing increased accuracy during planning and prostate treatment for physicians.

In May 2020, we signed an exclusive worldwide agreement with Exact Imaging to distribute their diagnostic micro ultrasound technologies. Their lead product, ExactVu^TM, delivers diagnostic accuracy similar to MRI in identifying prostate cancer and supports real-time imaging for the prostate. The combination of ExactVu with our Focal One HIFU soft tissue ablation technology represents what we believe to be the most complete end-to-end solution for the focal management of prostate cancer.

In May 2020, we also initiated a strategic shift after an extensive review of our different businesses, including HIFU, ESWL and Distribution activities. We have decided to strengthen and refocus our development efforts towards HIFU for both prostate application and beyond and hence, to realign our activities and report our financial results in three segments: HIFU, ESWL and Distribution.

In July 2020, we received clearance from French health authorities to initiate a Phase II multi-centric clinical trial evaluating Focal One for the treatment of deep invasive rectal endometriosis. This is a truly debilitating condition for women suffering from this pathology, which is responsible for a significant decline in quality of life. We enrolled our first female subjects in September 2020 and completed the study in late 2022.

In January 2021, U.S. CPT Code Category 1 reimbursement for HIFU became effective. CMS established, for the first time, a Category 1 CPT code including reimbursement to physicians performing ablation of malignant prostate tissue with HIFU in the United States.

In April 2021, we completed a successful public offering of common stock in the form of ADSs that raised gross proceeds of $28,012,500 or €23,250,747. We intend to use the vast majority this funding to further build up our U.S. clinical, sales and marketing infrastructure.

In June 2021, soon after completing our capital increase and in line with our strategy to expand our HIFU activities particularly in the U.S., we hired medical technology industry veteran Ryan Rhodes as Chief Executive Officer of EDAP Technomed Inc., the Company’s U.S. subsidiary.

In September 2022, we completed a successful public offering of common stock in the form of ADSs that raised gross proceeds of $23,000,003 or €23,913,314. We intend to use the majority of this funding to further expand and continue executing our U.S. Focal One growth initiatives while, in parallel, exploring new indications and other development opportunities.

On November 1, 2022, the U.S. Centers for Medicare and Medicaid Services (CMS) released its final outpatient prospective payment system (OPPS) reimbursement rule for calendar year 2023 (CY23), which became effective on January 1, 2023. The final rule increased the reimbursement level to an Ambulatory Payment Classification (APC) level 6, similar to surgery, as compared to APC level 5 in place.

In November 2022, following completion of a Phase II study evaluating Focal One HIFU as a potential treatment for deep infiltrating endometriosis, we received approval from French authorities to initiate a Phase III randomized, controlled clinical trial evaluating Focal One high intensity focused ultrasound (HIFU) as a potential treatment for such pathology.

Additional information regarding the principal capital expenditures and divestitures can be found in Item 5, “Operating and Financial Review and Prospects—Operating Results—Overview”.

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 three divisions: HIFU, ESWL (including lithotripsy activities) and Distribution. Through these three divisions, we develop, produce, market and distribute minimally invasive medical devices, and mainly for urological diseases. The HIFU division includes sales of Focal One, related consumables and services (including servicing the Ablatherm installed base), the ESWL division includes revenues generated by the existing installed base of Sonolith range of lithotripters and, the Distribution division includes the sale of complementary products such as lasers, micro-ultrasound systems and other products from third parties.

Our global strategy is to expand our HIFU activities in the U.S. and accelerate HIFU adoption through our HIFU division. We are also focusing our efforts on the development of HIFU in other medical conditions beyond prostate cancer. We are leveraging our Distribution and ESWL divisions to help optimizing our global development while rolling out our HIFU strategy.

We believe that these three divisions will help to better support the expansion of our HIFU development and sales activities as well as to maximize the potential of our Distribution activities.

Our three 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 €15.6 million, €9.9 million and €11.4 million for 2022, 2021 and 2020, respectively. Those sales are generated in Europe, the United States and the rest of the world, excluding certain countries in Asia, such as Japan, where our HIFU devices are not approved yet. Total net sales for the ESWL division were €11.6 million (including €5.6 million in Asia and €6.0 million in Europe and the rest of the world), €11.0 million (including €5.4 million in Asia and €5.6 million in Europe and the rest of the world), and €12.9 million (including €6.7 million in Asia and €6.2 million in Europe and the rest of the world), each for 2022, 2021 and 2020, respectively. Total net sales for the Distribution division were €27.9 million (including €12.1 million in Asia and €15.8 million in Europe and the rest of the world), €23.1 million (including €10.2 million in Asia and €13.0 million in Europe and the rest of the world), and €17.3 million (including €9.0 million in Asia and €8.3 million in Europe and the rest of the world), each for 2022, 2021 and 2020, respectively.

See Note 29 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 robotic 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 decisions and investment processes. Hence, our quarterly revenues are often impacted and fluctuate according to these parameters, generally resulting in a higher purchasing activity in the last quarter of the year. The HIFU division contributed €15.6 million to our consolidated net sales during the fiscal year ended December 31, 2022.

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 the Focal One high-end device, a HIFU fully robotic device for prostate tissue ablation dedicated to the focal therapy of localized prostate cancer at stage T1-T2, thereby destroying targeted cancer cells only. The robotic features of our HIFU devices make the treatment procedure safer for the patient and less operator dependent. The Focal One HIFU device can be used for patients who are not candidates for surgery or who have failed a radiotherapy treatment.

In addition to selling HIFU devices, the HIFU division also records revenues driven from HIFU treatments performance (“HIFU Treatment Driven Revenues”) which include net sales of (i) disposables, (ii) leases (iii)  RPP and (iv) treatment related services. We offer a HIFU mobile treatment option, which provides access to our HIFU devices without requiring hospitals and clinics to make an up-front investment in the equipment. Instead, hospitals and clinics perform treatments using these devices and remunerate us on a RPP basis (i.e., on the basis of the number of individual treatments provided). With this model, once the treatment is established in the medical community, a permanent installation may become more attractive, leading to the sale of the device in some of the larger locations.

In addition, the HIFU division also generates revenues from net sales of maintenance services associated to our installed HIFU devices, including Focal One, but also Ablatherm and Ablatherm fusion devices. As of December 31, 2022, the HIFU division had an active installed base of 85 Focal One machines including 34 in the U.S.

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:

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HIFU Products

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.

Currently, we commercialize the Focal One, a HIFU fully robotic device dedicated to the focal therapy of prostate cancer by the ablation of prostate tissue. 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.

We also maintain and service installed bases of the prior generation of HIFU devices such as:

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HIFU Division Patents and Intellectual Property

As of December 31, 2022, the HIFU division’s patent portfolio contained 30 granted owned or co-owned patents consisting of six patents in the United States, ten patents in the European Union, seven patents in Japan and seven patents in China. These patents belong to ten groups of patents covering technologies related to therapeutic ultrasound principles, systems and associated software.

Additional owned or co-owned patent applications covering certain other aspects of our HIFU technology, including two international patent applications under the Patent Cooperation Treaty, two patent applications in the United States, five patent applications in the European Union, two patent applications in Japan and two patent applications in China, are currently pending before the relevant patent offices. 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 collaboration gives rise in some cases to the filing of patent applications, followed by the registration of co-owned patents, if granted. We have entered into license agreements with INSERM related to certain patents co-owned with INSERM whereby we commit to pay an amount of royalties to INSERM based on a fixed rate of the net revenues generated from the sales of HIFU devices using such co-owned patents. Under these agreements, which last for the life of each such co-owned patent, we have the exclusive right to the commercial use of these co-owned patents, including the right to out-license such commercial rights. We have an option to obtain an exclusive license from INSERM relating to other patents co-owned with INSERM.

Although we believe that our HIFU patents are valid and should be enforceable against third parties and that our patent applications should, if successfully pursued, result in the issuance of additional enforceable patents, there can be no assurance that any

or all of these patents or patent applications, if issued, will provide effective protection for the HIFU division’s proprietary rights in such technology. HIFU devices, as they are currently or may in the future be designed, may also be subject to claims of infringement of patents owned by third parties, which could result in an adverse effect on our ability to market HIFU systems. See Item 3, “Risk Factors—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.

Clinical and Regulatory Status in the United States

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 and market access strategy.

Clinical and Regulatory Status in the Rest of the World

The Ablatherm is cleared for distribution in Canada, Egypt, Russia and Taiwan.

The Focal One device is cleared for distribution in Saudi Arabia, Argentina, Brazil, Canada, South Korea, Costa Rica, Egypt, Singapore, United Arab Emirates, Ecuador, Israel, Malaysia, Mexico, U.K, Russia, Switzerland and Uruguay.

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 were followed for 30 months ahead of data analysis and results publication. During that follow-up period, we pursued patient treatments using HIFU under the specific Forfait Innovation coverage process, but these patients were not followed as part of HIFI Study. In September 2021, the Study Coordinator presented 24^th month interim results at the AUA annual congress and in November 2021, the 30^th month interim results were presented in AFU congress. The results of these interim analyses (non-consolidated results) show a significantly better 30-month recurrence-free survival (i.e., the rate of salvage treatment by external beam radiotherapy and/or hormone therapy) for the patients treated with HIFU compared to the patients undergoing

surgery (p<0.001). Additionally, urinary continence was better and erectile function was significantly less impacted for the patients undergoing HIFU compared to those in the RP arm. Follow-up of patients was completed in September 2022 and the patient database was finalized in December 2022. Final data analysis is planned for Q1 2023. Once finalized, this data analysis will be submitted to French authorities in 2023 in view of a final decision regarding HIFU reimbursement in France.  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 about €1.2 million over the period as a non-refundable grant. As of December 31, 2022, we received a non-refundable grant of a total of €1.0 million.

As part of PERFUSE project, several studies were initiated and sponsored by academic partner HCL - Edouard Herriot Hospital. In September 2018, a Phase II multi-centric study was launched to evaluate the efficacy and safety of HIFU focal therapy in patients with intermediate-risk single-lobed prostate cancer (the “FOCALE” study). 170 patients were included in the FOCALE study over 14 centers. The last patient was included in May 2021. Inclusions are now closed,  patient follow-up is on-going and last patient follow-up visit is scheduled for October 2025. In October 2018, a Phase III, multi-centric, randomized study was initiated 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). As of December 2022, 109 patients have been included within 14 French centers. Patient inclusion is now closed. Patient follow-up is on-going and last patient follow-up visit is scheduled for October 2026. In February 2020, a Phase I study was launched 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). 20 patients are to be included in the study. The first patient was included in this study in July 2020. Six  patients have been included in the study as of December 2022.

The majority of Academic Centers using EDAP’s Focal One HIFU Technology are collecting data following an Investigational Review Board approval in order to continue building clinical evidence and long-term HIFU outcomes. These various sources of clinical data are a basis for individual sites to present abstracts at regional, national or international conferences and submit manuscripts for peer-review to renown journals and publications. This 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 such prospective data collection efforts documenting HIFU data from patients in the U.S.

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HIFU for Potential Treatment of benign prostatic hyperplasia

In 2021, we initiated a mono-centric Phase I study to investigate the feasibility of BPH (Benign prostatic hyperplasia) HIFU treatment with a Focal One device. A total of 10 patients will be treated and the treatment safety will be evaluated at three months after HIFU treatment. The first patient was included in this study in March 2022. As for December 31, 2022, six patients have been enrolled and treated.

