As
filed with the Securities and Exchange Commission on June 6,
2006
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
20-F
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the
Fiscal Year Ended December 31, 2005
0-29374
(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 Dauphine
69120
Vaulx-en-Velin, France
(Address
of principal executive offices)
Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
|
Name
of each exchange
|
|
|
Title
of each class
|
on
which registered
|
|
None
|
None
|
Securities
registered or to be registered pursuant to Section 12(g) of the
Act:
American
Depositary Shares, each
representing
one Ordinary Share
Ordinary
Shares, nominal value
€
0.13
per share
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, 2005:
7,782,731
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
o
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
o
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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o
Accelerated
filer o
Non-accelerated
filed x
Indicate
by check mark which financial statement item the registrant has elected to
follow.
Item
17 o Item
18 x
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
o
No
x
[THIS
PAGE INTENTIONALLY LEFT BLANK]
TABLE
OF CONTENTS
| Page | ||
|
Presentation
of Financial and Other Information
|
1
|
|
|
Forward-looking
Information
|
1
|
|
| PART I | ||
|
Item
1. Identity of Directors, Senior Management and Advisors
|
2
|
|
|
Item
2. Offer Statistics and Expected Timetable
|
2
|
|
|
Item
3. Key Information
|
2
|
|
|
Item
4. Information on the Company
|
9
|
|
| Item 4A. Unresolved Staff Comments | 20 | |
|
Item
5. Operating and Financial Review and Prospects
|
21
|
|
|
Item
6. Directors, Senior Management and Employees
|
33
|
|
|
Item
7. Major Shareholders and Related Party Transactions
|
39
|
|
|
Item
8. Financial Information
|
40
|
|
|
Item
9. The Offer and Listing
|
40
|
|
|
Item
10. Additional Information
|
42
|
|
|
Item
11. Quantitative and Qualitative Disclosures about Market
Risk
|
55
|
|
|
Item
12. Description of Securities Other than Equity Securities
|
55
|
|
| PART II | ||
|
Item
13. Defaults, Dividend Arrearages and Delinquencies
|
55
|
|
|
Item
14. Material Modifications to the Rights of Security
Holders and Use of Proceeds
|
55 | |
|
Item
15. Controls and Procedures
|
56
|
|
|
Item
16A. Audit Committee Financial Expert
|
56
|
|
|
Item
16B. Code of Ethics
|
56
|
|
|
Item
16C. Principal Accounting Fees and Services
|
56
|
|
|
Item
16D. Exemptions from the Listing Standards for Audit
Committees
|
57
|
|
|
Item
16E. Purchases of Equity Securities by the Issuer and
Affiliated Purchasers
|
57
|
|
| PART III | ||
|
Item
17. Financial Statements
|
58
|
|
|
Item
18. Financial Statements
|
58
|
|
|
Item
19. Exhibits
|
58
|
|
i
[THIS
PAGE INTENTIONALLY LEFT BLANK]
PRESENTATION
OF FINANCIAL AND OTHER INFORMATION
Unless
the context otherwise requires, references herein to ‘‘the Company,’’ ‘‘the
Group’’ or ‘‘EDAP TMS’’ are to EDAP TMS S.A. and its consolidated subsidiaries
and references herein to ‘‘this Annual Report’’ are to the Company’s Annual
Report on Form 20-F for the year ended December 31, 2005.
The
Company prepares its 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. Unless otherwise stated, the translations
of euro into dollars have been made at the rate of U.S.$1.00 = €0.8445, the rate
derived from the noon buying rate in The City of New York for cable transfers
in
euro as certified for customs purposes by the Federal Reserve Bank of New York
(the ‘‘Noon Buying Rate’’) on December 31, 2005. See Item 3, ‘‘Key
Information—Exchange Rates’’ for information regarding certain currency exchange
rates and 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,
Technomed, Ablatherm, Ablasonic, Ablapak, Praktis, Pulsolith and Sonolith 2000.
This Annual Report also makes references to trade names and trademarks of
companies other than the Company.
FORWARD-LOOKING
INFORMATION
This
Annual Report includes certain forward-looking statements, usually containing
words such as ‘‘believe,’’ ‘‘plan,’’ ‘‘intend,’’ ‘‘estimate,’’ ‘‘expect’’ and
‘‘anticipate’’ or similar expressions, which reflect the Company’s views about
future events and financial performance. Actual events or results may differ
materially from those projected in such forward-looking statements as a result
of various factors that may be beyond the Company’s control. These factors
include, without limitation:
|
-
|
the
effects on the Company of the intense competition existing in the
markets
in which it operates;
|
|
-
|
the
uncertainty of market acceptance for the Company’s HIFU devices;
|
|
-
|
the
uncertainty of reimbursement status;
|
|
-
|
the
clinical status of the Company’s HIFU devices;
|
|
-
|
the
impact on the Company of government regulation, particularly relating
to
public healthcare systems and the commercial distribution of medical
devices;
|
|
-
|
dependence
on the Company’s strategic partners;
|
|
-
|
reliance
on patents, licenses and key proprietary technologies;
|
|
-
|
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;
|
|
-
|
and
potential fluctuations in results of operations due to the cyclical
nature
of demand for medical devices.
|
Readers
should also consider the information contained in Item 3, ‘‘Key Information—Risk
Factors’’ and Item 5, ‘‘Operating and Financial Review and Prospects,’’ as well
as the information contained in the Company’s periodic filings with the
Securities and Exchange Commission (including the Company’s reports on Form
6-K), for further discussion of the risks and uncertainties that may cause
such
differences to occur.
1
PART
I
Item
1. Identity of Directors, Senior Management and Advisors
Not
applicable.
Item
2. Offer Statistics and Expected Timetable
Not
applicable.
Item
3. Key Information
Selected
Financial Data
The
following table sets forth selected consolidated financial data for the periods
indicated and is qualified by reference to, and should be read in conjunction
with, the Consolidated Financial Statements and the Notes thereto appearing
elsewhere in this Annual Report (the ‘‘Consolidated Financial Statements’’) and
Item 5, ‘‘Operating and Financial Review and Prospects.’’ The balance sheet data
as of December 31, 2003, 2004 and 2005 and the income statement data for the
years ended December 31, 2003, 2004 and 2005 set forth below have been derived
from the Consolidated Financial Statements. The balance sheet data as of
December 31, 2001 and 2002 and the income statement data for the year ended
December 31, 2001 and 2002 have been derived from the Company’s audited
consolidated financial statements. The Consolidated Financial Statements were
prepared in accordance with U.S. GAAP. To date, the Company has not been
required, and presently is not required under French law, to prepare
consolidated financial statements under French GAAP, nor has it prepared any
consolidated financial statements under French GAAP.
|
Year
Ended and at December 31,
|
||||||||||||||||
|
In
thousands of euro, except
per
share data
|
2001
|
2002
|
2003
|
2004
|
2005
|
|||||||||||
|
INCOME
STATEMENT DATA
|
||||||||||||||||
|
Total
revenues
|
23,965
|
19,961
|
18,473
|
22,163
|
20,810
|
|||||||||||
|
Total
net sales
|
23,804
|
19,725
|
18,030
|
21,955
|
20,717
|
|||||||||||
|
Gross
profit
|
7,979
|
8,458
|
5,379
|
8,487
|
8,497
|
|||||||||||
|
Operating
expenses
|
(13,093
|
)
|
(13,234
|
)
|
(13,500
|
)
|
(9,317
|
)
|
(9,820
|
)
|
||||||
|
Loss
from operations
|
(5,114
|
)
|
(4,776
|
)
|
(8,121
|
)
|
(830
|
)
|
(1,323
|
)
|
||||||
|
Income
(loss) before income taxes
|
8,019
|
(3,873
|
)
|
(9,090
|
)
|
(871
|
)
|
(961
|
)
|
|||||||
|
Income
tax (expense) benefit
|
(882
|
)
|
(167
|
)
|
114
|
(278
|
)
|
(104
|
)
|
|||||||
|
Net
income (loss)
|
7,137
|
(4,040
|
)
|
(8,976
|
)
|
(1,149
|
)
|
(1,065
|
)
|
|||||||
|
Basic
earnings (loss) per share
|
0.92
|
(0.52
|
)
|
(1.15
|
)
|
(0.15
|
)
|
(0.14
|
)
|
|||||||
|
Dividends
per share(1)
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
|
Weighted
average shares
|
||||||||||||||||
|
outstanding
used in basic calculation
|
7,760,044
|
7,771,467
|
7,781,731
|
7,781,731
|
7,782,731
|
|||||||||||
|
Weighted
average shares
|
||||||||||||||||
|
outstanding
used in diluted calculation
|
7,941,869
|
7,833,514
|
7,817,303
|
8,074,210
|
8,373,574
|
|||||||||||
|
Diluted
earnings (loss) per Share
|
0.90
|
(0.52
|
)
|
(1.15
|
)
|
(0.15
|
)
|
(0.14
|
)
|
|||||||
|
BALANCE
SHEET DATA
|
||||||||||||||||
|
Total
current assets
|
45,927
|
34,091
|
25,870
|
22,041
|
22,777
|
|||||||||||
|
Property
and equipment, net
|
2,233
|
1,985
|
2,903
|
2,807
|
3,130
|
|||||||||||
|
Total
current liabilities
|
11,916
|
9,880
|
11,074
|
8,272
|
9,874
|
|||||||||||
|
Total
assets
|
53,115
|
39,787
|
31,910
|
27,901
|
28,796
|
|||||||||||
|
Long-term
debt, less current portion
|
304
|
95
|
7
|
-
|
55
|
|||||||||||
|
Total
shareholders’ equity
|
38,909
|
28,375
|
18,961
|
17,964
|
17,372
|
|||||||||||
|
(1)
|
No
dividends were paid with respect to fiscal years 2001 through 2004
and
subject to approval of the annual shareholders’ meeting to be held in June
2006, the Company does not anticipate paying any dividend with respect
to
fiscal year 2005. See Item 8, ‘‘Financial Information — Dividends and
Dividend Policy.’’
|
2
EXCHANGE
RATES
Fluctuations
in the exchange rate between the euro and the dollar will affect the dollar
amounts received by owners of American Depositary Shares (‘‘ADSs’’) representing
ordinary shares of the Company (‘‘Shares’’) on conversion by the Depositary of
dividends, if any, paid on the Shares in the form of ADSs. Moreover, such
fluctuations may affect the dollar price of the ADSs on Nasdaq.
The
following table sets forth, for each of the years indicated, the high, low,
average and year-end Noon Buying Rates expressed in euro per $1.00.
|
Year
ended December 31,
|
High
|
Low
|
Average(1)
|
End
of
Year
|
||
|
€
|
€
|
€
|
€
|
|||
|
2001
|
1.19
|
1.05
|
1.12
|
1.12
|
||
|
2002
|
1.16
|
0.95
|
1.05
|
0.95
|
||
|
2003
|
1.12
|
0.79
|
0.88
|
0.79
|
||
|
2004
|
0.85
|
0.73
|
0.80
|
0.74
|
||
|
2005
|
0.86
|
0.74
|
0.81
|
0.84
|
|
(1)
|
The
average of the Noon Buying Rates on the last business day of each
month
during the year indicated. See ‘‘Presentation of Financial and Other
Information’’ elsewhere in this Annual
Report.
|
The
following table sets forth, for each of the previous six months, the high and
low Noon Buying Rates
expressed in euro per $1.00.
|
High
|
Low
|
Average
|
||||
|
€
|
€
|
€
|
||||
|
2005
|
||||||
|
November
|
0.86
|
0.83
|
0.85
|
|||
|
December
|
0.85
|
0.83
|
0.84
|
|||
|
2006
|
||||||
|
January
|
0.83
|
0.81
|
0.82
|
|||
|
February
|
0.84
|
0.83
|
0.84
|
|||
|
March
|
0.84
|
0.82
|
0.83
|
|||
|
April
|
0.83
|
0.79
|
0.81
|
On
May
18, 2006, the Noon Buying Rate was U.S.$1.00 = €0.78.
3
RISK
FACTORS
Dependence
on HIFU Technology
The
Company is dependent on its High Intensity Focused Ultrasound (‘‘HIFU’’)
technology for future growth in its revenues and net income. The Company’s
Extracorporeal Shockwave Lithotripsy (‘‘ESWL’’) line of products competes in a
mature market that has experienced declining unit sales prices in recent years,
although total revenues have remained stable owing to increased sales volumes.
In particular, the Company will be dependent on the successful development
and
commercialization of its other line of products, medical devices based on HIFU,
particularly the Ablatherm, to generate significant additional revenues and
achieve and sustain profitability in the future. The Ablatherm is in its
commercialization phase in the European Union. The Ablatherm is not approved
for
commercial distribution in the United States and none of the Company’s other
HIFU products (excluding Ablatherm) has obtained approval for commercial
distribution anywhere in the world. In December 2001, the Company’s request for
an additional Investigational Device Exemption (‘‘IDE’’) from the U.S. Food and
Drug Administration (‘‘FDA’’) to conduct clinical trials in the United States
for the Ablatherm as a primary therapy was rejected. In order to assist in
the
successful completion of clinical trials to obtain FDA approval, the Company
has
identified a U.S. partner to assist in the approval process for re-submission
of
an IDE to the FDA, with the execution of a Distribution Agreement with
HealthTronics Surgical Services, Inc. (‘‘HealthTronics’’), in February 2004.
Trials in the United States have started in May 2006 with several centers fully
approved and currently enrolling patients. The identification of HealthTronics
as the Company’s U.S. partner does not guarantee the successful completion of
clinical trials nor does it guarantee that the FDA will grant approval to market
a device if clinical trials are successfully completed. See ‘‘—Uncertainty
Relating to Clinical Trials; Clinical Status of Certain Products Using HIFU
Technology’’ and Item 4, ‘‘Information on the Company—High Intensity Focused
Ultrasound Division—HIFU Division Clinical and Regulatory Status.’’
Uncertainty
Relating to Clinical Trials; Clinical Status of Certain Products Using HIFU
Technology
Before
obtaining regulatory approvals for the commercial sale of any of its devices
under development, the Company must demonstrate through preclinical testing
and
clinical trials that the device is safe and effective for use in each
indication. The results from preclinical testing and early clinical trials
may
not predict the results that will be obtained in large scale clinical trials,
and there can be no assurance that the Company’s clinical trials will
demonstrate the safety and effectiveness of any products or will result in
marketable products. A number of companies have suffered significant setbacks
in
advanced clinical trials, even after promising results in earlier trials. The
Company, the FDA or other regulatory authorities may suspend or terminate
clinical trials at any time and regulating agencies such as the FDA may even
refuse to grant exemptions to conduct clinical trials. The Company's US partner
HealthTronics may decide to cease its cooperation with the Company under the
Distribution Agreement. See Item 4, ‘‘Information on the Company—High Intensity
Focused Ultrasound Division—HIFU Division Clinical and Regulatory
Status.’’
The
Company relies on scientific, technical and clinical data supplied by its
academic collaborators in the evaluation and development of its related devices.
There can be no assurance that there are or will be no errors or omissions
in
such data that would materially adversely affect the development of such
products.
The
process of applying for regulatory approval is unpredictable, often lengthy
and
requires the expenditure of substantial resources. There can be no assurance
that the Company’s HIFU devices that have not received regulatory approval will
prove to be effective or safe in clinical trials or will be approved by the
appropriate regulatory authorities. The Company, through its U.S. partner
HealthTronics, does not anticipate receiving FDA approval for any HIFU device,
including the Ablatherm, for several years, if at all. If the Company’s HIFU
devices do not prove to be effective and safe in clinical trials to the
satisfaction of the relevant regulatory authorities, the Company’s business,
financial condition and results of operations could be materially adversely
affected.
4
Uncertainty
of Market Acceptance of Certain Products Using HIFU
Technology
The
Company’s HIFU devices represent new therapies for the conditions that they are
designed to treat. Notwithstanding any positive clinical results that the
Company’s HIFU devices may have achieved or may achieve in the future in terms
of safety and effectiveness, and any marketing approvals that the Company may
have obtained or may obtain in the future with respect thereto, there can be
no
assurance that such products will gain acceptance in the medical community.
Physician acceptance depends, among other things, on adequate reimbursement
from
healthcare payers, which has not been provided for the Company’s HIFU products
in any country, except Italy, Germany and the UK where it is partially
reimbursed, and evidence of the cost effectiveness of a therapy as compared
to
existing therapies. Acceptance by patients depends in part on physician
recommendations, as well as other factors, including the degree of invasiveness
and the rate and severity of complications and other side effects associated
with the therapy as compared to other therapies.
Uncertain
and unpredictable liquidity and cash flow
The
Company’s cash flow has historically been subject to significant fluctuations
over the course of any given financial year due to cyclical demand for medical
devices, and the resulting annual and quarterly fluctuations in trade and other
receivables and inventories. This has in the past resulted in significant
variations in working capital requirements and operating cash flows. In 2005,
2004 and 2003, moreover, the Company’s cash flow was negative due to the cash
requirements of operating activities, which the Company financed using cash
and
cash equivalents on hand. In addition, in 2005, the Company's cash flow was
negative due to the cash requirements of investing activity to expand its mobile
activity and to expand the leasing of its products. In addition, because the
Company anticipates relying principally on cash flow from operating activities
to meet its liquidity requirements, a decrease in the demand for the Company’s
products, or the inability of the Company’s customers to meet their financial
obligations to the Company, would reduce the availability of funds to the
Company. The Company’s future cash flow may also be affected to the extent the
Company continues to expand the leasing of its products, or to expand its mobile
activity (which is invoiced on a revenue-per-procedure basis), since each of
these activities generates smaller immediate revenues than device sales. In
the
future, the Company’s liquidity may therefore be constrained and its cash flows
may be uncertain, negative or significantly different from period to period.
In
2003, the Company performed an extensive review of its business and adopted
measures designed to address its cash flow problems in the near term. There
is
no assurance, however, that these problems will not recur in the medium to
long
term.
History
of Operating Losses; Uncertainty of Future
Profitability
The
Company has incurred operating losses in each fiscal year since 1998 and may
never achieve profitability. The Company expects that its marketing, selling
and
research and development expenses will increase as it attempts to develop and
commercialize HIFU devices. The Company 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. In 2005 and
2004, the Company had positive operating income in both operating divisions
(HIFU division and UDS division), reflecting its efforts in restructuring the
Company in late 2003 and in sustained cost control and an operating loss in
its
holding Company (holding expenses). There can be no assurance, however, that
the
Company will realize sufficient revenue to sustain or increase profitability
in
the future. See Item 5, ‘‘Operating and Financial Review and
Prospects.’’
Competition
and Technological Advances
In
each
of its principal businesses, the Company faces competition both directly from
other manufacturers of medical devices that apply the same technologies as
the
Company, as well as indirectly from existing or emerging therapies for the
treatment of urological disorders. Competition in the markets in which the
Company operates is intense and is expected to increase in the
future.
The
Company believes that because ESWL has long been the standard treatment for
urinary tract calculus disease, competition in that market comes principally
from current manufacturers of lithotripters, including Siemens, Storz and
Dornier. In the markets that the Company targets for its HIFU products,
competition comes from new market entrants and alternative therapies, as well
as
current manufacturers of medical devices. In the HIFU market, the Company’s
devices, in particular the Ablatherm, compete with all current treatments for
localized tumors, which include surgery, external beam radiotherapy,
brachytherapy and cryotherapy. Other companies are working with HIFU for the
minimally invasive treatment of tumors, including Focus Surgery, Inc. (‘‘Focus
Surgery’’), which has developed a device called the Sonablate SB500 for the
treatment of localized prostate cancer. Misonix, Inc., USHIFU and UKHIFU are
also involved in the manufacturing, marketing and distribution of the Sonablate.
Insightec, an Israeli company owned mainly by General Electric and Elbit Medical
Imaging Ltd, has developed a device using HIFU technology to treat uterine
fibroids. St. Jude Medical Inc. has developed a device using HIFU to treat
atrial fibrillation. Haifu, a Chinese company developing HIFU products
addressing various types of cancers, recently signed a development partnership
agreement with Siemens Medical Solutions to offer a HIFU device coupled with
IRM
imaging system. Finally, Chinamed, a Chinese company, is also developing HIFU
products for various types of cancer tumors, but the company is only marketing
its HIFU products in China. See Item 4, ‘‘Information on the Company—High
Intensity Focused Ultrasound Division— HIFU Competition’’ and Item 4,
‘‘Information on the Company—Urology Devices and Services
Division.’’
5
Many
of
the Company’s competitors have significantly greater financial, technical,
research, marketing, sales, distribution and other resources than the Company
and may have more experience in developing, manufacturing, marketing and
supporting new medical devices. In addition, the Company’s future success will
depend in large part on its ability to maintain a leading position in
technological innovation, and there can be no assurance that the Company will
be
able to develop or enhance its products, or develop new products, to compete
successfully with new or existing technologies. Rapid technological development
by competitors may result in the Company’s products becoming obsolete before the
Company recovers a significant portion of the research, development and
commercialization expenses incurred with respect to those products.
