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As filed with the Securities and Exchange Commission on March 28, 2024

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 FORM 20-F

  REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934,

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of the event requiring this shell company report_______________________

For the transition period from ________ to _________

000-29374

(Commission file number)

EDAP TMS S.A.

(Exact name of registrant as specified in its charter)

France

(Jurisdiction of incorporation or organization)

Parc d’Activites la Poudrette-Lamartine

4/6, rue du Dauphiné

69120 Vaulx-en-Velin, France

(Address of principal executive offices)

 Blandine Confort

Head of Legal Affairs & Investor Relations

 Parc d’Activites la Poudrette-Lamartine

4/6, rue du Dauphiné,

69120 Vaulx-en-Velin, France

Tel. +33 4 72 15 31 50, E-mail : bconfort@edap-tms.com

(Name, Telephone, E-mail and Address of Company Contact Person)

 Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol

Name of each exchange on which registered

American Depositary Shares, each representing

one Ordinary Share

(Ordinary Shares, nominal value €0.13 per share)

EDAP

Nasdaq Global Market

 Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 Outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2023: 37,103,779 Ordinary Shares

 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes __         No_X

 If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes __        No _X

 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes _X          No __

 Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter ) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes _X          No __

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer __        Accelerated filer _X         Non-accelerated filer __        Emerging growth company __

 If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. __

 † The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. _X__

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. __       

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). __

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP _X         International Financial Reporting Standards as issued by the International Accounting Standards Board __        Other __

 If "Other" has been checked in response to the previous question indicate by check mark which financial statement item, the registrant has elected to follow. Item 17 __       Item 18 __

 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes __       No _X

TABLE OF CONTENTS

Page

Presentation of Financial and Other Information

5

Cautionary Statement on Forward-looking Information

5

PART I

Item 1.

Identity of Directors, Senior Management and Advisors

6

Item 2.

Offer Statistics and Expected Timetable

6

Item 3.

Key Information

6

Item 4.

Information on the Company

25

Item 4A.

Unresolved Staff Comments

40

Item 5.

Operating and Financial Review and Prospects

40

Item 6.

Directors, Senior Management and Employees

47

Item 7.

Major Shareholders and Related Party Transactions

56

Item 8.

Financial Information

56

Item 9.

The Offer and Listing

57

Item 10.

Additional Information

57

Item 11.

Quantitative and Qualitative Disclosures about Market Risk

67

Item 12.

Description of Securities Other than Equity Securities

67

PART II

Item 13.

Defaults, Dividend Arrearages and Delinquencies

69

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

69

Item 15.

Controls and Procedures

69

Item 16A.

Audit Committee Financial Expert.

71

Item 16B.

Code of Ethics

71

Item 16C.

Principal Account Fees and Services

72

Item 16D.

Exemptions from the Listing Standards for Audit Committees

72

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

72

Item 16F.

Change in Registrant’s Certifying Accountant

73

Item 16G.

Corporate Governance

73

Item 16H.

Mine Safety Disclosure

74

Item 16I.

Disclosure Regarding Foreign Jurisdictions That Prevent Inspections

74

Item 16J.

Insider Trading Policies

74

Item 16K.

Cybersecurity

74

PART III

Item 17.

Financial Statements

75

Item 18.

Financial Statements

75

Item 19.

Exhibits

75

3

[THIS PAGE INTENTIONALLY LEFT BLANK]

4

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.

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,” “aim”, “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:

-risks associated with the current worldwide inflationary environment, uncertain worldwide economic, political and financial environment, geopolitical instability, climate change impact, pandemics and each of their related impacts on our business operations;
-the success of our High Intensity Focused Ultrasound (“HIFU”) technology;
-the uncertainty of market acceptance for our HIFU devices;
-the clinical and regulatory status of our devices in various geographical territories;
-the uncertainty in the regulatory agencies review and approval process for any of our devices and changes in their recommendations and guidance;
-the impact of government regulation, particularly relating to public healthcare systems and the commercial distribution of medical devices;
-effects of intense competition in the markets in which we operate;
-the uncertainty of reimbursement status of procedures performed with our products and their level of reimbursement;
-the market potential for our HIFU devices;
-dependence on our strategic suppliers and distribution partners;
-difficulties to attract and recruit high-level experts in software, design, and development of high technology devices such as our HIFU products
-any event or other occurrence that would interrupt operations at our primary production facility;
-reliance on patents, licenses and key proprietary technologies;
-cybersecurity risks and incidents,
-product liability risk;
-risk of exchange rate fluctuations, particularly between the euro and the U.S. dollar and between the euro and the Japanese yen;
-fluctuations in results of operations due to the cyclical nature of demand for medical devices;
-risks relating to ownership of our securities; and
-risks relating to securities litigations involving class actions.

5

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.

PART I

Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

Risk Factors

In addition to the other information contained in this annual report, the following risk factors should be carefully considered in evaluating us and our business. These statements are intended to highlight the material risk factors that may cause actual financial, business, research or operating results to differ materially from expectations disclosed in this annual report. See also factors disclosed under “Cautionary statement on forward-looking information.”

Summary of Key Risks

Our business and our industry are subject to numerous risks described in the following risk factorsand elsewhere in this annual report, Investors should carefully consider these risks before making a decision to invest in our securities.

The main risk factors relating to the Company and its business operations are grouped into the seven categories listed below. The most important risk factors have been identified and assessed considering the likelihood of occurrence and the possible negative effect on the Company, in each case also taking into account corrective actions and risk management measures that have been put in place. The occurrence of new events, whether internal or external to the Company, is therefore likely to modify this ranking in the future.

Risks Relating to our Business, Financial Position and Capital Needs

The worldwide inflationary environment could have a material adverse effect on our business, results of operations and financial condition.
Our future revenue and income growth depends, among other things, on implementing our business strategy, which largely depends on the success of our HIFU technology, and our capacity to scale our operations to manage and sustain our future growth.    
Our cash flow is highly dependent on cyclical demand for our products.
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 financing.

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Risks Related to our Product Candidates and the Industry in which we Operate

If we do not successfully optimize and operate our sales, marketing, and potential future distribution channels or we do not effectively expand and update our infrastructure, our operating results may be negatively impacted.
New device developments and introductions may adversely impact our financial results.
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.
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.
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.
HIFU technology may not be adopted by the medical community and may never become a standard of care and we may be unable to generate sufficient revenue to sustain our business.
Competition in the markets in which we operate is intense and is expected to increase in the future, and there is a substantial risk our products or service offerings could become obsolete or uncompetitive.

Risks Related to our Organization and Operations

We face a significant risk of exposure to product liability claims if the use of our products results in personal injury or death and our insurance coverage may be inadequate.
We depend on a single site to manufacture our products, and any interruption of operations could have a material adverse effect on our business.
For certain components or services, we depend on a small number of suppliers 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 utilize distributors for our sales abroad, which subjects us to a number of risks that could harm our business.
We are a relatively small company with a limited number of products and staff. Sales fluctuations and employee turnover may adversely affect our business.
The loss of key members of our executive management team could adversely affect our business.
We may have difficulties in attracting and recruiting highly qualified experts in software, design and development of high technology devices.
We have identified a material weakness in our internal control over financial reporting with respect to our U.S. subsidiary and if we fail to remediate this material weakness 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 or timely. In addition, the trading price of our securities may be adversely affected by a related negative market reaction.  
We are exposed to risks related to cybersecurity threats and incidents.
The expansion of social media platforms and new technologies present risks and challenges for our business and reputation.

Risks Related to Intellectual Property Rights

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 and may prevent or delay our development and commercialization efforts.
The U.S. laws relating to the patentability of certain inventions in the life sciences and medical technology industry is uncertain and rapidly changing, which may adversely impact our existing patents or our ability to obtain patents in the future.
We may not be able to protect or enforce our intellectual property rights throughout the world.
Our use of “open source” software could negatively affect our ability to sell our products and subject us to possible litigation.

Risks Relating to our Status as a Foreign Private Issuer or a French Company

Our French and international operations expose us to additional costs, legal and regulatory risks, which could have a material adverse effect on our business, financial condition and results of operations.
We sell our products in many parts of the world and, as a result, our business is affected by fluctuations in currency exchange rates.
Our by-laws and French corporate law contain provisions that may delay or discourage a takeover attempt.
The rights of shareholders in companies subject to French corporate law differ in material respects from the rights of shareholders of corporations incorporated in the United States.
French law may limit the amount of dividends we are able to distribute, and we do not currently intend to pay dividends.

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We may lose our foreign private issuer status in the future, which could result in significant additional cost and expenses.  
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.

Risks Related to Ownership of our Ordinary Shares and the ADSs

Our securities may be affected by volume fluctuations, and may fluctuate significantly in price, causing investors to lose some or all of their investment.
Holders of ADSs have fewer rights than shareholders and must act through the Depositary to exercise those rights.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our ADS price and trading volume could decline.
We are subject to different corporate disclosure standards that may limit the information available to holders of our ADSs.
Preferential subscription rights may not be available for U.S. persons.

General Risk Factors

Our results of operations and financial condition could be adversely affected by the adverse economic changes, geopolitical developments, financial changes, and the impact of climate changes.
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.
We may acquire other companies or technologies, which could fail to result in a commercial product or net sales, divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.
We may in the future be the target of securities class action or other litigation, which could be costly and time consuming to defend.

Risks Relating to Our Business, Financial Position and Capital Needs

The 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 the conflict in Israel, 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 keep up with the rate of inflation. Such inflationary pressures may materially impact our business. We may not be able to adjust pricing, reduce our costs or implement counter measures quickly enough to offset cost increases. 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 this may have an adverse impact on our business, financial condition, results of operations, or cash flows.

Our future revenue and income growth depends, among other things, on implementing our business strategy, which largely depends on the success of our HIFU technology, and our capacity to scale our operations to manage and sustain our future growth.    

Our business strategy depends on the success of our High Intensity Focused Ultrasound (“HIFU”) technology for future revenue growth and net profit generation. We are dependent on the successful development and commercialization of other product lines, such as devices based on HIFU but not limited to the Focal One System, to generate significant additional revenues and to achieve and sustain profitability in the future. To implement our business strategy, we need to (among other things) develop new applications for our HIFU technology, to improve our products and service offerings, and to educate physicians and patients about the clinical and cost benefits of our products, all of which we believe could increase acceptance of our products. Our focus is to primarily expand our HIFU business in the U.S. as HIFU is FDA approved for ablation of prostate tissue and reimbursed at an acceptable level. 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 contribute to our global revenue growth. While we anticipate potential renewals of distribution agreements with third parties, we have no assurance that our existing agreements will be renewed and any termination of distribution commitments from such medical third parties could have a material

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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.

In addition, there can be no assurance that we will be able to manage our future growth efficiently or profitably and actual revenue, operating margins and net income, or revenue, margin and net income growth, may be less than expected. If we are unable to scale our production capabilities efficiently or maintain pricing, we may fail to achieve expected operating margins, which would have a material and adverse effect on our operating results. Growth may also stress our ability to adequately manage our operations, quality of products, safety, and regulatory compliance. Failure to implement necessary procedures, equipment, or processes or to hire the necessary personnel in a timely and effective manner could result in higher costs or an inability to meet market demand and could have a material adverse impact on our business, results of operations, financial condition, and prospects. Additionally, our future growth will increase the demands placed on our third-party suppliers, and there is no guarantee that our suppliers will be able to support our anticipated growth. If growth significantly changes, it can negatively impact our cash reserves, and we may be required to obtain additional financing, which may increase indebtedness or result in dilution to shareholders. Further, there can be no assurance that we would be able to obtain additional financing on acceptable terms, if at all.

Although we achieved operational profitability in 2019 and 2020, we incurred operating losses in 2021, 2022 and 2023. We expect that our marketing, selling and research and development expenses will increase as we attempt to further develop and commercialize our 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 achieve profitability in the future. See Item 5, “Operating and Financial Review and Prospects.

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 fiscal year due to cyclical demand for medical devices, in particular with hospital budgets being mostly spent at year-end, 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 cash flow is affected by increased expenses in clinical trials, sales efforts and other market costs related to implementing our expanded U.S. and global strategy which require significant additional resources. However, there is no assurance that this will result in an increase in the demand for our products and services.

Our 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 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 to purchase and often requires the approval of multiple levels of management or Boards of hospitals, purchasing groups and, in some cases, government authorities. In addition, some sales are subject to a public tender offer process with  many approvals which could be lengthy to obtain, and, as a result, hospitals may delay their purchase orders according to their timelines and budget allocations. It is difficult to predict the exact timing for closing product sales directly linked to the length of capital expenditure cycles.

In addition, our customers may rely on the credit market to secure dedicated lease financing to purchase or lease our equipment. Due to the limited availability of lending, we may be unable to access sufficient lease financing to support these transactions. 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. In addition, the current macro-economic environment with elevated or increasing interest rates as compared to prior years, may make lease financing less attractive and more difficult to implement for our customers.