HIFU for Potential Treatment of Pancreatic and Liver Cancer

In view of addressing liver cancer using HIFU technology, we entered into a multi-partner liver cancer development project named the HECAM consortium in 2015 to develop a novel HIFU –per operative- approach to treat liver metastasis. The HECAM project was completed in 2020. To fund this development program, EDAP received a total of €1.5 million including €1.0 million as a conditional subsidy and €0.5 million as a non-refundable grant. Despite a first single-center study successfully implemented with Lyon’s Centre Leon Bérard cancer center, we decided not to pursue the development of HIFU for liver cancer as a per-operative approach. Additionally, the multi-center Phase II study, which was to be initiated following the single-center study, will not be implemented. We determined that the per-operative approach will not be sufficiently distinct from existing options to be commercially viable at this time and will require lengthy comparative clinical studies against existing therapeutic solutions to fulfill the requirement of the new European MDR regulations which became effective in May 2021. The company intends to leverage the efforts, knowledge and assets resulting from the HECAM project in two ways: to evaluate the technology and approach for pancreatic cancer for patients with few or even no alternatives and to evaluate the technology and approach as an extracorporeal solution for patients affected by primary or metastatic liver cancer. In 2021, the Company decided not to pursue the HECAM project  under the initial parameters and based on results obtained as part of the HECAM program, EDAP has had to reimburse €0.6 million, with the balance of €0.4 million reclassified as a non-refundable grant.

HIFU for Potential Treatment of Deep Endometriosis

A Phase I study have been successfully completed in 2019 on 20 treated patients, this first study reported promising results with a significant improvement of the outcomes and in patient quality of life at six months after HIFU treatment. These results were published in November 2019.

In 2020, we initiated a second Phase II multi-center clinical study in France to investigate further the use of Focal One HIFU in the treatment of certain types of deep endometriosis situated in the low rectum. The study was recently completed: a total of 60 women were enrolled in the study at four major hospitals in France and assessed over a six-month follow-up period.  Its intended end-point was to evaluate the safety and efficacy of HIFU for this pathology. Data from this study have been analyzed and final results on safety and efficacy were presented in France at the Pari(s) Santé Femmes Gynecology Congress in early 2023.

In 2021, we initiated a long-term follow-up study aiming at including all of the 80 patients treated by HIFU for their deep endometriosis in the Phase I and II studies. During this study, we will evaluate the quality of life and the symptoms level of the patients up to five years after their HIFU treatment. As of December 31, 2022, 47 patients have accepted to be included in the follow-up study.

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In late 2022, we received approval from the French authorities to initiate a Phase III randomized, controlled clinical trial evaluating Focal One HIFU as a potential treatment for rectal deep infiltrating endometriosis. This study is a level 1 multi-center, double blind, randomized, controlled clinical trial. HIFU treatment will be compared to simulated surgery. The study will enroll 60 patients across nine centers in France, with 30 patients randomized to each group. The primary efficacy endpoint is acute pelvic pain evolution three months post procedure. At the conclusion of the study, patients in the simulated surgery group will be offered HIFU treatment.

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HIFU Clinical Publications

To date, clinical results related to our HIFU devices have been published in renowned peer-reviewed journals.

In February 2020, Tourhino-Barbosa et al. from Institut Mutualiste Monsouris, Paris, France, published in the Journal of Urology a retrospective study presenting their results of focal prostate cancer treatments (HIFU and cryotherapy) in their institution.

In September 2020, Nahar et al. from University of Miami Miller School of Medicine, Miami, Florida, published in the Journal of Urology, their results on 52 patients after focal treatments using the Ablaterm device (January 2016 to July 2018) on patients with clinically significant cancer profile. They concluded that focal HIFU is safe and effective and may be offered as an alternative to the existing modalities of treatment for select patients with all risk profiles of prostate cancer.

In October 2020, Abreu et al. From USC Institute of Urology, University of Southern California, Los Angeles, California, published in the Journal of Urology the first U.S. series of results on a cohort of 100 consecutive men who underwent hemi-gland HIFU ablation (December 2015 to December 2019). They concluded that focal HIFU ablation is safe and provides excellent potency and continence preservation with adequate short-term cancer control and that radical treatment was avoided in 91% of men at two years.

In January 2021, Dr. Castilho Borges et al. from Institut Mutualiste Montsouris, Paris, published in the Journal of Urology their results on 300 patients, a study in which the results compare the impact on functional results (Sexual Function and Urinary Continence) in two groups of patients: 195 patients in Focal Treatment (FT) versus 105 patients in the Whole Gland (WGT) Ablation Prostate Cancer. In the conclusions, FT is associated with better functional outcomes, with an earlier urinary continence recovery, and better sexual function at 3 and 12 months. Moreover, the morbidity associated with focal therapy is substantially lower than that related to whole gland therapy.

In December 2021, Cilleros & al. from EDAP and Labtau, Inserm and Centre Leon Bérard, Lyon, published in the journal Cancers positive pre-clinical results using intraoperative HIFU ablation of the pancreas in view of assessing the feasibility HIFU in the pancreas under Doppler guidance to treat the pancreatic parenchyma and tissues surrounding the superior mesenteric vessels in vivo in an animal model.  

In May 2022, Hong sk et al., from Seoul National University Bundang Hospital, Korea, published in the Jounal of Society Urological Oncology their results on their retrospective study on 163 patients who underwent Partial Gland HIFU Ablation (“PGA”) by Focal One with a median follow up period of 17 months. In conclusion, the PGA with HIFU was safe and showed good preservation of functional outcomes as well as satisfactory oncological control.

In October 2022, De Luca et al., from San Luigi Gonzaga University Hospital, Italy published in the Minerva Urology and Nephrology journal their results on their prospective study on 100 patients with low to intermediate-risk prostate cancer treated with HIFU by Focal One with 12 months of follow up: 15 patients underwent total ablation, 50 patients hemi-ablation and 35 patients focal ablation. Control biopsy at 12 months of the HIFU-treated zone was negative in 80% for total ablation, 84% for partial and 80% for focal ablation. Patients had postoperative excellent quality of life with lower rate of irritative symptoms and negligible impact on voiding and erectile function scores.

In December 2022, Jung G, et al., from Seoul National University Bundang Hospital, Korea, published in the journal of Prostate International their results on their retrospective study on 685 patients who underwent PGA using HIFU with Focal One (n=137 patients) versus Robot-Assisted Radical Prostatectomy (“RARP”) (n=548 patients) with a median follow- up period of 22 months. The authors confirmed that PGA HIFU preserves urinary and erectile functions, with aslight/minor loss of efficiency, which remained however very satisfactory (80% success rate efficacy in the treatment).

HIFU Division Market Potential

Prostate cancer is currently the first (in terms of new cases diagnosed) and second (in terms of number of deaths) most common form of cancer among men in many populations. In the United States, the American Cancer Society estimates the number of new prostate cancers to be diagnosed for 2023 to be approximately 268,490, 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 and pancreatic cancers but also to certain localized thyroid, breast, bladder, kidney, brain tumors. We decided to focus on developing HIFU for certain types of pathologies. However, the expansion of the use of HIFU to other areas of treatment will require a significant investment in research and development, an investment that we intend to accelerate as acceptance of HIFU as a treatment for localized prostate cancer is gaining grounds in the medical community.

For example, in 2019, as we decided to expand the development of HIFU beyond prostate cancer, we successfully finalized a clinical Phase I study using Focal One HIFU to address certain types of deep endometriosis located in the low rectum. The study results are promising and show a decrease of symptoms in the treated patients. In 2020 and further in 2021, we initiated Phase II multi-centric studies to investigate further the use of HIFU in this pathology and the impact on patients’ quality of life. In 2023, we will initiate a Phase III randomized, controlled clinical trial evaluating Focal One high intensity focused ultrasound (HIFU) as a potential treatment for rectal deep infiltrating endometriosis. As per the European Society of Human Reproduction and Embryology, endometriosis is estimated to affect approximately one in 10 women of reproductive age.

In addition, in view of addressing liver cancer using HIFU technology, we decided to pursue the development of HIFU for liver cancer as an extracorporeal solution, avoiding open surgery approach.

HIFU Reimbursement Status

In the United States, following the AMA’s establishment of a new Category 1 CPT code, CMS finalized payment rules for hospitals, facilities, and physicians that facilitates coverage and reimbursement for the ablation of malignant prostate tissue with HIFU technology, effective January 1, 2021. U.S. private insurers are continuing to evaluate and advance coverage and payment policies related to HIFU procedures for prostate cancer patients. We have engaged Medical Technology Partners (MTP) and Argenta Advisors, two leading reimbursement consultancies, to support us in reimbursement analysis and strategies. As public and private payors expand coverage and payment for HIFU procedures, our Focal One HIFU device and procedure likely will have accelerated market access and demand in the United States.

On the hospital payment side, the 2023 final rule upgrades the HIFU procedure from Level 5 Urology Ambulatory Payment Classification (APC) in 2022 to Level 6 in 2023. This translates into reimbursement to a hospital performing a HIFU procedure on a Medicare patient to approximately $8,500 per procedure as a national average, adjusted locally based on the wage index, from the previous approximately $4,500. The Centers for Medicare and Medicaid Services (CMS) will continue to update payment rates for hospitals on a yearly basis as part of the Hospital Outpatient Prospective Payment System (OPPS) Rulemaking.

On the physician payment side, CMS first established a payment to physicians performing a HIFU procedure in the U.S. in 2021. The American Medical Association (AMA) has set the work Relative Value Units for a physician performing a HIFU procedure at 17.73. In the 2023 Final Rule of the Physician Fee Schedule, CMS has set the total facility Relative Value Units (“RVUs”)  at 28.84. This translates to an average payment of $977 for a urologist performing a HIFU procedure on a Medicare patient in a facility setting in 2023. As a reference, a comparable established minimally invasive therapy for prostate cancer, cryotherapy, yields 22.56 total facility RVUs, which translates to $764 for the urologist under the same setting and patient conditions in 2023. A radical prostatectomy would grant the urologist 34.39 total facility RVUs, which translates to a Medicare payment of $1,165, or 35.18 total facility RVUs and $1,192 if performed laparoscopically or robotically. Of note, CMS has finalized a reduction of 18% for the physician payment for a robotic

prostatectomy in 2023 compared to 2022, significantly reducing the difference between this procedure and HIFU in terms of physician payment.

In the European Union, there is no harmonized procedure for obtaining reimbursement and, consequently, we must seek reimbursement in each Member State. Procedures performed with our HIFU devices are not reimbursed in the European Union with the exception of Italy, Germany, the United Kingdom (where procedures are partially reimbursed by either public healthcare systems or private insurers) and France under certain conditions. In 2014, the French healthcare government authorities announced the reimbursement of prostate cancer treatment procedures using HIFU as part of a specific process (“Forfait Innovation”) to further validate breakthrough therapies and to accelerate their related reimbursement process based on clinical trials and data registries. Patients inclusions and follow-up were terminated in 2022. Under this specific process, French healthcare government authorities will review the clinical data gathered under this process in view of granting definitive reimbursement for HIFU. Final decision is expected in 2023.

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 newer surgical technique, nerve-sparing prostatectomy, has been developed to address that problem. However, the procedure can only be applied when the tumor is not located close to the surface of the prostate and it requires a very skilled surgeon. Other therapies for localized prostate cancer include brachytherapy, a therapy that involves the implantation of radioisotopes into the prostate gland, external beam radiation therapy and cryotherapy.

Our robotic HIFU devices compete with all current treatments for localized tumors, which include surgery, brachytherapy, radiotherapy, cryotherapy and electroporation. We believe that HIFU competes against those treatments on the basis of efficacy, limited side effects and cost-effectiveness.

We also believe that Focal One will be well positioned to address the growing demand for a “focal” approach of localized prostate cancer which cannot be answered by surgery or radiation therapy. “Focal” treatment (also known as “partial” or “zonal” treatment, as opposed to “radical” or “total” treatment) provides an effective and accurate ablative treatment of localized tumors with the capacities of being flexible and repeatable, while preserving patient quality of life.

Other companies are working with HIFU for the minimally invasive treatment of tumors. See Item 3, “Risk Factors—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.

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 received de novo clearance from the FDA for commercialization in the U.S. in October 2015. Profound Medical, a Canadian company, holds FDA clearances for transurethral ultrasound ablation for prostate tissue. 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, brain disorders and ablate prostate tissue; this latter intended use was cleared by the FDA in December 2021. Theraclion, a French company licensed by EDAP to use certain of our HIFU patents, is currently marketing the Echopulse HIFU device to treat thyroid tumors, benign breast tumors and varicose veins. Haifu, a Chinese company, is developing HIFU products addressing various types of cancers.