The
Company also faces competition for its maintenance and service contracts. Larger
hospitals often utilize their in-house maintenance departments in lieu of
contracting with equipment manufacturers such as the Company. In addition,
third-party medical equipment maintenance companies increasingly compete against
equipment manufacturers by offering broad repair and maintenance service
contracts to hospitals and clinics. Increased competition by the Company’s
current or future competitors for its medical devices or its maintenance and
service contracts could have a material adverse effect on the Company’s
business, financial condition and results of operations.
Government
Regulation
Government
regulation in countries in which the Company sells its products, particularly
in
the United States, is a significant factor in the development and marketing
of
the Company’s products and in the Company’s ongoing manufacturing and research
and development activities. The Company is regulated in each of its major
markets with respect to preclinical and clinical testing, manufacturing,
labeling, distribution, sale, marketing, advertising and promotion of its
products. In order to market and sell those of its products that are still
in
the clinical trial stage, the Company will be required to obtain marketing
approval or clearance from the relevant regulatory agencies, including the
FDA
in the United States. Moreover, if regulatory approval to market a product
is
granted, such approval may entail limitations on the indicated uses for which
it
may be marketed. Failure to comply with applicable regulatory requirements
can,
among other things, 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 the Company’s products. Delays in receipt of, or failure to receive,
regulatory approvals, or the loss of previously received approvals, would have
a
material adverse effect on the Company’s business, financial condition and
results of operations. For more information on the regulation of the Company’s
business, see Item 4, ‘‘Information on the Company—Government
Regulation.’’
There
can
be no assurance that additional statutes or regulations applicable to the
Company’s business
will not be adopted, impose substantial additional costs or otherwise have
a
material adverse effect on
the
Company’s business, financial condition and results of operations.
Uncertainty
Relating to Third-Party Reimbursement
The
Company’s success is dependent upon, among other things, the extent to which
satisfactory reimbursement for the procedures performed with its devices can
be
obtained from healthcare payers in the United States and elsewhere. In the
United States, the Company is dependent upon favorable decisions by the Centers
for Medicare & Medicaid Services (‘‘CMS’’), formerly the Health Care
Financing Administration (‘‘HCFA’’), for Medicare reimbursement, individual
managed care organizations, private insurers and other payers. These decisions
may be revised from time to time, and any such revision might affect
reimbursement for the procedures performed using the Company’s devices. Outside
the United States, and in particular in the European Union and Japan,
third-party reimbursement is generally conditioned upon decisions by national
health authorities. In the European Union, there is no single procedure for
obtaining reimbursement and, consequently, relevant approvals have to be sought
in each Member State. Failure to establish sufficient reimbursement from
healthcare payers or adverse changes in governmental and private healthcare
payers’ policies could have a material adverse effect on the Company’s business,
financial condition and results of operations.
6
Lithotripsy
procedures are reimbursed in the European Union, in Japan and in the United
States. However, there can be no assurance that a decision to modify
reimbursement will not affect the Company’s business, financial conditions and
results of operations. Procedures performed with the Company’s Ablatherm device
are not reimbursed in the United States or in any of the European Union
countries with the exception of Italy, Germany and the UK, where it is partially
reimbursed, and there is no assurance that such reimbursement will be obtained.
If
reimbursement for our products is unavailable or limited in scope or amount
or
if pricing is set at unsatisfactory levels, our business could be materially
harmed.
Manufacturing
The
Company’s 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 good manufacturing practices (‘‘GMP’’)
mandated by the FDA and the European Union standards for quality assurance
and
manufacturing process control. Any failure by the Company to comply with such
regulations may have a material adverse effect on the Company’s business,
financial condition and results of operations.
Substantially
all assembly of the Company’s production currently takes place in a single
facility located in Vaulx-en-Velin, on the outskirts of Lyon, France. A
significant interruption for any reason, including but not limited to failure
to
obtain regulatory approval for manufacturing processes or in the operations
of
the Company’s sole facility could have a material adverse effect on the
Company’s business, financial condition and results of operations.
Dependence
Upon Key Suppliers
The
Company purchases the majority of the components used in its products from
a
number of suppliers but relies on a single source for several components of
its
products. In addition, the Company relies on single suppliers for certain
services. If the supply of certain components or services were interrupted,
the
Company’s manufacturing, marketing and selling of the relevant products would be
delayed. These delays could be extensive in situations where a component
substitution would require regulatory approval. The Company expects to be
dependent upon its suppliers for the foreseeable future. Failure to obtain
adequate supplies of components or services in a timely manner could have a
material adverse effect on the Company’s business, financial condition and
results of operations.
Patents,
Licenses and Proprietary Technologies
The
Company’s success depends in large part on its ability to develop proprietary
products and technologies and to establish and protect the related intellectual
property rights, without infringing the intellectual property rights of third
parties. The validity and scope of claims covered in medical technology patents
involve complex legal and factual questions and, therefore, may be highly
uncertain. The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights. The
Company’s products, including its 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 the Company’s technical and
management personnel. An adverse determination in any such litigation or
proceeding to which the Company may become a party could subject the Company
to
significant liability to third parties, require the Company to seek licenses
from third parties and to pay ongoing royalties, require the Company to redesign
certain products or subject the Company to injunctions preventing the
manufacture, use or sale of such products. In addition to being costly,
protracted litigation to defend or prosecute intellectual property rights could
result in the Company’s customers or potential customers deferring or limiting
their purchase or use of the Company’s products until resolution of such
litigation. See Item 4, ‘‘Information on the Company—High Intensity Focused
Ultrasound Division—HIFU Division Patents and Intellectual Property’’ and Item
4, ‘‘Information on the Company—Urology Devices and Services Division—UDS
Division Patents and Intellectual Property.’’
7
The
Company owns patents covering several of its technologies and has 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 the Company’s patent applications will result
in patents being issued, or that the Company’s issued patents, or any patents
which may be issued as a result of existing or future applications, will be
sufficient to provide meaningful protection or commercial advantage to the
Company. There can be no assurance that any of the Company’s patents or patent
applications will not be challenged, invalidated or circumvented in the future.
The 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 adversely affect the
Company’s business, financial condition or results of operations. Litigation may
be necessary to enforce patents issued to the Company or to determine the
enforceability, scope and validity of the proprietary rights of others. There
can be no assurance that competitors, many of which have substantial resources
and have made substantial investments in competing technologies, will not apply
for or obtain patents that will prevent, limit or interfere with the Company’s
ability to make, use or sell its products either in the United States or in
foreign markets, including its HIFU devices.
The
Company also relies on trade secrets and proprietary know-how, which it seeks
to
protect through non-disclosure agreements with employees, consultants and other
parties. There can be no assurance that those non-disclosure agreements will
not
be breached, that the Company will have adequate remedies for any breach, or
that the Company’s trade secrets will not otherwise become known to, or
independently developed by, competitors. Litigation may be necessary to protect
trade secrets or knowhow owned by the Company. 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
the
Company’s business, financial condition and result of operations.
Product
Liability Risk
The
Company faces a significant risk of exposure to product liability claims in
the
event that the use of its products results in personal injury or death, and
there can be no assurance that material product liability claims will not be
assessed against the Company in the future. To date, the Company is a party
to
two product liability actions in the United States by patients claiming to
have
been injured in the course of a Prostatron procedure, for which it has agreed
to
retain liability following the sale of the Prostatron business in October 2000.
See Item 5, ‘‘Operating and Financial Review and Prospects—Critical Accounting
Policies—Litigation’’ and Item 8, ‘‘Financial Information—Legal Proceedings’’
for more information about these actions. These product liability claims, if
successful, could have a material adverse impact on the Company.
The
Company maintains separate product liability insurance policies for the United
States and the other markets in which it sells its 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, there can
be
no assurance that product liability claims will be covered by such insurance
or
will not exceed such insurance coverage limits. Also, in the event that any
of
the Company’s products proves to be defective, the Company may be required to
recall or redesign such product. A product liability claim or series of claims
brought against the Company with respect to uninsured liabilities or in excess
of the Company’s insurance coverage, or any claim or product recall that results
in significant cost to or adverse publicity against the Company, could have
a
material adverse effect on the Company’s business, financial condition and
results of operations.
Risk
of Exchange Rate Fluctuations
The
Company sells its products in many parts of the world and, as a result, the
Company’s business is affected by fluctuations in currency exchange rates. The
Company is exposed to foreign currency exchange rate risk because the mix of
currencies in which its costs are denominated is different from the mix of
currencies in which it earns revenues. In 2005, approximately 76% of the
Company’s selling and general and administrative expenses and approximately 93%
of the Company’s research and development expenses were denominated in euro,
while approximately 42% of the Company’s sales were denominated in currencies
other than euro (primarily the U.S. dollar and the Japanese yen). The Company’s
operating profitability could be materially adversely affected by large
fluctuations in the rate of exchange between the euro and such other currencies.
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 the Company’s revenues which
may not be offset by an equal reduction in operating expenses and would
therefore negatively impact operating profitability. The Company from time
to
time enters into foreign exchange forward sale contracts to hedge against
fluctuations in the exchange rates of the principal foreign currencies in which
its 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 the Company’s results of operations. As
of December 31, 2005, the Company had three options to hedge against Japanese
yen for a total nominal amount of JPY45 million (i.e. €331 thousand), an amount
of JPY15 million each, expiring on March, June and September 2006 respectively
and two options to hedge against US$ for a total nominal amount of US$200
thousand (i.e. €160 thousand), an amount of US$100 thousand each, expiring on
February and April 2006. As of March 31, 2006, the Company had three new foreign
exchange sale contracts, one for the Japanese yen and two for U.S. dollars.
In
addition, since any dividends that may be declared by the Company will be
denominated in euro, exchange rate fluctuations will affect the U.S. dollar
equivalent of any dividends received by holders of ADSs.
8
Potential
Fluctuations in Results of Operations
The
Company’s 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 the Company’s products, changes in pricing policies by the Company or
its competitors, new product announcements by the Company or its competitors,
customer order deferrals in anticipation of new or enhanced products offered
by
the Company or its competitors, product quality problems and exchange rate
fluctuations. Furthermore, because the Company’s main products have relatively
high unit prices, the amount and timing of individual orders can have a
substantial effect on the Company’s results of operations in any given
quarter.
Item
4. Information on the Company
The
Company develops and markets Ablatherm®,
the
most advanced and clinically proven choice for High Intensity Focused Ultrasound
(HIFU) treatment of localized prostate cancer. HIFU treatment is shown to be
a
minimally invasive and effective treatment option with a low occurrence of
side
effects. Ablatherm-HIFU is generally recommended for patients with localized
prostate cancer (stages T1-T2) who are not candidates for surgery or who prefer
an alternative option and also for patients who failed a radiotherapy treatment.
The Company is also developing this HIFU technology for the treatment of certain
other types of tumors. The Company also produces and commercializes medical
equipment for treatment of urinary tract stones using Extra-corporeal Shockwave
Lithotripsy (ESWL).
History
and Development of the Company
Founded
in 1979, the Company originally specialized in the manufacturing and
distribution of lithotripters (device which uses shockwaves to disintegrate
urinary calculi) and produced the first piezo-electric lithotripter (using
electric shocks produced by a piezo-component) in 1985. In 1994, the Company
purchased most of the assets of Technomed International S.A. (‘‘Technomed’’) out
of liquidation. Technomed was established in 1985 and launched an
electrohydraulic lithotripter (using electric shocks produced by an electrode
within a hydraulic system) in 1986 and the Prostatron, a medical device using
TransUrethral Microwave Thermotherapy (TUMT) for the minimally invasive
treatment of BPH in the European Union in 1990. The assets acquired by the
Company in Technomed’s liquidation included the ownership of, and full
distribution rights to, the Prostatron, the Sonolith series of lithotripters
(Sonolith Praktis and Sonolith Vision) and the Ablatherm HIFU
device.
In
October 2000, the Company sold its Prostatron business to Urologix Inc. for
consideration consisting of approximately $12 million in common stock and
warrants to purchase additional shares of common stock and $8 million in cash.
In
July
2002, the Company reorganized its management structure and created two separate
operating divisions, the HIFU division and the UDS division. The implementation
of the new corporate structure consolidated the management structure of the
Company from a two-tiered management system with a Supervisory Board and a
Management Board into a single Board of Directors with the consolidated
management responsibilities of the two-tiered system.
9
On
February 25, 2004, the Company and HealthTronics finalized a distribution
agreement based on the terms outlined in a letter of intent. On January 28,
2005, conforming the distribution agreement and as per the approval of the
January 29, 2004 extraordinary shareholders’ meeting, 1,000,000 warrants were
allocated to HealthTronics. These warrants can be exercised upon the completion
of certain milestones linked to the grant of the Ablatherm (PMA) and certain
minimum sales of lithotripters in the United States.
On
December 29, 2005, the Company and HealthTronics entered into an amendment
to
the distribution agreement, whereby HealthTronics decided to focus all its
efforts on implementing Ablatherm clinical trials in the United States to gain
FDA approval, and not to pursue distribution of the Company's lithotripters
in
the United States. The 200,000 warrants that had been issued to HealthTronics
were then cancelled, as the conditions precedent to their exercise were directly
linked to future purchases of lithotriptors manufactured by the
Company.
The
Company’s legal name is EDAP TMS S.A. and its commercial name is EDAP TMS. EDAP
TMS S.A. was incorporated on December 3, 1979 as a société
anonyme
organized under the laws of the Republic of France for 60 years from the date
of
incorporation. The Company’s principal executive offices are located at Parc
d’Activités la Poudrette- Lamartine, 4/6, rue du Dauphiné, 69120 Vaulx-en-Velin,
France and its telephone number is +33 (0) 4 72 15 31 50. On July 1, 2004,
the
Company closed its U.S. offices, but retained EDAP Technomed Inc as a Delaware
registered company. Mr. Lee Sanderson, CPA, 945 Concord Street, Framingham,
MA01701, USA is the Company's agent for service of process.
Business
Overview & Strategy
The
Company is engaged, through its HIFU and UDS divisions, in the development,
production and marketing of minimally invasive medical devices, mainly for
urological diseases. The Company believes that the creation of these two
operating divisions has allowed it to expand its market share by optimizing
worldwide distribution capabilities, all of which is coordinated through the
Company’s subsidiaries. It also allows for cost synergies, mainly in
manufacturing and administrative expenses.
EDAP
TMS
S.A. is a holding company and is responsible for providing common services
to
its subsidiaries, performing the consolidation of the financial statements,
complying with 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.
See
Note
27 of the Notes to the Consolidated Financial Statements for a breakdown of
total sales and revenue during the past three fiscal years by operating
division.
Organizational
Structure
The
following table sets forth the fully consolidated subsidiaries of the Company
as
of the date of this Annual
Report:
|
Name
of the Company
|
Jurisdiction
of
Establishment
|
Percentage
Owned(1)
|
|
|
Technomed
Medical Systems S.A
|
France
|
100%
|
|
|
EDAP
S.A
|
France
|
100%
|
|
|
EDAP
Technomed Inc.(2)
|
United
States
|
100%
|
|
|
EDAP
Technomed Co. Ltd
|
Japan
|
100%
|
|
|
EDAP
Technomed Sdn Bhd
|
Malaysia
|
100%
|
|
|
EDAP
Technomed Srl
|
Italy
|
100%
|
|
(1)
|
Percentage
of equity capital owned by EDAP TMS S.A. directly or indirectly through
subsidiaries.
|
|
(2)
|
EDAP
Technomed Inc is still registered in the Delaware and maintained
as a
dormant company.
|
10
High
Intensity Focused Ultrasound (‘‘HIFU’’) Division
The
Company’s HIFU division consists of two wholly owned and fully consolidated
subsidiaries: EDAP S.A. (‘‘EDAP’’), a French Corporation, and EDAP Technomed
Srl, an Italian Corporation. The HIFU division also has branch offices in
Germany and Russia. The HIFU division is engaged in the development and
marketing of medical devices based on HIFU technology for the minimally invasive
treatment of urological and other clinical indications. The HIFU division had
total revenues of €7.9 million during the fiscal year ended December 31,
2005
HIFU
Division Business Overview
The
HIFU
division currently develops and markets devices for the minimally invasive
destruction of certain types of localized tumors using HIFU technology. HIFU
technology uses a high-intensity convergent ultrasound beam generated by high
power transducers to produce heat. HIFU technology is intended to allow the
surgeon to destroy a well-defined area of diseased tissue without damaging
surrounding tissue and organs, thereby eliminating the need for incisions,
transfusions and general anaesthesia and associated complications. The
Ablatherm, a HIFU-based device developed and marketed by the HIFU division
for
the treatment of organ-confined prostate cancer, referred to as T1-T2 stage.
Ablatherm can be used for patients who are not candidates for surgery or who
have failed a radiotherapy treatment. Ablatherm is approved for commercial
distribution in the European Union, Canada, South Korea and Russia, and clinical
trials in the United States have started, with the assistance of the Company’s
U.S. partner, HealthTronics. The HIFU division had a fixed installed base of
49
Ablatherm machines worldwide and 106 clinical sites were using this technology
as of March 31, 2006.
In
addition to developing and marketing HIFU devices, the HIFU division also
generates revenues from the leasing of this equipment, as well as from the
sale
of disposables, spare parts and maintenance services. The Company is developing
a HIFU mobile treatment activity which enables to provide access to the HIFU
technology without an initial investment. Hospitals and clinics perform
treatments using the devices and remunerate the Company on a
revenue-per-procedure (‘‘RPP’’) basis (i.e., on the basis of the number of
individual treatments provided). With this model, once the treatment is
established in the medical community, a permanent installation will become
more
attractive, leading to the sale of the device in some of the larger
locations.
HIFU
Division Business Strategy
The
HIFU
division’s business strategy is to capitalize on its expertise in HIFU and its
position in urology to achieve long-term growth as a leader in the development,
marketing and distribution of minimally invasive medical devices for urological
and other indications, using HIFU technology, while preserving patient quality
of life. The HIFU division believes that minimally invasive treatments using
HIFU could provide an alternative to current invasive therapies on the basis
of
reduced cost and reduced morbidity for a number of different indications. The
key elements of the HIFU division’s strategy to achieve that objective
are:
| · |
Provide
Minimally Invasive Solutions to Prostate Cancer using
HIFU.
Building upon the Company’s established position in the ESWL market of the
UDS division, the HIFU division is striving to become the leading
provider
of this minimally invasive treatment option for prostate cancer.
It
believes that there is a large market opportunity with an increase
in
incidence linked to the aging male population, an increase in screening
and recent campaigns to increase awareness. The HIFU division believes
that HIFU could represent a credible alternative to surgery, external
beam
radiotherapy, brachytherapy and cryotherapy for the treatment of
organ-confined prostate cancer without the cost, in-patient
hospitalization and adverse side effects associated with those therapies.
The HIFU division achieves this through a direct sales network in
key
European countries and through selected distributors in other European
countries, through the distribution platform of the UDS division
in Asia,
and in partnership with HealthTronics in the United States. The HIFU
division has built a strong clinical credibility based on clinical
articles published in peer reviewed journals. The Company ensures
effective patient and physician education through a focused communication
program.
|
| · |
Achieve
Long-Term Growth by Expanding HIFU Applications Beyond Prostate
Cancer.
The HIFU division’s long-term growth strategy is to apply its HIFU
technology toward the minimally invasive treatment of indications
beyond
prostate cancer. The HIFU division believes that HIFU could represent
an
alternative to surgery and radiotherapy for the treatment of many
tumors
without the cost, in-patient hospitalization and adverse side effects
associated with those therapies. The HIFU division is working on
various
other applications where HIFU could provide an alternative to current
invasive therapies. See ‘‘—HIFU Products.’’ However, the HIFU division
increased spending on research and development (‘‘R&D’’) projects in
2005 to develop HIFU applications beyond prostate cancer The division
is
considering pursuing increasing R&D spending in 2006 and onwards to
strengthen its technological leadership in HIFU and expand it beyond
urology.
|
11
HIFU
Products
Currently,
the only commercial product produced by the HIFU division utilizing HIFU
technology is the Ablatherm. The Ablatherm treats organ-confined prostate cancer
and is cleared for distribution in the European Union, South Korea, Canada,
Australia, New Zeland and Russia. Clinical trials are underway in the United
States, in partnership with HealthTronics. The Company has developed the
Ablatherm, an ultrasound guided HIFU device for the treatment of organ-confined
prostate cancer. The Ablatherm consists of a treatment module, a control table
with a computer and a computer screen, and a diagnostic ultrasound device
connected to the treatment module. After insertion of an endorectal probe,
the
physician visualizes the prostate and defines the area to be treated. The
computer automatically calculates the optimum treatment distribution of lesions.
During the treatment, the transducer automatically moves and fires at each
predefined lesion until the entire volume has been treated, while controlling
and imaging the treatment in real time thanks to its integrated imaging system.
Cell destruction by HIFU is accomplished by a combination of thermal and
cavitation effects caused by focused application of piezoelectric-generated
high-intensity ultrasound. The procedure is generally performed under spinal
anaesthesia.
HIFU
Division Patents and Intellectual Property
As
of
March 31, 2006, the HIFU division’s patent portfolio contained 56 patents
(consisting of 26 in the United States, 23 in the European Union and Japan
and 7
in Israel) covering key technologies relating to HIFU systems and associated
software.