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Risks Related to our Product Candidates and the Industry in which we Operate

If we do not successfully optimize and operate our sales, marketing, and potential future distribution channels or we do not effectively expand and update our infrastructure, our operating results may be negatively impacted.

If we do not adequately predict market demand or otherwise optimize and operate our sales, marketing and potential future distribution channels successfully, it could result in excess or insufficient inventory or fulfillment capacity, increased costs, or immediate shortages in product or component supply, or harm our business in other ways. In addition, if we do not maintain adequate infrastructure to enable us to, among other things, manage our purchasing and inventory levels, it could negatively impact our cash flow and operating results.

Moreover, our future success will depend largely on our ability to continue to hire, train, retain and motivate skilled sales representatives or distributors with significant technical and clinical knowledge about our products. New hires require training, supervision and take time to achieve full productivity. If we fail to train and supervise new hires adequately, or if we experience a high turnover in our sales force or trained professionals in the future, we cannot be certain that we will maintain or increase our sales. If we are unable to expand our sales and marketing capabilities, we may not be able to effectively commercialize our HIFU devices or our other products and service offerings in development, which would adversely affect our business, results of operations, and financial condition.

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 or additional 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 approvals 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, European Union 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 U.S. Food and Drug Administration (“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. 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. Such standards may change or evolve, requiring that we change or evolve our manufacturing operations. We may not, always, 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 corrective or remedial actions,

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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.

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 to 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 certain 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 has been put in place in preparation of MDR enforcement within the expected timelines. We are implementing operational actions to ensure our devices may be distributed on the European and international market and conform to MDR requirements, where applicable. However, the uncertainty of continuing healthcare changes, regulations, and our ability to maintain MDR compliance of our products may negatively affect our business.

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.

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 in each intended use. 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. We could suffer significant setbacks in later-stage clinical trials, even after promising results in earlier trials. Furthermore, data obtained from a trial might be insufficient to demonstrate that our products are safe, and effective. The commencement, continuation or completion of any of our clinical trials may be delayed or halted, or inadequate to support approval of an application to regulatory authorities for numerous reasons including, but not limited to:

·that regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold, discussions with regulatory authorities to improve our clinical protocols may prove difficult and lengthy; see Item 4, “Information on the Company—HIFU Division Clinical and Regulatory Status;”

·slower than expected rates of patient recruitment and enrollment;

·inability to adequately monitor patients during or after treatment;

·failure of patients to complete the clinical trial;

·prevalence and severity of adverse events and other unforeseen safety issues;

·third-party organizations not performing data collection and analysis in a timely and accurate manner;

·governmental and regulatory delays or changes in regulatory requirements, policies or guidelines;

·that regulatory authorities conclude that our trial design is inadequate to demonstrate safety and efficacy.

The data we collect from our preclinical studies, current clinical trials,  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/or efficacy of our products in our clinical trials, we will be unable to obtain regulatory approval to market our products.

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.

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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, which established reimbursement rates that recognize both facility or hospital payment and physician professional service payments for HIFU procedures. CMS final rule included a reimbursement level close to surgery, effective on January 1, 2023. The 2024 final rule maintained APC 6 payment level. 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 condition 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.

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 and we may be unable to generate sufficient revenue to sustain our business.

Our success depends on the market’s confidence that our HIFU devices can provide reliable, high-quality results or treatments and we believe that physicians are likely to be particularly sensitive to any test defects and errors in our devices. 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. The failure of our current HIFU devices to perform as expected would significantly impair our reputation. 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.

Competition in the markets in which we operate is intense and is expected to increase in the future, and there is a substantial risk our products or service offerings could become obsolete or uncompetitive.

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, the Focal One system competes with all current treatments for localized tumors, including surgery, external beam radiotherapy, brachytherapy, irreversible electrocorporation

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and cryotherapy. See Item 4, “Information on the Company—HIFU Division— HIFU Competition.” In our ESWL division, we are also facing competition from lower priced laser systems. 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.

Risks Related to our Organization and Operations

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

Our products are designed to be used safely 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.

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, near Lyon, France. In the event of a significant interruption in the operations of our sole facility for any reason, such as fire, cyber-attack, supply disruption on a critical component, weather conditions,  or other natural disaster or pandemic diseases such as 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 small number of suppliers 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 most of the components used in our products from a number of suppliers but rely on a small number of suppliers for some key components. In addition, we rely on a small number of suppliers for certain services. If the supply of these components or services were interrupted for any reason, including geopolitical tensions or instability, global supply chain failures, weather conditions, large scale cyber-attack or infrastructure disruption, 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, 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 for any reason, including higher energy, raw material or component prices, therefore causing additional charges for us and impacting our margins. We renegotiated a supply agreement concerning a key component for our HIFU devices as prices increased substantially following a strategic shift in our supplier’s marketing strategy. Such a substantial price increase will negatively impact our margins. We expect to continue to depend upon our suppliers for the foreseeable future, while we explore  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.

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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 cases. Moreover, our distributors must be in compliance with anti-corruption laws and applicable sanctions, such as the U.S. Foreign Corrupt Practices Act (“FCPA”), 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.

We are a relatively small company with a limited number of products and staff. Sales fluctuations and employee turnover may adversely affect our business.

We are a relatively small company. Consequently, compared to larger companies, sales fluctuations could have a greater impact on our revenue and profitability on a quarter-to-quarter and year-to-year basis and delays in customer orders could cause our operating results to vary significantly from quarter-to-quarter and year-to-year. In addition, as a small company we have limited staff and are heavily reliant on certain key personnel to operate our business. If a key employee were to leave our company it could have a material impact on our business and the results of operations as we might not have sufficient depth in our staffing to fill the role that was previously being performed. A delay in filling the vacated position could put a strain on existing personnel or result in a failure to satisfy our contractual obligations or to effectively implement our internal controls, and materially harm our business. 

The loss of key members of our executive management team could adversely affect our business.

Our success in implementing our business strategy depends largely on the skills, experience and performance of key members of our executive management team and others in key management positions. The collective efforts of each of these people, and others collaborating with them as a team, are critical to us. As a result of the difficulty in locating qualified personnel and new management, the loss or incapacity of existing members of our executive management team could adversely affect our operations. If we were to lose one or more of these key employees, we could experience difficulties in finding qualified successors, competing effectively, developing our technologies and implementing our business strategy.

In addition, we rely on collaborators, consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our collaborators, consultants and advisors are generally employed by employers other than us and may have commitments, or conflict of interest, or be subject to other agreements with other entities that may limit their availability to us.

We may have difficulties in attracting and recruiting highly qualified experts in software, design and development of high technology devices.

Our devices require highly qualified individuals with a 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.

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We have identified a material weakness in our internal control over financial reporting with respect to our U.S. subsidiary and if we fail to remediate this material weakness 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 or timely. In addition, the trading price of our securities may be adversely affected.

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 one material weakness with respect to internal controls in our U.S. subsidiary, Edap Technomed Inc: an ineffective design and implementation of the subsidiary’s control over the recording of third-party vendor invoices. This was due to insufficient resources in the finance department of the subsidiary and IT environment limitations. Our management has concluded that, as a result, our internal control over financial reporting was not effective as of December 31, 2023. Nevertheless, we have concluded that this material weakness did not result in a material misstatement of the consolidated financial statements for the year ended December 31, 2023, or require a restatement of consolidated financial statements with respect to any prior period previously reported by the Company.

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

Furthermore, the ongoing requirements of the Sarbanes-Oxley Act may place a strain on our systems and resources. Our management is required to evaluate the effectiveness of our internal control over financial reporting as of each year-end, and we are required to disclose management’s assessment of the effectiveness of our internal control over financial reporting, including any material weakness in our internal control over financial reporting.

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

In an effort to remediate the material weakness that was identified as of December 31, 2023, and to enhance our overall control environment, we hired new resources in 2023 and plan to hire additional resources in 2024. We are also working at deploying another IT system in our U.S. subsidiary and already hired an IT VP Manager to supervise such deployment. We believe this will allow us to remediate this material weakness in the short term. See Item 15, “Controls and Procedures.”

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, and 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 securities to decrease substantially. Inferior controls and procedures could cause investors to lose confidence in our reported financial information, which may give rise to securities claims and have a negative effect on the value of our securities. 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.

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

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external cyber-attack threat continues to grow in part due to a perceived increased vulnerability associated with partly remote working conditions. While we have protocols in place to protect against such threats , we may fail to identify all threats like 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.

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.

Risks Related to Intellectual Property Rights

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 and may prevent or delay our development and commercialization efforts.

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. We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents, trade secrets or other intellectual property as an inventor or co-inventor. 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 and existing products 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.

If third parties, including our competitors, believe that our products or technologies infringe, misappropriate or otherwise violate their intellectual property rights, such third parties may seek to enforce against us their intellectual property rights, including patent rights, by filing against us an intellectual property-related lawsuit, including a patent infringement lawsuit. Even if we believe third-party intellectual property claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability, or priority. If any third parties were to assert these or any other patents against us and we are unable to successfully defend against any such assertions, we may be required, including by court order, to cease the development and commercialization of the infringing products or technology and we may be required to redesign such products and technologies so they

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do not infringe such patents, which may not be possible or may require substantial monetary expenditures and time. We could also be required to pay damages, which could be significant, including treble damages and attorneys’ fees if we are found to have willfully infringed such patents. We could also be required to obtain a license to such patents to continue the development and commercialization of the infringing product or technology. However, such a license may not be available on commercially reasonable terms or at all, including because certain of these patents may be held by or exclusively licensed to our competitors. Even if such a license were available, it may require substantial payments or cross-licenses under our intellectual property rights, and it may only be available on a nonexclusive basis, in which case third parties, including our competitors, could use the same licensed intellectual property to compete with us. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operation and prospects.

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. 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.

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a utility patent is generally 20 years from its earliest U.S. non-provisional filing date. While extensions may be available, the life of a patent, and the protection it affords, is limited, and 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.

As is common in the life sciences and medical industry, we engage the services of consultants and independent contractors to assist us in the development of our products. We 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.

U.S. laws relating to the patentability of certain inventions in the life sciences and medical technology industry are uncertain and rapidly changing, which may adversely impact our existing patents or our ability to obtain patents in the future.

Changes in either the patent laws or interpretation of the patent laws in the United States or in other jurisdictions could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. For instance, under the Leahy-Smith America Invents Act (the “America Invents Act”), enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application is entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. These changes include allowing third-party submission of prior art to the United States Patent and Trademark Office (“USPTO”) during patent prosecution and additional procedures to challenge the validity of a patent through USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings.

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Various courts, including the U.S. Supreme Court, have rendered decisions that impact the scope of patentability of certain inventions or discoveries relating to life sciences and medical technology. Specifically, these decisions stand for the proposition that patent claims that recite laws of nature, natural phenomena, and abstract ideas are not themselves patentable unless those patent claims have sufficient additional features that provide practical assurance that the processes are genuine inventive applications of those laws, phenomena, and abstract ideas. What constitutes a “sufficient” additional feature is somewhat uncertain. Furthermore, in view of these decisions, since December 2014, the USPTO has published and continues to publish revised guidelines for patent examiners to apply when examining process claims for patent eligibility.

In addition, U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to some degree of uncertainty with regard to the Company’s ability to obtain patents in the future, this combination of events has created a degree of uncertainty with respect to the value of patents, once obtained. Depending on relevant laws enacted by the U.S. Congress, and decisions by the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that may have a material adverse effect on our ability to obtain new patents and to defend and enforce our existing patents and patents that we might obtain in the future.

Our patent portfolio may be negatively impacted by current uncertainties in the state of the law, new court rulings or changes in guidance or procedures issued by the USPTO or other similar patent offices around the world. From time to time, the U.S. Supreme Court, other federal courts, the U.S. Congress or the USPTO may change the standards of patentability, scope and validity of patents within the life sciences and medical technology and any such changes, or any similar adverse changes in the patent laws of other jurisdictions, could have a negative impact on our business, financial condition, prospects and results of operations.

We may not be able to protect or enforce our intellectual property rights throughout the world. 

Filing, prosecuting and defending patents and trademarks on all of our current or our planned products throughout the world would be prohibitively expensive to us. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as in the U.S. or France. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to the healthcare sector, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our patents or other intellectual property. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

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.

Risks Related to our Status as a Foreign Private Issuer or a French Company

Our French and international operations expose us to additional costs, legal and regulatory risks, which could have a material adverse effect on our business, financial condition and results of operations.

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 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

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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.  EDAP employees can raise any issue by reporting on our hotline at alerteprofessionnelle@edap-tms.com. 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 our consolidated revenues for the preceding fiscal year, whichever is higher. The GDPR is also supplemented by the provisions of the French data protection act (Law No. 78-17 of  January 6, 1978), in particular in respect of the processing of personal data in the field of healthcare.  