HIFU Division Sales and Distribution of Products

The HIFU division markets and sells its products through our own direct marketing and sales organization as well as through selected third-party distributors and agents in several countries. Using our direct subsidiaries or representative offices network, the HIFU division maintains direct marketing and sales forces in France, the United States, Germany, Malaysia and South Korea, which currently

represent its largest HIFU markets. Additionally, the HIFU division markets and sells its products through our distribution platform in the rest of Europe, Middle East and Southeast Asia.

The HIFU division’s customers are located worldwide and have historically been principally public and private hospitals and urology clinics. Management 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 sites www.hifu-prostate.com and www.focalone.com for patients and physicians is visited regularly. The information contained on these websites is not incorporated by reference herein. As HIFU expands in these countries, we intend to strengthen our marketing efforts and further invest in educational and sales programs in these countries.

ESWL Division

The ESWL lithotripsy division is engaged in the manufacturing, marketing and servicing of our installed base of Sonolith range of lithotripters. The ESWL division contributed €11.6 million to our consolidated net sales during the fiscal year ended December 31, 2022.

Our ESWL 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.

ESWL Division Business Overview

The ESWL division’s business is producing and marketing certain medical devices, known as lithotripters, for the treatment of urinary tract stones by means of ESWL technology. ESWL uses extracorporeal shockwaves, which can be focused at urinary stones within the human body to fragment the stones, thereby permitting their natural elimination and preventing the need for incisions, transfusions, general anesthesia, and the potential for related complications. The ESWL division currently markets one model of lithotripter: the Sonolith i-move. As of December 31, 2022, the ESWL division maintained or otherwise serviced 522 Sonolith lithotripters.

ESWL Division Business Strategy

The business strategy for the ESWL division is to capitalize on its expertise in ESWL and its position in urology to maintain our lithotripsy sale and service activity as we intend to maintain this cash generating activity. The ESWL division manufactures its own lithotripsy device, the Sonolith i-move, via EDAP TMS France SAS (“EDAP TMS France”), our wholly owned subsidiary.

ESWL Division Products

The ESWL division offers the Sonolith i-move extracorporeal shockwave lithotripter to small and mid-size hospitals. The ESWL division also sells disposable parts for lithotripters and electrodes of the Sonolith line, which need to be replaced approximately every ten treatments.

The Sonolith i-move relies 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 ESWL division’s 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 ESWL division developed the Sonolith i-move, a compact electroconductive lithotripter designed for smaller clinics. The Sonolith i-move offers a wide range of configurations to suit various budgets and various local market needs. Our Sonolith 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.

ESWL Division Patents and Intellectual Property

As of December 31, 2022, the ESWL division’s patent portfolio contained six granted owned and co-owned patents consisting of one granted patent in the United States, four granted patents in the European Union and one granted patent in Japan.

These patents belong to four groups of patents covering technologies relating to ESWL systems and associated software capabilities. The ESWL division’s patents cover both piezoelectric and electroconductive technologies associated to ESWL generator, localization systems and device design. The ESWL 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.

ESWL Division Regulatory Status

The Sonolith i-move is cleared and available for commercial distribution in the European Union, Saudi Arabia, Colombia, South Korea, Singapore, Costa Rica, Egypt, Ecuador, Mexico, the United States, Indonesia, Japan, Malaysia, United Kingdom, Russia, Serbia, Sudan, Switzerland and Taiwan.

The ESWL division continues to provide disposables, replacement parts and services for the current installed base of Sonolith Praktis, Sonolith Visio and Sonolith i-sys even though we have discontinued the manufacture of these machines.

ESWL Division Market Potential

We estimate that roughly 12% of the world population suffers from kidney or ureteric stones during their lifetime. Although urinary calculi may be eliminated naturally by the body, natural elimination is frequently accompanied by considerable pain and very often by serious complications, such as obstruction and infection of the urinary tract.

Since its introduction in clinical practice more than 35 years ago, ESWL has become the standard treatment for urinary calculi. ESWL consists of fragmenting calculi within the body using extracorporeal shockwaves without any surgery. We believe that the market for lithotripters includes both buyers looking for a sophisticated, higher-priced machine (generally hospitals and larger urology clinics) and buyers looking for simpler and less expensive machines (typically smaller clinics). The market for lithotripters is mature and has become primarily a replacement and service and maintenance market in most of the world. We believe that companies with a large installed base of ESWL lithotripters will be most successful in the replacement market. Consequently, we intend to capitalize on our share of the installed base of ESWL lithotripters to maintain our position in the replacement market for those machines. Several geographical opportunities remain in under-equipped countries or in some countries where the national health system strategy is being reviewed for hospitals and clinics equipment. ESWL is today in competition with less costly stone laser devices. Consequently, in order to remain competitive, EDAP integrated stone laser products into its ESWL product range.

We expect the ESWL division to continue to contribute to the financial results despite the mature nature of the market, due to revenues from consumables, maintenance contracts and demand for replacement machines. See Item 5, “Operating and Financial Review and Prospects”.

ESWL Division Competition

The ESWL market is characterized by severe price competition among manufacturers, with the result that, in recent years, the average unit price of ESWL lithotripters has declined. The ESWL division expects this trend to continue. See Item 5, “Operating and Financial Review and Prospects. ” The ESWL division’s major competitors in developed countries are Wolf, Storz Medical and Dornier Medtech.

ESWL Division Sales and Distribution of Products

The ESWL division markets, sells and services its products through our direct sales and service platform in France, Germany, the United States, Japan, South Korea, Malaysia and in the United Arab Emirates through our representative office in Dubai. The ESWL division also markets its products through agents and third-party distributors in several other countries.

The ESWL 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 its ESWL products under satisfactory conditions.

No single customer of the ESWL division represents a significant portion of the division’s installed base. The ESWL division’s marketing efforts include the organization of training programs for urologists worldwide.

Distribution Division

The Distribution division is engaged in the marketing, distribution and servicing of products complementary to our global activity such as lasers, micro-ultrasound systems and other medical products from third parties. The Distribution division contributed €27.9 million to our consolidated net sales during the fiscal year ended December 31, 2022.

Distribution Division Business Strategy

The Distribution division’s business strategy is to generate revenues from the marketing and distribution of medical devices for the minimally invasive diagnosis or treatment of urological disorders and other various clinical indications. These products include, but are not limited to: micro-ultrasound devices such as the ExactVu product and lasers. The Distribution division also generates revenues from the leasing of devices, as well as from the sale of disposables, spare parts and maintenance contracts for equipment sold under the Distribution division.

We have engaged in exclusive distribution agreements with third parties to distribute and service their products in certain territories, under specific conditions.

The Distribution division strategy is also to distribute products that bring synergies and complementarity to our existing home grown technologies. In May 2020, we signed an exclusive worldwide distribution agreement with Exact Imaging, a developer of high resolution micro-ultrasound imaging technologies. Under the terms of the agreement, we market Exact Imaging’s micro-ultrasound diagnostic devices alongside our Focal One. In that respect, ExactVu micro-ultrasound complements our Focal One HIFU technology. ExactVu offers all of the steps and procedures that need to be done prior to a treatment for prostate cancer. By distributing the two technologies, EDAP offers the urologist a complete solution for focal prostate cancer management, with full autonomy and capabilities from diagnostic to treatment. This type of complete care is also extremely attractive to patients with prostate cancer as it represents a non-invasive way of managing their disease by using diagnostics to eliminate unnecessary biopsy procedures and allows for a very precise non- invasive HIFU ablation of the suspicious and diagnosed region of the prostate.

Distribution Division Products

The Distribution division currently distributes Lumenis^® Holmium lasers (HoLEP) marketed by Boston Scientific under an exclusive agreement limited to the French territory. HoLEP Moses Lumenis laser is a groundbreaking, patent-protected pulse delivery technology that remarkably improves energy transmission, resulting in more efficient lithotripsy and BPH treatments compared to the regular Holmium pulse1. The Distribution division also exclusively markets lasers manufactured by Italian company Quanta System Spa in Japan, in certain countries in South-East Asia.

The Distribution division also distributes the ExactVu device, produced by the Canadian company Exact Imaging, under a worldwide and exclusive agreement. ExactVu is an ultrasound-based imaging system that can operate and be used the same way as a standard ultrasound, but it also has the unique capability of operating at a very high frequency of 29MHz. Similar to MRI, it allows urologists to visualize and locate suspicious regions within the prostate and target biopsies in real time. Exact Imaging’s technology also includes a solution called FusionVu. Where an MRI is required, FusionVu allows for the quick import, alignment and targeting of MRI-identified lesions. After the MRI image is imported via FusionVu, ExactVu’s 70 micron real-time resolution, allows physicians to very precisely targeting lesions.

The Distribution division, through the Group’s Japanese subsidiary, exclusively distributes some urology products of the American company Laborie Medical Technologies (“Laborie”) in Japan, that includes Urodynamic equipment, Uroflow, and a range of disposable products. Laborie is the world leader of Urodynamic systems and disposables which are used by urologists and gynecologists to diagnose lower urinary tract functions. The Group’s Japanese subsidiary also distributes x-ray imaging systems for the diagnosis of musculoskeletal pathologies and orthopedic surgical care in Japan on behalf of French company EOS Imaging and also exclusively distributes urology accessories on behalf of Monaco’s company Rocamed in Japan.

Manufacturing

Our current manufacturing operations consist of manufacturing medical products in our facility, which is FDA-registered and certified under international ISO 13485: 2016 and MDSAP standards. We manufacture our own products through our operational subsidiary EDAP TMS France.

We manufacture the critical components for our devices and accessories, unless a subcontractor can manufacture the component more cost-effectively, and we also perform final assembly and quality control processes and maintain our own set of production

standards. We purchase the majority of the components used in our products from a number of suppliers, but for several components of our products, we rely on a single source. Most of single source components are secured by contract, by double sourcing or by safety stock. Furthermore, we conduct regular quality audits of suppliers’ manufacturing facilities. Our principal suppliers are located in France, Germany, Denmark, South Korea and the United States. To date, these challenges have not materially impacted our ability to deliver devices and services to our customers. Management believes that the relationships with our suppliers are good.

Third parties supply us with some key materials or components, which exposes us to the risk of a supply shortage or interruption in the event that these suppliers are unable to manufacture our products in line with quality standards or if they experience financial or other difficulties. We are currently renegotiating a supply agreement with a key supplier of ultrasound component for our HIFU devices as prices increased dramatically following a major shift in our supplier’s marketing strategy. We are constantly addressing such risks and are developing alternative options to maintain our product offering, while taking into account regulatory and cost constraints. We also have experienced difficulties in obtaining some materials or components used in our devices, including electronic parts, computers, plastics, mechanical parts due to supply shortage directly linked to logistics challenges, Asian manufacturing plants’ capacity constraints, and shipping routes impacted by ports closures.See Item 3. “Risk Factors—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.”  

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 and MDSAP 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, Canadian, Australian, Brazilian and South Korean regulations, as well as with the U.S. Quality System Regulation. See “—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:

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Property and Equipment

We have one principal facility, which is located in Vaulx-en-Velin, on the outskirts of Lyon, France. The premises comprise 4,150 square meters and are leased to us under a renewable ten-year commercial lease agreement which became effective 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), Flensburg (Germany), Austin (U.S.), Seoul (South Korea), Fukuoka, Osaka, Sapporo and Tokyo (Japan) and Dubai (United Arab Emirates). Our representative office in Moscow (Russia) was closed in early 2023.