During
2005 one patent covering obsolete technology has been abandoned in the United
States. Two new patents, one covering the HIFU dedicated coupling liquid and
the
other one covering a new probe design for extracorporeal use, have been obtained
in Europe. An additional patent covering transducer design has been granted
in
Israel. Finally a new patent covering the combination of thermal and cavitation
effect for tissue necrosis has been granted in Japan.
Additional
patents covering certain other aspects of the Company’s HIFU technology in the
European Union, the United States and Japan are still in the examination
process. Among these patents, some of them are dedicated to the development
of
small transducers for High Intensity Contact Ultrasound (HICU).
Although
the HIFU division believes that its HIFU patents are valid and should be
enforceable against third parties and that its patent applications should,
if
successfully pursued, result in the issuance of additional enforceable patents,
there can be no assurance that any or all of these patents or patent
applications will provide effective protection for the HIFU division’s
proprietary rights in such technology. The HIFU division’s HIFU devices, as they
are currently or may in the future be designed, may also be subject to claims
of
infringement of patents owned by third parties, which could result in an adverse
effect on the HIFU division’s ability to market HIFU systems.
As
part
of the reorganization of the Company into two separate operating units, the
Company transferred the assets and related intellectual property of the HIFU
research program to the HIFU division.
In
August
2004, the Company licensed its HIFU technology for the specific treatment of
the
‘‘cervicofacial’’ lesions, including the thyroid, to Theraclion, a French
company created by the former R&D Director of the Company. This license
agreement allows for the payment of certain royalties calculated on the basis
of
Theraclion’s future sales of devices. The Company determined that it could not
invest in these specific applications for the time being, and this license
agreement therefore allows Theraclion to pursue the development of HIFU for
this
application. The Company owns no interest in Theraclion.
12
HIFU
Division Clinical and Regulatory Status
The
HIFU
division has conducted an extensive clinical trial for the Ablatherm in the
European Union. This trial, the European Multicentric Study, involved a total
of
652 patients suffering from localized prostate cancer and included six sites
in
France, Germany and The Netherlands. The primary goals of the trial were to
assess the safety and effectiveness of the Ablatherm.
There
are
primarily two methods to evaluate the presence of cancerous tissue in the
prostate. The first method is based on biopsies. A sextant biopsy is performed
inside the prostate to reveal the presence of a tumor. The second method is
based on a blood test for the Prostate Specific Antigen (‘‘PSA’’), which,
although not specific to cancer tumors, measures the proliferation of cells
inside the prostate.
An
interim analysis performed on the first 559 patients included 402 patients
treated with the Ablatherm device as a first-line therapy. Of these patients,
81.4% had a normal PSA and 87.2% had negative biopsies at the last follow-up
and
were considered as cancer free. The trials also included 157 patients who
underwent an Ablatherm treatment as a salvage therapy after a previous failed
therapy (hormonotherapy, radiation or prostatectomy). Of these patients, 80.7%
and 67.9% had negative biopsies and normal PSA after treatment,
respectively.
Based
on
these results, the Company obtained, in May 1999, a CE Marking which allows
the
Company to market the Ablatherm in the European Union.
In
June
2000, the HIFU division applied for an approval by the Japanese Ministry of
Health for the Ablatherm to be marketed in Japan. The Company retrieved the
application in 2005 in order to update it and review the process. The process
of
requesting approval to market the Ablatherm in Japan might be long and may
never
result in the approval to market the Ablatherm in Japan. See Item 3, ‘‘Key
Information—Risk Factors—Dependence on HIFU Technology.’’
In
2001,
the French Urology Association (‘‘AFU’’) conducted an independent clinical trial
in order to confirm the efficacy and safety results observed in the European
Multicentric Study, and to evaluate the therapy-related costs. Patient
recruitment was successfully performed at eight investigational sites. Patient
enrolment was completed in an 11-month period with 117 patients included.
Patient follow-up is ongoing, with intermediate assessment at one year. The
two
year follow-up results were presented at the AFU congress in November 2004.
Follow-up with these patients will continue for the next two years to evaluate
the long-term efficacy of the treatment.
In
March
2004, a new treatment protocol concerning the treatment of patients who failed
radiotherapy was approved by French authorities. The Company obtained CE
Marking, which currently allows it to market this new Ablatherm treatment
option.
In
February 2004, the Company entered into a distribution agreement with a
subsidiary of HeathTronics Surgical Services, Inc. (‘‘HealthTronics’’). The
terms of the distribution agreement grant HealthTronics the right to pursue
market approval from the FDA for the Ablatherm. When and if HealthTronics
receives market approval from the FDA, HealthTronics will be granted exclusive
distribution rights for the Ablatherm in the United States. The company
continues to work with its U.S. partner, HealthTronics, in pursuit of clinical
trials for the Ablatherm device. HealthTronics
has obtained FDA approval for starting a clinical trial of Ablatherm versus
cryotherapy. The clinical trial will enroll 402 localized prostate cancer
patients in 13 centers. The first patient was enrolled on May 4, 2006.
In
2005,
a clinical trial was started in France to validate the efficacy and safety
of
Ablatherm as rescue treatment in patients after brachytherapy failure. Results
will be ready by December 2006.
HIFU
Division Manufacturing
The
HIFU
division’s policy is to subcontract the manufacture of its devices and
accessories, including disposables. The HIFU division purchases all of the
devices and accessories, including disposables used in its marketing and sales
functions, from a single supplier, Technomed, part of the UDS division of the
Company. It is the HIFU division’s belief that, since its only supplier is also
a subsidiary of the same parent, there is no significant risk associated with
the use of a single supplier.
13
HIFU
Division Quality and Design Control
The
HIFU
division has obtained the ISO 9001 (V:2000) and ISO 13485 (V:2003)
certifications which indicate compliance with international standards for
quality and design control.
The
Ablatherm is available for commercial distribution in Canada, the European
Union, South Korea, Russia, Australia and New Zeland.
HIFU
Division Market Potential
Prostate
cancer is currently the first or second most common form of cancer among men
in
many populations. In the United States, the American Cancer Society estimates
that approximately 232,090 new cases of prostate cancer were diagnosed in 2005
and that there will be approximately 234,460 new cases of prostate cancer
diagnosed in 2006, out of which an estimated 70% diagnosed with localized
prostate cancer. Additionally, the HIFU division believes, based on figures
provided by the World Health Organization, that the worldwide incidence of
localized prostate cancer is approximately twice this U.S. figure. A more
effective diagnostic method for prostate cancer, the PSA test, has increased
public awareness of the disease in developed countries since its introduction.
The PSA test measures the blood level of a protein, the PSA, which is produced
only by the prostate. 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.
If
the
efficacy of HIFU therapy is established, the HIFU division believes that its
application could be expanded to other indications, such as certain localized
thyroid, breast, gynaecological, bladder, kidney, liver, brain, pancreatic
and
retroperitoneal tumors. However, the expansion of HIFU to other indications
will
require a significant investment in research and development by the Company,
an
investment which the Company will be undertaking gradually while focusing on
the
acceptance of HIFU as a treatment for localized prostate cancer.
HIFU
Competition
The
principal current therapies for prostate cancer carry side effects that can
very
seriously affect a patient’s quality of life. One of the current therapies is
radical prostatectomy (surgery), which involves the ablation of the entire
prostate gland. Radical prostatectomy requires several days of hospital stay
and
several weeks of recovery, usually with catheterization, and may result in
partial and/or total urinary incontinence. In addition, it almost invariably
renders patients impotent. A new surgical technique, nerve-sparing
prostatectomy, has been developed to address that problem. However, the
procedure can only be applied when the tumor is not located close to the surface
of the prostate and requires a very skilled surgeon. Other therapies for
localized prostate cancer include brachytherapy, a therapy that involves the
implantation of radioisotopes into the prostate gland, external beam
radiotherapy and cryotherapy.
The
HIFU
division’s devices compete with all current treatments for localized tumors,
which include surgery, brachytherapy, radiotherapy, cryotherapy and
hormonotherapy. The HIFU division believes that HIFU competes against those
treatments on the basis of efficacy, limited side effects and
cost-effectiveness.
Other
companies are working with HIFU for the minimally invasive treatment of tumors,
including Focus Surgery, which has developed a device called the Sonablate
SB500
for the treatment of localized prostate cancer. Misonix, USHIFU and UKHIFU
are
also involved in the manufacturing, marketing and distribution of the Sonablate.
Insightec, an Israeli Company held mainly by General Electric and Elbit Medical
Imaging, has developed a device using HIFU technology to treat uterine fibroids.
St. Jude Medical has developed a device using HIFU to treat atrial fibrillation;
Haifu, a Chinese company developing HIFU products addressing various cancers
recently signed a development partnership agreement with Siemens Medical
Solutions to offer a HIFU device coupled with IRM imaging system. Finally,
Chinamed, a Chinese company is also developing HIFU products for various types
of cancer tumors, but the company is only marketing its HIFU products in China.
Certain existing and potential competitors of the HIFU division may have
substantially greater financial, research and development, sales and marketing
and personnel resources than the HIFU division or its parent and may have more
experience in developing, manufacturing, marketing and supporting new products.
The HIFU division believes that an important factor in the potential future
market for HIFU treatments will be the ability to make the substantial
investments in research and development in advancing the technology beyond
the
treatment of prostate cancer. This future investment is wholly dependent on
the
successful acceptance of the device for the treatment of prostate
cancer.
14
HIFU
Division Sales and Distribution of Products
The
HIFU
division markets and sells its products through its own direct marketing and
sales organization as well as through third-party distributors and agents.
The
HIFU division established direct marketing and sales forces in France, Germany,
Russia and Italy, which currently represent EDAP’s largest markets. The Company
opened a direct representative office in Moscow to increase its penetration
of
this large, key market. Additionally, the HIFU division markets and sells its
products through the Company’s UDS division’s distribution platform in South
Korea and South East Asia and further markets its products through selected
agents and third-party distributors in several countries. The Company finalized
its partnership in the United States with HealthTronics in February 2004.
HealthTronics is now responsible for U.S. clinical trials, and it has exclusive
distribution rights in the United States for the Ablatherm, when and if it
receives FDA approval.
The
HIFU
division’s customers are located worldwide and have historically been
principally public and private hospitals and urology clinics. The HIFU division
believes that as it increases its customer base it will gain further access
to
the urological community, which will enable it to monitor the urological market,
introduce new products and conduct trials under satisfactory conditions. No
single customer of the HIFU division represents a significant portion of the
division’s installed base; however, if the partnership with HealthTronics is
successful, HealthTronics could become a significant customer of the HIFU
division in the future.
The
HIFU
division’s marketing efforts include the organization of training programs for
urologists worldwide and education of patients on the availability of HIFU
technology to treat localized prostate cancer, through a comprehensive media
and
web program.
Urology
Devices and Services (‘‘UDS’’) Division
The
UDS
division consists of four wholly owned and fully consolidated subsidiaries
of
the Company: TechnomedMedical Systems S.A. (‘‘TMS’’), a French corporation, EDAP
Technomed Co. Ltd, a Japanese corporation, EDAP Technomed Sdn Bhd, a Malaysian
corporation and EDAP Technomed Inc., a U.S. corporation. The UDS division also
includes a South Korean branch office, Technomed Korea. The UDS division is
engaged in the development, marketing, manufacturing and servicing of medical
devices for the minimally invasive diagnosis or treatment of urological and
other clinical indications. The UDS division had total revenues of €16.2 million
during the fiscal year ended December 31, 2005.
UDS
Division Business Overview
The
UDS
division’s primary business is producing and marketing devices, known as
lithotripters, for the treatment of urinary tract stones by means of ESWL
technology. ESWL uses extracorporeal shockwaves, which can be focused at urinary
stones within the human body, to fragment urinary stones, thereby permitting
their natural elimination and preventing the need for incisions, transfusions,
general anaesthesia, and the resulting complications. The UDS division currently
manufactures two models of lithotripters: the Sonolith Praktis, which is
available for commercial distribution in the European Union, Japan, Canada
and
the United States, and the Sonolith Vision, which is available for commercial
distribution in the European Union, Japan and Canada only. The UDS division
had
an installed base of 424 ESWL lithotripters worldwide as of March 31,
2006.
In
addition to its manufacturing and selling of lithotripters, the UDS division
also generates revenues from the leasing of lithotripters, as well as from
the
sale of disposables, spare parts and maintenance services, including the
maintenance and services business of HIFU-related devices and accessories on
behalf of the HIFU division. The UDS division, as an additional part of its
contract manufacturing business, manufactures HIFU related devices and
accessories, including disposables, on behalf of the HIFU division. It also
derives revenues from the distribution of Prostatron parts and related services,
in Japan and Italy under the Distribution Agreement entered into with Urologix
in October 2000.
Under
the
Supply Agreement entered into with Urologix in connection with the sale of
the
Company’s Prostatron business in October 2000, the UDS division previously
manufactured certain components of the Prostatron. Although the Supply Agreement
expired in October 2003, the UDS division continued to manufacture machines
on
behalf of Urologix in 2004 to produce the machines that had been ordered prior
to the expiration of the Agreement. In 2005, no more machines were manufactured
and the UDS division does not expect to generate any additional revenues from
the supply of machines to Urologix. The UDS division expects to derive only
a
small amount of revenues related to the sales of Prostatron parts.
15
UDS
Division Business Strategy
The
UDS
division’s business strategy is to capitalize on its expertise in ESWL and its
position in urology to achieve long-term growth as a leader in the development,
production, marketing and distribution of minimally invasive medical devices
for
urological and other clinical indications. To achieve this strategic goal,
the
UDS division intends to capitalize and expand on its expertise as the
manufacturer of minimally invasive devices such as its ESWL lithotripters and
HIFU devices. The UDS division manufactures the Ablatherm and the disposable
Ablapack on behalf of the HIFU division. All the costs related to the
manufacturing of these machines are supported by the UDS division, which
invoices the HIFU division at cost plus a margin and records the sales of the
devices as revenues. The key elements of the UDS division’s strategy
are:
| · |
Capitalize
on the Current ESWL Installed Base. The UDS division’s long-term growth
strategy relies on its ability to capitalize on its extensive installed
base of ESWL lithotripters to recognize ongoing revenue from sales
of
disposables, accessories, services and replacement machines. The
UDS
division believes that a combination of continued investment in lowering
end-user costs and offering units that are easily adaptable to various
treatment environments, and a commitment to quality and service will
allow
the UDS division to achieve this goal. See ‘‘—UDS Division
Products’’
|
| · |
Capitalize
on an Established Distribution Platform in Urology by Expanding
Distribution Possibilities. The UDS division believes that it can
achieve
additional long-term growth by offering its established distribution
platform in urology to other developers of medical technologies and
acting
as a distributor for their devices. The UDS division’s distribution
platform in urology consists of a series of well-established subsidiaries
in Europe and Asia as well as a network of third-party distributors
worldwide.
|
| · |
Provide
Manufacturing Solutions to Other Developers of Medical Technologies.
Building upon its established position in the high-tech medical devices
market, the UDS division believes that it can become a provider of
manufacturing alternatives to other developers of medical technologies
that do not have or do not wish to invest in their own manufacturing
facilities. The UDS division believes that its FDA-inspected and
ISO 9001
(V:2000) and ISO 13485 (V:2003) certified facilities allow it to
offer
manufacturing services to a wide range of potential medical equipment
developers.
|
UDS
Division Products
The
UDS
division offers the Sonolith Praktis to small and mid-size hospitals, while
the
Sonolith Vision is offered to large hospitals which can afford a fully dedicated
and integrated lithotripter. The UDS division also sells disposable parts for
lithotripters, including the piezo-electric elements of the LT02 (although
the
manufacturing of new machines was discontinued in 2002) and the electrodes
of
the Sonolith line, which need to be replaced approximately every year and
approximately every ten treatments, respectively. These parts incorporate key
proprietary technologies, and the UDS division has retained sole marketing
rights for these parts.
16
|
Product
|
Procedure
|
Development
Stage
|
Clinical
and Regulatory Status
|
|
Sonolith
|
Electroconductive
|
Commercial
|
Approved
for distribution:
|
|
Praktis
|
treatment
of
|
Production
|
European
Union
|
|
compact
lithotripter
|
urinary
stones
|
Japan
|
|
|
United
States
|
|||
|
Canada
|
|||
|
Russia
|
|||
|
South
Korea
|
|||
|
Australia
|
|||
|
New
Zeland
|
|||
|
Sonolith
Vision
|
Electroconductive
|
Commercial
|
Approved
for distribution:
|
|
treatment
of
|
Production
|
European
Union
|
|
|
urinary
stones
|
Japan
|
||
|
Canada
|
|||
|
South
Korea
|
|||
|
Australia
|
|||
|
New
Zeland
|
The
Sonolith Praktis and the Sonolith Vision rely on an electroconductive technology
for shockwave generation. The electroconductive technology, which is derived
from the electrohydraulic technology on which the first ESWL lithotripters
were
based, permits improved focusing of the shockwave, reduces the variability
in
the shockwave pressure and allows a better transfer of energy to the calculus,
resulting in faster, more effective treatment as compared to electrohydraulic
lithotripters.
The
UDS
division’s ESWL customers are located worldwide and have historically been
principally large hospitals, urology clinics and research institutions. In
order
to increase its penetration of the market segment of smaller hospitals and
outpatient clinics, the UDS division developed the Sonolith Praktis, an
electroconductive lithotripter designed for smaller clinics which is more
compact than the Sonolith Vision, a fully dedicated and integrated
electroconductive lithotripter for larger hospitals.
UDS
Division Patents and Intellectual Property
As
of
March 31, 2006, the UDS division’s patent portfolio contained 16 patents
(consisting of 6 in the United States, 8 in the European Union and Japan and
2
in Israel) covering key technologies relating to ESWL systems and associated
software capabilities.
During
2005, one patent covering obsolete technology has been abandoned in the United
States.
Additional
patents covering certain other aspects of the Company’s ESWL electroconductive
and piezoelectric technologies in the European Union, the United States and
Japan are still in the examination process.
The
UDS
division’s patents in ESWL cover certain technologies relating to the
association of a piezoelectric treatment head with an ultrasound imaging probe,
as well as the electrodes for the Sonolith line. Following the settlement in
1989 of patent infringement actions against Richard Wolf GmbH and Diasonics
Inc., TMS granted both companies a non-exclusive license to use its patented
technology. The related patent expired in 2004, and thus the corresponding
license is no longer valid. The UDS division’s ongoing research and development
objectives in ESWL are to further increase the cost-effectiveness and clinical
efficacy of its products.
UDS
Division Regulatory Status
The
Sonolith Praktis is available for commercial distribution in the United States,
Canada, the European Union, South Korea, Australia, New Zeland and Japan. The
Sonolith Vision is available for commercial distribution in the European Union,
Canada, South Korea, Australia, New Zeland and Japan. The UDS division continues
to provide disposables, replacement parts and services for the current installed
base of LT02 machines, even though the Company has discontinued the manufacture
of these machines.
UDS
Division Market Potential
The
Company estimates that roughly 2% to 3% of the world population suffers from
kidney or urethral stones during their lifetime. Urinary calculi are responsible
for 10% of urological hospital admissions worldwide. Although urinary calculi
may be eliminated naturally by the body, natural elimination is frequently
accompanied by considerable pain and very often by serious complications, such
as obstruction and infection of the urinary tract.
17
Since
its
introduction in clinical practice nearly 20 years ago, ESWL has become the
standard treatment for urinary calculi. ESWL consists of fragmenting calculi
within the body using extracorporeal shockwaves without any surgery. The UDS
division believes that the market for lithotripters includes both buyers looking
for a sophisticated, higher-priced machine, generally hospitals and larger
urology clinics, and buyers looking for simpler and less expensive machines,
typically smaller clinics. The UDS division believes that after a period of
fast
growth in the mid-1980s and early 1990s, the market for lithotripters is now
mature and has become primarily a replacement and service and maintenance
market.
The
UDS
division believes that companies with a large installed base of ESWL
lithotripters will be most successful in the replacement market. Consequently,
the Company intends to capitalize on its share of the installed base of ESWL
lithotripters to gain a significant position in the replacement market for
those
machines. The Company expects the ESWL business to continue to contribute,
at
historically consistent levels, to the UDS division’s financial results despite
the mature nature of the market, due to revenues from maintenance contracts
and
demand for replacement machines. See Item 5, ‘‘Operating and Financial Review
and Prospects.’’
UDS
Division Competition
The
ESWL
market is characterized by severe price competition among manufacturers, with
the result that, in recent years, the average unit price of ESWL lithotripters
has declined. The UDS division expects this trend to continue. See Item 5,
‘‘Operating and Financial Review and Prospects.’’ The UDS division’s major
competitors in developed countries are Siemens, Storz and Dornier.