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 FactorsOur results of operations and financial condition could be adversely affected by the adverse economic, geopolitical and financial environment, and the impact of climate change.” 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 may make 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 2023, 60% of our total costs of sales and operating expenses were denominated in euro, while 55% of our revenue was 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

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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, 2023, 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 by-laws and French corporate law contain provisions that may delay or discourage a takeover attempt.

Provisions contained in our bylaws and French corporate law could make it more difficult for a third party to acquire our company, even if doing so might be beneficial to its shareholders. In addition, provisions of its bylaws impose various procedural and other requirements, which could make it more difficult for shareholders to affect certain corporate actions. These provisions include the following:

under French law, a non-resident of France, as well as any French entity controlled by non-residents of France, may have to file a declaration for statistical purposes with the Bank of France (Banque de France) within 20 working days following the date of certain direct foreign investments in us, including any purchase of our ADSs. Such filings are required in connection with investments exceeding €15,000,000 that lead to the acquisition of at least 10% of our share capital or voting rights or cross such 10% threshold;
under French law, certain investments in a French company relating to certain strategic industries by individuals or entities not residents in a Member State of the EU are subject to prior authorization of the Ministry of Economy;
a merger (i.e., in a French law context, a share for share exchange following which our company would be dissolved into the acquiring entity and our shareholders would become shareholders of the acquiring entity) of our company into a company incorporated in the European Union would require the approval of the Company's Board of Directors, as well as a two-thirds majority of the votes held by the shareholders present, represented by proxy or voting by mail at the relevant meeting;
a merger of our company into a company incorporated outside of the European Union would require 100% of our shareholders to approve it;
under French law, a cash merger is treated as a share purchase and would require the consent of each participating shareholder;
our shareholders may in the future grant our Board of Directors broad authorizations to increase our share capital or to issue additional ordinary shares or other securities (for example, warrants) to our shareholders, the public or qualified investors, including as a possible defense following the launching of a tender offer for our ordinary shares;
our shareholders have preferential subscription rights proportional to their shareholding in our company on the issuance by us of any additional shares or securities giving the right, immediately or in the future, to new shares for cash or a set-off of cash debts, which rights may only be waived by the extraordinary general meeting (by a two-thirds majority vote) of our shareholders or on an individual basis by each shareholder;
our Board of Directors can only be convened by its chair or, when no Board meeting has been held for more than two consecutive months, by directors representing at least one-third of the total number of directors;
our Board of Directors has the right to appoint members to fill a vacancy created by the resignation or death of a member of the Board for the remaining duration of such member’s term of office, and subject to the approval by the shareholders of such appointment at the next shareholders’ meeting, which prevents shareholders from having the sole right to fill vacancies on our Board of Directors;
approval of at least a majority of the votes held by shareholders present, represented by a proxy, or voting by mail at the relevant ordinary shareholders’ general meeting is required to remove members of the Board of Directors with or without cause;
pursuant to French law, our by-laws, including the sections relating to the number of members of the Board of Directors, and election and removal of members of the Board of Directors from office may only be modified by a resolution adopted by two-thirds of the votes of our shareholders present, represented by a proxy or voting by mail at the meeting.

The rights of shareholders in companies subject to French corporate law differ in material respects from the rights of shareholders of corporations incorporated in the United States.

We are a French company with limited liability. Our corporate affairs are governed by our by-laws and by the laws governing companies incorporated in France. The rights of shareholders and the responsibilities of members of our Board are in many ways different from the rights and obligations of shareholders in companies governed by the laws of U.S. jurisdictions. For example, in the performance of its duties, our Board of Directors is required by French law to consider the interests of our company, our shareholders, our employees and other stakeholders, rather than solely our shareholders and/or creditors. It is possible that some of these parties will have interests that are different from, or in addition to, the interests of our shareholders.

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French law may limit the amount of dividends we are able to distribute, and we do not intend to pay cash dividends for the foreseeable future.

We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, and future agreements and financing instruments, business prospects and such other factors as our Board of Directors deems relevant.

Further, under French law, the determination of whether we have been sufficiently profitable to pay dividends is made based on our statutory financial statements prepared and presented in accordance with  applicable French regulations. Therefore, we may be more restricted in our ability to declare dividends than companies not based in France.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

While we currently qualify as a foreign private issuer, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2024, which would require us to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers as of January 1, 2025. We could lose our foreign private issuer status in the future if we fail to meet the requirements necessary to maintain our foreign private issuer status as of the relevant determination date. In order to maintain our current status as a foreign private issuer, either (a) a majority of our ordinary shares or ADSs must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a majority of our executive officers or directors may not be U.S. citizens or residents, (ii) more than 50% of our assets cannot be located in the United States and (iii) our business must not be administered principally inside the United States. If we lost this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers and have shorter deadlines, including with respect to annual and quarterly reports. In particular, Form 10-Q requires quarterly financial statements subject to auditor review. As of December 31, 2023, approximately 70% of our outstanding ordinary shares were held by U.S. residents and the other criteria may be triggered in the future to reflect changes in our business.

The regulatory and compliance obligations and costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly more than obligations and costs we currently incur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We would be required under current SEC rules to modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers such as the ones described above and exemptions from procedural requirements related to the solicitation of proxies.

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

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

effect service of process upon or obtain jurisdiction over us or our non-U.S. resident directors and officers in the United States;
enforce U.S. court judgments based upon the civil liability provisions of the U.S. federal securities laws against us and our non-U.S. resident directors and officers in France or the United States; or
bring an original action in a French court to enforce liabilities based upon the U.S. federal securities laws against us and our non-U.S. resident directors and officers.

Risks Relating to Ownership of our Ordinary Shares and the ADSs

Our securities may be affected by volume fluctuations, and may fluctuate significantly in price, causing investors to lose some or all of their investment.

Our ADSs, each of which represents one ordinary share, are traded on The Nasdaq Global Market. The average daily trading volume of our ADSs in 2023 was approximately 96,000, the high and low bid price of our ADSs for the last two fiscal years ended on December 31, 2023, and December 31, 2022, was $12.65 and $11.53, and $3.60 and $5.54, 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, the average daily trading volume of our ADSs in December 2022 was

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101,126 as opposed to 217,979 for the same period of 2023. 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 of our ADS 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 investors invest in our ADSs, investors could lose some or all of their investment.

In addition, periods of volatility in the market price of a company’s securities often trigger securities class action litigation. 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 the 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.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our ADS price and trading volume could decline. 

The trading market for our ADSs will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our securities or publish inaccurate or unfavorable research about our business, our ADS price would likely decline. In addition, if our operating results fail to meet the expectations of our investors or forecasts of research analysts, our ADS price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our ADSs could decrease, which might cause our ADS price and trading volume to decline. 

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.

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

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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 changes, geopolitical developments, financial changes, and the impact of climate changes.

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 and the conflict in the Middle East.  We have little to no business in the Middle East.

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 1.5% in 2022 and 0.8% in 2023 of our consolidated revenues.  Our sales in Russia are historically subject to significant variation and long purchase order periods.  We have an established 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.

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 or sustained periods of extreme weather. 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 or the effect of our operations and those of other companies on the environment. Such new obligations could cause increased compliance costs to meet any new 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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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.

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.

Our operations have consumed substantial amounts of cash since inception. We expect to use our cash resources to develop and further commercialize our products, develop new products, and for working capital and general corporate purposes. We may require additional capital to further develop and commercialize our products and to develop new products. In addition, our operating plans may change because of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned.

On June 30, 2021, our shareholders adopted resolutions allowing the Board of Directors to issue 2,000,000 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 1,357,000 subscription options were granted in 2021, 2022 and 2023, under certain conditions, to the  employees. Based on the June 30, 2021 resolutions, a total of 101,500 free shares were granted in 2021 and 2022, under certain conditions, to the 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 our 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, 2023, a total of 491,500 free shares were granted, under certain conditions, to the employees. As of December 31, 2023 we have 108,500 free shares and 643,000 subscription options remaining under our existing resolutions. Under French law, only our employees with an employment contract and corporate officers, such as the Chief Executive Officer and the Chairman of the Board of Directors (mandataires sociaux) may receive free shares. Non-executive directors may not receive free shares.

On June 30, 2023, 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 our further developments and to address any potential strategic opportunities for our long-term growth. As of December 31, 2023 no shares have been issued related to this resolution.

We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. 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. Moreover, the availability of additional capital, whether debt or equity from private capital sources (including banks) or the public capital markets, fluctuates as our financial condition and industry or market conditions in general change. There may be times when the private capital markets and the public debt or equity markets lack sufficient liquidity or when our securities cannot be sold at attractive prices, in which case we would not be able to access capital from these sources on favorable terms, if at all. We can give no assurance as to the terms or availability of additional capital.

We may acquire other companies or technologies, which could fail to result in a commercial product or net sales, divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.

 

We may in the future seek to acquire or invest in businesses, applications, or technologies that we believe could complement or expand our portfolio, enhance our technical capabilities or otherwise offer growth opportunities. However, we cannot assure that we would be able to successfully complete any acquisition we choose to pursue, or that we would be able to successfully integrate any acquired business, product or technology in a cost-effective and non-disruptive manner. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various costs and expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. We may not be able to identify desirable acquisition targets or be successful in entering into an agreement with any target or obtain the expected benefits of any acquisition or investment.

 

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To date, the growth of our operations has been largely organic, and we have limited experience in acquiring other businesses or technologies. We may not be able to successfully integrate any acquired personnel, operations and technologies, or effectively manage the combined business following an acquisition. Acquisitions could also result in dilutive issuances of equity securities, the use of our available cash, or the incurrence of debt, which could harm our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer.

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 their 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.

 

               

Item 4. Information on the Company

General

We develop, manufacture, promote and distribute advanced minimally invasive ultrasound technologies for both  diagnosis and treatment of urological disease. We have introduced the Focal One® Robotic HIFU (high-intensity focused ultrasound) system around the world including Europe, U.S., Latin America, and parts of Asia. With the addition of the ExactVu™ Micro-Ultrasound system, we offer customers a complete solution from diagnosis to treatment of prostate disease. We also produce and distribute systems for the treatment of urinary tract stones. These technologies include the Sonolith® i-move lithotripter system based on Extracorporeal ShockWave Lithotripsy (ESWL) technology and advanced surgical laser systems.

History and Development of the Company

Our legal name is EDAP TMS S.A., and our commercial name is Focal One®. In 2023, we elevated the Focal One brand name to further support our growing global sales and marketing activities. This change reflects our focus on our Focal One robotic HIFU system and enhances our visibility in targeted markets.

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, located at 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 website at http://www.sec.gov or the Company’s website at http://www.edap-tms.com, section “Investor Relations.”

In January 2021, U.S. CPT Code Category 1 reimbursement for HIFU became effective. In addition to reimbursement for the facility, the CMS established reimbursement for 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 have used most of this funding to further build up our U.S. clinical, sales and marketing infrastructure.

In June 2021, after completing our capital increase, and in line with our strategy to expand our HIFU activities 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.

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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 market development opportunities.

On May 1, 2023, Ryan Rhodes succeeded Marc Oczachowski as Chief Executive Officer of the Company to lead the Company’s global strategy and accelerate the Company’s development.

On January 1, 2024, Ken Mobeck was appointed as Global Chief Financial Officer and François Dietsch was appointed as Global Chief Accounting Officer, to pursue ongoing alignment in our organization and enable the Company to remain focused on executing our current growth strategy while also increasing our visibility among U.S. investors.

Reimbursement Update and Clinical Indication Expansion

On November 1, 2022, the U.S. CMS released its final outpatient prospective payment system (“OPPS”) reimbursement rule for calendar year 2023, which became effective on January 1, 2023.  The final rule increased the reimbursement level of Focal One Robotic HIFU to an Ambulatory Payment Classification (APC) level 6, similar to surgery, as compared to APC level 5 which was previously in place. This represented a 90% increase in reimbursement. On November 1, 2023, the U.S. CMS released its final OPPS reimbursement rule for calendar year 2024 maintaining the reimbursement level for HIFU as an APC Level 6 procedure.

In November 2022, following the 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 HIFU as a potential treatment option for such pathology. This 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 treatment group who received no treatment will be given the option to be treated with HIFU. As of December 31, 2023, 57 patients have been included in the follow-up study.

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 Company’s financial statements, 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 the Company.

Our activity is organized in three divisions: HIFU, ESWL and Distribution. Through these three divisions, we develop, produce, market and distribute non- invasive medical systems, mainly for diagnosing and treating urological disease. The HIFU division includes sales of Focal One, related consumables and services. The ESWL division includes revenues generated by servicing the existing installed base of the EDAP family of lithotripters. The Distribution division includes the sale of complementary products such as ExactVu 29 MHz micro-ultrasound systems, surgical lasers, and other products from third parties.