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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. . Our products and operations are subject to regulation by the FDA and countries where we market our products.  We must meet the requirements governing the design, manufacture, sourcing, testing, certification, packaging, installation, use, and disposal (including recycling) of our products. 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 registration, medical device listing, FDA-mandated CGMP and labeling. Most Class I devices are exempt from premarket notification (510(k)). Class II devices are those whose safety and effectiveness can reasonably be ensured through the use of general controls and “special controls”, such as special labeling requirements, mandatory performance standards, and post-market surveillance. Class II medical devices typically require 510(k) submission and clearance based on a demonstration of substantial equivalence to an identified predicate device. A successful 510(k) may also require the submission of clinical data as part of the 510(k) for some Class II devices. For novel devices that present low to moderate risk but where there is no suitable predicate device to support a standard 510(k) submission, the FDA has what is known as the De Novo process. Class III devices are those that require submission of a pre-market approval (“PMA”) application by the FDA to ensure their safety and effectiveness. The PMA process is expensive and often lengthy, typically requiring several years, and may not necessarily result in approval. The manufacturer or the distributor of the device must obtain an IDE approval from the FDA before commencing human clinical trials in the United States in support of the PMA. Some newer PMA devices must also go before an advisory committee before FDA approval. Our lithotripsy range of Sonolith i-move products is now classified by the FDA as Class II devices. Our Ablatherm and Focal One HIFU devices are also classified as Class II.

The FDC Act also regulates quality and manufacturing procedures by requiring us to demonstrate and maintain compliance with current Quality System Regulations (QSR). We believe our manufacturing facilities are in compliance with the requirements of the QSR. There are also certain requirements of state, local and foreign governments which must be complied with in the manufacturing and marketing of our products. We believe that the manufacturing and quality control procedures we employ meet the requirements of these regulations.

Advertising and promotional activities in the United States are subject to regulation by the FDA and by the U.S. Federal Trade Commission.

Regulation in the European Union

In the European Union, we annually perform ISO 13485: 2016 and MDSAP (Australia, Brazil, Canada, Japan, U.S.) certification audits, showing that we comply with standards for quality assurance, manufacturing and design control.

In 2017, the European Union enacted the new MDR. Manufacturers with currently approved medical devices in their portfolio have had an initial transition time of three years, i.e. until May 26, 2020 to meet new MDR requirements. The transition period was extended to four years, i.e. until May 26, 2021 due to COVID-19 pandemic context. An amendment to modify the transitional provisions has been adopted. The schedule is defined based on the MDR classification of devices with a latest application date of December 31, 2028. The extension of the period during which the devices can be placed on the market is subject to conditions. To benefit from the new provisions, the manufacturer must have implemented and maintained a Quality Management System that complies with MDR requirements before May 26, 2024. 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 to conform MDR, if applicable.

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The MDD and the MDR provide that medical devices that meet certain safety standards must bear a certification of conformity, the European Community approval “CE Marking”. Except in limited circumstances, member states of the European Union may not prohibit or restrict the sale, free movement or use for its intended purpose of a medical device bearing the CE Marking. Medical devices

marketed throughout the European Union must comply with the requirement of the 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 I, IIa and 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”). Our Japanese subsidiary has obtained a license as the “Marketing Authorization Holder” as well as specific marketing approvals to import and market our products in Japan. Our Japanese subsidiary is also operating as “Designated Marketing Authorization Holder” on behalf of some companies to market their products in the Japanese Territory. The MHLW also administers various national health insurance programs to which each Japanese citizen is required to subscribe. These programs cover, among other things, the cost of medical devices used in operations. The MHLW establishes a price list of reimbursable prices applicable to certain medical devices under the national health insurance programs and until a new device is included in this list its costs are not covered by the programs. The LT02, the LT-02X, the Sonolith Praktis, the Sonolith Vision, the Sonolith i-sys and the Sonolith i-move are all included on the MHLW’s list for reimbursement.

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Item 4A. Unresolved Staff Comments

None.

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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, 2022 and 2021 is based on, and should be read in conjunction with, our consolidated financial statements and the notes thereto included in Item 18, “Financial Statements.” The consolidated financial statements have been prepared in accordance with U.S. GAAP.

The following discussion contains certain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those contained in such forward-looking statements. See “Cautionary Statement on Forward-Looking Information” at the beginning of this annual report.

Critical Accounting Estimates

Management has not identified any estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant.

Operating Results

Overview

Our activities are organized into three divisions: HIFU, ESWL and Distribution.

Total revenues of the Company include sales of our medical devices and sales of disposables (“sales of goods”), sales of RPPs and leases, and sales of spare parts and services, all net of commissions, as well as other revenues.

Sales of goods have historically been comprised of net sales of medical devices (HIFU devices, ESWL lithotripters and other third-parties devices) and net sales of disposables (mostly Ablapaks and Focalpaks in the HIFU division, electrodes in the ESWL division and disposables from third-parties’ devices marketing by the Distribution division). The sale price of our medical devices is subject to variation based on a number of factors, including market competition, warranties and payment terms. Consequently, a particular sale of

a medical device may, depending on its terms, result in significant fluctuations in the average unit sale price of the product for a given period, which may not be indicative of a market trend.

Sales of RPP and leases mainly include the revenues recording in the HIFU division from the sale of Ablatherm and Focal One treatment procedures and from the leasing of Ablatherm and Focal One devices. We provide Ablatherm and Focal One devices to clinics and hospitals for free for a limited period, rather than selling the devices. These hospitals and clinics perform treatments using the devices and usually pay us based on the number of individual treatments provided. With this business model, the hospital or clinic does not make an initial investment until the increase in patient demand justifies the purchase of a HIFU 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.

Regarding sales of lithotripters as recorded in our ESWL division, we believe that the market for ESWL lithotripters is now mature and has become primarily a replacement and maintenance market, with intense competition. As a result, we expect total market volumes for our ESWL Division to remain stable in the foreseeable future. In addition, following the discontinuation of our Sonolith i-sys lithotripter in 2020 and of our developments in lithotripsy, including the development of our Endo-UP platform, our ESWL revenues will be mainly stemming from sales of Sonolith i-move lithotripters as well as revenues from sales of maintenance contracts and spare parts.

Revenues recorded in our Distribution division include sales of complementary products such as lasers, micro-ultrasound systems and other products from third parties, including the associated disposables and maintenance contracts.

Sales of spare parts and services include revenues arising from maintenance services furnished by us for the installed base of ESWL lithotripters, HIFU devices and complementary products from third parties.

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 33% of our total consolidated net sales in 2022. Net sales of goods in Asia represented 36% of such sales in 2022 and consisted mainly of sales of urology devices and disposables. Net sales of spare parts, supplies and services in Asia represented 34% of such sales in 2022 and related primarily to ESWL lithotripters, reflecting the fact that 44% of the installed base of our ESWL lithotripters that we actively maintain or otherwise serve is located in Asia. See Note 18 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 2022, 60% of our costs of sales and research and development, selling, marketing and general and administrative expenses were denominated in euro, while 59% 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 €4.9 million and €3.4 million in 2022 and 2021, respectively, representing 8.9% and 7.7% of total revenues in 2022 and 2021, respectively. Research and development government grants and tax credits are deducted from our consolidated research and development expenses for amounts of €0.8 million and €1.4 million  in 2022 and 2021, respectively. Beginning in 2023, management expects the budget for research and development expenses to increase to 11.9% 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 to build reimbursement coverage in key countries and particularly in the U.S., to continue to develop our HIFU product range and to fund projects to expand the use of HIFU beyond the treatment of prostate cancer.

Consolidated selling and marketing expenses amounted to €16.4 million in 2022 and €10.7 million in 2021. The €5.6 million or 52.6% increase in selling and marketing expenses from 2021 to 2022 was primarily a result of the implementation of the HIFU expansion plan in the U.S. which includes the impact of share-based compensation plans of €1.0 million in 2022 and €0.8 million in 2021 and the COVID-19 pandemic impact in 2021 (leading to cancellation of congresses, limitation of business trips, etc). Beginning in 2023, management expects selling and marketing expenses to increase in connection with the acceleration of HIFU adoption in the U.S.

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Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended December 31, 2021

We report our segment information on a “net contribution” basis. See Note 29 to our consolidated financial statements.

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Total revenues

Our total revenues increased 25.1% from €44.1 million in 2021 to €55.1 million in 2022.

HIFU division.

The HIFU division’s total revenues increased by 57.7% from €9.9 million in 2021 to €15.6 million in 2022, reflecting mainly the development of equipment sales in the U.S.

The HIFU division’s net sales of medical devices increased 152.6% to €7.0 million in 2022, with fifteen Focal One units sold (including thirteen in the U.S.), as compared to €2.8 million, with seven Focal One units sold in 2021 (including four in the U.S).

Treatment-driven revenue, which includes net sales of RPP & leases, net sales of disposables and treatments related services, increased by 18.6% to €7.0 million in 2022.

Net sales of HIFU maintenance services increased by 31.1% to €1.6 million in 2022.

ESWL division.

The ESWL division’s total revenues increased 5.0% from €11.0 million in 2021 to €11.6 million in 2022, primarily due to the increase in sale of equipment after a year impacted by the COVID-19 pandemic in 2021.

The ESWL division’s net sales of medical devices increased 28.9% from €3.0 million in 2021 to €3.9 million in 2022 with 22 ESWL devices sold in 2022 compared to 21 ESWL units sold in 2021.

Net sales of ESWL-related consumables, spare parts, supplies, RPP, leasing and services decreased 3.6% from €8.0 million in 2021 to €7.7 million in 2022 reflecting the mature nature of the market.

Distribution division.

The Distribution division’s total revenues increased 20.6% from €23.1 million in 2021 to €27.9 million in 2022, primarily due to the development of Exact Imaging sales.

The Distribution division’s net sales of medical devices increased 16.7% from €13.5 million in 2021 to €15.8 million in 2022. We sold 47 ExactVu units in 2022, as compared to 28 in 2021.

Net sales of Distribution-related consumables, spare parts, supplies, RPP, leasing and services increased 26.2% from €9.6 million in 2020 to €12.2 million in 2022, reflecting the growth of the installed base.

Cost of sales.

Cost of sales increased 20.6% from €25.6 million in 2021 to €30.9 million in 2022, and represented 56.1% as a percentage of net sales in 2022, down from 58.2% as a percentage of net sales in 2021. This effect is driven primarily by the higher sales effect on fixed costs and the increase in the percentage of HIFU revenue to overall revenue (since HIFU activity has better margins than both ESWL and Distribution).

Operating expenses.

Operating expenses increased 42.0%, or €8.4 million, from €20.0 million in 2021 to €28.5 million in 2022.

Marketing and sales expenses increased €5.6 million, or 52.6% to €16.4 million in 2022, reflecting the impact of the HIFU expansion plan in the U.S., which includes the impact of share-based compensation plans for €1.0 million in 2022.

Research and development expenses increased 44.6% at €4.9 million in 2022 from €3.4 million in 2021. R&D expenses are net of R&D grants and tax credits of €0.8 million in 2022 and €1.4 million in 2021.

General and administrative expenses increased €1.3 million or 21.2% to €7.2 million in 2022, reflecting the impact of the HIFU expansion plan in the U.S., which includes the impact of share-based compensation plans for €1.1 million in 2022.

Operating profit (loss).

As a result of the factors discussed above, particularly the expansion of our activities in the U.S. to accelerate HIFU adoption, we recorded a consolidated operating loss of €4.3 million in 2022, as compared to a consolidated operating loss of €1.6 million in 2021.

We realized an operating loss in the HIFU division of €4.9 million in 2022, as compared with an operating loss of €3.0 million in 2021, an operating profit in the ESWL division of €0.9 million in 2022, as compared to an operating profit of €0.9 million in 2021, and an operating profit in the Distribution division of €2.0 million in 2022, as compared to an operating profit of €2.4 million in 2021.

Financial (expense) income, net.

Net financial income was €0.2 million in 2022, compared with a net financial income of €0.1 million in 2021.

Foreign currency exchange gain (loss), net.

In 2022, we recorded a net foreign currency exchange gain of €1.9 million, mainly due to the variation of the Euro against the U.S. Dollar, compared to a gain of €2.4 million in 2021.

Income taxes.