UDS
Division Sales and Distribution of Products
The
UDS
division markets, sells and services its products through its own direct sales
and service
organization as well as through third-party distributors and agents. The UDS
division has an established direct sales and service platform in France, Italy,
Japan, South Korea and Malaysia and markets its products through agents and
third-party distributors in several countries. In December 2002, the UDS
division closed its direct sales and service office in the United States. As
of
February 2004, HealthTronics has been appointed distributor in the United States
for the Company’s Sonolith Praktis lithotripters. As part of the Company’s
Agreement with HealthTronics related to their responsibility in obtaining the
FDA approval for the Ablatherm device, HealthTronics has been entitled to
exercise part of the warrants granted to them if they purchased a certain number
of lithotripters per year. On December 29, 2005, HealthTronics decided to focus
all its efforts on implementing Ablatherm clinical trials in the United States
to gain FDA approval, and not to pursue distribution of the Company's
lithotripters in the United States. The 200,000 warrants that had been issued
to
HealthTronics were then cancelled, as the conditions precedent to their exercise
were directly linked to future purchases of lithotripters manufactured by the
Company.
The
UDS
division’s customers are located worldwide and have historically been
principally public and private hospitals and urology clinics. It believes that
its customer base provides it with excellent access to the urological community
and enables it to monitor the urological market, introduce new products and
conduct trials under satisfactory conditions. No single customer of the UDS
division represents a significant portion of the division’s installed base. The
UDS division’s marketing efforts include the organization of training programs
for urologists worldwide.
UDS
Division Manufacturing Services and Distribution
The
UDS
division manufactures the Ablatherm on behalf of the HIFU division and
Prostatron spare parts for Urologix. It believes that it can extend its
outsourced services to provide device and disposable development and
manufacturing services to a wide range of medical equipment development
companies. The UDS division’s current operations consist of custom design,
development and manufacture of medical products, in its manufacturing facility
that is FDA-approved and certified under international standards ISO 9001 and
ISO 13485.
The
UDS
division is also pursuing various distribution options that use its strong
network of worldwide subsidiaries and agents. Currently, the UDS division
distributes products on behalf of Urologix in Italy and Japan, on behalf of
Andromeda in Japan, and on behalf of the HIFU division in Malaysia and South
Korea. The UDS division believes that it can successfully market its worldwide
distribution platform to a wide range of medical equipment development
companies, thus allowing for quick, easy and economically sound entry for these
companies into markets, covering most of the world.
18
UDS
Division Manufacturing
The
UDS
division’s policy is to manufacture the critical components for its devices and
accessories (unless a subcontractor can manufacture the component more
cost-effectively ) perform final assembly and quality control processes and
maintain its own set of production standards. The UDS division purchases the
majority of the raw materials used in its products from a number of suppliers,
but for several components of its products, relies on a single source. The
UDS
division’s policy is to conduct regular quality audits of suppliers’
manufacturing facilities. The UDS division’s principal suppliers are located in
France, Germany, Denmark, Korea and the United States. Management believes
that
the relationships between the UDS division and its suppliers are
good.
In
addition, the manufacturing operations of TMS (a French corporation that is
the
primary manufacturing organization of the UDS division) must comply with the
GMP
regulations enacted by the FDA, which establish requirements for assuring
quality by controlling components, processes and document tractability and
retention, among other things. TMS’s facilities are also subject to scheduled
inspections by the FDA. TMS has obtained the ISO 9001 (V:2000) and ISO 13485
(V:2003) certifications, which indicate compliance by TMS’s manufacturing
facilities with international standards for quality assurance, design and
manufacturing process control. TMS also complies with the applicable
requirements that will allow it to affix the CE Marking to certain of its
products. See ‘‘—Government Regulation—Healthcare Regulation in the United
States’’ and ‘‘—Government Regulation—Healthcare Regulation in the European
Union.’’
Property
and Equipment
The
Company has one principal facility, which is located in Vaulx-en-Velin, on
the
outskirts of Lyon, France. The premises comprise 3,740 square meters and are
rented under a renewable nine-year commercial lease agreement. The Company
believes that the terms of the lease reflect commercial practice and market
rates. The manufacturing facility, and principal offices, which the Company
utilizes to manufacture and/or assemble all of its products, has ISO 9001 and
ISO 13485 certifications. The Company is not aware of any environmental issues
that could affect utilization of the facility.
In
addition, the Company rents office and/or warehouse facilities in Kuala Lumpur
(Malaysia), Rome (Italy), Flensburg (Germany), Moscow (Russia), Seoul (South
Korea), Fukuoka, Osaka, Saporo and Tokyo (Japan).
Government
Regulation
Government
regulation in the Company’s major markets, in particular the United States, the
European Union and Japan, is a significant factor in the development and
marketing of the Company’s products and in the Company’s ongoing research and
development activities. The Company is principally subject to regulation of
medical devices and of the healthcare system.
Healthcare
Regulation in the United States
The
Company and its products are regulated in the United States by the FDA under
a
number of statutes including the Federal Food, Drug and Cosmetic Act (‘‘FDC
Act’’). Pursuant to the FDC Act, the FDA regulates the preclinical and clinical
testing, manufacturing, labeling, distribution, sale, marketing, advertising
and
promotion of medical devices in the United States. Medical devices are
classified in the United States into one of three classes, Class I, II or III,
on the basis of the controls reasonably necessary to ensure their safety and
effectiveness. Class I devices are those whose safety and effectiveness can
be
ensured through general controls, such as labeling, premarket notification
(known as ‘‘510(k)’’) and adherence to FDA-mandated GMP. Class II devices are
those whose safety and effectiveness can reasonably be ensured through the
use
of ‘‘special controls,’’ such as performance standards, post-market
surveillance, patient registries and FDA guidelines. Class III devices are
those
that must receive premarket approval (‘‘PMA’’) by the FDA to ensure their safety
and effectiveness. Except for the lithotripsy range of products, which has
been
recently reclassified by the FDA as a Class II device, all of the Company’s
products are classified as Class III products. Before a new Class III device
may
be introduced on the market, the manufacturer generally must obtain FDA approval
of a PMA. The PMA process is expensive and often lengthy, typically requiring
several years, and may never result in approval. The manufacturer or the
distributor of the device must obtain an IDE from the FDA prior to commencing
human clinical trials in the United States in support of the PMA.
19
Advertising
and promotional activities in the United States are subject to regulation by
the
FDA and, in certain instances, by the Federal Trade Commission. The FDC Act
also
regulates the Company’s quality control and manufacturing procedures by
requiring the Company to demonstrate and maintain compliance with current GMP
regulations. The Company’s manufacturing facilities are in compliance with GMP
regulations. No major deficiencies have been observed during inspections carried
out by FDA auditors in the past few years.
Healthcare
Regulation in the European Union
In
the
European Union, the Company has received the ISO 9001 (V:2000) and ISO 13485
(V:2003) certifications, showing that the Company complies with standards for
quality assurance and manufacturing and design process control. In the European
Union, the Company’s products are also subject to legislation implementing the
European Union Council Directive concerning medical devices (the ‘‘Medical
Device Directive’’). The Medical Device Directive provides that medical devices
that meet certain safety standards must bear a certification of conformity,
the
‘‘CE Marking.’’ Except in limited circumstances, Member States may not prohibit
or restrict the sale, free movement or use for its intended purpose of a medical
device bearing the CE Marking. Medical devices marketed throughout the European
Union must comply with the requirement of the Medical Device Directive to bear
a
CE Marking (subject to certain exceptions). All of the Company’s products bear
the CE Marking.
Pursuant
to the Medical Device Directive, medical devices are classified into four
classes, Class I, Class IIa, Class IIb and Class III, on the basis of their
invasiveness and the duration of their use. The classification serves as a
basis
for determining the conformity assessment procedures which apply to medical
devices in order to be eligible to receive a CE Marking. The conformity
assessment procedures for Class I devices can be carried out, as a general
rule,
under the sole responsibility of the manufacturer, while for devices of other
classes, the involvement of an authorized supervisory body is required. The
extent of the involvement of such body in the development and manufacturing
of a
device varies according to the class under which it falls, with Class III
devices being subject to the greatest degree of supervision. All of the devices
currently marketed by the Company are Class IIb devices.
Healthcare
Regulation in Japan
The
import and sales of medical devices in Japan is regulated by the Ministry of
Health, Labour and Welfare (‘‘the MHLW’’) under the license "Marketing
Authorization" for the importer. The Company’s Japanese subsidiary has obtained
a general license and has also obtained a specific approvals to import those
of
the Company’s products that are approved in Japan. The MHLW also administers
various national health insurance programs to which each Japanese citizen is
required to subscribe. These programs cover, inter alia, the cost of medical
devices used in operations. The MHLW establishes a price list of reimbursable
prices applicable to certain medical devices under the national health insurance
programs and, until a new device is included in this list, its costs are not
covered by the programs. The LT02, the SONOLITH Praktis, the SONOLITH Vision
and
the Prostatron are all included on the MHLW’s list for
reimbursement.
Item
4A. Unresolved Staff Comments.
None.
20
Item
5. Operating and Financial Review and Prospects
The
following discussion of the results of operations and liquidity and capital
resources of the Company with respect to the fiscal years ended December 31,
2005, 2004 and 2003 is based on the Consolidated Financial Statements included
elsewhere in this Annual Report and should be read in conjunction with the
Consolidated 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. See ‘‘Forward-Looking Information’’ elsewhere in this
Annual Report.
Critical
Accounting Policies
The
Company’s discussion and analysis of its financial condition and results of
operations are based upon the Consolidated Financial Statements, which have
been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to revenue recognition, accounts receivable,
bad debts, inventories, warranty obligations, litigation and deferred tax
assets. The Company bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
The
Company believes its more significant judgments and estimates used in the
preparation of its Consolidated Financial Statements are made in connection
with
the following critical accounting policies.
Revenue
Recognition
The
Company recognizes revenues from the sale of equipment at the point where no
significant vendor obligation, payment contingent upon customer financing or
acceptance criteria that can be subjectively interpreted or tied to the use
of
the equipment exist, and when title to the machine passes (depending on the
terms of the contract, either upon shipment or delivery) to the customer who
has
the intent and ability to pay in accordance within the fixed and determinable
contract terms. For sales that do not immediately meet all of the criteria
for
recognition at the time of shipment or delivery (as the contract terms dictate)
revenue is recognized when the contingency is resolved.
Revenues
related to service and maintenance contracts are recognized when services are
rendered. Billings or cash receipts in advance of service due under maintenance
contracts are recorded as deferred revenue and are recognized in equal monthly
installments over the course of the contract.
Revenues
related to the leasing of devices are recognized on a linear basis. Revenues
related to the sale of Ablatherm treatments invoiced on a
"revenue-per-procedure" (‘‘RPP’’) basis are recognized once the treatment has
been completed.
Warrants
In
accordance with EITF 96-18, the Company accounts for the warrants issued to
HealthTronics under the distribution agreement based on their fair value
measured at the date of milestone achievement. The related amount, which is
a
non-cash charge, is then recorded either as an operating expense (specifically,
a clinical trial expense) for warrants that vest when HealthTronics achieves
a
milestone in the FDA approval process for the Ablatherm, or as a reduction
of
revenue if the warrants vest as a result of HealthTronics purchase of a
specified number of lithotripters or Ablatherm.
The
Company uses the Black-Scholes options pricing model to determine the fair
value
of the warrants that vest pursuant to the distribution agreement. The model
was
developed to estimate the fair value of traded options that have no vesting
restrictions and are fully transferable. The application of the model to the
warrants therefore requires the use of subjective assumptions, including
historical share price volatility, the expected life of the warrants and the
Company's risk-free interest rate. A change in one or more of these assumptions
could result in a material change to the estimated fair value of the vested
warrants.
21
Warranty
The
Company provides for the estimated cost of equipment warranties, which are
generally for a period of one year, in full at the time revenue from the
equipment sale is recognized. While the Company engages in product quality
programs and processes, its warranty obligation is affected by product failure
rates, material usage and service delivery costs incurred in correcting a
product failure. Should actual product failure rates, material usage or service
delivery costs differ from the Company’s estimates, revisions to the provision
for estimated warranty liability would be required.
Accounts
Receivable
The
Company generates a majority of its revenues and corresponding accounts
receivable from sales of medical equipment, spare parts, maintenance and service
to public and private hospitals and physicians worldwide. The Company performs
initial credit evaluations of its customers and adjusts credit terms based
upon
customers’ creditworthiness as determined by such things as their payment
history, credit ratings and the Company’s historical experiences.
Allowance
for Doubtful Accounts
The
Company evaluates the collectibility of its accounts receivable based on the
individual circumstances of each customer on a quarterly basis. In circumstances
where the Company is aware of a specific customer’s inability to meet its
financial obligations to the Company (e.g., bankruptcy filings, substantial
downgrading of credit scores), the Company records a specific reserve for bad
debts against amounts due to reduce the net recognized receivable to the amount
the Company reasonably believes it will collect. If circumstances change (i.e.
higher than expected defaults or an unexpected material adverse change in a
major customer’s ability to meet its financial obligations to the Company), the
Company’s estimates of the recoverability of amounts due to it could be reduced
by a material amount.
Inventories
On
an
annual basis, the Company analyses its inventories for obsolescence and upon
identification of obsolete stock the Company records a full valuation reserve.
Inventories are stated at the lower of costs, determined by the first-in,
first-out (‘‘FIFO’’), or market. The Company’s inventory valuation policy is
based on a review of forecasted demand compared with existing inventory levels.
At December 31, 2003, the Company determined that it had certain inventories
that were not appropriately valued and therefore reserved €0.6 million against
these inventories. At December 31, 2004, the Company determined that it had
certain inventories that were not appropriately valued and therefore reserved
€0.3 million against these inventories. At December 31, 2005, the Company
determined that it had certain inventories that were not appropriately valued
and therefore reserved €0.4 million against these inventories.
Litigation
The
Company is currently a defendant in two legal proceedings, both of which are
associated with product liability matters. During 2004, the Company settled
a
claim alleging a patient was injured during a Prostatron treatment procedure.
The cost for settling this claim, $0.5 million, was covered by the Company's
product liability insurance. Additionally, in 2003, the Company settled one
claim (at a cost that was not material to it) and was found ‘‘not guilty’’ on
another claim alleging fraud related to the sale of medical equipment brought,
separately, against two of its subsidiaries. The Company believes that the
patients’ claims in the product liability matters against the Company are
without merit. In addition, if the claims against the Company are successful,
the Company believes any potential damages assessed against it would be covered
by insurance and/or by a contribution obligation of the physicians and/or the
organization which provided services with the product. However, these product
liability claims could have a material adverse impact on the Company. It is
possible, moreover, that future results of operations for any particular
quarterly or annual period could be materially affected by changes in its
assumptions related to these proceedings. It is the policy of the Company,
in
the case of product liability litigation, to recognize the full amount of the
self-insurance portion of the Company’s product liability insurance, unless a
separate indemnification is being sought.
22
Deferred
Tax
As
of
December 31, 2005, the Company had approximately €7 thousand deferred tax
liabilities principally related to the impact of temporary differences between
the amounts of assets and liabilities reported for financial reporting purposes
and such amounts as measured in accordance with tax laws.
The
Company also has a history of operating loss carryforwards with various future
expirations. However, it is the Company’s policy to recognize a full valuation
reserve against these deferred tax assets because the Company cannot be assured
of future operating profits sufficient to utilize these assets before their
expiration.
Operating
Results
Overview
Total
revenues include sales of the Company’s medical devices and sales of
disposables, spare parts, supplies and services, both net of commissions, as
well as other revenues.
Net
sales
of medical devices have historically been comprised of net sales of Prostatrons,
ESWL lithotripters and Ablatherms. With respect to lithotripter revenues, the
Company booked in 2004 and 2005 a non-cash charge as a reduction of revenue
as
the warrants it granted to HealthTronics under the distribution agreement vested
as a result of HealthTronics purchase of a certain number of lithotripters.
On
December 29, 2005, HealthTronics decided not to pursue the distribution of
the
Company's lithotripters in the US. Therefore net sales of lithotripters will
not
be impacted anymore in the future by the vesting of warrants to HealthTronics
upon the purchase of a specified number of lithotripters. With respect to
Ablatherm revenues from sales of Ablatherm devices in 2005, the Company incurred
a non-cash charge as a reduction of revenue as a specific category of warrants
the Company granted to HealthTronics under the distribution agreement vested
as
a result of HealthTronics’ purchase of an Ablatherm device in 2005. No more
warrants are directly linked to the purchase of additional Ablatherm devices
and
future revenues from sales of Ablatherm will not be offset by charges for the
vesting of warrants. Other warrants are linked to milestones reached in pursuing
FDA approval and will be recorded as a non-cash charge in operating expenses
directly related to FDA trials.
The
sale
price of the Company’s medical devices is subject to variation based on a number
of factors, including market competitive environment, warranties and payment
terms. Consequently, a particular sale of a medical device may, depending on
its
terms, result in significant fluctuations in the average unit sale price of
the
product for a given period, which may not be indicative of a market
trend.
The
Company is developing its HIFU mobile treatment activity by initially providing
devices to clinics and hospitals for free for a limited period, rather than
selling the devices. These hospitals and clinics perform treatments using the
devices and remunerate the Company on a revenue-per-procedure (“RPP”) basis
(i.e., on the basis of the number of individual treatments provided). Net sales
from this RPP activity include only the revenues arising from the sale of
Ablatherm treatments procedures. The treatment procedure is invoiced and paid
only when it is performed. With this business model, the hospital or clinic
makes no initial investment until the increase in patient demand justifies
the
purchase of an Ablatherm. As a consequence, the Company is able to make
Ablatherm treatments available to a larger number of hospitals and clinics,
which should serve to create more long-term interest in the product. Compared
to
the sale of devices, this business model initially generates a smaller, but
more
predictable stream of revenue and, if successful, should lead to more purchases
of Ablatherms in the long term.
Net
sales
of spare parts, supplies and services include revenues arising from maintenance
services furnished by the Company for the installed base of Prostatrons, ESWL
lithotripters and Ablatherms, and from sales of disposable parts for
Prostatrons, ESWL lithotripters and Ablatherms, net of commissions, as well
as
from operating leases of the Company’s medical devices and RPP revenue related
to the HIFU mobile treatment activity.
23
The
Company derives a significant portion of both net sales of medical devices
and
net sales of spare parts, supplies and services from its operations in Asia,
through its fully owned subsidiaries or representatives offices respectively
in
Japan (Edap Technomed Co. Ltd), Malaysia (Edap Technomed Sdh Bhd) and Korea
(Edap Technomed Korea). Revenue derived from the Company's operations in Asia
represented approximately 33% of its total revenue in 2005. Net sales of medical
devices in Asia represented approximately 31% of such sales in 2005 and
consisted primarily of sales of ESWL lithotripters. Net sales of spare parts,
supplies and services in Asia represented approximately 34% of such sales in
2005 and related primarily to ESWL lithotripters, reflecting the fact that
approximately 44% of the installed base of the Company’s ESWL lithotripters is
located in Asia. The Company sells its products in many parts of the world
and,
as a result, the Company’s business is affected by fluctuations in currency
exchange rates. The Company is exposed to foreign currency exchange rate risk
because the mix of currencies in which its costs are denominated is different
from the mix of currencies in which it earns revenues. In 2005, approximately
76% of the Company’s selling, marketing and general and administrative expenses
and approximately 93% of the Company’s research and development expenses were
denominated in euro, while approximately 42% of the Company’s sales were
denominated in currencies other than euro (primarily the U.S. dollar and the
Japanese yen). The Company’s operating profitability could be materially
affected by large fluctuations in the rate of exchange between the euro and
such
other currencies. In
order
to minimize the Company’s exposure to exchange rate risks, the Company uses
certain financial instruments for hedging purposes.
Reserves
for slow-moving and obsolete inventory are determined based upon quarterly
reviews of all inventory items. Items which are not expected to be sold or
used
in production, based on management’s analysis, are written down to their net
realizable value, which is their fair market value or zero in the case of spare
parts or disposable parts for devices that are no longer in commercial
production.
In
December 2003, the Company decided to restructure its organization and
implemented a headcount reduction in 2004 in its two French operational
divisions. This reorganization mainly entailed a reduction of operating expenses
in research and development, marketing and manufacturing during these two years.
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. The Company does not capitalize any of its 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 €1.8 million,
€1.5 million and €3.1 million in 2005, 2004 and 2003, respectively, representing
approximately 9%, 7% and 17% of total revenues in 2005, 2004 and 2003,
respectively. The increase in research and development in 2005 compared to
2004
was primarily due to an increase in HIFU and ESWL development activities and
the
launch of new clinical studies to maintain the Company's leadership in HIFU
for
prostate cancer. Beginning 2006, management expects the budget for research
and
development expenses to increase to approximately 10% of total revenues, in
line
with its strategy to launch new clinical studies, thus strengthening its
clinical credibility, to focus its efforts on getting regulatory approvals
and
reimbursement in key countries and to fund projects to expand the use of HIFU
beyond the treatment of prostate cancer. Because the Company is likely to book
a
non-cash charge as an operating expense (specifically, a clinical trial expense)
for warrants that would vest when HealthTronics achieves a milestone in the
FDA
approval process for the Ablatherm, R&D expenses could be affected in the
future by the vesting of the HealthTronics warrants.