Our global strategy is to expand our HIFU activities in the U.S. and worldwide to accelerate Focal One Robotic HIFU adoption. We are also focusing our efforts in the development of HIFU for the treatment of other medical conditions beyond prostate disease. We are leveraging our Distribution and ESWL divisions to help optimize our global development to further support the expansion of our HIFU strategy.

Our three divisions operate in Europe, the Americas, Asia and the rest of the world. Total net sales for the HIFU division (net contributions to total consolidated sales) were €20.6 million, €15.6 million and €9.9 million for 2023, 2022 and 2021, 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 systems are not approved yet. Total net sales for the ESWL division were €9.9 million, €11.6 million and €11.0 million, each for 2023, 2022 and 2021, respectively. Total net sales for the Distribution division were €29.9 million, €27.9 million and €23.1 million, each for 2023, 2022 and 2021, 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.

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HIFU Division

The HIFU division is engaged in the development, manufacturing and marketing of Focal One robotic systems 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 higher purchasing activity in the last quarter of the year. The HIFU division contributed €20.6 million to our consolidated net sales during the fiscal year ended December 31, 2023.

HIFU Division Business Overview

As of December 31, 2023, the HIFU division had an active installed base of 107 Focal One systems, including 52 in the U.S.

The HIFU technology developed by this division 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. This treatment option eliminates the need for incisions, transfusions and overnight hospital stay while minimizing complications.  The Focal One Robotic HIFU system can also be used for patients who are not candidates for conventional surgery or who have failed a radiotherapy treatment regimen.

In addition to selling HIFU systems, the HIFU division also records revenues driven from sales of (i) disposables, (ii) equipment leases (iii)  Revenue-Per-Procedure (“RPP”) and (iv) equipment service contracts.

In certain regions of the world, we offer a HIFU mobile treatment option, which provides access to our Focal One HIFU systems without requiring hospitals and clinics to make an up-front investment in the equipment. Instead, hospitals and clinics perform treatments using these systems and remunerate us on an RPP basis (i.e., based on 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 Focal One system.

In addition, the HIFU division also generates revenues from net sales of maintenance services associated to our installed Focal One HIFU systems.

HIFU Division Business Strategy

The HIFU division’s business strategy is to capitalize on its deep expertise in HIFU to achieve long-term growth as a leader in the development, manufacturing, marketing and distribution of minimally invasive therapeutic ultrasound systems for urological and other indications. The HIFU division believes that minimally invasive treatments using HIFU could provide an alternative to current more invasive therapies while reducing costs and lowering morbidity.  The key elements of the HIFU division’s strategy are:

To Provide Minimally Invasive Solutions to Treat Localized Prostate Cancer using HIFU. Building upon our established position in the urology market, our HIFU division is striving to become the leading provider of our minimally invasive HIFU treatment option for prostate cancer. We believe that there is a large market opportunity due to the increased incidence rate linked to the aging male population. Additional screenings combined with increased testing has led to more patient awareness about prostate cancer and relevant treatment options. We also believe, for patients that fit certain criteria, HIFU could represent an excellent alternative to surgery, external beam radiotherapy, brachytherapy and cryotherapy for the treatment of organ-confined prostate cancer without the cost, in-patient hospitalization and adverse side effects associated with those therapies. With the growing demand for more focused treatments that destroy the tumor only (focal therapy) while continuously controlling the disease, HIFU and its focused approach is well positioned to address this market. The HIFU division intends to achieve this through a direct sales network in the U.S and Europe  as well as through selected distributors in the rest of the world. Our strategy is to accelerate Focal One Robotic HIFU adoption in the U.S. now that the technology has a CPT code and an established level 6 reimbursement. We are currently focused on building out our commercial team in order to offer this minimally invasive option to U.S. prostate cancer patients at a broader level to expand our market presence worldwide.  Continued investment is key for effective patient and physician education through focused communication and training programs. The HIFU division has built strong clinical credibility based on clinical articles published in peer-reviewed journals.

Achieve Long-Term Growth by Expanding HIFU Applications Beyond Prostate Cancer. The HIFU division’s long-term growth strategy is to apply our HIFU technology in the treatment of other medical conditions beyond prostate cancer. The HIFU division is currently developing HIFU for the treatment of endometriosis and is exploring various other applications such as benign prostate hyperplasia and conducting clinical research on treatment of cancer in solid organs such as the liver

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and pancreas, where HIFU could provide an alternative to current therapies. In 2023, the HIFU division expenses grew by 46% compared to 2022 on research and development (“R&D”) projects to develop HIFU applications beyond prostate cancer. The division is considering increasing levels of R&D spending in 2024 and future years to strengthen its technological leadership in HIFU and expand its application beyond urology.

HIFU Products

Currently, we have commercialized Focal One, an image guided, robotic HIFU system dedicated to delivering focal therapy for the management of prostate cancer. Focal One combines three essential components to efficiently perform a focal treatment of localized prostate cancer: (i) high-quality imaging to localize tumors with the use of imported MRI imaging information combined with real-time ultrasound imaging, (ii) high precision of HIFU treatment focused on the identified target areas and (iii) the ability to provide immediate feedback on the delivery of treatment utilizing contrast-enhanced ultrasound imaging.

HIFU Division Patents and Intellectual Property

As of December 31, 2023, the HIFU division’s patent portfolio contained a total of 33 granted, owned or co-owned patents consisting of seven granted patents in the United States, 10 patents in the European Union, eight patents in Japan and eight patents in China. These patents belong to 10 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 one international patent applications under the Patent Cooperation Treaty, two patent applications in the United States, four 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 management of prostate cancer and to extend the HIFU technology to new clinical applications and for future development of new therapeutic ultrasound systems. These research projects are conducted in cooperation and collaboration with the French National Institute for Health and Medical Research (“INSERM”) which gives rise in some cases to the filing of patent applications, followed by the grant of co-owned patents. 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 systems using co-owned patents. Under these agreements, which last for the life of each co-owned patent, we have the exclusive right to the commercial use of the co-owned patents, including the right to out-license such commercial rights. We have an option to obtain an exclusive license from INSERM relating to other patents co-owned with INSERM.

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 these patents or patent applications, if issued, will provide effective protection for the HIFU division’s proprietary rights in such technology. HIFU systems, 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

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. On March 15, 2023, the European regulation N°2023/607 extended the validity of our Focal One CE certificate until December 31, 2028. Ablatherm systems previously placed on the market are maintained for use according to applicable regulation. The Focal One is the only HIFU system now being commercialized to potential new customers in Europe and territories covered by CE Marking.

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. In October 2017, we were granted a 510(k) clearance for our Ablatherm Fusion system.

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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 system.

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 system. We will need to conduct a clinical trial in Japan to obtain clearance for the Focal One system. 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 are currently reviewing our regulatory and market access strategy in China.

Clinical and Regulatory Status in the Rest of the World

The Focal One system is cleared for distribution in Brazil, Canada, Costa Rica, Ecuador, Hong Kong, Israel, Malaysia, Mexico, Morocco, U.K, Russia, Singapore, South Korea Switzerland, Taiwan, 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”) is aimed at evaluating the reimbursement of HIFU in France. The HIFI Study compares total or sub-total HIFU vs radical prostatectomy (“RP”) as a first line treatment in grade groups (“GG”) <3 localized prostate cancer or as a salvage treatment post radiation. The objectives were to compare oncological efficacy, functional and safety outcomes. The patients’ inclusion period closed on September 30, 2019. The 3,328 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 the HIFI Study. In March 2023, the Study Coordinator presented the 30-month final results of the HIFI Study at the European Association of Urology (“EAU”) congress. Primary endpoint showed a 30-month Salvage Treatment-Free Survival (“SFTS”) benefit in favor of HIFU. Secondary endpoints showed better continence and erectile function outcomes after HIFU. Following the completion and analysis of the HIFI Study submitted to the French National Authority for Health (“HAS”), a positive favorable opinion was issued late 2023 to include HIFU as a procedure covered under the national universal health, Social Security system ("Sécurité Sociale"). This favorable opinion relates to HIFU as a primary treatment of intermediate risk localized prostate cancer as well as a salvage option after failed radiotherapy. Based on this positive opinion from the HAS, the French Social Security authorities can now use this recommendation for including HIFU procedures in its next cycle to determine the procedure’s reimbursement rate and the timing for when such reimbursement would go into effect.

In 2017, a clinical study addressing Focal Ablation vs Radical Prostatectomy (“FARP”), sponsored by Oslo University was initiated and aimed at comparing focal ablation and robot-assisted radical prostatectomy for treating patients with unilateral clinically significant prostate cancer. A total of 213 patients were enrolled and randomized to either arm. Patient inclusion was completed in June 2021. According to recent abstracts presented by the Principal Investigator at several major scientific meetings, the rate of treatment failure after two years post procedure in the focal ablation group was found to be non-inferior to that in the radical prostatectomy group. The functional outcomes, in particular the continence rate evaluated with de novo pad use as well as the sexual function evaluated with the International Index of Erectile Function shows a statistically significant superiority in favor of HIFU compared to surgery.

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 system 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,

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are to receive approximately €1.2 million over the period as a non-refundable grant. As of December 31, 2023, we had received a non-refundable grant of €1.0 million.

As part of the 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). 172 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 31, 2023, 106 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.

The majority of academic centers using the Focal One system 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 and out of the U.S.

HIFU for Potential Treatment of Deep Infiltrating Rectal Endometriosis  

In 2020, we initiated a Phase II multi-center clinical study in France to further investigate the use of Focal One Robotic HIFU in the treatment of certain types of deep endometriosis situated in the low rectum. The study was completed in September 2022: 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.  The intended endpoint 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 as well as in a plenary session at the European Society for Gynecological Endoscopy Annual Congress in October 2023 and at the American Association of Gynecology Laparoscopists meeting in November 2023.  

In 2021, we initiated a long-term follow-up study aimed at including all the 80 patients treated by HIFU for their Rectovaginal endometriosis in the Phase I and II studies. During this study, we will evaluate the quality of life and the symptom levels of the patients up to five years after their HIFU treatment. As of December 31, 2023, 57 patients have accepted to be included in the follow-up study.

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 deep infiltrating endometriosis. This study is a level 1 multi-center, double blind, randomized, controlled clinical trial. HIFU treatment will be compared to a sham treatment. 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 sham group will be offered HIFU treatment. As of December 31, 2023, 57 patients have been included in the follow-up study.

HIFU for Potential Treatment of Benign Prostatic Hyperplasia

In 2021, we initiated a mono-centric Phase I study to investigate the feasibility of Benign Prostatic Hyperplasia (“BPH”) HIFU treatment with a Focal One system. A total of nine patients were treated, and the treatment safety was evaluated at three months after HIFU treatment. The first patient was included in this study in March 2022. As for December 31, 2023, nine patients have been enrolled and treated.

HIFU for Potential Treatment of Solid Organ Tumor Ablation Within the Pancreas and Liver Tumors

The Company leveraged the efforts, knowledge and assets resulting from earlier technology developments  for the ablation of tissue to further evaluate HIFU technology and approach as a solution for patients with localized tumors of the liver and pancreas.

As part of a cooperation with Centre Leon Bérard, Lyon, France, we will initiate a phase I-II study to evaluate the safety and tolerance of intraoperative HIFU treatment in pancreatic tumors, including 26 patients.

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HIFU Clinical Publications

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

Prostate cancer publications

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 treatment for Prostate Cancer. In conclusion, FT is associated with better functional outcomes, with an earlier urinary continence recovery, and better sexual function at three and 12 months. Moreover, the morbidity associated with FT is substantially lower than that related to WGT.

In February 2022, Hong et al., from Seoul National University Bundang Hospital, Korea, published in the Journal 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. The results concluded that 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 that received customized HIFU ablation 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 with in-field reoccurrence being less than 10% after hemi-ablation. Patients had postoperative excellent quality of life with lower rate of irritative symptoms and negligible impact on voiding and erectile function scores. 100% of patients that received focal and partial HIFU ablation retained potency.

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 propensity score-matched retrospective study on 685 patients who underwent PGA using HIFU with Focal One (137 patients) versus Robot-Assisted Radical Prostatectomy (548 patients) with a median follow-up period of 22 months. The authors confirmed that PGA HIFU preserves urinary and erectile functions, with a slight/minor loss of efficiency, which remained however very satisfactory (80% success rate efficacy). The results concluded that 5.8% underwent salvage treatment with postoperative incontinence and erectile dysfunction being more favourable in PGA compared to Robot-Assisted Radical Prostatectomy.