Income tax was an expense of €0.8 million in 2022, compared to an expense of 0.2 million in 2021, reflecting the decrease in 2021 of the valuation allowance for deferred tax assets in Japan.

Net income / (loss).

As a result of the above, we realized a consolidated net loss of €2.9 million in 2022 compared with a consolidated net income of €0.7 million in 2021.

For comparison between the fiscal year ended December 31, 2021 and the fiscal year ended December 31, 2020, please refer to our report on Form 20-F filed with the SEC on April 8, 2022.

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Effect of Inflation

Management believes that the impact of inflation was not material to our net sales or loss from operations in the year ended December 31, 2021.

In 2022, geopolitical instability and other factors have led to higher worldwide inflation leading to a global increase in costs. We are constantly addressing this cost increase by mitigating the impact on our margins, in particular by adjusting our prices, reducing our costs or implementing counter measures to ensure the minimum residual impact.

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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 future capital requirements will depend on many factors including our revenue growth rate, the timing, and extent of spending to support further sales and marketing and research and development efforts. Our cash flow situation is described in more detail below.

Material Cash Requirements

The following table discloses aggregate information about material contractual obligations and periods in which payments were due as of December 31, 2022.

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The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, excluding interest on long-term debt. Future events could cause actual payments to differ from these estimates.

Long term debts represent a €5.0 million cash requirement as of December 31, 2022 and are mainly related to the two loans taken out from French banks, in the form of the loans guaranteed by the French State for a total amount of €4.0 million at inception in the context of the Covid-19 pandemic. These loans taken out in August 2020 with initial maturity in August 2021 have been extended until August 2026. The amendments provide for reimbursements to be made over four years, beginning in August 2022.

Operating and Financing leases represent a €2.3 million cash requirement as of December 31, 2022 with a repayment horizon up to 2028.

Cash Flows

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.

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Our cash position as of December 31, 2022 and 2021 was €63.1 million (with no short-term treasury investments) and €47.2 million (with no short-term treasury investments), respectively. We experienced an increase in cash and cash equivalent of €16.0 million in 2022 and of €22.5 million in 2021.

In 2022, our positive net cash flow was primarily due to net cash generated by financing activities which included net proceeds of the offering of common stock in the form of ADSs in September 2022 for €22.0 million. See Item 4, “Information on the Company—History and Development of the Company”. In 2021, our positive net cash flow was primarily due to net cash generated by financing activities which included net proceeds of the offering of common stock in the form of ADSs in April 2021 for €21.3 million. See Item 4, “Information on the Company—History and Development of the Company”.

In 2022, net cash used in operating activities was €3.0 million compared with net cash generated by operating activities of €4.4 million in 2021.

In 2022, net cash used in operating activities reflected principally:

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In 2021, net cash generated by operating activities reflected principally:

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In 2022, net cash used in investing activities was €2.4 million compared with net cash used in investing activities of €1.6 million in 2021.

Net cash used in investing activities of €2.4 million in 2022 reflected mainly:

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Net cash used in investing activities of €1.6 million in 2021 reflected mainly:

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In 2022, net cash generated by financing activities was €21.7 million compared with net cash generated by financing activities of €20.3 million in 2021.

Net cash generated by financing activities of €21.7 million in 2022 reflected principally the net proceeds of €22.0 million from the offering of common stock in the form of ADSs in September 2022 (see Item 4, “Information on the Company—History and Development of the Company”), €0.7 million from the exercise of stock options, new long term borrowings for €0.3 million (composed of a loan in France to finance HIFU treatment probes), the repayments of long-term borrowings and financing lease for €1.2 million.

Net cash generated in financing activities of €20.3 million in 2021 reflected principally the net proceeds of €21.3 million from the offering of common stock in the form of ADSs in April 2021 (see Item 4, “Information on the Company—History and Development of the Company”), €0.4 million from the exercise of stock options, new long term borrowings for €1.1 million (mainly composed of a loan in France to finance HIFU treatment probes and conditional government advances for business development in China), the repayments of long-term borrowings and financing lease for €1.8 million (including extinguishment of the HECAM project conditional government advances)  and a decrease of short-term borrowings of €0.7 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, 2022, there were no outstanding hedging instruments. See Notes 13 and 14 to the consolidated financial statements for further information on our borrowings.

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—ESWL Division—ESWL 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 is refundable in cash.

Off-Balance Sheet Arrangements

At December 31, 2022, we had no off-balance sheet arrangements.

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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 7, 2023 (the “Senior Executive Officers”). 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 €1.0 million.

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In line with EDAP’s global group strategy, and its focus on expansion in the United States and rest of world markets, and upon recommendation of the Compensation Committee and the Nomination Committee, on March 29, 2023 the Board of Directors unanimously decided to appoint Mr. Rhodes as the new Chief Executive Officer of the Company for an indefinite term, which will become effective on May 1, 2023. Mr. Oczachowski will continue to serve as Chairman of the Board of the Company.

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Ryan Rhodes joined EDAP in June 2021, as Chief Executive Officer of EDAP Technomed Inc., the Company’s U.S. subsidiary. Prior to joining EDAP, he served as the President and Chief Executive Officer of Restoration Robotics, the global leader in robotic aesthetic medicine, from August 2016 to December 2019. Prior to Restoration Robotics, he spent over 13 years at Intuitive Surgical, the global leader in medical robotics. Prior to Intuitive Surgical, he spent over 11 years in various management positions in sales, marketing, professional education, and market development at Ethicon Inc., a Johnson & Johnson Company. Mr. Rhodes holds a B.A in Public Administration from San Diego State University.

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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 combined the roles of Chairman of the Board and Chief Executive Officer, as permitted by the Company’s by-laws, and elected Mr. Marc Oczachowski as the new Chairman of the Board of Directors. On March 29, 2023, the Board of Directors decided to separate the roles of Chairman of the Board and Chief Executive Officer as of May 1, 2023, when Mr. Rhodes will begin his term as Chief Executive Officer and Mr. Oczachowski will continue serving as Chairman. None of the directors has service contracts with the Company or any of its subsidiaries providing for benefits upon termination of employment (except for

those related to Mr. Oczachowski’s current position as Chief Executive Officer, provided under his employment agreement). Four Board members out of five are independent within the meaning of Nasdaq Marketplace Rule 5605(2). The mandate of four of our Directors was renewed for a new period of six years at the General Meeting of Shareholders held on June 30, 2020 approving the accounts for the financial year ended December 31, 2019. Their mandate will expire at the end of the ordinary general meeting of shareholders which will approve the accounts for the financial year ended December 31, 2025, i.e., in the course of 2026. On June 30, 2020, Ms. Marie Meynadier was elected as independent Director in replacement of Mr. Philippe Chauveau.

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Compensation

Aggregate compensation paid or accrued for services in all capacities by the Company and its subsidiaries to Senior Executive Officers and to the Board of Directors as a group for the fiscal year 2022 was €659 thousand including performance bonuses of €135 thousand and benefits in kind of €10 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 2022. For information regarding compensation paid in the form of stock options or free shares, see “—Share Ownership” and “Options to Purchase or Subscribe for Securities—Free Shares.”

Compensation Committee

The Compensation Committee is comprised of the following independent members: Mr. Pierre Beysson, Dr. Argil Wheelock, Ms. Marie Meynadier and Mr. Rob Michiels. The Committee gathers once a year to review the compensation of our Chief Executive Officer, as per the approved charter of the Compensation Committee, and to propose to the Board of Directors any changes to the Chief Executive Officer’s compensation. The Chief Executive Officer is not present when the Compensation Committee reviews his compensation. In August 2014, the Compensation Committee updated its charter which was subsequently approved by the Board of Directors.

Audit Committee

The Board of Directors’ Audit Committee comprises four independent members of the Board: Mr. Pierre Beysson, acting as Head of the Audit Committee and financial expert, Ms. Marie Meynadier, Dr. Argil Wheelock and Mr. Rob Michiels. The purpose of the Audit Committee, in accordance with its annually approved charter, is summarized below:

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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. This Charter is not incorporated by reference in this annual report.

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. The Nomination Committee is comprised of the following independent members: Mr. Pierre Beysson, Dr. Argil Wheelock, Ms. Marie Meynadier and Mr. Rob Michiels.

Strategic Committee

On August 26, 2020, the Company’s Board of Directors created a Strategic Committee which duties are to address the development and implementation of the Company’s strategic plan and the risks associated with such plan. Such responsibility has been further formalized by a charter approved by the Board of Directors. The Strategic committee is composed of the following members: Ms. Marie Meynadier, independent Director and Head of the Committee, and Mr. Marc Oczachowski, Chief Executive Officer and Chairman of the Board.

Employees

As of December 31, 2022, we employed 264 individuals on a full-time basis, as follows:

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As of December 31, 2021, we employed 227 individuals on a full-time basis, as follows:

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As of December 31, 2020, we employed 223 individuals on a full-time basis, as follows:

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Management considers labor relations to be good. Employee benefits are in line with those specified by applicable government regulations.

Share Ownership

As of March 15, 2023, the total number of shares issued was 37,202,731 with 275,367 shares held as treasury shares, thus bringing the total number of shares outstanding to 36,927,364.

As of March 31, 2023, the Board of Directors and the Senior Executive Officers of the Company held a total of 321,621 shares. The Board of Directors and Senior Executive Officers beneficially own, in the aggregate less than 1% of the Company’s shares.

As of March 31, 2023, Senior Executive Officers held a total of 276,929 shares and an aggregate of 617,500 options to purchase or to subscribe a total of 617,500 ordinary shares, with a weighted average exercise price of €3.40 per share. Of these options, 220,000 expire on April 26, 2026, 55,000 expire on April 25, 2027, 25,000 expire on August 29, 2028, 40,000 expire on April 4, 2029 and 277,500 expire on June 11, 2031.

Options to Purchase or Subscribe for Securities – Free Shares

Options

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 1,000,000 options to subscribe to 1,000,000 new shares at a fixed price to be set by the Board of Directors.

On June 30, 2021, the shareholders authorized the Board of Directors to grant up to 2,000,000 options to subscribe to 2,000,000  new shares at a fixed price to be set by the Board of Directors and 200,000 free shares.

On June 30, 2022, the shareholders authorized the Board of Directors to grant up to 600,000 free shares. This new resolution superseded the June 30, 2021 resolution, cancelling the unused portion of the 2021 resolution.

As of March 31, 2023, we had sponsored four stock purchase and subscription option plans open to employees of EDAP TMS group and two free share plans.

On December 31, 2022, the expiration of our stock options was as follows:

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As of December 31, 2022, a summary of stock option activity to purchase or to subscribe to shares under these plans is as follows:

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As of December 31, 2022, 1,329,000 options to subscribe to new shares are available for future grants.

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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, 2022:

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Free Shares

On September 28, 2021, 61,500 free shares were granted to certain officers and employees of the Company and on September 28, 2022, 57,500 shares, out of these 61,500 free shares, were issued and acquired, with a 12-months period conservation obligation.

On March 30, 2022, 40,000 free shares were granted to the Chief Executive Officer of the Company.

On November 8, 2022, 291,500 free shares were granted to certain officers and employees of the Company.

On March 29, 2023, 150,000 free shares were granted to the Chief Executive Officer of the Company.

See Note 17-5 of the consolidated financial statements.

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Item 7. Major Shareholders and Related Party Transactions

Major Shareholders

To our knowledge, we are not directly or indirectly owned or controlled by another corporation, by any foreign government, or by any other natural or legal person or persons acting severally or jointly.

On the basis of the notifications received or filed with the SEC, as of April 7, 2023,  (i) Soleus Capital Master Fund, L.P. filed a report showing an increase in its ownership interest in the Company to 5,134,430 ADSs, representing 13.9% of our outstanding ADSs and (ii) Morgan Stanley filed a report showing an increase in its ownership interest in the Company to 3,136,680 ADSs, representing 8.5% of our outstanding ADSs 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 March 15, 2023, 37,202,731 shares were issued, including 36,927,364 outstanding and 275,367 treasury shares. At March 15, 2023, there were 37,121,481 ADSs, each representing one Share, all of which were held of record by 19 registered holders (including The Depository Trust Company).