Selling
and marketing expenses amounted to €3.8 million in 2005, €3.4 million in 2004
and €4.2 million in 2003. The increase of 10% from 2004 to 2005 was primarily
due to the Company's focus on Ablatherm-HIFU marketing. Management expects
marketing expenses to grow in line with its efforts to increase awareness and
educate patients and physicians on the availability of the Ablatherm-HIFU
technology for treating localized prostate cancer.
In
2005,
the Company did not record any non-recurring operating expense. In 2004, the
Company recorded a non-recurring operating expense of €0.3 million reflecting
mainly the costs associated with the reduction of headcount initiated in 2003.
In 2003, the Company recorded a non-recurring operating expense of €2.1 million
reflecting mainly the costs associated with the reduction of headcount at the
Company’s two French operating divisions. See Note 18 of the Notes to the
Consolidated Financial Statements.
24
In
accordance with Statement of Financial Accounting Standards No. 142 (SFAS No.
142), ‘‘Goodwill
and Other Intangible Assets’’,
the
Company no longer amortizes its goodwill on a straight line basis over its
estimated useful life but, instead, tests it for impairment on an annual basis
and/or whenever indicators of impairment arise. The Company did not record
any
charge in 2005, 2004 or 2003 for the impairment of goodwill. See Note 7 of
the
Notes to the Consolidated Financial Statements.
On
February 25, 2004, the Company entered into a distribution agreement with
HealthTronics granting it, among other things, (i) the right to begin clinical
trials in the U.S. with the Ablatherm, (ii) the right to seek PMA for the
Ablatherm from the FDA and (iii) exclusive Ablatherm distribution rights in
the
United States, when and if a PMA is granted. Under the terms of the distribution
agreement, the Company also granted HealthTronics 1 million warrants on January
28, 2005, each entitling HealthTronics to purchase a share of the Company at
a
price of U.S.$1.50 upon their vesting. The distribution agreement allows
HealthTronics to exercise specified numbers of warrants as it meets various
specified milestones set out in the distribution agreement, some of which relate
to HealthTronics’s commitment to purchase a specified number of lithotripter
units and others which relate to the completion of various stages of the
clinical trials and the regulatory process leading to the PMA for the Ablatherm.
On December 29, 2005, HealthTronics, through its subsidiary, and the Company
entered into an amendment to the distribution agreement. HealthTronics
wishes to focus its efforts on obtaining the PMA for Ablatherm and on developing
the HIFU market potential on the US territory, and does not want to pursue
the
distribution of the Company's lithotripters
in the US. Therefore, the Parties decided to amend the terms and conditions
of
some warrants and 200,000 warrants directly linked to the purchase of
lithotripters for the years to come were then cancelled.
In
accordance with EITF 96-18, the Company accounts for the warrants issued to
HealthTronics under the distribution agreement based on their fair value,
measured at the date that the warrants vest (which corresponds to the date
that
a milestone in the distribution agreement is achieved). The related amount,
which is a non-cash charge, is then recorded either as an operating expense
for
warrants that vest when HealthTronics achieves a milestone in the FDA approval
process for the Ablatherm, or as a reduction of revenue if the warrants vest
as
a result of HealthTronics’s purchase of a specified number of devices. The
non-cash charge recorded for 2004 as a reduction of revenue related to a series
of warrants linked to HealthTronics's purchase of four lithotripters in 2004,
in
accordance with the terms of the agreement. The non-cash charge recorded for
2005 as a reduction of revenue related to the vesting of a series of warrants
linked to HealthTronics's purchase of two lithotripters and one Ablatherm in
2005, in accordance with the terms of the Amendment to the distribution
agreement dated December 29, 2005.
The
Company has no control over the pace at which HealthTronics may achieve the
milestones set forth in the distribution agreement and, consequently, the dates
on which the warrants may vest. Because the fair valuation of the warrants
is
based in part on the price of the Company’s Shares on a given vesting date, and
further because the number of warrants issued to HealthTronics represents a
significant portion of the Company’s share capital, the amount of the non-cash
charges that may be recorded when series of warrants vest could be large and
subject to significant variation from period to period. Accounting for the
cost
of vested warrants may therefore significantly affect the Company’s reported
income statements.
For
the
last several years, the Company experienced declining sale prices in the market
for ESWL lithotripters. The Company believes that the market for ESWL
lithotripters is now mature and has become primarily a replacement and
maintenance market, with high equipment penetration rates driving down demand
and increasing price competition. In addition, the trend toward more compact
devices with lower unit sale prices is driving down unit sale prices worldwide.
As a result of these factors, the Company expects unit sale prices for ESWL
lithotripters worldwide to continue to decline and total market volumes to
remain stable at current levels in the foreseeable future.
The
Company believes that its results of operations in the near future will be
affected by the Company’s ability to control expenses in connection with the
development, marketing and commercial launch of HIFU applications, including
the
Ablatherm. See ‘‘—Liquidity and Capital Resources.’’ Increases, if any, in
expenses may only be offset partially in the near future by revenues arising
from sales of HIFU devices.
The
Company believes that its partnership with HealthTronics will help in further
expanding its market share in placing Ablatherm devices in the U.S., when and
if
the PMA is granted.
See
Item
3, ‘‘Key Information—Risk Factors—Risk of Exchange Rate Fluctuations’’ and Item
11, ‘‘Quantitative and Qualitative Disclosures About Market Risk’’ for a
description of the impact of foreign currency fluctuations on the
Company.
25
In
October 2000, the Company sold its Prostatron business to Urologix. See Item
4,
‘‘Information on the Company.’’ Historically the Company has derived a
significant proportion of net sales of medical devices and net sales of spare
parts, supplies and services from its Prostatron business. Following the sale
of
the Prostatron business, the Company continued to generate revenues from the
manufacturing and distribution of Prostatron units and disposable parts on
behalf of Urologix under the Supply Agreement and the Distribution Agreement,
although significantly less than before the sale. Revenues from sales under
the
Supply Agreement and the Distribution Agreement represented €0.4 million or
approximately 2% of total revenues in 2003, €0.2 million or approximately 1% of
total revenues in 2004, and €46 thousand in 2005. The Supply Agreement
terminated in 2003 and subsequent revenue was derived from outstanding
deliverables under the agreement.
Fiscal
Year Ended December 31, 2005 Compared to Fiscal Year Ended December 31,
2004
Total
revenues.
The
Company’s total revenues decreased 6% from €22.2 million in 2004 to €20.8
million in 2005, principally due to a decline in ESWL unit sales, particularly
in Japan.
HIFU
division.
The
HIFU division’s total revenues increased 14% from €7.0 million in 2004
(including €0.3 million of internal segment revenues) to €7.9 million in 2005
(no significant internal segment revenues), principally due to a slight increase
in the number of Ablatherm units sold, an increase in Ablatherm RPP and revenues
related to service activity.
The
HIFU
division’s net sales of medical devices increased 5%, from €4.0 million in 2004
(including internal segment revenues) to €4.3 million in 2005, with 10 Ablatherm
units sold in 2005 compared to 9 in 2004. In 2005, net sales of medical devices
included a €0.1 million charge related to the recognition of the non-cash charge
associated with the warrants issued to HealthTronics.
Net
sales
of RPPs directly related to the Company's HIFU mobile activity increased 23%,
from €1.4 million in 2004 to €1.7 million in 2005. This is primarily due to an
increase in demand as of result of the Company's efforts to increase patient
and
physician awareness about the availability of Ablatherm-HIFU treatment for
localized prostate cancer, which has increased demand from hospitals and
clinics, as well as from patients, for this HIFU treatment. As a result of
the
increase in activity, net
sales
of HIFU-related spare parts, supplies, leasing and services increased 28% from
€1.5 million in 2004 to €1.9 million in 2005.
Other
HIFU-related revenue decreased from €34 thousand in 2004 to €14 thousand in
2005, primarily related to a decrease in subsidies received.
UDS
division.
The UDS
division’s total revenues decreased 7% from €17.4 million in 2004 to €16.2
million in 2005 (including €0.1 million and €0.2 million related to the
recognition of the non-cash charge associated with the warrants issued to
HealthTronics in 2005 and 2004, respectively, and including €3.2 million and
€1.9 million related to internal segment revenues recorded in 2005 and 2004,
respectively).
The
UDS
division’s net sales of medical devices decreased 27% from €8.0 million in 2004
to €5.9 million in 2005 with 39 lithotripters sold in 2004 compared to 33 in
2005. The decrease in the number of units sold in 2005 resulted principally
from
the decline in ESWL unit sales in Japan.
Net
sales
of UDS-related spare parts, supplies and services decreased 4% from €7.3 million
in 2004 to €7.0 million in 2005, primarily related to a decrease in TUMT service
revenues. See ‘‘—Operating Results—Overview.’’
Other
UDS-related revenue decreased 55% from €174 thousand in 2004 to €79 thousand in
2005, primarily related to a reduction in the royalties received.
Cost
of sales.
Cost of
sales decreased 10% from €13.7 million in 2004 to €12.3 million in 2005, and as
a percentage of net sales decreased from 62% in 2004 to 59% in 2005, primarily
due to the cost reduction program initiated in 2003 and continued in 2004 and
2005.
Operating
expenses.
Operating expenses increased 5% from €9.3 million in 2004 to €9.8 million in
2005. This increase in operating expenses was mainly due to the strengthening
the Company's strategy to focus on market education on HIFU and to enhance
its
Ablatherm-HIFU global leadership position. See Note 18 of the Notes to the
Consolidated Financial Statements.
HIFU
division R&D expenses increased 28% from €0.8 million in 2004 to €1.0
million in 2005. HIFU division R&D expenses specifically related to the
development of new technologies and products and enhancement of existing
products, increased 30% from €0.5 million in 2004 to €0.6 million in 2005 as a
result of the Company's focus on strengthening its leadership on HIFU technology
by developing its HIFU patent portofolio and developing HIFU beyond prostate
cancer. In addition, clinical trial expenses increased 24% from €0.3 million in
2004 to €0.4 million in 2005, as a result of launch of HIFU clinical studies to
strengthen the Company's HIFU clinical leadership. The Company anticipates
these
expenses will increase in the future, in line with its strategy to launch new
clinical studies, thus enhancing its clinical credibility and focusing its
efforts on getting regulatory approvals and reimbursement in key countries.
See
‘‘—Operating Results—Overview.’’
26
UDS
division R&D expenses remained stable at €0.7 million in 2005 and 2004. UDS
division R&D expenses specifically related to the development of new
technologies and products and enhancement of existing products, increased 14%
from €0.3 million in 2004 to €0.4 million in 2005. The Company anticipates to
increase these R&D expenses in the near future. See ‘‘— Operating
Results—Overview.’’
HIFU
division marketing expenses increased 110% from €0.3 million in 2004 to €0.6
million in 2005, as a result of the Company's continuing efforts to increase
awareness and educate patients and physicians on the availability of the
Ablatherm-HIFU technology for treating localized prostate cancer. The Company
anticipates these expenses will increase in the future. See ‘‘—Operating
Results—Overview.’’
HIFU
division selling expenses increased 39% from €1.0 million in 2004 to €1.4
million in 2005, as a result of the Company's strengthening of its Sales force
to develop market shares. As a percentage of net sales, HIFU division related
selling expenses increased from 14% in 2004 to 18% in 2005.
UDS
division selling expenses decreased 14% from €1.7 million in 2004 to €1.4
million in 2005, primarily due to continued control of expenses. The Company
anticipates that these expenses will remain stable in the future. As a
percentage of net sales, selling expenses decreased from 10% in 2004 to 9%
in
2005.
General
and administrative expenses, at the consolidated level, increased 4.5% from
€4.1
million in 2004 to €4.3 million in 2005, primarily due to an increase of
expenses related to the implementation of Sarbanes-Oxley Act, Section 404.
As a
percentage of net sales, general and administrative expenses increased from
18%
in 2004 to 20% in 2005. The holding company continues to manage these expenses
so that the expenses at each of the divisions remain consistent with the
business and revenue levels of each segment.
Operating
loss.
As a
result of the factors discussed above, the Company recorded a consolidated
operating loss of €1.3 million in 2005, including the holding company expenses,
as compared to a consolidated operating loss of €0.8 million in
2004.
The
Company realized an operating profit in its HIFU division of €0.1 million in
2005, compared to an operating profit of €0.4 million in 2004 and an operating
profit in its UDS division of €0.2 million in 2005, as compared to operating
profit of €0.2 million in 2004.
Interest
income, net.
Interest income, net remained stable at €0.1 million in 2004 and
2005.
Foreign
currency exchange gains (loss), net.
In
2004, the Company recorded a net foreign currency exchange loss of €38,000
compared to a gain of €0.2 million in 2005 due to a strengthening of the US
dollar against the Euro.
Other
income (expense), net.
Other
income (expense), net decreased from a loss of €0.1 million in 2004 to a gain of
€9,000 in 2005.
Income
taxes.
The
Company recorded a corporate income tax benefit of €0.1 million in 2005 compared
to €0.3 million in 2004, principally reflecting current income tax. In 2004,
this income tax also reflected an exceptional exit tax in France of 2.5% (which
was
enacted in compensation for the mandatory reclassification as equity of the
capital gains tax on participation).
Accordingly, in 2004, the
Company had booked a deferred tax liability amounting to €161,000 related to
this exit tax, which will be paid in two equal instalments in 2006 and 2007,
pursuant to the Amended Finance Law of 2004, dated December 30, 2004.
Net
loss.
The
Company realized consolidated net loss of €1.2 million in 2004 compared with
consolidated net loss of €1.1 million in 2005, as a result of the factors
mentioned above.
Fiscal
Year Ended December 31, 2004 Compared to Fiscal Year Ended December 31,
2003
Total
revenues.
The
Company’s total revenues increased 20.0% from €18.5 million in 2003 to €22.2
million in 2004, principally due to a 2.5 times revenue increase in the HIFU
division, despite the strength of the euro during the year, which reduced the
value of sales denominated in other currencies, mainly the Japanese yen and
the
U.S. dollar, once converted into euro.
27
HIFU
division.
The
HIFU division’s total revenues increased 136% from €3.0 million in 2003 to €7.0
million in 2004 (including €3 thousand and €0.3 million of internal segment
revenues in 2003 and 2004, respectively), principally due to an increase in
the
number of Ablatherm units sold and a progression in its Ablatherm mobile
activity.
The
HIFU
division’s net sales of medical devices increased approximately 2.5 times, from
€1.1 million in 2003 to €4.0 million in 2004 (including €0.3 million of internal
segment revenues), with 9 Ablatherm units sold in 2004 versus 3 in 2003.
Net
sales
of RPPs directly related to the Company's HIFU mobile activity increased 153%,
from €0.6 million in 2003 to €1.4 million in 2004. This is primarily due to the
Company's efforts to increase patient and physician awareness about the
availability of Ablatherm-HIFU treatment for localized prostate cancer, which
has increased demand from hospitals and clinics, as well as from patients,
for
this HIFU treatment. Net
sales
of HIFU-related spare parts, supplies, leasing and services increased 31% from
€1.2 million in 2003 to €1.5 million in 2004.
Other
HIFU-related revenue decreased 66% from €99 thousand in 2003 to €34 thousand in
2004, primarily related to a decrease in subsidies received.
UDS
division.
The UDS
division’s total revenues were stable at €17.5 million in 2003 compared to €17.4
million in 2004 (including €0.2 million related to the recognition of the
expenses associated with the warrants issued to HealthTronics and €2.0 million
and €1.9 million of internal segment revenues in 2003 and 2004, respectively).
The
UDS
division’s net sales of medical devices increased 8% from €7.4 million in 2003
to €8.0 million in 2004 (including a €174,000 reduction in revenue reflecting
the impact of the warrants), primarily due to an increase in the number of
units
sold in 2004 compared to 2003. The increase in the number of units sold in
2004
resulted principally from the Company's aggressive marketing strategy to take
market share in Asia and Europe and its increased penetration of the U.S. market
via its partner HealthTronics.
Net
sales
of UDS-related spare parts, supplies and services decreased 6% from €7.8 million
in 2003 to €7.3 million in 2004, primarily related to a decrease in annual
service contract revenue, as most units in the installed base were still under
warranty after the replacement of older machines with new machines. The decrease
was also due to the replacement of high cost service contracts for LT02
lithotriptors, which yielded higher revenues, by lower cost, lower revenue,
service contracts for the new Sonolith device line. See ‘‘—Operating
Results—Overview.’’
Other
UDS-related revenue decreased 49% from €342 thousand in 2003 to €174 thousand in
2004, primarily related to an accounting of an insurance reimbursement in
2003.
Cost
of sales.
Cost of
sales, increased 4.4% from €13.1 million in 2003 to €13.7 million in 2004, but
as a percentage of net sales decreased from 73% in 2003 to 62% in 2004,
primarily due to the cost reduction program initiated in 2003 and the increase
in net sales in 2004 compared with 2003
Operating
expenses.
Operating expenses decreased 31% from €13.5 million in 2003 (including a €2.1
million one-time charge related to the restructuring) to €9.3 million in 2004.
This decrease in operating expenses was mainly due to the restructuring of
the
Company’s two operating divisions initiated at the end of 2003. See Note 18 of
the Notes to the Consolidated Financial Statements.
HIFU
division R&D expenses decreased 65% from €2.3 million in 2003 to €0.8
million in 2004. HIFU division R&D expenses specifically related to the
development of new technologies and products and enhancement of existing
products decreased 68% from €1.5 million in 2003 to €0.5 million in 2004, as a
result of the restructuring of the HIFU division initiated at the end of 2003.
R&D spending is primarily related to ongoing research into HIFU
technologies. The Company anticipates these expenses will increase in the future
to fund projects to expand the use of HIFU beyond the treatment of prostate
cancer. HIFU division clinical trial expenses decreased 50% from €0.7 million in
2003 to €0.3 in 2004, as a result of the restructuring of the HIFU division
initiated at the end of 2003. The Company anticipates these expenses will
increase in the future, in line with its strategy to launch new clinical
studies, thus strengthening its clinical credibility and focusing its efforts
on
getting regulatory approvals and reimbursement in key countries. See
‘‘—Operating Results—Overview.’’
UDS
division R&D expenses remained stable at €0.7 million in 2003 and 2004 See
‘‘— Operating Results—Overview.’’
28
HIFU
division marketing expenses decreased 70% from €0.9 million in 2003 to €0.3
million in 2004, as a result of the restructuring of the HIFU division initiated
at the end of 2003. The
Company anticipates these expenses will increase in the future as part of its
effort to increase awareness and educate patients and physicians on the
availability of the Ablatherm-HIFU technology for treating localized prostate
cancer. See ‘‘—Operating Results—Overview.’’
HIFU
division selling expenses decreased 8% from €1.1 million in 2003 to €1.0 million
in 2004, as a result of the restructuring of the HIFU division initiated at
the
end of 2003 As a percentage of net sales, HIFU division related selling expenses
decreased from 38% in 2003 to 14% in 2004.
UDS
division selling expenses decreased 11% from €1.9 million in 2003 to €1.7
million in 2004., primarily due to continued control of expenses. The Company
anticipates that these expenses will remain stable in the future. As a
percentage of net sales, selling expenses decreased from 12% in 2003 to 10%
in
2004.
General
and administrative expenses, at the consolidated level, decreased 4% from €4.1
million in 2003 to €4.0 million in 2004. As a percentage of net sales, general
and administrative expenses decreased from 23% in 2003 to 18% in 2004. The
holding company continues to manage these expenses so that the expenses at
each
of the divisions remain consistent with the business and revenue levels of
each
segment.
Operating
loss.
As a
result of the factors discussed above, the Company realized an operating loss
of
€0.8 million in 2004, as compared to an operating loss of €8.1 million in 2003.
The
Company realized an operating profit in its HIFU division of €0.4 million in
2004, as compared to an operating loss of €5.8 million in 2003 and an operating
profit in its UDS division of €0.2 million, as compared to operating loss of
€0.7 million in 2003.
Interest
income, net.
Interest income, net decreased to income of €0.1 million in 2004 compared to an
income of €0.2 million in 2003, reflecting lower interest income received by the
Company on its short-term cash investment due to lower cash balances and lower
interest rates during the year.
Foreign
currency exchange losses, net.
Net
foreign currency exchange losses decreased from a loss of €0.9 million in 2003
to a loss of €38,000 in 2004.
Other
income (expense), net.
Other
income (expense), net decreased to a loss of €0.1 million in 2004 compared to
€0.2 million in 2003.
Income
taxes.
The
Company recorded a corporate income tax benefit of €0.3 million in 2004,
principally reflecting income tax with respect to the results of various
subsidiaries and an exceptional exit tax in France of 2.5% (which was
enacted in compensation for the mandatory reclassification as equity of the
capital gains tax on participation).
The
Company has booked a deferred tax liability amounting to €161,000 related to
this exit tax, which will be paid in two equal instalments in 2006 and 2007,
pursuant to the Amended Finance Law of 2004, dated December 30, 2004.
Net
loss.
The
Company realized consolidated net loss of €1.2 million in 2004 compared with
consolidated net loss of €9.0 million in 2003, as a result of the factors
mentioned above.