In July 2023, Mattlet et al, from University of Brussels, Brussels, Belgium published their results in The Prostate Journal from a retrospective analysis on 178 patients that underwent HIFU with Ablatherm (2001-2015) and Focal One (2005-2021). 12% of patients included in the study received neoadjuvant ADT. Patients received customized ablation based on lesion location with 52% of patients receiving hemi-ablation. Treatment free survival and failure free survival were 89% and 98% respectively, at 60 months without Huber et al criteria. However, for patients with Huber et al. criteria, 23% of patients had treatment failure at 26 months . Therefore, the Huber et al. criteria was found accurate to predict the need for additional treatment.

In September 2023, Debard C et Al., from CHU de Pellegrin, Bordeaux, France published in the journal of Progrès en urologie their results on their retrospective and multicenter study on 137 patients with low- or intermediate-risk localized prostate cancer treated with Focal One. 70% of patients had clinical stage T2, 64% had an ISUP score of 2 or 3 on initial biopsies and 61% were treated with “targeted” ablation. According to the authors, the selection of patients treated with focal therapy is a key point for the success of the technique and the inclusion criteria that varied according to the studies. The authors conclude: “Our results are in agreement with those of the literature, seeming to indicate a lower morbidity of the focal treatment by HIFU compared to the radical treatments while offering an acceptable oncological control.”

In October 2023, Kaufmann B et al., published in the British Journal of Urology (BJUI) their results on a study aiming at assessing the oncological and functional outcomes of HIFU in treating low to intermediate risk prostate cancer a 3-year prospective study was undertaken using rigid post-ablation saturation biopsies. Patients with either low (6.6%) or intermediate (93%) risk prostate cancer underwent focal ablation around the lesion(s) of interest. All patients had transperineal template saturation biopsy (>20 cores) in-conjunction with MRI guided fusion biopsy. Over half the patient underwent follow up biopsy. Failure-Free Survival (PROMIS) and Salvage-Free Survival at 36 months was 65% and 81% respectively. They concluded that Focal HIFU treatment for localized prostate cancer (“PCa”) shows excellent functional outcomes with half of the patients remaining cancer-free after three years. In-field recurrence (GG2 disease or higher) rate is as follows 18%, 18%, and 17% at six, 12, and 36 months, respectively. Urinary and sexual function remained un-changed per the Expanded Prostate Cancer Index Composite. In their conclusions, the authors stated that “Whole-gland

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treatment was avoided in 81% of patients. Early follow-up biopsies are crucial to change or continue the treatment modality at the right time, while the use of MRI and PSA in detecting PCa recurrence is uncertain.”

In November 2023, Mala KS, et al., from Berlin Charité University Medicine, Germany, published in the Journal of the Clinical Medicine their results on their retrospective study on 57 patients with localized PCa using HIFU with Focal One. HIFU treatment was performed as focal, partial, or hemi ablative, depending on the prior histopathology. Out of 26 men that received biopsy eight (15.8%) had in-field reoccurrence. The rate of post-HIFU complications was low, at 19.3%. Continence was preserved and erectile function was comparatively better than with radical prostatectomy. The study concluded that HIFU as a therapy option for nonmetastatic, significant prostate cancer is effective in the short term for carefully selected patients and shows a low risk of adverse events and side effects.

In November 2023, Rischman P. et al. published in the Progrès en Urologie, their results on salvage HIFU for local recurrence after first-line radiotherapy in 531 patients. This HIFI-2 study was developed as part of the “Forfait Innovation” program to evaluate the efficacy and safety of HIFU in the salvage treatment of localized PCa after failure of first-line radiotherapy (RT). This is a prospective, multicenter, open-label study within the framework of the Forfait Innovation program, promoted by the AFU. Thirty months after post-RT salvage HIFU, 72% of patients were spared Hormonal Treatment. Pre-therapy PSA and Gleason score data suggest a better outcome (up to 85% HT-free survival at 30 months) when, in the presence of biological recurrence after radiotherapy, a recommendation is made for earlier management.

Endometriosis publications

In September 2020, Philip CA et al, from Croix Rousse Hospital, Lyon, France, published in Ultrasound Obstetric Gynecology journal, the results of the treatment of 20 patients with deep recto vaginal endometriosis using Focal One HIFU. This EDAP-sponsored study is the first one on the use of HIFU in this indication. The authors reported very promising results with low morbidity and significant efficiency on intestinal and gynecological symptoms as well as in the quality of life.

Pancreas publications

In December 2021, Cilleros et 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.  

HIFU Division Market Potential

Prostate cancer is currently the first (in terms of newly diagnosed cases) and second (in terms of number of deaths) as the most common form of cancer amongt men in many populations. In the United States, the American Cancer Society estimates the number of new prostate cancers to be diagnosed for 2024 to be approximately 299,010, of which approximately 70% are diagnosed with localized stage prostate cancer. Additionally, the HIFU division estimates, 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.

According to the Focused Ultrasound Society, HIFU has the potential to transform the treatment of a variety of serious medical conditions. All indicators point toward the evolution of this platform technology into a robust medical field, including numerous medical conditions, including cardiovascular, neurological, urological or women’s health. We decided to focus on developing HIFU for targeted medical conditions. 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.

The endorectal approach currently delivered by the Focal One Robotic HIFU system, could benefit patients with rectal endometriosis. The European Society of Human Reproduction and Embryology estimates that endometriosis  affects approximately 10% of women of reproductive age. Among them, 5-12% are affected by digestive endometriosis, of which  90% suffer from infiltration of the rectum. As such, we estimate that 1% of the women of reproductive age could possibly benefit from a minimally invasive HIFU treatment.

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HIFU Reimbursement Status

In the United States, following the American Medical Association’s (“AMA”) decision to establish a new Category 1 CPT code for the ablation of malignant prostate tissue with transrectal HIFU technology, CMS finalized payment rules for hospitals, facilities, and physicians that facilitates coverage and reimbursement, 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.

On the hospital payment side, the 2023 final rule upgraded the HIFU procedure from Level 5 Urology Ambulatory Payment Classification (“APC”) in 2022 to Level 6 in 2023. The 2024 final rule maintained the APC  6 payment level. This translates into reimbursement to a hospital performing a HIFU procedure on a Medicare patient to $8,777 per procedure as a national average, adjusted locally based on the wage index, compared to the previous level of approximately $4,500 in 2022. The CMS will continue to update payment rates for hospitals on a yearly basis as part of the 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 AMA has created a Current Procedure Terminology code and CMS has set the work Relative Value Units for a physician performing a HIFU procedure at 17.73. In the 2024 Final Rule of the Physician Fee Schedule, CMS has set the total facility Relative Value Units (“RVUs”) at 29.21. This translates to an average payment of $956 for a urologist performing a HIFU procedure on a Medicare patient in a facility setting in 2024. As a reference, a comparable established minimally invasive therapy for prostate cancer, cryotherapy, yields 22.84 total facility RVUs, which translates to $748 for the urologist under the same setting and patient conditions in 2024. A radical prostatectomy would grant the urologist 34.83 total facility RVUs, which translates to a Medicare payment of $1,140, or 35.53 total facility RVUs and $1,163 if performed laparoscopically or robotically. Of note, CMS has finalized an 18% reduction 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 systems are not reimbursed in the European Union except in Italy, Germany, the United Kingdom (where procedures are partially reimbursed by either public healthcare systems or private insurers), Switzerland 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. As part of the Forfait Innovation, patients were included in the HIFI Study sponsored by the French Association of Urology.  Results and analysis of the study were submitted to the HAS and a positive favorable opinion was issued late 2023 to include HIFU as a procedure covered under the national universal health system. More specially, the favorable opinion relates to HIFU as a primary treatment of intermediate risk localized prostate cancer as well as a salvage option after failed radiotherapy. Based on this positive opinion from the HAS, the French Social Security authorities can now use this recommendation for including HIFU procedures in its next cycle to determine the procedure’s reimbursement rate and the timing for when such reimbursement would go into effect.

HIFU Competition

Current therapies for prostate cancer commonly carry side effects that can seriously affect a patient’s quality of life. One of the standard treatments for prostate cancer is radical prostatectomy (surgery), which involves the surgical removal of the entire prostate gland. Radical prostatectomy may require a hospital stay and additional recovery time, usually with catheterization, and may result in urinary incontinence and impotence. Robotic nerve-sparing radical prostatectomy has been developed to reduce the invasiveness of this surgery. However, this procedure is still associated with the morbidity of surgery which requires ligating, cutting, suturing, and dissection of tissue commonly leading to blood loss.  Other therapies for localized prostate cancer include brachytherapy, external beam radiation therapy, and cryotherapy.

Our robotic HIFU systems compete with all current treatments for localized tumors, which include surgery, brachytherapy, radiotherapy, and cryotherapy. We believe that HIFU is a cost effective optimal treatment option for qualifying patients seeking to manage their cancer with minimal side effects.

We also believe that Focal One is well positioned to address the growing demand for focal therapy of localized prostate cancer as compared to the radical treatments of surgery or radiation. “Focal” treatment (also known as “partial” or “zonal” treatment, as opposed to “radical” or “total” treatment) with Focal One provides an effective and accurate ablative treatment while preserving patient quality of life.

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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, and there is a substantial risk our products or service offerings could become obsolete or uncompetitive.”

Certain existing and potential competitors of our HIFU division may have more financial resources to invest in research and development, sales, marketing, and personnel resources than us and may have more experience manufacturing and supporting new products. We believe that an important factor in the potential future market for HIFU treatments will be the ability to make 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 system for the treatment of prostate cancer.

Other companies working with HIFU technology for the minimally invasive treatment of tumors include Sonablate Corporation, a U.S. company that markets the Sonablate® system 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. Insightec, an Israeli private company has developed a system 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 system to treat benign thyroid nodules, benign breast masses 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 channels as well as through select third-party distributors and agents in several countries. Using our direct subsidiaries or representative offices network, the HIFU division maintains a direct marketing and sales force in the United States, France, Germany, Malaysia and South Korea, which currently represent its largest HIFU markets. Additionally, the HIFU division markets and sells its products through our network of distribution partners in the rest of Europe, Latin America, Middle East, Asia and Southeast Asia.

The HIFU division’s customers are located worldwide and have included academic, public,  and private hospitals as well as urology clinics. 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 development of marketing resources, activities, and training programs for urologists as well as via traditional, digital and social media programs educating patients on the availability of HIFU technology to treat localized prostate cancer.

ESWL Division

The ESWL lithotripsy division is engaged in marketing and servicing our installed base of Sonolith lithotripters. The ESWL division contributed €9.9 million to our consolidated net sales during the fiscal year ended December 31, 2023.

ESWL Division Business Overview

The ESWL division’s business consists of producing and marketing lithotripters for the treatment of urinary tract stones. ESWL uses extracorporeal shockwaves, focused at a urinary stone within the human body to fragment it into smaller pieces. This technology allows natural elimination of stone fragments and prevents the need for more invasive options including incisions, transfusions, general anesthesia, and the potential for related complications. The ESWL division currently markets one lithotripter model: the Sonolith i-move and maintains several previous generations of lithotripters that include, but are not limited to, the Sonolith i-sys and Sonolith Praktis. As of December 31, 2023, the ESWL division maintained or otherwise serviced 538 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 of Sonolith i-move and service activity on our existing installed base of ESWL lithotripters.

ESWL Division Products

The ESWL division manufactures its lithotripsy systems, the Sonolith i-move, at our manufacturing facility in Vaulx-en-Velin, France.

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The Sonolith i-move relies on electroconductive technology for shockwave generation. The ESWL division’s customers are located worldwide and have historically been principally large hospitals, urology clinics and research institutions. The Sonolith i-move offers a wide range of configurations to suit various budgets and various local market needs. This technology incorporates the Visio-Track ultrasound stone localization system: a unique three-dimensional virtual system that uses infrared stereovision proprietary and patented technology to guide the treatment robotically.

The ESWL division also sells disposable accessories for lithotripters and electrodes for the Sonolith line, which need to be replaced approximately every ten treatments.

ESWL Division Patents and Intellectual Property

As of December 31, 2023, the ESWL division’s patent portfolio includes six granted owned and or co-owned patents consisting of one in the United States, four in the European Union and one 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 with the ESWL generator, localization systems and system design.

ESWL Division Regulatory Status

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

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

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.

ESWL consists of fragmenting calculi within the body using extracorporeal shockwaves without any surgery. 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 can be successful in maintaining a recurring revenue stream from maintenance contracts, parts and consumables. We intend to capitalize on our share of the installed base of ESWL systems for this recurring revenue.  Several geographical opportunities remain in under-equipped countries and in some countries where the national health system strategy is under review for capital equipment at hospitals and clinics. ESWL products are currently facing competition from lower priced stone laser systems. To remain competitive, over the past few years we have integrated stone laser products into our stone management product portfolio in select markets.

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

ESWL Division Competition

The ESWL market is characterized by severe price competition among manufacturers. As a consequence, the average unit price of ESWL lithotripters has declined in recent years. 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, Japan, South Korea, and Malaysia. The ESWL division also markets its products through agents and third-party distributors in several other countries.