Related Party Transactions

On August 19, 2019, EDAP Technomed Co. Ltd. (Japan) contracted a loan for 80,000,000 JPY. As a current practice in Japan, this loan required a personal guarantee from the representative director, president and CEO of the subsidiary, Mr. Jean-François Bachelard. EDAP TMS S.A., as the parent company, counter-guaranteed this personal loan and agreed to indemnify Mr. Bachelard, in an indemnification letter dated September 12, 2019, expiring upon loan maturity date of August 26, 2026.

On April 22, 2020, EDAP Technomed Co. Ltd (Japan) contracted another loan for 50,000,000 JPY requiring a personal guarantee from the representative director, president and CEO of the subsidiary, Mr. Jean-François Bachelard. EDAP TMS S.A., as the parent company, counter-guaranteed this personal loan and agreed to indemnify Mr. Bachelard, in an indemnification letter dated June 2, 2020, expiring upon loan maturity date of April 2, 2025.

On April 27, 2021, EDAP Technomed Sdn Bdh (Malaysia) contracted with Maybank to issue a Performance Guarantee amounting 8,000.00 MYR, expiring on June 30, 2023. As a current practice in Malaysia, any bank guarantee requires a personal warranty from the representative director, president and CEO of the subsidiary Mr. Hervé de Soultrait. Consequently, Mr. de Soultrait personally counter-garanteed this Performance Guarantee by making a fixed deposit of  8,000.00 to Maybank, valid until June 30, 2023.

Interests of Experts and Counsel

Not applicable.

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Item 8. Financial Information

Consolidated Financial Statements

See Item 18, “Financial Statements.”

Export Sales

As of December 31, 2022, total consolidated export net sales, which we define as sales made outside of mainland France, were €44.5 million, which represented 81% 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, we did not invoice any medical equipment to the hospitals in 2022 or 2021.

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. We do not have any legal proceedings outstanding.

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 2016 through 2021, 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 7, 2023

In line with EDAP’s global group strategy, and its focus on expansion in the United States and rest of world markets, and upon recommendation of the Compensation Committee and the Nomination Committee, on March 29, 2023 the Board of Directors unanimously decided to appoint Ryan Rhodes as the new Chief Executive Officer of the Company for an indefinite term, which will become effective on May 1, 2023. Marc Oczachowski will continue to serve as Chairman of the Board of the Company. In this context, the Board decided to accelerate the vesting of all unvested options granted to Mr. Oczachowski under the 2019 option plans such that these options fully vested and became exercisable on March 29, 2023, and, with respect to the previously granted free shares and as permitted under the plans, waived certain conditions to vesting. The Company is currently evaluating the costs associated with the severance package and the acceleration of vesting of share-based plans, which will be recorded in financial year 2023.

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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 Mellon, 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. (“The Nasdaq”), on which the ADSs are quoted under the symbol “EDAP.”

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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.

Our by-laws were updated on January 24, 2023 to reflect the latest increases in share capital related to the issuance of additional shares following the exercise of options.

Corporate Purposes

Pursuant to Article 2 of the by-laws, the corporate purpose of the Company is:

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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 2025. Mr. Marc Oczachowski, Chief Executive Officer, and 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.

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, provided that the number of directors still in office is not below the required legal minimum of directors (two). 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. Decisions of the Board of Directors are made by a majority vote; in case of a tie the Chairman of the Board  has a deciding vote.

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. See Item 6, “Directors, Senior Management and Employees–Compensation Committee.” The Chairman represents the Board of Directors and organizes its work. The Chairman reports on the Board’s behalf to the general shareholders’ meeting. The Chairman is responsible for ensuring the proper functioning of our governing bodies and that the Board members have the means to perform their duties.

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 an individual elected by the Board of Directors bearing the title of Chief Executive Officer (directeur général). On March 31, 2007, the Board of Directors appointed Mr. Marc Oczachowski as Chief Executive Officer and on March 25, 2020, the Board of Directors decided to combine the roles of Chairman of the Board and Chief Executive Officer, as allowed by the Company’s by-laws, and elected Mr. Marc Oczachowski as both the Chairman of the Board of Directors and Chief Executive Officer.

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.

Pursuant to Section 706-43 of the French Criminal Proceedings Code, the Chief Executive Officer may validly delegate to any person he/she chooses the power to represent us in any criminal proceedings that we may face.

Dividend and Liquidation Rights (French Law)

Net income in each fiscal year, increased or reduced, as the case may be, by any profit or loss of the Company carried forward from prior years, less any contributions to legal reserves, is available for distribution to our shareholders as dividends, subject to the requirements of French law and our by-laws.

Under French law, we are required to allocate at least 5% of our unconsolidated net profits in each fiscal year to a legal reserve fund before dividends may be paid with respect to that year. Such allocation is compulsory until the amount in such reserve fund is equal to 10% of the nominal amount of the registered capital. The legal reserve is distributable only upon the liquidation of the Company.

Our shareholders may, upon recommendation of the Board of Directors, decide to allocate all or a part of distributable profits, if any, among special or general reserves, to carry them forward to the next fiscal year as retained earnings, or to allocate them to the shareholders as dividends.

Our by-laws provide that, if so agreed by the shareholders, reserves that are available for distribution under French law and our by-laws may be distributed as dividends, subject to certain limitations.

If we have made distributable profits since the end of the preceding fiscal year (as shown on an interim income statement certified by our statutory auditors), the Board of Directors has the authority under French law, without the approval of shareholders, to distribute interim dividends to the extent of such distributable profits. We have never paid interim dividends.

Under French law, dividends are distributed to shareholders pro rata according to their respective shareholdings. Dividends are payable to holders of shares outstanding on the date of the annual shareholders’ 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, as a company whose shares are not admitted to trading on a regulated market subject to the provisions of Article L. 433-3 II of the French Monetary and Financial Code, may not acquire its own shares except (a) to reduce its share capital under certain circumstances with the approval of the shareholders at an extraordinary general meeting, (b) to provide shares for distribution to employees under a profit sharing or a stock option plan, (c) to offer shares as payment in exchange for assets acquired by the Company in the context of an external growth, merger, demerger or contribution transaction or (d) to provide shares to shareholders as part of a sale procedure organized by the Company. However, the Company may not hold more than 10% of its shares then-issued and 5% for a repurchase of shares to offer them as payment or in exchange for assets acquired by the Company in the context of an external growth, merger, demerger or contribution transaction. A subsidiary of the Company is prohibited by French law from holding shares of the Company and, in the event it becomes a shareholder of the Company, such shareholder must transfer all the shares of the Company that it holds.

Attendance and Voting at Shareholders’ Meetings (French Law)

In accordance with French law, there are two types of general shareholders’ meetings, ordinary and extraordinary. Ordinary general meetings are required for matters such as the election of directors, the appointment of statutory auditors, the approval of the report prepared by the Board of Directors, the annual accounts and the declaration of dividends.

Extraordinary general meetings are required for approval of matters such as amendments to the Company’s by-laws, modification of shareholders’ rights, approval of mergers, increases or decreases in share capital (including a waiver of preferential subscription rights), the creation of a new class of shares, the authorization of the issuance of investment certificates or securities convertible or exchangeable into shares and for the sale or transfer of substantially all of the Company’s assets.

The Board of Directors is required to convene an annual ordinary general shareholders’ meeting, which must be held within six months of the end of our fiscal year, for approval of the annual accounts. 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 registered capital or by an interested party under certain circumstances, or, in case of an urgent matter, by the Work Council (Comité Social et Economique) representing the employees. The notice calling a meeting must state the agenda for such meeting.

French law provides that, at least 15 days before the date set for any general meeting on first notice, and at least ten days before the date set for any general meeting on second notice, notice of the meeting (avis de convocation) must be sent by mail to all holders of properly registered shares who have held such shares for more than one month before the date of the notice. A preliminary written notice (avis de réunion) must be sent to each shareholder who has requested to be notified in writing. Under French law, one or several shareholders together holding a specified percentage of shares may propose resolutions to be submitted for approval by the shareholders at the meeting. Upon our request, 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 to the Company. Under French law, a proxy that is returned without instructions will be counted as present for purposes of the quorum and will be counted (i) in favor of the adoption of the draft resolutions presented or approved by the

Board of Directors and (ii) against the adoption of all other draft resolutions which were not expressly presented or approved by the Board of Directors.

The presence in person or by proxy of shareholders having not less than 20% (in the case of an ordinary general meeting or an extraordinary general meeting deciding upon any capital increase by capitalization of reserves) or 25% (in the case of any other extraordinary general meeting) of the shares entitled to vote is necessary to reach a quorum. If a quorum is not reached at any meeting, the meeting is adjourned. Upon reconvening of an adjourned meeting, there is no quorum requirement in the case of an ordinary general meeting or an extraordinary general meeting deciding upon any capital increase by capitalization of reserves. The presence in person or by proxy of shareholders having not less than 20% of the 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.

Under French law,  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, and at the latest four business days prior to such 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 or company for election to the Board of Directors at a shareholders’ meeting. When the nomination is part of the agenda of the shareholders’ meeting, the nomination must contain the name, age, professional references and professional activity of the nominee for the past five years, as well as the number of shares owned by such candidate, if any. In addition, if the agenda for the shareholders’ meeting includes the election of members of the Board of Directors, any shareholder may require, during the meeting, the nomination of a candidate for election at the Board of Directors at the shareholders’ meeting, even if such shareholder has not followed the nomination procedures. Under French law, shareholders cannot elect a new member of the Board of Directors at a general shareholders meeting if the agenda for the meeting does not include the election of a member of the Board of Directors, unless such nomination is necessary to fill a vacancy due to the previous dismissal 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.

Provisions With Respect to Directors (French Law)

Transactions in Which Directors Are Materially Interested

Under French law, any agreement entered into (directly or through an intermediary) between the Company and any one of the members of the Board of Directors that is not entered into (i) in the ordinary course of our business and (ii) under normal conditions, is subject to the prior authorization of the Board of Directors with only the disinterested members of the Board of Directors voting. This provision applies in particular to any undertaking taken by our Company for the benefit of our Chairman, Chief Executive Officer or his delegates (délégués) pursuant to which such persons will or may be granted compensation, benefits or any other advantages as a result of the termination of or a change in their offices or following such termination or change.

The same provision applies to agreements between our Company and another company if one of the members of the Board of Directors is the owner, general partner, manager, director, general manager or member of the executive or supervisory board of the other company, as well as to agreements in which one of the members of the Board of Directors has an indirect interest.

In accordance with Article L. 225-38 of the French Commercial Code, each related-party agreement entered into during the fiscal year is submitted for approval by our shareholders at the annual general shareholders’ meeting; the interested director (directly or through an intermediary), if he/she is a shareholder of the Company, may not take part in the vote and the shares held by the interested director are not taken into account for the calculation of the majority vote count.

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Directors’ Compensation

The aggregate amount of compensation of the Board of Directors is determined at the ordinary general shareholders’ meeting. The Board of Directors then divides this aggregate amount among its members by a simple majority vote. In addition, the Board of Directors may grant exceptional compensation (rémunérations exceptionnelles) to individual directors on a case-by-case basis for special assignments following the procedures described above at “- Transactions in which directors are materially Interested.” The Board of Directors may also authorize the reimbursement of travel and accommodation expenses, as well as other expenses incurred by Directors in the corporate interest. See also Item 6, “Directors, Senior Management and Employees”.

Board of Directors’ Borrowing Powers

All loans or borrowings on behalf of the Company may be decided by the Board of Directors within the limits, if any, imposed by the extraordinary meeting of the shareholders. There are currently no limits imposed on the amounts of loans or borrowings that the Board of Directors may approve.

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.