Effect
of Inflation
Management
believes that the impact of inflation was not material to the Company’s net
sales or loss from operations in the three years ended December 31,
2005.
Liquidity
and Capital Resources
The
Company’s 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 which were not necessarily indicative of changes in the
Company’s business. The Company believes its working capital is sufficient for
its present working capital requirements although, it has in the past
experienced negative cash flows and associated risks to liquidity, and may
in
the future experience the same. The Company’s negative cash flow situation, and
management’s plans to address it, are described in more detail below.
The
Company anticipates that cash flow in future periods will be mainly derived
from
ongoing operations and any capital raising the Company undertakes. The
Company does not have any commercial commitments nor does it employ any
off-balance sheet financing. Because the Company anticipates relying principally
on cash flow from operating activities and cash and cash flow equivalent
balances to meet its liquidity requirements, a decrease in the demand for the
Company’s products, or the inability of the Company’s customers to meet their
financial obligations to the Company due to operating difficulties or adverse
market conditions, would reduce the availability of funds to the Company.
29
The
Company's
cash
position as of December 31, 2005, 2004 and 2003, was €8.3 million, €9.4 million
and €10.4 million respectively. In 2005, 2004 and 2003, the company experienced
negative cash flows of €1.1 million, €1.0 million and €5.3 million,
respectively. In 2005, the Company's
negative cash flow situation was primarily due to increased sales and marketing
expenses for the promotion of the Ablatherm and the increased cash requirements
associated with the Company's strategy to develop the RPP activity. The Company
financed negative cash flows during the period using cash and cash equivalents
on hand. In order to address its negative cash flow situation and finance
increased sales and marketing and R&D expenses and the cash requirements
arising from the transition to an RPP business model, the Company is
contemplating seeking financing through a share capital
increase.
In
2005,
net cash used in operating activities was €0.3 million compared with net cash
used in operating activities of €1.1 million and €3.6 million in 2004 and 2003,
respectively. In 2005, net cash used in operating activities reflected
principally:
|
-
|
a
net loss of €1.1 million,
|
|
-
|
elimination
of €1.8 million of net expenses without effects on
cash,
|
|
-
|
an
increase in trade accounts receivable of €1.5 million, principally
reflecting an increase in revenue in the fourth quarter of
2005,
|
|
-
|
an
increase in inventories of €0.7 million related to an increase in
both the inventory of finished goods and spare parts, primarily
due to an increase in spare parts inventory, itself reflecting anticipated
revenue growth greater than actual
growth,
|
|
-
|
an
increase in trade accounts payable of €0.7 million, also primarily due to
the increase in activity in the fourth quarter of
2005, and,
|
|
-
|
an
increase in accrued expenses and other current liabilities of €0.4
million.
|
In
2004,
net cash used in operating activities reflected principally a net loss of €1.2
million, a decrease in inventories of €2.3 million related to both a reduction
of the inventory of finished goods and work-in-progress and the retirement
of
previously depreciated spare parts assets, a decrease in trade accounts payable
of €0.4 million and a decrease in accrued expenses and other current liabilities
of €1.9 million, primarily related to severance packages linked to the
restructuring that took place at the end of 2003.
In
2003,
net cash used in operating activities reflected principally a net loss of €9.0
million, elimination of €0.8 million of expenses and benefits without effects on
cash, a decrease in trade accounts receivable of €3.1 million, a decrease in
inventories of €1.1 million, a decrease in trade accounts payable of €1.0
million and an increase in accrued expenses and other current liabilities of
€1.4 million.
In
2005,
net cash used in investing activities was €1.1 million compared with no net cash
used in investing activities in 2004 and €0.5 million in 2003. In 2005, net cash
used in investing activities reflected principally an increased investment
of
€1.0 million in capitalized assets produced by the company (specifically
devices), an investment of €0.4 million in property and equipment, net proceeds
from sales of lease-back assets for €0.2 million, net proceeds from sales of
assets for €0.1 million. In 2004, net cash used in investing activities
reflected principally an increased investment of €0.8 million in capitalized
assets produced by the Company, net proceeds from sales of devices produced
by
the Company for €0.7 million, an investment of €0.2 million in property and
equipment, net proceeds from sales of lease-back assets for €0.3 million and a
decrease in deposits and guarantees for €0.1 million. In 2003, net cash used in
investing activities reflected principally an increased investment of €0.8
million in capitalized assets produced by the Company (specifically devices),
an
investment of € 0.4 million in property and equipment, net proceeds from sales
of lease-back assets for €0.3 million and a decrease in financial assets for
€0.4 million.
In
2005,
net cash provided by financing activities was €0.2 million compared with net
cash used in financing activities of €0.1 million and €0.7 million in 2004 and
2003 respectively. In 2005 net cash provided by financing activities reflected
principally short term debt increase for €0.4 million, an increase in long term
borrowing for €0.3 million reimbursed for €0.1 million and repayment of capital
lease obligations totalling €0.4 million. In 2004, net cash used in financing
activities was €0.1 million, reflecting mainly repayment of capital lease
obligations totalling €0.3 million and long-term debt repayment for €0.1
million. In 2003, net cash used in financing activities was € 0.7 million,
reflecting mainly scheduled long term debt repayment totalling €0.4 million, a
decrease in short-term borrowings of €0.2 million and repayments of obligations
under a capital lease totalling €0.1 million.
30
The
Company anticipates that cash flows from operations, together with its current
cash balances, will provide it with sufficient resources to meet its expenditure
requirements for approximately eighteen to twenty four months. As discussed
above, the Company is contemplating raising additional equity capital in
order
to finance the growth of its HIFU business and its transition to an RPP business
model. To the extent that the Company is unsuccessful in its plan to raise
additional capital, if any opportunities for the sale of non-strategic assets
become available, the Company may seek to exploit those opportunities in
order
to obtain liquidity.
The
Company’s future cash flow may also be affected to the extent the Company
decides to continue to expand the leasing of its products and to grow its mobile
RPP business. In 1999, in an effort to increase the availability of its
equipment, the Company implemented a new marketing strategy of leasing its
medical devices on a monthly, quarterly or yearly basis, rather than selling
them directly to end-users, and in 2002, the Company began to develop its mobile
activity by making certain devices available to hospitals and clinics free
of
charge, charging instead on the basis of each procedure that was performed.
Relative to the sale of devices, these business models initially generate
smaller, but more predictable cash flows. The Company anticipates continuing
to
make these options available.
It
is the
policy of the Company that its treasury function should maintain the liquidity
of the Company with the use of short-term borrowings and the minimal use of
long-term borrowings. The treasury function currently adheres to this objective
with the use of fixed-rate debt, which normally consists of long-term borrowing
from a Japanese bank and with certain long-term borrowings consisting of
sale-leaseback equipment financing. Currently the majority of the Company’s
short-term debt is based on an annual variable rate: Eonia+0.5. The Company
maintains bank accounts, at each of its subsidiaries, in the local currencies
of
each subsidiary. The primary currencies in which the Company maintains balances
are the euro, the U.S. dollar and the Japanese yen. In order to minimize the
Company’s exposure to exchange rate risks, the Company uses certain financial
instruments for hedging purposes. As of March 31, 2006, the Company had six
foreign exchange sale contracts, three for the Japanese yen and three for the
U.S. dollar.
Contractual
Obligations and Commercial Commitments (in thousands of
euro)
|
Payments
Due by Period
|
||||||
|
|
Total
|
Less
than
1
year
|
1-3
years
|
4-5
years
|
More
than
5
years
|
|
|
Short-Term
Debt
|
899
|
899
|
—
|
—
|
—
|
|
|
Long-Term
Debt
|
202
|
147
|
55
|
—
|
—
|
|
|
Capital
Lease Obligations
|
859
|
385
|
474
|
—
|
—
|
|
|
Operating
Leases
|
481
|
428
|
53
|
—
|
—
|
|
New
Accounting Pronouncements
In
December 2004, the FASB issued Statement 153, Exchanges of Non-monetary Assets,
an Amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions
(FAS 153). This Statement eliminates the exception from fair value measurement
for non-monetary exchanges of similar productive assets and replaces it with
an
exception for exchanges that do not have commercial substance. FAS 153, is
effective for non-monetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005 and is not expected to have a material impact on the
Company’s results of operations, cash flows or financial position.
On
June
7, 2005, the FASB issued Statement No. 154, “Accounting Changes and Error
Corrections”, a replacement of APB Opinion No. 20, “Accounting Changes”, and
Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”.
Statement 154 changes the requirements for the accounting for and reporting
of a
change in accounting principle. Previously, most voluntary changes in accounting
principles were required recognition via a cumulative effect adjustment within
net income of the period of the change. Statement 154 requires retrospective
application to prior periods' financial statements, unless it is impracticable
to determine either the period-specific effects or the cumulative effect of
the
change. Statement 154 is effective for accounting changes made in fiscal years
beginning after December 15, 2005; however, the Statement does not change the
transition provisions of any existing accounting pronouncements. We do not
believe adoption of Statement 154 will have a material effect on our
consolidated financial position, results of operations or cash
flows.
31
On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised 2004), Share-Based
Payment,
which
is a revision of FASB Statement No. 123, Accounting
for Stock-Based Compensation.
Statement 123(R) supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees,
and
amends FASB Statement No. 95, Statement
of Cash Flows.
Generally, the approach in Statement 123(R) is similar to the approach described
in Statement 123. However, Statement 123(R) requires
all
share-based payments to employees of the Company, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative.
Statement
123(R) must be adopted no later than the first fiscal year beginning after
June
15, 2005. Early adoption will be permitted in periods in which financial
statements have not yet been issued. The Company will adopt Statement 123(R)
as
of January 1, 2006.
Statement
123(R) permits public companies to adopt its requirements using one of two
methods:
|
1.
|
A
“modified prospective” method, in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of
Statement 123(R) for all share-based payments granted after the effective
date and (b) based on the requirements of Statement 123 for all awards
granted to employees prior to the effective date of Statement 123(R)
that
remain unvested on the effective
date.
|
|
2.
|
A
“modified retrospective” method, which includes the requirements of the
modified prospective method described above, but also permits entities
to
restate based on the amounts previously recognized under Statement
123 for
purposes of pro forma disclosures either (a) all prior periods presented
or (b) prior interim periods of the year of
adoption.
|
The
Company plans to adopt Statement 123 using the modified prospective
method.
As
permitted by Statement 123, the Company currently accounts for share-based
payments to employees using Opinion 25’s intrinsic value method and, as such,
generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of Statement 123(R)’s fair value method will have a
significant impact on the Company's result of operations, although it will
have
no impact on the Company's overall financial position. The impact of the
adoption of Statement 123(R) cannot be predicted at this time because it will
depend on levels of share-based payments granted in the future. However, had
the
Company adopted Statement 123(R) in prior periods, the impact of that standard
would have approximated the impact of the application of the principles in
Statement 123.
Research
and Development, Patents and Licenses
See
Item
4, ‘‘Information on the Company—High Intensity Focused Ultrasound Division—HIFU
Division Patents and Intellectual Property’’ and ‘‘Information on the
Company—Urology and Services Division—UDS Division Patents and Intellectual
Property.’’
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements.
32
Item
6. Directors, Senior Management and Employees
Senior
Executive Officers
The
following table sets forth the name, age and position of each Senior Executive
Officer of the Company. Each of the persons listed below has entered into an
employment contract with the Company or its subsidiaries (which permits the
employee to resign subject to varying notice periods). In addition, in case
of a
change of control of the Company, or of a termination of their employment
contract by the Company without cause, the Senior Executive Officers are
entitled to receive severance packages totalling approximately € 0.4
million.
|
Name
|
Age
|
Position
|
|
Philippe
Chauveau
|
70
|
Chairman
of the Board of Directors
|
|
Hugues
de Bantel
|
36
|
Chief
Executive Officer of EDAP TMS S.A. and President of the HIFU Division
and
the UDS Division
|
|
Thierry
Turbant
|
45
|
Chief
Financial Officer
|
| Philippe Chauveau |
In
1997, Philippe Chauveau was named chairman of EDAP-TMS S.A.'s Supervisory
Board, involving a two-tier board structure overseeing a Management
Board.
In 2002, both these boards were replaced by a single Board of Directors,
which Philippe Chauveau headed as Chairman and CEO. While remaining
Chairman of the Board, he was succeeded by Hugues de Bantel as
CEO in
2004. Since 2002, Philippe Chauveau has also served as founding
Chairman
of the Board of Scynexis Inc., funded by private equity, which
is an
innovative drug discovery company based in the United States, partnering
with major pharmaceutical companies worldwide. As of today, he
remains on
the Board as a Director. He is also personal executive coach to
senior
research leaders at Hoffmann LaRoche. Additionally, he is involved
in
management development programs at IMD, in Lausanne, Switzerland.
He was
R&D Vice-President at AT&T Bell Labs and has also served as
Chairman of Apple Computer Europe, preceded by increasing marketing
roles
in ITT and in Procter & Gamble. He has an Honours Degree from Trinity
College Dublin with a BA. and a Bsc.
|
|
| Hugues de Bantel |
Hugues
de Bantel joined the Company in 1996, and since then has served
as Asia
Pacific Area Manager and Manager of EDAP Technomed Malaysia from
its
founding in 1997 and, since April 2000, President of EDAP Technomed
Japan.
He was appointed President of TMS S.A. on November 6, 2002, and
President
of EDAP S.A. on November 13, 2003. Prior to joining EDAP Technomed,
Mr. de
Bantel was Sales Manager for Europe and Asia at AFE’s Lifts Division. He
previously worked at Procter & Gamble as Area Sales Manager. Mr. de
Bantel graduated from Ecole Superieure de Commerce, Rouen
(France).
|
|
| Thierry Turbant |
Thierry
Turbant was appointed Chief Financial Officer of the Company on
July 1,
2004. He joined the Company in 1997, and since then has served
as Group
Financial Controller. Prior to joining the Company, Mr. Turbant
was
Accounting Manager and Controller at Gatefossé, specialized in
Pharmaceutical and Cosmetic Products. He previously worked at EGL
and at
Clemessy (Civil Engineering) as a Controller. Mr. Turbant graduated
from
the Business and Management Institute (IAE) at Lyon University
(France).
|
|
33
Board
of Directors
The
following table sets forth the names of the members of the Board of Directors
and the background of the members of the Board of Directors who are individuals.
The mandate for each member of the Board of Directors expires on the date of
the
assembly meeting of shareholders approving the financial results for fiscal
year
2007.
|
Philippe
Chauveau
|
See
biography in Senior Executive Officers
|
|
Pierre
Beysson
Age:
64
|
Pierre
Beysson was appointed as a member of the Board of Directors in September
2002. Pierre Beysson was then the Chief Financial Officer of Compagnie
des
Wagons-Lits ("CWL"), the on-board train service division of Accor,
a
French multinational Hotel and Business Services Group. In this capacity,
he sat in a number of boards of companies related to the Accor Group.
He
is now an M&A consultant. Prior to his assignment at CWL, Pierre
Beysson held a number of senior financial positions with Nixdorf
Computers, Trane (Air Conditioning), AM International (Office Equipment)
and FMC (Petroleum Equipment). Pierre Beysson was trained as a CPA,
has
auditing experience and holds an MBA from Harvard Business
School.
|
|
Karim
Fizazi
Age:
40
|
Dr.
Karim Fizazi was appointed as a member of the Company's Board of
Directors
in November 2002. He is currently Chairman of the Genito-Urinary
Oncology
group at Institut Gustave Roussy (IGR) in Villejuif, France, which
is the
biggest cancer center in Europe. He was appointed Head of Department
of
Medicine of Institut Gustave Roussy in 2005. He is also Assistant
Professor in Medical Oncology at IGR. He was visiting Assistant Professor,
Genitourinary Medical Oncology Department, MD Anderson Cancer Center
in
Houston, Texas, for 18 months. His Residency included a position
at the
Institut Curie in Paris.
|
|
Olivier
Missoffe
Age:
49
|
Olivier
Missoffe was appointed as a member of the Company's Board of Directors
in
November 2002. He is Chairman and CEO of Société Services de Santé (SSS),
a services and support provider to hospitals and clinics. He is an
advisor
to the Management Board of the French healthcare group "Générale de
Santé." He was Chief Executive Officer of the Company until
1998.
|
|
Siemens
France S.A., represented by Holger
Schmidt
Age:
40
|
Siemens
France S.A. was appointed as a member of the Company's Supervisory
Board
in January 1997 following Siemens purchase of 1,003,250 shares of
the
Company and representing 12.0% of the Company's total share capital.
Siemens became a member of the Company's Board of Directors in July
2002.
|
|
Guy
Vallancien
Age:
59
|
Dr.
Guy Vallancien was appointed as a member of the Company's Board of
Directors in November 2002. He is Professor of Urology and Chief
of the
Urology Department at the Institut Mutualiste Montsouris (Paris,
France).
He is a member of the Executive Committee of the French Urological
Association (AFU) and a member of the European and International
Urological Association.
|
Compensation
and Options
On
December 17, 2002, the Board of Directors decided that the whole Board of
Directors will act as a ‘‘Compensation Committee’’ to review the compensation of
the Company’s Senior Executive Officers and to propose any changes to
compensation to the Board of Directors, which under French law is the competent
body to approve any such change. On July 22, 2005, in order to comply with
Nasdaq Corporate Governance rules, the Board of Directors decided to review
the
composition of the Compensation Committee and appointed two members out of
the
six Directors: Mr. Olivier Missoffe, Mr. Pierre Beysson to act as the
Compensation Committee. Mr. Olivier Missoffe was elected Chairman of the
Compensation Committee. During that meeting, the Board of Directors approved
an
updated version of the charter of the "Compensation Committee". Aggregate
compensation paid or accrued for services in all capacities by the Company
and
its subsidiaries to Senior Executive Officers and to the Board of Directors
as a
group for the fiscal year 2005 was approximately € 0.4 million. No amount was
set aside or accrued by the Company to provide pension, retirement or similar
benefits for Senior Executive Officers and to the Board of Directors as a group
in respect of the year 2005.
34
As
of
December 18, 2002, the shareholders of two of the Company’s wholly owned and
fully consolidated subsidiaries, TMS S.A. and EDAP S.A., authorized the
respective Boards of Directors to grant certain Senior Executive Officers
warrants to subscribe to an aggregate of 604,538 new shares of TMS S.A.’s and
EDAP S.A.’s common stock. The average exercise price of such warrants is
equivalent to the higher of either (a) the share value of the capital of each
company or (b) the net book value, each such amount to be calculated on the
date
of exercise. Following the resignation of the President of EDAP S.A. in November
2003, outstanding warrants allow today's President of both divisions, to
subscribe to an aggregate of 252,111 new shares of each of TMS S.A.’s and EDAP
S.A.’s common stock. The total number of warrants granted, if exercised, would
represent 3.5% and 2.5% of the respective share capital of TMS S.A. and EDAP
S.A. after subscription. These warrants begin vesting three years after their
date of grant. These warrants to subscribe to shares expire on the earlier
of
December 18, 2007 or when employment with the Company ceases.
As
of
December 31, 2005, Senior Executive Officers held an aggregate of 146,000
options to purchase or to subscribe to shares of the Company’s common stock,
with a weighted average exercise price of €1.69. Of these options, 9,000 expire
on December 31, 2008, 24,000 expire on September 25, 2011 and 113,000 expire
on
February 24, 2014.
Audit
Committee
On
December 17, 2002, the Board of Directors decided that the whole Board of
Directors will act as an ‘‘Audit Committee’’ headed by Mr. Pierre Beysson. On
July 22, 2005, in order to fully comply with Nasdaq Corporate Governance rules
on Independence of Directors, the composition of the Company Audit Committee
was
reviewed. The Board of Directors elected four fully independent Members to
the
Audit Committee: Mr. Olivier Missoffe, Mr. Guy Vallancien, Mr. Karim Fizazi
and
Mr. Pierre Beysson, the latter acting as the Head of the Audit Committee. The
Audit Committee Charter was also reviewed to reflect those changes. The purpose
of the Committee shall be 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 the Company’s financial
statements, the Company’s compliance with legal and regulatory
requirements, the
accounting practices and financial reporting processes of the Company,
the
effectiveness of the Company’s disclosure controls and procedures and
internal control over financial reporting, the
independent auditor’s qualifications and independence, and the performance
of the Company’s internal audit function and independent
auditors.
|
|
-
|
Prepare
the Audit Committee report that SEC proxy rules require to be included
in
the Company’s annual proxy statement. The
Audit Committee may request any officer or employee of the Company
or the
Company’s outside counsel or independent auditor to attend a meeting of
the Committee or to meet with any members of, or consultants to,
the
Committee.
|
Employees
As
of
December 31, 2003, the Company employed 148 individuals on a full-time basis,
employed as follows:
|
Sales
&
Marketing
|
Manufac-
turing
|
Service
|
Research
&
Dvpt
|
Regula-
tory
|
Clinical
Affairs
|
Adminis-
trative
|
Total
|
|
|
France
|
14
|
26
|
25
|
14
|
5
|
4
|
14
|
102
|
|
Italy
|
3
|
0
|
0
|
0
|
0
|
0
|
3
|
6
|
|
Japan
|
11
|
0
|
13
|
0
|
1
|
0
|
5
|
30
|
|
Malaysia
|
2
|
0
|
3
|
0
|
0
|
0
|
2
|
7
|
|
USA
|
0
|
0
|
0
|
0
|
0
|
0
|
1
|
1
|
|
South
Korea
|
1
|
0
|
0
|
0
|
0
|
0
|
1
|
2
|
|
Total
=
|
31
|
26
|
41
|
14
|
6
|
4
|
26
|
148
|
35
The
restructuring of the French operating divisions was approved as of December
31,
2003 and was implemented in 2004.