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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 to continue marketing 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 the rest of our product portfolio such as micro-ultrasound systems, lasers and other medical products from third party manufacturers. The Distribution division contributed €29.9 million to our consolidated net sales during the fiscal year ended December 31, 2023.

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 the ExactVu 29 MHz Micro-ultrasound system and advanced surgical lasers from various companies. The Distribution division also generates revenues from system leases, 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 includes the distribution of products that bring synergies and are complementary to our existing internally developed technologies. In May 2020, we signed an exclusive worldwide distribution agreement with Exact Imaging Inc. a Canadian company and developer of high-resolution micro-ultrasound imaging technologies. In December 2023, we renewed this agreement.  Under the terms of the agreement, we market the ExactVu micro-ultrasound diagnostic systems alongside our Focal One. ExactVu Micro-ultrasound technology complements the Focal One Robotic HIFU technology. ExactVu offers advanced technology for performing biopsies and diagnosing prostate cancer. By marketing the two technologies, EDAP offers urologists a complete solution for focal prostate cancer management, with full autonomy and capabilities from diagnosis to treatment.

Distribution Division Products

The Distribution division distributes the ExactVu system. Like Magnetic Resonance Imaging (“MRI”), it allows urologists to visualize and locate suspicious regions within the prostate and target biopsies in real time. The ExactVu system also includes FusionVu. In cases where an MRI of the prostate is available, 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 precisely target lesions.

The Distribution division distributes in France Lumenis® Holmium lasers for Holmium Enucleation of the Prostate  marketed by Boston Scientific under an exclusive agreement. Lumenis Pulse™ lasers with Moses™ technology is a patent-protected pulse delivery technology that remarkably improves energy transmission, resulting in more efficient lithotripsy and BPH treatments compared to the regular laser. Our distribution contract with Boston Scientific expires on December 31, 2024. The Distribution division also exclusively markets various Quanta Laser Systems in Japan. Our distribution contract in Japan expires in December 2024.  

The Distribution division, through our Japanese subsidiary, exclusively distributes urology products of Laborie Medical Technologies (“Laborie”), including Urodynamic equipment, Uroflow, and a range of disposable products in Japan. The Distribution contract with Laborie expires on March 31, 2024. Laborie is the world leader of Urodynamic systems and disposables which are used by urologists and gynecologists to diagnose lower urinary tract functions. Our Japanese subsidiary also distributes X-ray imaging systems for the diagnosis of musculoskeletal pathologies and orthopedic surgical care in Japan on behalf of EOS Imaging. Our Japanese also exclusively distributes urology accessories on behalf of Rocamed and Hugemed in Japan.

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Manufacturing

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

We perform final assembly and quality control processes and maintain production standards. We purchase most of the components used in our products from several suppliers, but for some components of our products, we rely on a single source. Most of our components are secured by contract or dual sourcing manufacturing strategies. Furthermore, we conduct regular quality audits of suppliers’ manufacturing facilities. Our principal suppliers are located in France, Germany, Denmark and the United States. To date, our procurement and manufacturing strategy has not led to any material impacts on our ability to deliver systems and services to our customers. Management believes that the relationships with our suppliers at the current time are good.

Suppliers provide us with some key materials and components which can expose us to the risk of a supply shortage, obsolescence or interruption if these suppliers are unable to manufacture our products in line with our quality standards or encounter other challenges.  We recently renegotiated a supply agreement with a key supplier of ultrasound components for our HIFU systems as prices increased dramatically following a major shift in our supplier’s marketing strategy. We are constantly developing alternative options to maintain our product offering, while considering regulatory and cost constraints. We also have experienced difficulties in obtaining some materials or components used in our systems, including electronic parts, computers, plastics, mechanical parts due to supply shortage directly linked to logistics challenges as well as Asian manufacturing plants’ capacity constraints. In order to address these risks, we have put in place safety stock and have modified our order management for long lead time critical components. 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:

Jurisdiction of 

 

Name of the Company

    

Establishment

    

Percentage Owned(1)

EDAP TMS France SAS

 

France

 

100

%

EDAP Technomed Inc.

 

United States

 

100

%

EDAP Technomed Co. Ltd

 

Japan

 

100

%

EDAP Technomed Sdn Bhd

 

Malaysia

 

100

%

EDAP TMS GmbH

 

Germany

 

100

%

(1)Percentage of equity capital owned by EDAP TMS S.A. directly or indirectly through subsidiaries (percentage of capital owned and voting rights are the same).

Property and Equipment

We have one main facility, which is in Vaulx-en-Velin, near 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. At the current time, we are still evaluating whether to renew the lease in 2025 or not. We use this facility to manufacture our medical device systems and

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consumables. We believe the terms of the lease reflect current 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, Texas and Los Altos, California (U.S.), Seoul (South Korea), Fukuoka, Osaka, Sapporo and Tokyo (Japan). Our representative office in Moscow (Russia) was closed in early 2023.

Government Regulation

Government regulation in our major markets, particularly 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

Our products are regulated in the United States by the FDA under several 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 - based on 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 using 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 follow 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 Medical Device Regulation (“MDR”). Manufacturers with currently approved medical devices in their portfolio 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 updated application date of December 31, 2028. The extension of the period during which the devices can be placed on the market is subject to certain terms and conditions. To benefit from the new provisions, the manufacturer must implement and maintain a Quality Management System that complies with MDR requirements before May 26, 2024. This 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. This 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

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existing devices ranges and the devices under development. We have implemented regulatory actions to ensure our devices can be marketed in the European and international markets to conform to this MDR, if applicable.

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 based on their invasiveness and the duration of their use. This classification serves as a basis for determining the conformity assessment procedures that apply to medical devices that are eligible to receive a CE Mark. The conformity assessment procedures for Class I devices can be carried out, generally, 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 a 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 (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 a “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 list of reimbursable prices applicable to certain medical devices under the national health insurance programs. Until a new device is included in this list,  its costs are not covered by the programs. 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.

Human Capital

Overview

As of December 31, 2023, we had 307 employees. We have never experienced a work stoppage or interruption due to labor disputes. We believe our relations with our employees are good.

Employee Talent and Retention

Our business and future operating results are dependent upon the continued contributions of our senior management and other key personnel with medical device experience. Our ability to continue to attract and retain qualified management, operations, processing, marketing, sales, and support personnel for our operations is important to our continued success.

We have programs and processes in place to help ensure that our compensation, benefits programs, and work environment attract and retain such personnel, and we strive to enhance those programs and processes to respond to the increasingly competitive market for talent. We also strive to offer competitive equitable pay, comprehensive benefits, and services that retain and meet the varying needs of our employees. The main purpose of our equity and cash incentive plans and non-officer incentive plans are to attract, retain, motivate, and reward our employees.

Culture

Fostering and maintaining a strong and collaborative culture is a key component of our strategy. We also have policies that instill a commitment to ethical behavior and legal compliance across our company. Employees are encouraged to approach their managers if they believe violations of policies have occurred. Employees may also report any such violations confidentially and anonymously through our whistleblower policy.

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Diversity and Inclusion

We believe that a culture of diversity and inclusion enables us to create, develop, and fully leverage the strengths of our workforce to achieve our business objectives. We strive to provide equal opportunity to all applicants and employees, including those from diverse backgrounds. We believe that bringing together different perspectives and experiences is fundamental to our future growth and success.

Training and Development

We provide internal training and development programs to employees globally. Such programs include leadership development, office safety, ethics, and various skill-based training programs.

Health and Safety

Protecting the health, safety, and well-being of our employees around the world is a top priority. Throughout the COVID-19 pandemic, we enhanced our focus on the health and safety of our employees by implementing and enforcing certain COVID-related safety protocols. We provided employees with protective equipment, required the wearing of masks, increased cleaning procedures, provided cleaning supplies, implemented remote work where possible, enhanced our IT systems to facilitate remote work, and improved our cybersecurity protocols. While a number of these protocols were lessened or eliminated upon the waning of the COVID-19 pandemic, we continue to look for opportunities to provide a safer, healthier, work environment for our employees.

Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

The following discussion of our results of operations and liquidity and capital resources for the fiscal years ended December 31, 2023 and 2022 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 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

40

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 Focal One treatment procedures and from the leasing Focal One devices or treatment probes. We provide Focal One systems to clinics and hospitals for free for a limited period, rather than selling the systems. These hospitals and clinics perform treatments using the systems 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 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 systems, this business model initially generates a smaller, although more predictable stream of revenue and, if successful, should lead to more purchases of Focal One systems 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 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 systems 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 30% of our total consolidated net sales in 2023. Net sales of goods in Asia represented 33% of such sales in 2023 and consisted mainly of sales of urology devices and disposables. Net sales of spare parts, supplies and services in Asia represented 33% of such sales in 2023 and related primarily to ESWL lithotripters. We also derive a significant portion of net sales of medical devices and disposables from our operations in the U.S., through our wholly owned subsidiary (Edap Technomed. Inc). Net sales derived from our operations in the U.S. represented 28% of our total consolidated net sales in 2023. Net sales of goods in the U.S. represented 29% of such sales in 2023 and consisted mainly of sales of urology devices and disposables. 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 2023, 60% of our costs of sales and research and development, selling, marketing and general and administrative expenses were denominated in euro, while 55% 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 systems 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 €7.0 million and €4.9 million in 2023 and 2022, respectively, representing 11.5% and 8.9% of total revenues in 2023 and 2022, respectively. This increase was mainly driven by our HIFU development programs and clinical studies. Research and development government grants and tax credits are deducted from our consolidated research and development expenses for amounts of €0.6 million and €0.8 million in 2023 and 2022, respectively.

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Beginning in 2024, 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 €22.6 million in 2023 and €16.4 million in 2022. The €6.2 million or 38.1% increase in selling and marketing expenses from 2022 to 2023 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 €1.8 million in 2023 and €1.0 million in 2022. Beginning in 2024, management expects selling and marketing expenses to increase in connection with the acceleration of HIFU adoption in the U.S.

Consolidated general and administrative expenses increased €7.5 million or 104.6% to €14.6 million in 2023, reflecting the impact of the HIFU expansion plan in the U.S., which includes the impact of share-based compensation plans for €2.9 million in 2023 and non-recurring expenses linked to the leadership succession plan for €3.4 million in 2023, which includes the impact of share-based compensation plan for €1.3 million.  Beginning in 2024, management expects general and administrative expenses to increase in connection with the development of the U.S. subsidiary.

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Fiscal Year Ended December 31, 2023 Compared to Fiscal Year Ended December 31, 2022

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

(in millions of euros)

    

2023

    

2022

 

Total revenues

 

60.4

 

55.1

Total net sales

 

60.4

 

55.1

Of which HIFU

 

20.6

 

15.6

Of which ESWL

 

9.9

 

11.6

Of which DISTRIBUTION

 

29.9

 

27.9

Total cost of sales

 

(36.0)

 

(30.9)

Gross profit

 

24.4

 

24.2

Gross profit as a percentage of total net sales

 

40.40

%  

43.90

%

Total operating expenses

 

(44.2)

 

(28.5)

Income (loss) from operations

 

(19.8)

 

(4.3)

Net income (loss)

 

(21.2)

 

(2.9)

Total revenues

Our total revenues increased 9.6% from €55.1 million in 2022 to €60.4 million in 2023.

HIFU division.

The HIFU division’s total revenues increased by 31.7% from €15.6 million in 2022 to €20.6 million in 2023, reflecting mainly the development of equipment sales and treatment-driven revenue in the U.S.

The HIFU division’s net sales of medical devices increased 39.3% to €9.8 million in 2023, with twenty-one Focal One units sold (including fifteen in the U.S.), as compared to €7.0 million, with fifteen Focal One units sold in 2022 (including thirteen in the U.S).

Treatment-driven revenue, which includes net sales of RPP & leases, net sales of disposables and treatments related services, increased by 30.0% to €9.1 million in 2023.

Net sales of HIFU maintenance services increased by 6.9% to €1.8 million in 2023.

ESWL division.

The ESWL division’s total revenues decreased 14.3% from €11.6 million in 2022 to €9.9 million in 2023, primarily due to the decrease in sale of equipment.

The ESWL division’s net sales of medical devices decreased 27.7% from €3.9 million in 2022 to €2.8 million in 2023 with 16 ESWL devices sold in 2023 compared to 22 ESWL units sold in 2022.

Net sales of ESWL-related consumables, spare parts, supplies, RPP, leasing and services decreased 7.6% from €7.7 million in 2022 to €7.1 million in 2023 reflecting the mature nature of the market.

Distribution division.

The Distribution division’s total revenues increased 7.2% from €27.9 million in 2022 to €29.9 million in 2023, primarily due to the increase of consumables and maintenance revenues linked to the development of the installed base.