Nevertheless, any investment: (i) by (a) any non-French citizen, (b) any French citizen not residing in France, (c) any non-French entity or (d) any French entity controlled by one of the aforementioned individuals or entities; (ii) that will result in the relevant investor (a) acquiring control of an entity having its registered office in France, (b) acquiring all or part of a business line of an entity having its registered office in France, or (c) for non-EU or non-EEA investors crossing, directly or indirectly, alone or in concert, a 25% threshold of voting rights in an entity having its registered office in France; and (iii) developing activities in certain strategic industries related to: (a) activities likely to prejudice national defense interests, participating in the exercise of official authority or likely to prejudice public order and public security (including activities related to weapons, dual-use goods and technologies, IT systems, cryptology, data capturing devices, gambling, toxic agents or data storage), (b) activities relating to essential infrastructure, goods or services (including energy, water, transportation, space, telecom, public health, farm products or media), (c) research and development activities related to critical technologies (including cybersecurity, artificial intelligence, robotics, additive manufacturing, semiconductors, quantum technologies, energy storage or biotechnology) or dual-use goods and technologies, is subject to the prior authorization of the French Minister of Economy, which authorization, if granted, may be subject to certain undertakings. This request for prior authorization must be filed with the French Ministry of Economy, which has 30 business days from receipt of the complete file to provide a first decision which may (i) unconditionally authorize the investment or (ii) indicate that further examination is required.

In the latter case, the French Ministry of Economy must make a second decision within 45 business days from its first decision. In case of lack of response from the French Ministry of Economy within the above mentioned timeframe, the authorization will be deemed refused. If the authorization is granted, it may be subject to the signature of a letter of undertakings aimed at protecting the French national interests. If an investment requiring the prior authorization of the French Minister of Economy is completed without such authorization having been granted, the French Minister of Economy might direct the relevant investor to (i) submit a request for authorization, (ii) have the previous situation restored at its own expense, or (iii) amend the investment. The relevant investor might also be found criminally liable and might be sanctioned with a fine which cannot exceed the greater of: (i) twice the amount of the relevant investment, (ii) 10% of the annual turnover before tax of the target company and (iii) €5 million (for a company) or €1 million (for an individual).

The French Monetary and Financial Code (CMF) provides for statistical reporting requirements. Transactions by which non-French residents acquire at least 10% of the share capital or voting rights, or cross the 10% threshold, of a French resident company, are considered as foreign direct investments in France and are subject to statistical reporting requirements (Articles R. 152-1; R.152-3 and R. 152-11 of the CMF). When the investment exceeds €12,500,000, companies must declare foreign transactions directly to the Banque de France within 20 business days following the date of certain direct foreign investments in us, including any purchase of ADSs. Failure to comply with such statistical reporting requirement may be sanctioned by five years’ imprisonment and a fine of a maximum amount equal to twice the amount which should have been reported, in accordance with Article L 165-1 of the CMF. This amount may be increased fivefold if the violation is made by a legal entity.

Certain Exemptions (U.S. Law)

Under the U.S. securities laws, as a foreign private issuer, we are exempt from certain rules that apply to domestic U.S. issuers with equity securities registered under the U.S. Securities Exchange Act of 1934, including the proxy solicitation rules and the rules requiring disclosure of share ownership by directors, officers and certain shareholders. We are also exempt from certain of the current Nasdaq corporate governance requirements. For more information on these exemptions, see Item 16G, “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. In addition, a substantial portion of our assets is located outside of the United States. As a result, it may be difficult for investors:

Nevertheless, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would be recognized and enforced in France provided that a French judge considers that this judgment meets the French legal requirement concerning the recognition and the enforcement of foreign judgments and is capable of being immediately enforced in the United States. A French court is therefore likely to grant the enforcement of a foreign judgment without a review of the merits of the underlying claim, only if (i) the judgment was rendered by a court having jurisdiction over the matter as the dispute is clearly connected to the jurisdiction of such court, the choice of the U.S. court was not fraudulent and the French courts did not have exclusive jurisdiction over the matter, (ii) the judgment does not contravene international public policy rules, as applied by French courts, whether such rules pertain to the merits or to the procedure of the case, including any defense rights, (iii) the judgment is not tainted with fraud and (iv) the judgment does not conflict with a French judgment  or a foreign judgment (or an arbitral award) which has become effective in France. In addition, French law guarantees full compensation for the harm suffered but is limited to the actual damages, so the victim does not suffer or benefit from the situation, it being specified that under French law, the principle of awarding punitive damages is not, per se, contrary to public order, provided the amount awarded is not disproportionate to the harm suffered and the defendant’s breach.

As a result, the enforcement, by U.S. investors, of any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities law against us or members of our Board of Directors, officers or certain experts named herein who are residents of France or countries other than the United States would be subject to the above conditions.

Finally, there may be doubt as to whether a French court would impose civil liability on us, the members of our Board of Directors, our officers or certain experts named herein in an original action predicated solely upon the U.S. federal securities laws brought in a court of competent jurisdiction in France against us or such members, officers or experts, respectively.

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

General

The following generally summarizes the material French and U.S. federal income tax consequences to U.S. holders (as defined below) of purchasing, owning and disposing of ADSs and shares (collectively the “Securities”). This discussion is intended only as a descriptive summary and does not purport to be a complete analysis or listing of all potential tax effects of the purchase, ownership or disposition of the Securities. All of the following is subject to change. Such changes could apply retroactively and could affect the consequences described below.

This summary does not constitute a legal opinion or tax advice. Holders are urged to consult their own tax advisers regarding the tax consequences of the purchase, ownership and disposition of Securities in light of their particular circumstances, including the effect of any U.S. federal, state, local or other national tax laws.

A set of tax rules is applicable to French assets that are held by or in foreign trusts. These rules provide inter alia for the inclusion of trust assets in the settlor’s net assets for purpose of applying the French real estate wealth tax, for the application of French gift and death duties to French assets held in trust, for a specific tax on capital on the French assets of foreign trusts not already subject to the French real estate wealth tax and for a number of French tax reporting and disclosure obligations. The following discussion does not address the French tax consequences applicable to Securities held in trusts. If Securities are held in trust, the grantor, trustee and beneficiary are urged to consult their own tax adviser regarding the specific tax consequences of acquiring, owning and disposing of Securities.

The description of the French and U.S. federal income tax consequences set forth below is based on the laws (including, for U.S. federal income tax purposes, the Internal Revenue Code of 1986, as amended (the “Code”), final, temporary and proposed U.S. Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof) in force as of the date of this annual report, 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 any subsequent protocols, including the protocol of January 13, 2009), and the tax regulations issued by the French tax authorities within the Bulletin Officiel des Finances Publiques-Impôts (the “Regulations”) in force as of the date of this report. U.S. holders are advised to consult their own tax advisers regarding their eligibility for Treaty benefits, especially with regard to the “Limitations on Benefits” provision, in light of their own particular circumstances.

No advance ruling has been obtained with respect to the tax consequences of the acquisition, ownership or disposition of the Securities from either the French or U.S. tax authorities. Thus, there can be no assurances that one or both of such authorities will not take a position concerning such tax consequences different from that set out herein or that such a position would not be sustained by a court.

For the purposes of this discussion, a U.S. holder is a beneficial owner of Securities that is (i) an individual who is a U.S. citizen or resident for U.S. federal income tax purposes, (ii) a U.S. domestic corporation or certain other entities created or organized in or

under the laws of the United States or any state thereof, including the District of Columbia, or (iii) otherwise subject to U.S. federal income taxation on a net income basis in respect of Securities. A non-U.S. holder is a person other than a U.S. holder.

If a partnership holds Securities, the tax treatment of a partner generally will depend upon 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 adviser regarding the specific tax consequences of acquiring, owning and disposing of Securities.

This discussion is intended only as a general summary and does not purport to be a complete analysis or listing of all potential tax effects of the acquisition, ownership or disposition of the Securities to any particular investor, and does not discuss tax considerations that arise from rules of general application or that are generally assumed to be known by investors. The discussion applies only to investors that hold the Securities as capital assets that have the U.S. dollar as their functional currency, that are entitled to Treaty benefits under the “Limitation on Benefits” provision contained in the Treaty, and whose ownership of the Securities is not effectively connected to a permanent establishment or a fixed base in France. Certain holders (including, but not limited to, U.S. expatriates, partnerships or other entities classified as partnerships for U.S. federal income tax purposes, banks, insurance companies, regulated investment companies, tax-exempt organizations, financial institutions, persons subject to the alternative minimum tax, persons who acquired the Securities pursuant to the exercise of employee stock options or otherwise as compensation, persons that own (directly, indirectly or by attribution) 5% or more of the Company’s voting stock or 5% or more of the Company’s outstanding share capital, dealers in securities or currencies, persons that elect to mark their securities to market for U.S. federal income tax purposes, and persons holding Securities as a position in a synthetic security, straddle or conversion transaction) may be subject to special rules not discussed below. Holders of Securities are advised to consult their own tax advisers with regard to the application of French tax law and U.S. federal tax law to their particular situations, as well as any tax consequences arising under the laws of any state, local or other foreign jurisdiction.

French Taxes

Estate and gift taxes and transfer taxes

In general, a transfer of Securities by gift or by reason of death of a U.S. holder that would otherwise be subject to French gift or inheritance tax, respectively, will not be subject to such French tax by reason 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 Estates, Inheritances and Gifts, dated November 24, 1978, unless the donor or the transferor is domiciled in France at the time of making the gift or at the time of his or her death, or the Securities were used in, or held for use in, the conduct of a business through a permanent establishment or a fixed base in France.

Pursuant to Article 235 ter ZD of the French General Tax Code, purchases of certain securities issued by a French company, including shares and ADSs, which are listed on a regulated market of the EU or an exchange market formally acknowledged by the AMF (in each case within the meaning of the French Monetary and Financial Code) are subject in France to a 0.3% tax on financial transactions, or the TFT, provided inter alia that the issuer’s market capitalization exceeds €1.0 billion as of December 1 of the year preceding the taxation year. A list of companies whose market capitalization exceeds €1.0 billion as of December 1 of the year preceding the taxation year within the meaning of Article 235 ter ZD of the French General Tax Code has been published by the French tax authorities in its official guidelines on December 21, 2022 (BOI-ANNX-000467-21/12/2022). The Company was not included in such list as its market capitalization did not exceed €1.0 billion as at December 1, 2022. 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 in 2023 are not subject to the TFT.

In the case where the TFT is not applicable, transfers of shares issued by a French company which are not listed on a regulated or organized market within the meaning of the French Monetary and Financial Code are subject to uncapped registration duties at the rate of 0.1% notwithstanding the existence of a written statement (acte). As shares of the Company are not listed, their transfer should be subject to uncapped registration duties at the rate of 0.1% notwithstanding the existence of a written agreement (acte). Although the official guidelines published by the French tax authorities are silent on this point, ADSs should remain outside of the scope of the aforementioned 0.1% registration duties.

Wealth Tax

The French wealth tax (impôt de solidarité sur la fortune) has been replaced with a French real estate wealth tax (impôt sur la fortune immobilière) with effect from January 1, 2018. French real estate wealth tax applies only to individuals and does not generally apply to the Securities if the holder is a U.S. resident, as defined pursuant to the provisions of the Treaty, provided that the individual does not own directly or indirectly a shareholding exceeding 10% of the financial rights and voting rights.

U.S. Taxes

Ownership of the securities

Deposits and withdrawals by a U.S. holder of shares in exchange for ADSs, will not be taxable events for U.S. federal income tax purposes. For U.S. tax purposes, holders of ADSs will be treated as owners of the shares represented by such ADSs. Accordingly, the discussion that follows regarding the U.S. federal income tax consequences of acquiring, owning and disposing of shares is equally applicable to ADSs.

Information reporting and backup withholding tax

Distributions made to holders and proceeds paid from the sale, exchange, redemption or disposal of Securities may be subject to information reporting to the Internal Revenue Service. Such payments may be subject to backup withholding taxes unless the holder (i) is a corporation or other exempt recipient or (ii) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary to establish that it is an exempt recipient. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s U.S. federal income tax liability. A holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service and furnishing any required information.