As
of
December 31, 2004, the Company employed 122 individuals on a full-time basis,
employed as follows:
|
Sales
&
Marketing
|
Manufac-
turing
|
Service
|
Research
&
Dvpt
|
Regula-
tory
|
Clinical
Affairs
|
Adminis-
trative
|
Total
|
|
|
France
|
11
|
21
|
22
|
8
|
3
|
1
|
14
|
80
|
|
Italy
|
3
|
0
|
0
|
0
|
0
|
0
|
2
|
5
|
|
Japan
|
9
|
0
|
13
|
0
|
2
|
0
|
4
|
28
|
|
Malaysia
|
2
|
0
|
3
|
0
|
0
|
0
|
2
|
7
|
|
South
Korea
|
1
|
0
|
0
|
0
|
0
|
0
|
1
|
2
|
|
Total
=
|
26
|
21
|
38
|
8
|
5
|
1
|
23
|
122
|
As
of
December 31, 2005, the Company employed 134 individuals on a full-time basis,
employed as follows:
|
Sales
&
Marketing
|
Manufac-
turing
|
Service
|
Research
&
Dvpt
|
Regula-
tory
|
Clinical
Affairs
|
Adminis-
trative
|
Total
|
|
|
France
|
13
|
22
|
24
|
8
|
3
|
2
|
15
|
87
|
|
Italy
|
3
|
0
|
0
|
0
|
0
|
0
|
3
|
6
|
|
Germany
|
2
|
0
|
2
|
0
|
0
|
0
|
2
|
4
|
|
Japan
|
9
|
0
|
13
|
0
|
2
|
0
|
4
|
28
|
|
Malaysia
|
2
|
0
|
3
|
0
|
0
|
0
|
2
|
7
|
|
South
Korea
|
1
|
0
|
0
|
0
|
0
|
0
|
1
|
2
|
|
Total
=
|
30
|
22
|
40
|
8
|
5
|
2
|
27
|
134
|
Management
considers labor relations to be good. Employee benefits are in line with those
specified by applicable government regulations.
Share
Ownership
As
of
March 31, 2006, Siemens France S.A. owned 1,003,250 Shares representing 12.0%
of
the total share capital and (after subtracting treasury stock which under French
law carries no voting rights) 12.8% of the voting rights of the Company. No
other member of the Board of Directors or Senior Executive Officers is the
beneficial owner of securities representing or giving the right to subscribe
for
or purchase more than 1% of the Shares.
As
of
March 31, 2006, the Board of Directors and the Senior Executive Officers of
the
Company hold a total of 1,014,376 Shares (including Siemens France SA acting
as
a moral entity seating at the Board of Directors) representing 12.1% of the
total share capital and (after subtracting treasury stock which under French
law
carries no voting rights) 13.0% of the voting rights of the
Company.
Options
to Purchase or Subscribe for Securities
As
of
March 31, 2006, the Company had sponsored six stock purchase and subscription
option plans and one Free Performance Shares plan.
On
December 2, 1996, the shareholders of EDAP TMS S.A. authorized the Board of
Directors to grant up to 177,750 options to purchase pre-existing Shares and
156,625 options to subscribe to newly issued Shares at a fixed exercise price
of
€ 6.97 per Share.
On
May
14, 1998, the shareholders of EDAP TMS S.A. authorized the Board of Directors
to
grant up to 713,425 options to purchase pre-existing Shares at a fixed exercise
price to be set by the Board of Directors. The shareholders also authorized
the
Board of Directors to cause EDAP TMS S.A. to repurchase up to 535,675 of its
own
Shares (treasury stock) to cover the options granted under the new plan. Up
to
279,000 of the 713,425 options were reserved for modification of the terms
of
pre-existing options.
36
On
June
12, 2001, the shareholders of EDAP TMS S.A. authorized the Board of Directors
to
grant up to 300,000 options to purchase pre-existing Shares and 80,000 options
to subscribe to new Shares, at a fixed exercise price to be set by the
Supervisory Board.
On
January 29, 2004, the shareholders of EDAP TMS S.A. authorized the Board of
Directors to grant up to 240,000 options to purchase pre-existing Shares and
100,000 options to subscribe to new 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
January 29, 2004, the shareholders also authorized the Board of Directors to
grant up to 1,000,000 warrants to H.T. Prostate LLC, a fully owned subsidiary
of
HealthTronics Surgical Services Inc, at a fixed price of U.S.$1.50. These
warrants were granted by the Board of Directors on January 28,
2005.
On
February 17, 2005, the shareholders of EDAP TMS S.A. authorized the Board of
Directors to grant up to 625,000 free shares to be issued to certain employees
of the Company, subject to compliance with the conditions and performance
criteria fixed by the Board of Directors. On March 30, 2005, 500,900 rights
to
subscribe to free shares were granted by the Board of Directors, based on
certain performance criteria to be met for years 2005 and 2006. However, given
the dramatic shift of business model during 2005 from the sales of Ablatherm
equipment towards the sales of treatment procedures (RPPs), on January 6, 2006,
the Board of Directors decided to cancel the 2005 allocation plan and to set
up
a new one reflecting the new business model for years 2006 and 2007. On January
6, 2006, in accordance with the Performance Stock Plan authorized by the
shareholders, 564,100 rights to subscribe to new shares were distributed,
including new entrants. This plan will be accounted for in compliance with
FASB
123(R).See
Item
5, “Operating and Financial Review and Prospects—New Accounting
Pronouncements.”
On
December 31, 2005, the duration of stock option contracts was as
follows:
|
months
until expiration
|
Number
of
Shares
|
|
24
|
33
625
|
|
36
|
92
000
|
|
48
|
1212
|
|
72
|
112
000
|
|
78
|
14
425
|
|
98
|
325
000
|
|
109
|
15
000
|
37
As
of
December 31, 2005, a summary of stock option activity to purchase or to
subscribe to Shares under these plans is as follows:
|
2005
|
2004
|
2003
|
||||
|
Options
|
Weighted
average exercise price
(€)
|
Options
|
Weighted
average exercise price
(€)
|
Options
|
Weighted
average exercise price
(€)
|
|
|
Outstanding
on January 1,
|
580,262
|
2.49
|
391,262
|
2.68
|
654,341
|
2.58
|
|
Granted
|
15,000
|
2.78
|
325,000
|
2.19
|
0
|
|
|
Exercised
|
(1,000)
|
1.62
|
0
|
0
|
||
|
Forfeited
|
(1,000)
|
3.81
|
(136,000)
|
2.34
|
(263,079)
|
2.43
|
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Outstanding
on December 31,
|
593,262
|
2.50
|
580,262
|
2.49
|
391,262
|
2.68
|
|
Exercisable
on December 31,
|
409,652
|
2.45
|
219,547
|
2.99
|
272,442
|
2.94
|
|
Shares
purchase options available for grant on December 31
|
0
|
-
|
0
|
-
|
0
|
-
|
The
following table summarizes information about options to purchase Shares already
held by the Company as treasury Shares, or to subscribe to new Shares, at
December 31, 2005:
|
Outstanding
options
|
Exercisable
options
|
|||||
|
Exercise
price (€)
|
Options
|
Weighted
average remaining contractual life
|
Weighted
average exercise price
(€)
|
Options
|
Weighted
average exercise price
(€)
|
|
|
3.81
|
116,625
|
2.5
|
3.81
|
116,625
|
3.81
|
|
|
2.78
|
15,000
|
9.1
|
2.78
|
3,750
|
2,78
|
|
|
2.60
|
240,000
|
8.7
|
2.60
|
60,000
|
2.60
|
|
|
2.08(1)
|
112,000
|
6.0
|
2.08
|
112,000
|
2.08
|
|
|
2.02(2)
|
14,425
|
6.5
|
2.02
|
10,815
|
2.02
|
|
|
1.83
|
10,212
|
3.5
|
1.83
|
10,212
|
1.83
|
|
|
1.28
|
100,000
|
8.2
|
1.28
|
100,000
|
1.28
|
|
|
1.28
to 3.81
|
593,262
|
6.3
|
2.50
|
409,652
|
2.11
|
|
|
(1)
|
All
the 112,000 options were granted on September 25, 2001 with an exercise
price expressed in U.S. dollars ($1.92) and converted here to euros
based
on the noon buying rate on September 25, 2001 ($1 = €
1.085).
|
|
(2)
|
All
the 14,425 options were granted on June 18, 2002 with an exercise
price
expressed in U.S. dollars ($1.92) and converted here to euros based
on the
noon buying rate on June 18, 2002 ($1 = €
1.0545).
|
Exemptions
from Certain Nasdaq Corporate Governance Rules
Nasdaq
rules permit Nasdaq to provide exemptions from the Nasdaq corporate governance
standards to a foreign issuer when those standards are contrary to a law, rule
or regulation of any public authority exercising jurisdiction over such issuer
or contrary to generally accepted business practices in the issuer’s country of
domicile. The Company has received from Nasdaq an exemption from compliance
with
one certain corporate governance standard that is contrary to the law, rules,
regulations or generally accepted business practices of France. The exemption,
and the practices followed by the company, is described below:
38
The
Company is exempt from Nasdaq’s quorum requirements applicable to meetings of
shareholders. In keeping with French law and generally accepted business
practices in France, the presence in person or by proxy of shareholders having
not less than 25% (in the case of an ordinary general meeting or an
extraordinary general meeting deciding upon any capital increase by
capitalization of reserves) or 33 1/3% (in the case of an extraordinary general
meeting) of the shares is necessary for a quorum. If a quorum is not present
at
any meeting, the meeting is adjourned. Upon recommencement of an adjourned
meeting, there is no quorum requirement in the case of an ordinary general
meeting or an extraordinary general meeting deciding upon any capital increase
by capitalization of reserves. The presence in person or by proxy of
shareholders having not less than 25% of the Shares is necessary for a quorum
in
the case of any other type of extraordinary general meeting. The Company has
petitioned for this exemption because there are doubts as to whether it would
be
legally permissible for a French company to adopt in its articles of association
quorum requirements that would be more stringent than those prescribed by French
law, and this would in any event be contrary to generally accepted business
practice in France.
Item
7. Major Shareholders and Related Party Transactions
Major
Shareholders
To
the
Company’s knowledge, it is not directly or indirectly owned or controlled by
another corporation, by any foreign government, or by any other natural or
legal
person or persons acting severally or jointly. At March 31, 2006, to the
Company’s knowledge, the following persons had beneficial ownership of more than
5% of the Shares: Siemens France S.A. owned 1,003,250 Shares representing 12.0%
of the total share capital of the Company and (after subtracting treasury stock,
which under French law carries no voting rights) 12.8% of voting rights and
Wells Capital Management, Inc., formerly Benson Associates LLC, owned 1,313,875
Shares representing 15.7% of the total share capital of the Company and (after
subtracting treasury stock, which under French law carries no voting rights)
16.8% of voting rights. The Shares owned by these persons do not carry special
voting rights.
To
the
Company's knowledge, there have been no significant changes in the percentage
of
ownership of its Shares over the past three years.
There
are
no arrangements known to the Company, the operation of which may at a subsequent
date result in a change of control of the Company.
As
of
March 31, 2006, 8,362,821 Shares were issued, including 7,823,331 outstanding
and 539,490 treasury Shares. At the same date, there were 7,353,863 ADSs, each
representing one Share, all of which were held of record by 9 registered holders
in the United States (including The Depositary Trust Company).
Related
Party Transactions
The
General Manager of the Company’s Korean branch, EDAP-TMS Korea, is also the
Chairman of Dae You, a company incorporated in Korea and unrelated to EDAP
TMS.
Dae You acts as an agent for the promotion of the Company’s medical devices in
Korea, and EDAP TMS Korea also subcontracts the maintenance of its medical
devices installed in Korea to Dae You. Dae You also purchases medical devices
from the Company and operates them in partnership with hospitals and clinics
in
Korea.
In
2005,
EDAP TMS Korea paid Dae You €136,000 for its services under service maintenance
contracts, and Dae You purchased €396,000 of medical devices from the
Company.
The
Company purchases certain technological elements to Siemens AG. Total purchases
amounted €547 thousand in 2005, €405 thousand in 2004 and €360 thousand in
2003. As of December 31, 2005, payables due to Siemens AG amounted to €46
thousand and as of December 31, 2004, payables due to Siemens AG amounted to
€ 3
thousand.
39
Item
8. Financial Information
Consolidated
Financial Statements
See
Item
18, ‘‘Financial Statements.’’
Export
Sales
As
of
December 31, 2005, total export sales, which the Company defines as sales made
outside of France, amounted €16 million, which represented 76% of total sales.
Legal
Proceedings
To
date,
the Company is a party to two product liability actions in the United States
by
patients claiming to have been injured in the course of a Prostatron procedure.
The Company has agreed to retain liability for these two cases following the
sale of the Prostatron business in October 2000. However, in one of the two
cases, the Company believes that it may be able to claim indemnification from
Urologix. The Company believes that the patients’ claims against the Company are
without merit. In addition, if the claims against the Company are successful,
the Company believes any potential damages assessed against it would be covered
by insurance and/or by a contribution obligation of the physicians and/or the
organization which provided services with the product. However, these product
liability claims could have a material adverse impact on the
Company.
Dividends
and Dividend Policy
The
payment and amount of dividends depend on the earnings and financial condition
of the Company and such other factors that the Company’s Board of Directors
deems relevant. Dividends are subject to recommendation by the Board of
Directors and a vote by the shareholders at the shareholders’ ordinary general
meeting. Dividends, if any, would be paid in euro and, with respect to ADSs,
would be converted at the then-prevailing exchange rate into U.S. dollars.
Holders of ADSs will be entitled to receive payments in respect of dividends
on
the underlying Shares in accordance with the Deposit Agreement.
In
France, dividends are paid out of after-tax income. Dividends paid to holders
of
shares who are not residents of France generally will be subject to French
withholding tax at a rate of 25%. Holders who qualify for benefits under an
applicable tax treaty and who comply with the procedures for claiming treaty
benefits may be entitled to a reduced rate of withholding tax and, in certain
circumstances, certain other benefits, under conditions provided for in the
relevant treaty under French law. See Item 10 ‘‘Additional Information—French
Taxation—Taxation of Dividends on Shares or ADSs.’’
No
dividends were paid with respect to fiscal years 2001 through 2004. Subject
to
the approval of the shareholders’ meeting to be held on or before June 30, 2006,
the Company does not anticipate paying any dividends with respect to fiscal
year
2005.
Significant
Changes
Except
as
otherwise disclosed in this Annual Report, there has been no material change
in
the financial position of EDAP TMS and its consolidated subsidiaries since
December 31, 2005.
Item
9. The Offer and Listing
Description
of Securities
The
Shares are traded solely in the form of ADSs, each ADS representing one Share.
Each ADS is evidenced by an American Depositary Receipt issued by The Bank
of
New York acting as Depositary in respect thereof. The principal United States
trading market for the ADSs, which is also the principal trading market for
the
ADSs overall, is the Nasdaq National Market of the Nasdaq Stock Market, Inc.
(‘‘Nasdaq’’), on which the ADSs are quoted under the symbol ‘‘EDAP.’’ The
principal non-U.S. trading market for the ADSs was Nasdaq Europe, formerly
known
as the European Association of Securities Dealers Automated Quotation System
(‘‘EASDAQ’’), on which the ADSs were quoted under the symbol ‘‘EDAP’’. The
Company requested and received a conditional approval from Nasdaq Europe for
the
delisting of its ADSs effective on April 25, 2002.
40
Trading
Markets
The
following tables set forth, for the years 2001 through 2005, the reported high
and low sales prices of the ADSs on Nasdaq and Nasdaq Europe (through to April
25, 2002 for Nasdaq Europe).
|
Nasdaq
|
||||||
|
High
|
Low
|
|||||
|
$
|
||||||
|
2006
(through March 31)
|
21.64
|
5.30
|
||||
|
2005
|
5.68
|
3.10
|
||||
|
2004
|
3.92
|
1.55
|
||||
|
2003
|
1.99
|
1.00
|
||||
|
2002
|
2.49
|
1.15
|
||||
|
2001
|
3.43
|
0.59
|
||||
The
following tables set forth, for the years 2004 and 2005 and the first quarter
of
2006, the reported high and low sales prices of the ADSs on Nasdaq for each
full
financial quarter:
|
Nasdaq
|
||||||
|
High
|
Low
|
|||||
|
$
|
||||||
|
2006:
|
||||||
|
First
Quarter
|
21.64
|
5.30
|
||||
|
2005:
|
||||||
|
First
Quarter
|
5.50
|
3.41
|
||||
|
Second
Quarter
|
5.00
|
3.65
|
||||
|
Third
Quarter
|
4.27
|
3.18
|
||||
|
Fourth
Quarter
|
5.68
|
3.10
|
||||
|
2004:
|
||||||
|
First
Quarter
|
2.12
|
1.55
|
||||
|
Second
Quarter
|
3.61
|
1.95
|
||||
|
Third
Quarter
|
2.51
|
1.64
|
||||
|
Fourth
Quarter
|
3.92
|
1.96
|
||||
41
The
following table sets forth, for the most recent six months (from November 2005
through April 2006), the reported high and low sale prices of the ADSs on Nasdaq
for each month:
|
Nasdaq
|
||||||
|
High
|
Low
|
|||||
|
$
|
||||||
|
2005:
|
||||||
|
November
|
4.50
|
3.25
|
||||
|
December
|
5.68
|
3.81
|
||||
|
2006:
|
||||||
|
January
|
8.65
|
5.30
|
||||
|
February
|
8.88
|
7.25
|
||||
|
March
|
21.64
|
8.43
|
||||
|
April
|
19.46
|
12.68
|
||||
Item
10. Additional Information
Memorandum
and Articles of Association
Set
forth
below is a brief summary of significant provisions of the Company’s articles of
association (statuts)
and
applicable French laws. This description does not purport to be complete and
is
qualified in its entirety by reference to the Company’s statuts.
Each
time they are modified, the Company files copies of its articles of association
with, and such articles of association are publicly available from, the Registry
of Commerce and Companies in Lyon, France, under number 316488204
RCS-LYON.
The
Company’s corporate affairs are governed by its articles of association and by
Book II of the French Commercial Code, as amended.
The
Company’s articles of association were last updated in July 2002 in order
formally to comply with French Rules on Economic Regulation (the NRE law) and
to
reflect the new management structure.
Corporate
Purposes
Pursuant
to Article 2 of the articles of association, the purposes of the Company
are:
| - |
the
taking of financial interests, under whatever form, in all French
or
foreign groups, companies or businesses which currently exist or
which may
be created in the future, mainly through contribution, subscription
or
purchasing of stocks or shares, obligations or other securities,
mergers,
holding companies, groups, alliances or
partnerships;
|
|
-
|
the
management of such financial
interests;
|
|
-
|
the
direction, management, control and coordination of its subsidiaries
and
interests;
|
|
-
|
the
provision of all administrative, financial, technical or other services;
and
|
|
-
|
generally,
all operations of whatever nature, financial, commercial, industrial,
civil, relating to property and real estate which may be connected
directly or indirectly, in whole or in part, to the Company’s purposes or
to any other similar or related purposes which may favor the extension
or
development of said purposes.
|
Board
of Directors
On
July
30, 2002, the shareholders approved a new management structure for EDAP TMS.
The
shareholders opted for management by a Board of Directors instead of a
Management Board controlled by a Supervisory Board.
The
Board
of Directors is currently composed of six members who were appointed by the
shareholders on July 30, 2002 and November 26, 2002, for a period of three
years. (See Item 6, ‘‘Directors, Senior Management and Employees’’). However, as
the Company's articles of association set the duration of the Directors' mandate
at six years (one year being calculated as the period in between two consecutive
annual ordinary general shareholder's meetings), the next annual general
shareholders’ meeting will acknowledge the Directors’ mandate as six years
expiring upon the date of the general shareholders’ meeting approving the
financial results for fiscal year 2007. The tenure of a Director terminates
at
the end of the ordinary general shareholders' meeting convened to vote upon
the
accounts of the then-preceding fiscal year and is held in the year during which
the office of such Director comes to an end. Directors may always be re-elected;
the Director may also be dismissed at any time at the shareholders’
meeting.
42
The
mandate for each member of the Board of Directors expires on the date of the
ordinary general shareholders' meeting approving the financial results for
fiscal year 2007.
Each
Director must own at least one share during his/her term of office. If, at
the
time of his/her appointment, the Director does not own the required number
of
shares or if during his/her term, he/she no longer owns the required number
of
shares, he/she is considered to have automatically resigned if he/she has failed
to comply with the shareholding requirement within three months.