The Distribution division’s net sales of medical devices decreased 1.2% from €15.8 million in 2022 to €15.6 million in 2023. We sold 46 ExactVu units in 2023, as compared to 47 in 2022.

Net sales of Distribution-related consumables, spare parts, supplies, leasing and services increased 18.2% from €12.1 million in 2022 to €14.4 million in 2023, reflecting the growth of the installed base.

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Cost of sales.

Cost of sales increased 16.5% from €30.9 million in 2022 to €36.0 million in 2023, and represented 59.6% as a percentage of net sales in 2023, up from 56.1% as a percentage of net sales in 2022. This effect was primarily due to distribution product mix, global inflationary price pressure on components which increased manufacturing costs, and continued investments in our U.S. service and clinical application organizations to support HIFU and long-term revenue growth.

Operating expenses.

Operating expenses increased 55.4%, or €15.8 million, from €28.5 million in 2022 to €44.2 million in 2023.

Marketing and sales expenses increased €6.2 million, or 38.1% to €22.6 million in 2023, reflecting the impact of the HIFU expansion plan in the U.S., which includes the impact of share-based compensation plans for €0.8 million in 2023.

Research and development expenses increased 41.5% at €7.0 million in 2023 from €4.9 million in 2022. R&D expenses are net of R&D grants and tax credits of €0.6 million in 2023 and €0.8 million in 2022. This increase was mainly driven by the increase in research and development activities associated with our HIFU development programs and clinical studies.

General and administrative expenses increased €7.5 million or 104.6% to €14.6 million in 2023, reflecting the impact of the HIFU expansion plan in the U.S., which includes the impact of share-based compensation plans for €2.9 million in 2023 and non-recurring expenses linked to the leadership succession plan for €3.4 million in 2023, which includes the impact of share-based compensation plan for €1.3 million.

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 €19.8 million in 2023, as compared to a consolidated operating loss of €4.3 million in 2022.

We realized an operating loss in the HIFU division of €14.8 million in 2023, as compared with an operating loss of €4.9 million in 2022, an operating loss in the ESWL division of €0.2 million in 2023, as compared to an operating profit of €0.9 million in 2022, and an operating loss in the Distribution division of €0.2 million in 2023, as compared to an operating profit of €2.0 million in 2022.

Financial (expense) income, net.

Net financial income was €1.1 million in 2023, compared with a net financial income of €0.2 million in 2022.

The financial income was mainly generated by short-term deposits.

Foreign currency exchange gain (loss), net.

In 2023, we recorded a net foreign currency exchange loss of €1.8 million, mainly due to the variation of the Euro against the U.S. Dollar, compared to a gain of €1.9 million in 2022.

Income taxes.

Income tax was an expense of €0.6 million in 2023, compared to an expense of 0.8 million in 2022.

Net income / (loss).

As a result of the above, we realized a consolidated net loss of €21.2 million in 2023 compared with a consolidated net loss of €2.9 million in 2022.

For comparison between the fiscal year ended December 31, 2022 and the fiscal year ended December 31, 2021, please refer to our report on Form 20-F filed with the SEC on April 7, 2023.

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Effect of Inflation

In 2022 and 2023, 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.

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, 2023.

Payments Due by Period

    

Total

    

Less than 1 year

    

1-3 years

    

4-5 years

    

More than 5 years

Short-Term Debt

2,466

    

2,466

    

    

    

Long-Term Debt

 

3,551

 

1,553

 

1,997

 

 

Financing Lease Obligations

 

628

 

201

 

289

 

83

 

55

Operating Leases Obligations

 

1,780

 

898

 

725

 

157

 

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 €3.6 million cash requirement as of December 31, 2023 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 €2.4 million cash requirement as of December 31, 2023, with a repayment horizon up to 2029.

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

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to meet our liquidity requirements, a decrease in the demand for our products, or the inability of our customers to meet their financial obligations to us due to operating difficulties or adverse market conditions, would reduce the availability of funds to us.

(in thousands of euros)

    

2023

    

2022

Net cash generated by/(used in) in operating activities

 

(14,678)

 

(3,024)

Net cash generated by/(used in) in investing activities

 

(4,344)

 

(2,378)

Net cash generated by/(used in) in financing activities

 

(911)

 

21,741

Net effect of exchange rate changes

 

268

 

(388)

Net increase/(decrease) in cash and cash equivalents

 

(19,665)

 

15,952

Cash and cash equivalents at the beginning of the year

 

63,136

 

47,183

Cash and cash equivalents at the end of the year

 

43,471

 

63,136

Our cash position as of December 31, 2023 and 2022 was €43.5 million (with no short-term treasury investments) and €63.1 million (with no short-term treasury investments), respectively. We experienced a decrease in cash and cash equivalent of €19.7 million in 2023 and an increase of €16.0 million in 2022.

In 2023, our negative net cash flow was primarily due to net cash used in operating activities of €14.7 million and in investing activities of €4.3 million.

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 2023, net cash used in operating activities was €14.7 million compared with net cash used in operating activities of €3.0 million in 2022.

In 2023, net cash used in operating activities reflected principally:

-a net loss of €21.2 million;
-elimination of €9.4 million of net loss without effects on cash, including €1.9 million of depreciation and amortization, €0.4 million of change in allowances for doubtful accounts & slow-moving inventories and €0.2 million of change in long term provisions ; and €6.9 million of non-cash compensation linked to stock-based compensation plans and free shares; and
-an increase in working capital of €2.9 million primarily reflecting the increase in inventory and trade receivables linked to the higher level of sales.

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

-a net loss of €2.9 million;
-elimination of €4.2 million of net loss without effects on cash, including €1.6 million of depreciation and amortization, €0.1 million of change in allowances for doubtful accounts & slow-moving inventories and €0.3 million of net capital loss on disposals of assets; and €2.1 million of non-cash compensation linked to stock-based compensation plans and free shares; and
-an increase in working capital of €4.3 million primarily reflecting the increase in inventory and trade receivables linked to the higher level of sales.

In 2023, net cash used in investing activities was €4.3 million compared with net cash used in investing activities of €2.4 million in 2022.

Net cash used in investing activities of €4.3 million in 2023 reflected mainly:

-investments of €2.6 million in capitalized assets produced by the Company including devices for RPP and lease activity (€0.8 million), HIFU treatments probes (€1.5 million) and R&D programs (€0.4 million) ;
-investment of €1.2 million in property and equipment (including €0.3 million of laser and ExactVu equipment for demo, €0.7 million for IT, offices and industrial equipment and €0.1 million for vehicles); and
-investment of €0.5 million in intangible assets (licences and development of IT softwares).

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

-investments of €1.6 million in capitalized assets produced by the Company including devices for RPP activity (€0.3 million) and HIFU treatments probes (€1.2 million); and
-investment of €0.6 million in property and equipment (including €0.2 million of laser equipment for demo or RPP, €0.3 million for IT and offices equipment and €0.1 million for vehicles).

In 2023, net cash used in financing activities was €0.9 million compared with net cash generated by financing activities of €21.7 million in 2022.

Net cash used in financing activities of €0.9 million in 2023 reflected principally the net proceeds of €0.3 million from the exercise of stock options, the repayments of long-term borrowings and financing lease for €1.8 million and an increase of short-term borrowings of €0.7 million.

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.

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. 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, 2023, 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, 2023, we had no off-balance sheet arrangements.

Item 6. Directors, Senior Management and Employees

Senior Management

The following table sets forth the name, age and position of each of our senior executive officers as of March 15, 2024 (the “Senior Management”). The Senior Management 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 Management are entitled to receive severance packages totaling €1.5 million.

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Name

    

Position

 

Ryan Rhodes
Age: 62

Chief Executive Officer of EDAP TMS S.A.

Member of the Board of Directors

Chief Executive Officer of EDAP Technomed Inc.

Mr. Ryan Rhodes was appointed as Chief Executive Officer of the Company in May 2023. Mr. Rhodes was appointed as a member of the Board of Directors in August 2023. Mr. Rhodes has over 30 years of leadership experience in market development in the medical device industry, including 20 years dedicated to medical robotics.  Prior to joining EDAP, Mr. Rhodes served as the Chief Executive Officer of Restoration Robotics, a global leader in robotic aesthetic medicine, where he led the company to a successful merger with Venus Concept Inc. in 2019.  Prior to Restoration Robotics, Mr. Rhodes spent over 13 years at Intuitive Surgical, the global leader in medical robotics, where he was a key architect of the company’s multi-procedure market focus and development efforts, including the successful launch of the global Urology franchise.  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.

Ken Mobeck

Age: 53

Chief Financial Officer of EDAP TMS S.A.

Ken Mobeck was appointed as the Company’s Chief Financial Officer in January 2024. Prior to that position, Mr. Mobeck held the position of Chief Financial Officer of EDAP’s U.S. subsidiary since joining the company in December 2022. Prior to joining EDAP, Mr. Mobeck served as Vice President of Finance and Investor Relations at medical device manufacturer Accuray Inc., a leading global radiation therapy company. Prior to joining Accuray, Mr. Mobeck served as Vice President, Finance with an optical networking leader, Lumentum. Before Lumentum, he spent over two decades in positions with increasing levels of responsibility at some of Silicon Valley’s most innovative companies including Silicon Graphics, Hewlett Packard, KLA and Intel Corporation. Mr. Mobeck holds an MBA and a BSC in Finance from the Leavey School of Business at Santa Clara University.

François Dietsch

Age: 47

Chief Accounting Officer of EDAP TMS S.A.

François Dietsch was appointed as the Company’s Chief Accounting Officer in January 2024. Prior to that position, Mr. Dietsch held the position of Chief Financial Officer of the Company since July 2015. Mr. Dietsch joined EDAP in 2005 as Internal Audit and Consolidation Manager and in 2012 was promoted to Group Financial Control Manager and Finance Manager of EDAP's French subsidiary. Prior to joining EDAP he held finance positions at Valeo, a leading global supplier of components and systems to the automotive industry. He holds master’s degrees in management and Corporate Finance from University of Paris Dauphine.

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Frédéric Pech

Age: 55

President of EDAP TMS France S.A.S.

Frédéric Pech joined EDAP TMS France SAS in January 2021, as Chief Operating Officer and was appointed as President of EDAP TMS France on May 1, 2023. Prior to joining EDAP TMS France, he served as Chief Operating Officer at Metal Global Concept, a company specialized in the design and manufacturing of medical instrumentation containers for operating rooms, from 2018 to 2021. Prior to this position, he served as Human Resources Director, mainly in the medical devices industry at companies including Stryker, Tornier and Wright Medical, from 2000 to 2018. Frederic holds a master's degree in accounting, a master's degree in organization from the CNAM (Conservatoire National des Arts et Métiers), an MBA from IGS Paris (Institut de Gestion Social) and a double degree from EM Lyon business school (Certificate in Business Management and Executive Advanced Management program).

Jean-François Bachelard

Age: 60

President and Chief Executive Officer of Edaptechnomed Co. Ltd.

Jean-Francois Bachelard started his career at EDAP TMS Group in 1987 as Service Engineer. In 1989, he became Service Manager for Asia Pacific (APAC) area based in Tokyo. From 1993 to 1998, he worked for Inamed Corp. as Product Manager France (Bioenterics, gastric implants). In 1999, he reintegrated EDAP TMS Group as Area Manager Northen Europe and General Manager of EDAP TMS Moscow office. In 2009, he was appointed President & Chief Executive Officer of Edaptechnomed Co., Ltd. (Japan), based in Tokyo. He graduated from Grenoble University with a degree in Electrotechnics and Robotics.

Board of Directors

The following table sets forth the names and backgrounds of the members 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 began his term as Chief Executive Officer and Mr. Oczachowski continued 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. Rhodes’s current position as Chief Executive Officer, provided under his employment agreement). Three of the five Board members are independent within the meaning of Nasdaq Marketplace Rule 5605(2). The mandate of our Directors, other than the Chair, 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, held in 2026. The Chair’s mandate will expire in 2028.

Marc Oczachowski
Age: 54
Mandate: 6 years
Appointment: July 10, 2017 Expiration: 2028

    

Chairman of the Board. 

Marc Oczachowski joined EDAP TMS in 1997 as Area Sales Manager. From 2001 to 2004, he was General Manager of EDAP Technomed Malaysia. In 2004, he was appointed Chief Operating Officer of EDAP TMS based in Lyon, France, and became Chief Executive Officer of the Company in 2007. In 2012, he relocated in Austin, Texas (USA), for a five-year period, to manage U.S. operations and lead the FDA approval process of the Company’s HIFU devices. On March 25, 2020, he was appointed Chairman of the Board of Directors. In May 2023, following Mr. Rhodes’ appointment as Chief Executive Officer, Mr. Oczachowski continued to serve as Chairman of the Board. Mr. Oczachowski started his career as Area Sales Manager for Sodem Systems, which designed and manufactured power tools for orthopedics. He graduated from Lyon I University (Molecular Biology) and from Institut Commercial de Lyon, France.