Foreign asset reporting

In addition, a U.S. holder that is an individual (and, to the extent provided in future regulations, an entity), may be subject to recently-enacted reporting obligations with respect to shares and ADSs if the aggregate value of these and certain other “specified foreign financial assets” exceeds $50,000. If required, this disclosure is made by filing Form 8938 with the U.S. Internal Revenue Service. Significant penalties can apply if holders are required to make this disclosure and fail to do so. In addition, a U.S. holder should consider the possible obligation to file online a FinCEN Form 114 - Foreign Bank and Financial Accounts Report as a result of holding shares or ADSs. Holders are encouraged to consult their U.S. tax advisors with respect to these and other reporting requirements that may apply to their acquisition of shares and ADSs.

State and local taxes

In addition to U.S. federal income tax, U.S. holders of Securities may be subject to U.S. state and local taxes with respect to such Securities. Holders of Securities are advised to consult their own tax advisers with regard to the application of U.S. state and local income tax law to their particular situation.

ADSs and Shares

French Taxes

Taxation of dividends

Under French law, dividends paid by a French corporation, such as the Company, to corporations which are not domiciled in France are generally subject to French withholding tax at a rate of 25% (12.8% for distributions made to 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 paragraph 2 of the French General Tax Code if its head office were located in France and which meet the criteria set forth in the Regulations BOI-RPPM-RCM-30-30-10-70-24/12/2019, n^o 130). Dividends paid by a French corporation, such as the Company, towards non-cooperative States or territories, as defined in Article 238-0 A of the French General Tax Code, will generally be subject to French withholding tax at a rate of 75%, irrespective of the tax residence of the beneficiary of the dividends if the dividends are received in such States or territories; however, eligible U.S. holders entitled to Treaty benefits under the “Limitation on Benefits” provision contained in the Treaty who are U.S. residents, as defined pursuant to the provisions of the Treaty and who receive dividends in non-cooperative States or territories, will not be subject to this 75% withholding tax rate.

Under the Treaty, the rate of French withholding tax on dividends paid to an eligible U.S. holder who is a U.S. resident as defined pursuant to the provisions of the Treaty and whose ownership of the shares or ADSs 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 but are U.S. residents, as defined pursuant to the provisions of the Treaty, the requirements for eligibility for Treaty benefits, including the reduced 5% or 15% withholding tax rates contained in the “Limitation on Benefits” provision of the Treaty, are subject to specific conditions, and certain technical changes were made to these requirements by the protocol of January 13, 2009. U.S. holders are advised to consult their own tax advisers regarding their eligibility for Treaty benefits in light of their own particular circumstances.

Dividends paid to an eligible U.S. holder may immediately be subject to the reduced rates of 5% or 15% provided that such holder establishes before the date of payment that it is a U.S. resident under the Treaty by completing and providing the depositary with a treaty form (Form 5000). Dividends paid to a U.S. holder that has not filed the Form 5000 before the dividend payment date will be subject to French withholding tax at the rate of 25% and then reduced at a later date to 5% or 15%, provided that such holder duly completes and provides the French tax authorities with the treaty forms Form 5000 and Form 5001 before December 31 of the second calendar year following the year during which the dividend is paid. Pension funds and certain other tax-exempt entities are subject to the same general filing requirements as other U.S. holders except that they may have to supply additional documentation evidencing their entitlement to these benefits.

The depositary agrees to use reasonable efforts to follow the procedures established, or that may be established, by the French tax authorities (i) to enable eligible U.S. holders to qualify for the reduced withholding tax rate provided by the Treaty, if available at the time the dividends are paid, or (ii) to recover any excess French withholding taxes initially withheld or deducted with respect to dividends and other distributions to which such U.S. holders may be eligible from the French tax authorities and (iii) to recover any other available tax credits. In particular, associated forms (including Form 5000 and Form 5001, together with their instructions), will be made available by the depositary to all U.S. holders registered with the depositary, and are also generally available from the U.S. Internal Revenue Service.

The withholding tax refund, if any, ordinarily is paid within 12 months of filing the applicable French Treasury Form, but not before January 15 of the year following the calendar year in which the related dividend is paid.

Tax on sale or other disposition

In general, under the Treaty, a U.S. holder who is a U.S. resident for purposes of the Treaty will not be subject to French tax on any capital gain from the redemption (other than redemption proceeds characterized as dividends under French domestic law), sale or exchange of shares or ADSs unless the shares or the ADSs form part of the business property of a permanent establishment or fixed base that the U.S. holder has in France. Special rules apply to holders who are residents of more than one country.

U.S. Taxes

Taxation of dividends

For U.S. federal income tax purposes, the gross amount of any distribution paid to U.S. holders (that is, the net distribution received plus any tax withheld therefrom) will be treated as ordinary dividend income to the extent paid or deemed paid out of the current or accumulated earnings and profits of the Company (as determined under U.S. federal income tax principles). Dividends paid by the Company will not be eligible for the dividends-received deduction generally allowed to corporate U.S. holders.

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual U.S. holder with respect to the ADSs or shares is currently subject to taxation at a maximum rate of 20% if the dividends are “qualified dividends”. Dividends paid on the shares or ADSs will be treated as qualified dividends if (i) the issuer is eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service has approved for the purposes of the qualified dividend rules and (ii) the issuer 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 (“PFIC”). The Treaty has been approved for the purposes of the qualified dividend rules. Based on the Company’s financial statements and relevant market and shareholder data, the Company believes it was not a PFIC for U.S. federal income tax purposes with respect to its 2022 taxable year. In addition, based on its current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data, the Company does not anticipate that it will become a PFIC for its 2023 taxable year. See “— Passive Foreign Investment Company Rules”, below. Holders of shares and ADSs should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of their own particular circumstances.

Dividend income received by a U.S. Holder with respect to ADSs or shares generally will be treated as foreign source income for foreign tax credit purposes. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. Distributions out of earnings and profits with respect to the ADSs or shares generally will be treated as “passive category”

income (or, in the case of certain U.S. holders, “general category” income). Subject to certain limitations, French income tax withheld in connection with any distribution with respect to the ADSs or shares may be claimed as a credit against the U.S. federal income tax liability of a U.S. holder if such U.S. holder elects for that year to credit all foreign income taxes. Alternatively, such French withholding tax may be taken as a deduction against taxable income. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in Securities and may not be allowed in respect of certain arrangements in which a U.S. holder’s expected economic profit is insubstantial. The U.S. federal income tax rules governing the availability and computation of foreign tax credits are complex. U.S. holders should consult their own tax advisers concerning the implications of these rules in light of their particular circumstances.

To the extent that an amount received by a U.S. holder exceeds the allocable share of the Company’s current and accumulated earnings and profits, such excess will be applied first to reduce such U.S. holder’s tax basis in its shares or ADSs and then, to the extent it exceeds the U.S. holder’s tax basis, it will constitute capital gain from a deemed sale or exchange of such shares or ADSs (see “—Tax on Sale or Other Disposition”, below).

The amount of any distribution paid in euros will be equal to the U.S. dollar value of the euro amount distributed, calculated by reference to the exchange rate in effect on the date the dividend is received by a U.S. holder of shares (or by the depositary, in the case of ADSs) regardless of whether the payment is in fact converted into U.S. dollars on such date. U.S. holders should consult their own tax advisers regarding the treatment of foreign currency gain or loss, if any, on any euros received by a U.S. holder that are converted into U.S. dollars on a date subsequent to receipt.

Distributions to holders of additional shares (or ADSs) with respect to their shares (or ADSs) that are made as part of a pro rata distribution to all shareholders generally will not be subject to U.S. federal income tax. However, if a U.S. holder has the option to receive a distribution in shares (or ADSs) or to receive cash in lieu of such shares (or ADSs), the distribution of shares (or ADSs) will be taxable as if the holder had received an amount equal to the fair market value of the distributed shares (or ADSs), and such holder’s tax basis in the distributed shares (or ADSs) will be equal to such amount.

Tax on sale or other disposition

In general, for U.S. federal income tax purposes, a U.S. holder that sells, exchanges or otherwise disposes of its shares or ADSs will recognize capital gain or loss in an amount equal to the U.S. dollar value of the difference between the amount realized for the shares or ADSs and the U.S. holder’s adjusted tax basis (determined in U.S. dollars and under U.S. federal income tax rules) in the shares or ADSs. Such gain or loss generally will be U.S.-source gain or loss, and will be treated as long-term capital gain or loss if the U.S. holder’s holding period in the shares or ADSs exceeds one year at the time of disposition. If the U.S. holder is an individual, any capital gain generally will be subject to U.S. federal income tax at preferential rates (currently a maximum of 20%) if specified minimum holding periods are met. The deductibility of capital losses is subject to significant limitations.

Medicare tax

Certain U.S. holders who are individuals, estates or trusts are required to pay a Medicare tax of 3.8% (in addition to taxes they would otherwise be subject to) on their “net investment income” which would include, among other things, dividends and capital gains from the shares and ADSs.

Passive Foreign Investment Company Rules

Unfavorable U.S. tax rules apply to companies that are considered PFICs. The Company will be classified as a PFIC in a particular taxable year if either (a) 75% or more of its gross income is treated as passive income for purposes of the PFIC rules; or (b) the average percentage of the value of its assets that produce or are held for the production of passive income is at least 50%.

As explained above, based on the Company’s financial statements and relevant market and shareholder data, the Company believes it was not a PFIC with respect to its 2022 taxable year. In addition, based on its current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data, the Company does not anticipate that it will become a PFIC for its 2023 taxable year. However, as discussed in our annual report on Form 20-Fs filed by the Company with respect to certain prior years the Company believes that it was a PFIC in the past. Moreover, because the PFIC determination is made annually and is dependent upon a number of factors, some of which are beyond the Company’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 hold Securities at any time during years when the Company is a PFIC and do 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.

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.

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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 2022 and as of December 31, 2022, 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 2022, 60% of our total costs of sales and operating expenses were denominated in euro. During the same period, 41% 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, 2022 relative to the U.S. dollar and the Japanese yen would have resulted in an increase in income before taxes of approximately €361,000 for the year ended December 31, 2022, compared to an increase of approximately €42,000 for the year ended December 31, 2021. A uniform 10% decrease in the value of the euro as of December 31, 2022 relative to the U.S. dollar and the Japanese yen would have resulted in a decrease in income before taxes of approximately €397,000 for the year ended December 31, 2022 as compared to a decrease of approximately €47,000 for the year ended December 31, 2021. This calculation assumes that the U.S. dollar and Japanese yen exchange rates would have changed in the same direction relative to the euro. In addition to the direct effect of changes in exchange rates quantified above, changes in exchange rates also affect the volume of sales.

We regularly assess the exposure of our receivables to fluctuations in the exchange rates of the principal foreign currencies in which our sales are denominated (in particular, the U.S. dollar and the Japanese yen) and, from time to time, hedge such exposure by entering into forward sale contracts for the amounts denominated in such currencies that we expect to receive from our local subsidiaries. As of December 31, 2022, we had no outstanding hedging instruments.

Financial Instruments and Indebtedness in Foreign Currencies

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. €1.0 million, €1.2 million and €1.1 million of our outstanding indebtedness (excluding lease obligations) at December 31, 2022, 2021, and 2020, respectively, were denominated in Japanese yen. €0.0 million, €0.0 million and €0.2 million of our outstanding indebtedness (excluding lease obligations) at December 31, 2022, 2021 and 2020, respectively, were denominated in U.S. dollars. In addition, we had €28.8 million, €28.5 million and €6.0 million of cash denominated in U.S. dollars at December 31, 2022,  2021 and 2020, respectively, and €3.9 million, €3.6 million and €2.7 million of cash denominated in Japanese yen at December 31, 2022, 2021 and 2020, respectively.

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Equity Price Risk

Not applicable.

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Item 12. Description of Securities Other than Equity Securities

American Depositary Shares

For general information on our ADSs, please refer to Exhibit 2.3 “Description of securities registered under Section 12 of the Exchange Act” of this annual report.

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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.