 

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Pierre Beysson
Age: 81
Mandate: 6 years
Appointment:
September 27, 2002
(renewed in 2014 & 2020) Expiration: 2025

Pierre Beysson was appointed as a member of the Board of Directors in September 2002. From 1997 to 2003, Pierre Beysson held the position of Chief Financial Officer of Compagnie des Wagons-Lits ("CWL"), the on-board train service division of Accor, a French multinational Hotel and Business Services Group. Before CWL, Pierre Beysson held a number of senior financial positions with Nixdorf Computers, Trane (Air Conditioning), AM International (Office Equipment) and FMC (Petroleum Equipment). Pierre Beysson was trained as a CPA, has auditing experience and holds an MBA from Harvard Business School.

Marie Meynadier
Age: 62
Mandate: 6 years
Appointment: June 30, 2020 Expiration: 2025

Marie Meynadier was elected as a member of the Company’s Board of Directors in June 2020. Ms. Meynadier currently serves on the boards of directors of several medical technology companies in Europe and North America. Ms. Meynadier has been serving as a director of Pixium Vision since 2019 and as a director of Alphatec Spine since 2021. From 1999 through 2018, she served at EOS Imaging as its Chief Executive Officer and led the company through a period of rapid worldwide sales growth prior to its sale to Alphatec Holdings in 2021. Prior to EOS Imaging, Ms. Meynadier served as the Chief Executive Officer of Biospace Lab, a preclinical imaging company she developed and turned to profitability. Ms. Meynadier received a degree in electrical engineering from Sup Télécom, Paris, and her Ph.D. in physics from Ecole Normale Supérieure Ulm, Paris.

Lance Willsey
Age: 62
Mandate: 6 years
Appointment: December 6, 2023 Expiration: 2025

Dr. Lance Willsey was appointed as a member of the Board of Directors in December 2023. Dr. Lance Willsey, M.S., M.D. is a urologist who has 36 years of private and public board experience focused in the area of cancer diagnostics and therapeutics. He completed his surgical and urology training at the Massachusetts General Hospital and additional postgraduate training in the Steele Lab Harvard University and the Dana Farber Cancer Institute. Dr. Willsey is a founding Partner of Healthcare fund DCF Capital. He also actively participated in boards as a Director of Exact Sciences from 1999 to 2009 and of Exelixis from 1997 to 2023.  He also has extensive experience in corporate governance, having served on audit, compensation, finance and scientific advisory committees. Dr. Lance Willsey holds an MS and MD from Wayne University.

Ryan Rhodes
Age: 62
Mandate: 6 years
Appointment: August 23, 2023 Expiration: 2025

Chief Executive Officer. See Ryan Rhodes’ biography above.

Compensation

Aggregate compensation paid or accrued for services in all capacities by the Company and its subsidiaries to senior management and to the Board of Directors as a group (for those individuals in office during the course of the year) for the fiscal year 2023 was €2,772 thousand including performance bonuses of €301 thousand, benefits in kind of €71 thousand (benefits in kind comprise car allowances for senior management) and severance payment of €1,389 thousand. No amount was set aside or accrued by us to provide pension, retirement or similar benefits for senior management and to the Board of Directors as a group (for those individuals in office during the course of the year) for the fiscal year 2023 other that the legal retirement indemnity for French senior executives. On November 8, 2023, the Board of Directors adopted the Company’s Clawback Policy which is filed in exhibit 97.1. 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.”

50

Compensation Committee

The Compensation Committee is comprised of the following independent members: Mr. Pierre Beysson, Dr. Lance Willsey and Ms. Marie Meynadier. The Committee gathers once a year to review the compensation of our Chief Executive Officer 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. The Compensation Committee operates pursuant to a charter. The principal duties and responsibilities of our Compensation Committee include, but are not limited to:

-Make recommendations and proposals to the Board of Directors regarding compensation programs, including benefits in kind and equity compensation, for the Chief Executive Officer and members of the Board of Directors;
-Define methods used to calculate variable compensation and set objectives and assist the Board of Directors in determining whether the objectives have been met for bonuses and other types of equity or non-equity compensation plans; and
-Formulate general policies on the granting of equity compensation and recommend to the Board of Directors the granting of options and other stock awards thereunder.

For more information on the missions of our Compensation Committee, please refer to our website www.edaptms.com, under the Investor Relations Section, where our Compensation Committee Charter is available. This charter is not incorporated by reference in this annual report.

Audit Committee

The Board of Directors’ Audit Committee comprises three independent members of the Board: Mr. Pierre Beysson, acting as Head of the Audit Committee and financial expert, Ms. Marie Meynadier and Dr. Lance Willsey. The Audit Committee operates pursuant to a charter. The principal duties and responsibilities of our Audit Committee include, but are not limited to:

-Provide assistance to the Board of Directors in fulfilling their oversight responsibility to the shareholders, potential shareholders, the investment community and others relating to: the integrity of our financial statements, our compliance with legal and regulatory requirements, our accounting practices and financial reporting processes, the effectiveness of our disclosure controls and procedures and internal control over financial reporting;
-Review the independent auditor’s qualifications, compensation and independence, and the performance of our internal audit function and independent auditors;
-Recommend the appointment of the independent auditors for consideration and approval by the Company’s shareholders in accordance with French law;
-Review and discuss annual financial statements with management and the independent auditors and prepare the Audit Committee report, prior to SEC filings, as well as review related press releases; and
-Request any officer or employee of the Company or our outside counsel or independent auditor to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee.

For more information on the missions of our Audit Committee, please refer to our website 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 Nomination Committee is comprised of the following independent members: Mr. Pierre Beysson, Ms. Marie Meynadier and Dr. Lance Willsey. The Board of Directors recommends director nominees to the Board, which then submit its nominees to the shareholders for election. 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.  

The Nomination Committee operates pursuant to a charter, the terms of which apply to the Board of Directors when considering director nominees, including in the evaluation of potential candidates and in recommendations to the Board of Directors prior to submitting the candidates to the vote of shareholders. The principal duties and responsibilities of our Nomination Committee include, but are not limited to:

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-Develop and recommend to the Board of Directors appropriate criteria for the selection of individual director candidates (such as, independence, industry knowledge, fields of expertise, ability to serve as “financial expert,” leadership, diversity, etc.) and executive officers;
-Evaluate candidates in light of appropriate criteria and conduct all necessary and appropriate inquiries into the backgrounds and qualifications of potential candidates;
-Assist the Board of Directors in evaluating director independence, conflicts of interest and re-election of current directors;
-Make recommendations to the Board of Directors concerning the size and composition of the Board of Directors in order to ensure it has the necessary expertise and diversity;
-Make recommendations to the Board of Directors concerning appointees to be selected by the Board of Directors for service on its committees or removal of any member of any committee; and
-Assist the Board of Directors in ensuring adequate succession planning for our executive bodies, in particular, through the establishment of a succession plan for the chairman and Chief Executive Officer.

For more information on the missions of our Nomination Committee, please refer to our website www.edaptms.com, under the Investor Relations Section, where our Nomination Committee Charter is available. This charter is not incorporated by reference in this annual report.

Strategic Committee

The Strategic Committee is comprised of the following members: Ms. Marie Meynadier, independent Director and Head of the Committee, and Mr. Marc Oczachowski, Chairman of the Board. The Strategic Committee addresses the development and implementation of the Company’s strategic plan and the risks associated with such plan. The Strategic Committee operates pursuant to a charter. The principal duties and responsibilities of our Strategic Committee also include, but are not limited to:

-Assist in the development of EDAP’s strategy, including reviewing and discussing with management the strategic direction and initiatives of EDAP and the risks associated with EDAP’s strategy.
-Review with management the process for development, approval and modification of EDAP’s strategy and strategic plan.
-Assist the management with identifying key issues, options and external developments impacting EDAP’s strategy. Meet with management periodically to monitor EDAP’s progress against its strategic goals.
-Ensure the Board is regularly apprised of EDAP’s progress with respect to implementation of any approved strategy.
-Regularly review and reassess the adequacy of this charter and recommend any proposed changes to the Board for approval.
-Regularly review the Committee's own performance and report the results of such review to the Board.
-Perform such other duties as are necessary or appropriate to further the Committee's purposes, or as the Board may from time to time assign to it.

For more information on the missions of our Strategic Committee, please refer to our website www.edaptms.com, under the Investor Relations Section, where our Strategic Committee Charter is available. This charter is not incorporated by reference in this annual report.

Board Diversity Matrix

Board Diversity Matrix

Country of Principal Executive Offices:

France

Foreign Private Issuer

Yes

Disclosure Prohibited under Home Country Law

Yes

As of March 28, 2024

As of December 31, 2023

Total Number of Members

5

5

Gender Identity

Female

Male

Female

Male

Members

1

4

1

4

Demographic Background

Underrepresented Individual in Home Country Jurisdiction

LGBTQ+

Did Not Disclose Demographic Background

5

5

52

Employees

As of December 31, 2023, we employed 307 individuals on a full-time basis, as follows:

Sales & 

Manufac- 

Research

Regula- 

Clinical 

Adminis-

    

Marketing

    

turing

    

Service

    

 & Dvpt

    

tory

    

Affairs

    

 trative

    

Total

France

 

25

 

35

 

24

 

33

 

11

 

15

 

21

 

164

Germany

 

6

 

 

3

 

 

 

 

2

 

11

Japan

 

21

 

 

23

 

 

3

 

 

8

 

55

Malaysia

 

2

 

 

3

 

 

 

 

2

 

7

South Korea

 

2

 

 

5

 

 

 

 

2

 

9

USA

 

36

 

 

17

 

 

 

 

8

 

61

Total

 

92

 

35

 

75

 

33

 

14

 

15

 

43

 

307

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

Sales & 

Manufac-

Research

Regula-

Clinical 

Adminis

    

Marketing

    

 turing

    

Service

    

 & Dvpt

    

 tory

    

Affairs

    

 trative

    

Total

France

 

24

 

29

 

26

 

26

 

9

 

12

 

21

 

147

Italy

 

 

 

 

 

 

 

 

Germany

 

5

 

 

4

 

 

 

 

2

 

11

Japan

 

27

 

 

20

 

 

3

 

 

9

 

59

Malaysia

 

1

 

 

3

 

 

 

 

2

 

6

South Korea

 

2

 

 

4

 

 

 

 

2

 

8

USA

 

18

 

 

11

 

 

 

 

4

 

33

Total

 

77

 

29

 

68

 

26

 

12

 

12

 

40

 

264

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

Sales &

    

Manufac-

    

    

Research 

    

Regula-

    

Clinical 

    

Adminis-

    

    

 Marketing

 turing

    

Service

    

& Dvpt

    

 tory

    

Affairs

 trative

    

Total

France

 

27

 

30

 

24

 

21

 

8

 

9

 

17

 

136

Italy

 

 

 

 

 

 

 

 

Germany

 

5

 

 

3

 

 

 

 

2

 

10

Japan

 

25

 

 

17

 

 

2

 

 

6

 

50

Malaysia

 

2

 

 

3

 

 

 

 

2

 

7

South Korea

 

2

 

 

4

 

 

 

 

2

 

8

USA

 

7

 

 

6

 

 

 

 

3

 

16

Total

 

68

 

30

 

57

 

21

 

10

 

9

 

32

 

227

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, 2024, the total number of shares issued was 37,373,312 with 269,533 shares held as treasury shares, thus bringing the total number of shares outstanding to 37,103,779.

As of March 15, 2024, the Board of Directors and members of the Company’s administrative, supervisory and management bodies during 2023 held a total of 1,388,292 shares. The Board of Directors and members of the Company’s administrative, supervisory and management bodies during 2023 beneficially own, in the aggregate less than 4% of the Company’s outstanding shares.

As of March 15, 2024, the members of the Company’s administrative, supervisory and management bodies during 2023 held a total of 233,333 free shares and an aggregate of 2,167,500 options to purchase or to subscribe a total of 2,167,500 ordinary shares,

53

with a weighted average exercise price of €8.00 per share. Of these options, 240,000 will expire on April 26, 2026; 65,000 expire on April 25, 2027; 35,000 expire on August 29, 2028; 45,000 expire on April 4, 2029; 1,107,500 expire on June 11, 2031; 375,000 expire on December 15, 2032; 200,000 expire on May 2, 2033 and 100,000 expire on January 18, 2034.

Options to Purchase or Subscribe for Securities – Free Shares

Options

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 15, 2024, we had sponsored three stock purchase and subscription option plans open to employees of EDAP TMS group and two free share plans.

On December 31, 2023, the expiration of our stock options contracts was as follows:

Number of 

Date of expiration

    

Options