An
individual person cannot be on more than five Boards of Directors or Supervisory
Boards in companies registered in France; directorships in controlled companies
(as defined by Section L.233-16 of the French Commercial Code) by the Company
are not taken into account.
In
case
of the death or resignation of one or more Director, the Board of Directors
may
make provisional appointments to fill vacancies between two general shareholders
meetings. Any such provisional appointments must be ratified by the next
following ordinary shareholders meeting. Even if a provisional appointment
is
not ratified, resolutions and acts previously approved by the Board of Directors
nonetheless remain valid.
When
the
number of Directors falls below the compulsory legal minimum, the remaining
directors must convene an ordinary general shareholders’ meeting, in order to
reach the full complement of the Board of Directors.
Any
Director appointed in replacement of another Director whose tenure has not
expired
remains
in office only for the remaining duration of the tenure of his predecessor.
An
employee of the Company may be appointed as a Director. His/her contract of
employment must however entail actual work obligations. In this case, he/she
does not loose the benefit of his/her employment contract.
The
number of Directors who are also linked to the Company by an employment contract
cannot exceed one third of the Directors then in office and in any case five
members.
Directors
cannot be more than seventy years old. In case one of the Directors reaches
this
limit during his/her tenure, the said Director is automatically considered
to
have resigned at the next general shareholders meeting. One June 21, 2005,
the
shareholders approved a resolution extending the age limit for the Directors
to
seventy five years old. The by-laws were then modified accordingly.
The
Board
of Directors determines the direction of the Company’s business and supervises
its operations. Within the limits set out by the corporate purposes and the
powers expressly granted by law to the general shareholders’ meeting, the Board
of Directors may deliberate upon the operations of the Company and make any
decisions in accordance with the Company's business. However, a Director must
abstain from voting on matters in which he has an interest. The
resolutions passed in a meeting of the Board of Directors are valid only if
a
quorum of half of the Directors is reached. A
Director cannot borrow money from the Company.
The
Chairman of the Board
The
Board
of Directors must elect one of its members as Chairman of the Board of
Directors, who must be an individual person. The Board of Directors determines
the duration of the tenure of the Chairman, which cannot exceed that of his/her
tenure as a Director. The Board of Directors may dismiss the Chairman at any
time. The remuneration of the Chairman is decided by the Board of Directors,
upon recommendation of the Compensation Committee.
The
Chairman represents the Board of Directors and organizes its work. The general
shareholders’ meeting must be informed of this work by the Chairman. The
Chairman is responsible for the good functioning of the Company’s organization
and for supervising the ability of the Board members to perform their
mission.
Pursuant
to Section 706-43 of the French criminal proceedings Code, the Chairman may
validly delegate to any person he/she chooses the power to represent the Company
with regard to criminal proceedings which might be taken against the Company.
43
As
with
any other Director, the Chairman cannot be over seventy years old. In case
the
Chairman reaches this limit during his/her tenure, he/she will automatically
be
considered to have resigned. However, his/her tenure is extended until the
next
Board of Directors meeting, during which his/her successor will be appointed.
Subject to the age limit provision, the Chairman of the Board may also be
re-elected. One June 21, 2005, the shareholders approved a resolution extending
the age limit for the Chairman of the Board to seventy five years old. The
by-laws were then modified accordingly.
The
Chief Executive Officer
The
Company is managed by the Chairman of the Board of Directors or an individual
elected by the Board bearing the title of Chief Executive Officer. The choice
between these two methods of management belongs to the Board of Directors and
must be made as provided for by the articles of association. On July 1, 2004,
the Board of Directors appointed Mr. Hugues de Bantel as Chief Executive
Officer.
The
Chief
Executive Officer is vested with the powers to act under all circumstances
on
behalf of the Company, within the limits set out by the corporate purposes,
and
subject to the powers expressly granted by law to the Board of Directors and
the
general shareholders’ meeting.
The
Chief
Executive Officer represents the Company with respect to third parties. The
Company is bound by any acts of the Chief Executive Officer even if they are
contrary to the corporate purposes, unless it is proven that the third party
knew such act exceeded the corporate purposes or could not ignore so in light
of
the circumstances. Publication of the articles of association alone is not
sufficient evidence of such knowledge.
The
remuneration of the Chief Executive Officer is set by the Board of Directors,
upon recommendation of the Compensation Committee. The Chief Executive Officer
can be terminated at any time by the Board of Directors. If such termination
is
found to be unjustified, damages may be allocated to the Chief Executive
Officer, except when the Chief Executive Officer is also the Chairman of the
Board.
The
Chief
Executive Officer may not hold another position as Chief Executive Officer
or
member of a Management Board in a company registered in France except when
(a)
such company is controlled (as referred to in Section L.233-16 of the French
Commercial Code) by the Company and (b) when this controlled company’s shares
are not quoted on a regulated market.
The
Chief
Executive Officer cannot be over seventy years old. In case the Chief Executive
Officer reaches this limit during his/her office, he/she is automatically be
considered to have resigned. However, his/her tenure is extended until the
next
Board of Directors meeting, during which his/her successor must be
appointed.
Dividend
and Liquidation Rights (French Law)
Net
income in each fiscal year, as increased or reduced, as the case may be, by
any
profit or loss of the Company carried forward from prior years, less any
contributions to legal reserves, is available for distribution to the
shareholders of the Company as dividends, subject to the requirements of French
law and the Company’s articles of association.
Under
French law and the Company’s articles of association, the Company is required to
allocate 5% of its net profits in each fiscal year to a legal reserve fund
until
the amount in such reserve fund is equal to 10% of the nominal amount of the
registered capital. The legal reserve is distributable only upon the liquidation
of the Company.
The
shareholders of the Company may, upon recommendation of the Board of Directors,
decide to allocate all or a part of distributable profits, if any, among special
or general reserves, to carry them forward to the next fiscal year as retained
earnings, or to allocate them to the shareholders as dividends.
The
Company’s articles of association provide that, if so agreed by the
shareholders, reserves that are available for distribution under French law
and
the Company’s articles of association may be distributed as dividends, subject
to certain limitations.
If
the
Company has made distributable profits since the end of the preceding fiscal
year (as shown on an interim income statement certified by the Company’s
statutory auditors), the Board of Directors has the authority under French
law,
without the approval of shareholders, to distribute interim dividends to the
extent of such distributable profits. The Company has never paid interim
dividends in the past.
44
Under
French law, dividends are distributed to shareholders pro-rata according to
their respective shareholdings. Dividends are payable to holders of shares
outstanding on the date of the shareholders' meeting deciding the distribution
of dividends, or in the case of interim dividends, on the date of the Board
of
Directors meeting approving the distribution of interim dividends. However,
holders of newly issued shares may have their rights to dividends limited with
respect to certain fiscal years. The actual dividend payment date is decided
by
the shareholders in an ordinary general meeting or by the Board of Directors
in
the absence of such a decision by the shareholders. The payment of the dividends
must occur within nine months from the end of the Company’s fiscal year. Under
French law, dividends not claimed within five years of the date of payment
revert to the French State.
In
the
event that the Company is liquidated, the Company’s assets remaining after
payment of its debts, liquidation expenses and all of its remaining obligations
will be distributed first to repay in full the nominal value of the shares,
then
the surplus, if any, will be distributed pro-rata among the shareholders based
on the nominal value of their shareholdings and subject to any special rights
granted to holders of priority shares, if any.
Changes
in Share Capital (French Law)
The
share
capital of the Company may be increased only with the approval of the
shareholders entitled to vote at an extraordinary general meeting, following
a
recommendation of the Board of Directors. Increases in the share capital may
be
effected either by the issuance of additional shares (including the creation
of
a new class of shares) or by an increase in the nominal value of existing
shares. Additional Shares may be issued for cash or for assets contributed
in
kind, upon the conversion of debt securities previously issued by the Company,
by capitalization of reserves, or, subject to certain conditions, in
satisfaction of indebtedness incurred by the Company. Dividends paid in the
form
of Shares may be distributed in lieu of payment of cash dividends, as described
above under ‘‘—Dividend and Liquidation Rights (French law).’’ French law
permits different classes of shares to have liquidation, voting and dividend
rights different from those of the outstanding ordinary shares.
The
share
capital of the Company may be decreased only with the approval of the
shareholders entitled to vote at an extraordinary general meeting. The share
capital may be reduced either by decreasing the nominal value of the shares
or
by reducing the number of outstanding shares. The conditions under which the
registered capital may be reduced will vary depending upon whether or not the
reduction is attributable to losses incurred by the Company. The number of
outstanding shares may be reduced either by an exchange of shares or by the
repurchase and cancellation by the Company of its shares. Under French law,
all
the shareholders in each class of shares must be treated equally unless the
inequality in treatment is accepted by the affected shareholder. If the
reduction is not attributable to losses incurred by the Company, each
shareholder will be offered an opportunity to participate in such capital
reduction and may decide whether or not to participate therein.
Repurchase
of Shares (French Law)
Pursuant
to French law, the Company may not acquire its own shares except (a) to reduce
its share capital under certain circumstances with the approval of the
shareholders at an extraordinary general meeting, (b) to provide shares for
distribution to employees under a profit sharing or stock option plan and (c)
after obtaining approval from the shareholders at an ordinary general meeting,
to make purchases for stabilization of quotations on a regulated stock exchange.
In either case, the amounts to be repurchased under (b) and (c) may not result
in the Company holding more than 10% of its shares then-issued. A subsidiary
of
the Company is prohibited by French law from holding shares of the Company
and,
in the event it becomes a shareholder of the Company, such shareholder must
transfer all the shares of the Company that it holds.
Attendance
and Voting at Shareholders’ Meetings (French Law)
In
accordance with French law, there are two types of general shareholders’
meetings, ordinary and extraordinary. Ordinary general meetings are required
for
matters such as the election of directors, the appointment of statutory
auditors, the approval of the report prepared by the Board of Directors and
the
annual accounts, the declaration of dividends and the issuance of
(non-convertible) bonds.
Extraordinary
general meetings are required for approval of matters such as amendments to
the
Company’s articles of association, modification of shareholders’ rights,
approval of mergers, increases or decreases in share capital (including a waiver
of preferential subscription rights), the creation of a new class of shares,
the
authorization of the issuance of investment certificates or securities
convertible or exchangeable into shares and for the sale or transfer of
substantially all of the Company’s assets.
45
The
Board
of Directors is required to convene an annual ordinary general shareholders
meeting, which must be held within six months of the end of the Company’s fiscal
year, for approval of the annual accounts. Other ordinary or extraordinary
meetings may be convened at any time during the year. Shareholders meetings
may
be convened by the Board of Directors or, if the Board of Directors fails to
call such a meeting, by the Company’s statutory auditors or by a court-appointed
agent. The court may be requested to appoint an agent either by one or more
shareholders holding at least 5% of the Company’s registered capital or by an
interested party under certain circumstances, or, in case of an urgent matter,
by the Work Council (Comité
d’entreprise)
representing the employees. The notice calling a meeting must state the agenda
for such meeting.
French
law provides that, at least 15 days before the date set for any general meeting
on first notice, and at least six days before the date set for any general
meeting on second notice, notice of the meeting must be sent by mail to all
holders of properly registered shares who have held such shares for more than
one month prior to the date of the notice. A preliminary written notice
(avis
de réunion)
must be
sent to each shareholder who has requested to be notified in writing. Under
French law, one or several shareholders together holding a specified percentage
of shares may propose resolutions to be submitted for approval by the
shareholders at the meeting. Holders of ADSs will receive notices of
shareholders meetings and other reports and communications that are made
generally available to shareholders from the Bank of New York, the Depositary
for the ADSs. The Work Council may also require the registration of resolution
proposals on the agenda.
Attendance
and exercise of voting rights at ordinary and extraordinary general meetings
are
subject to certain conditions. Shareholders deciding to exercise their voting
rights must have their shares registered in their names in the shareholder
registry maintained by or on behalf of the Company prior to the meeting. Certain
procedures to effect such requirements will be required of a holder of ADSs
to
exercise the voting rights relating to the shares represented by such ADSs.
All
shareholders who have properly registered their shares have the right to
participate in general meetings, either in person, by proxy, or by mail, and
to
vote according to the number of shares they hold. Each share confers on the
shareholder the right to one vote. Under French law, an entity controlled
directly or indirectly by the Company is prohibited from holding shares in
the
Company and, in the event it becomes a shareholder, such entity would not be
entitled to any voting rights. A proxy may be granted by a shareholder whose
name is registered on the Company’s share registry to his or her spouse, to
another shareholder or to a legal representative, in the case of a legal entity,
or by sending a proxy in blank to the Company without nominating any
representatives. In the latter case, the Chairman of the shareholders’ meeting
will vote such blank proxy in favor of all resolutions proposed by the Board
of
Directors and against all others.
The
presence in person or by proxy of shareholders having not less than 25% (in
the
case of an ordinary general meeting or an extraordinary general meeting deciding
upon any capital increase by capitalization of reserves) or 33 1/3% (in the
case
of an extraordinary general meeting) of the Shares entitled to vote is necessary
to reach a quorum. If a quorum is not reached at any meeting, the meeting is
adjourned. Upon recommencement of an adjourned meeting, there is no quorum
requirement in the case of an ordinary general meeting or an extraordinary
general meeting deciding upon any capital increase by capitalization of
reserves. The presence in person or by proxy of shareholders having not less
than 25% of the Shares is necessary to reach a quorum in the case of any other
type of extraordinary general meeting.
At
an
ordinary general meeting or an extraordinary general meeting deciding upon
any
capital increase by capitalization of reserves, a simple majority of the votes
of the shareholders present or represented by proxy is required to approve
a
resolution. At any other extraordinary general meeting, a two-thirds majority
of
the votes cast is required. However, a unanimous vote is required to increase
liabilities of shareholders. Abstention from voting by those present or
represented by proxy is viewed as a vote against the resolution submitted to
a
vote.
In
addition to his/her rights to certain information regarding the Company, any
shareholder may, during the two-week period preceding a shareholders’ meeting,
submit to the Board of Directors written questions relating to the agenda for
the meeting. The Board of Directors is required to respond to such questions
during the meeting.
46
Under
French law, shareholders can nominate individuals for election to the Board
of
Directors at a shareholders’ meeting. When the nomination is part of the agenda
of the shareholders’ meeting, the nomination must contain the name, age,
professional references and professional activity of the nominee for the past
five years, as well as the number of shares owned by such candidate, if any.
In
addition, if the agenda for the shareholders’ meeting includes the election of
members of the Board of Directors, any shareholder may require, during the
meeting, the nomination of a candidate for election at the Board of Directors
at
the shareholders’ meeting, even if such shareholder has not followed the
nomination procedures. Under French law, shareholders cannot elect a new member
of the Board of Directors at a general shareholders meeting if the agenda for
the meeting does not include the election of a member of the Board of Directors,
unless such nomination is necessary to fill a vacancy due to the previous
resignation of a member.
As
set
forth in the Company’s articles of association, shareholders’ meetings are held
at the registered office of the Company or at any other locations specified
in
the written notice. The Company has no staggered or cumulative voting
arrangements for the election of Directors.
Preferential
Subscription Rights (French Law)
Shareholders
have preferential rights to subscribe for additional shares issued by the
Company for cash on a pro-rata basis (or any equity securities of the Company
or
other securities giving a right, directly or indirectly, to equity securities
issued by the Company). Shareholders may waive their preferential rights, either
individually or at an extraordinary general meeting under certain circumstances.
Preferential subscription rights, if not previously waived, are transferable
during the subscription period relating to a particular offering of shares.
U.S.
holders of ADSs may not be able to exercise preferential rights for Shares
underlying their ADSs unless a registration statement under the Securities
Act
is effective with respect to such rights or an exemption from the registration
requirement thereunder is available.
Form
and Holding of Shares (French Law)
Form
of Shares
The
Company’s articles of association provide that shares can only be held in
registered form.
Holding
of Shares
The
shares are registered in the name of the respective owners thereof in the
registry maintained by or on behalf of the Company.
Stock
certificates evidencing shares, in a manner comparable to that in the United
States, are not issued by French companies, but the Company may issue or cause
to be issued confirmations of shareholdings registered in such registry to
the
persons in whose names the shares are registered. Such confirmations do not
constitute documents of title and are not negotiable instruments.
Ownership
of ADSs or Shares by Non-French Residents (French Law)
Under
French law, there is no limitation on the right of non-French residents or
non-French security holders to own, or where applicable, vote securities of
a
French company. A non-resident of France must file a déclaration
administrative,
or
administrative notice, with French authorities in connection with the
acquisition of a controlling interest in any French company. Under existing
administrative rulings, ownership, by a non-resident of France or a French
corporation which is itself controlled by a foreign national, of 33 1/3% or
more
of a company’s share capital or voting rights is regarded as a controlling
interest, but a lower percentage may be held to be a controlling interest in
certain circumstances (depending upon such factors as the acquiring party’s
intentions, its ability to elect directors or financial reliance by the French
company on the acquiring party).
Certain
Exemptions (French Law)
Under
the
U.S. securities laws, as a foreign private issuer, EDAP TMS is exempt from
certain rules that apply to domestic U.S. issuers with equity securities
registered under the U.S. Securities Exchange Act of 1934, including the proxy
solicitation rules and the rules requiring disclosure of share ownership by
directors, officers and certain shareholders. EDAP TMS is also exempt from
certain of the current corporate governance requirements of the Nasdaq Stock
Market. For more information on these exemptions, see Item 6, ‘‘Directors,
Senior Management and Employees—Exemptions from Certain Nasdaq Corporate
Governance Rules.’’
47
Enforceability
of Civil Liabilities (French Law)
EDAP
TMS
is a société
anonyme,
or
limited liability corporation, organized under the laws of the Republic of
France. The majority of the directors and executive officers of EDAP TMS reside
in the Republic of France. All or a substantial portion of the assets of such
persons and of the Company are located outside the United States. As a result,
it may not be possible for investors to effect service of process within the
United States upon such persons or to enforce, either inside or outside the
United States, judgments against such persons obtained in U.S. courts or to
enforce in U.S. court judgments obtained against such persons in courts in
jurisdictions outside the United States, in each case, in any action predicated
upon the civil liability provisions of the federal securities laws of the United
States. In an original action brought in France predicated solely upon the
U.S.
federal securities laws, French courts may not have the requisite jurisdiction
to grant the remedies sought, and actions for enforcement in France of judgments
of U.S. courts rendered against French persons referred to in the second
sentence of this paragraph would require such French persons to waive their
right under Article 15 of the French Civil Code to be sued in France only.
The
Company believes that no such French persons have waived such right with respect
to actions predicated solely upon U.S. federal securities laws. In addition,
actions in the United States under the U.S. federal securities laws could be
affected under certain circumstances by the French law of July 16, 1980, which
may preclude or restrict the obtaining of evidence in France or from French
persons in connection with such actions.
Material
Contracts
The
Company is a party to a commercial lease agreement for its corporate
headquarters and R&D and manufacturing facilities are located in
Vaulx-en-Velin, on the outskirts of Lyon. The premises comprise 3,740 square
meters. The lease has a term of nine years and is renewable at the lessee’s
option. The Company believes that the terms of the lease reflect commercial
practice and market rates.
On
February 25, 2004, the Company entered into a distribution agreement with a
subsidiary of HealthTronics granting HealthTronics, among other things, (i)
the
right to begin clinical trials with the Ablatherm (which utilizes HIFU to
provide minimally invasive treatment of prostate cancer), (ii) the right to
seek
Pre-Market Approval (‘‘PMA’’) from the FDA and (iii) exclusive distribution
rights in the United States, when and if a PMA is granted. Under the terms
of
the distribution agreement, the Company also agreed to grant HealthTronics
1
million warrants (bons
de souscription d’actions)
on
January 28, 2005, each which will entitle HealthTronics to purchase a Share
of
the Company at a price of U.S.$1.50. The warrants are subject to the terms
and
conditions of an accompanying escrow agreement, which, among other things,
include restraints on subsequent resale of the warrant Shares. The distribution
agreement allows HealthTronics to exercise specified numbers of warrants as
it
meets various specified distribution milestones. Under a December 2004 amendment
to the distribution agreement, HealthTronics’s exclusive use of the Ablatherm
trade names was waived until such time as it obtained the PMA from the FDA.
On
December 29, 2005, HealthTronics, through its subsidiary, and the Company
entered into an amendment to the distribution agreement. HealthTronics
wishes to focus its efforts on obtaining the PMA for Ablatherm and on developing
the HIFU market potential on the US territory, and does not want to pursue
the
distribution of the Company's lithotripters
in the US. The
200,000 warrants that had been issued to HealthTronics were cancelled, as the
conditions precedent to their exercise were directly linked to future purchases
of lithotripters manufactured by the Company.
Exchange
Controls
Under
current French foreign exchange control regulations, there are no limitations
on
the amount of cash payments that may be remitted by the Company to residents
of
foreign countries Laws and regulations concerning foreign exchange controls
do
require, however, that all payments or transfers of funds made by a French
resident to a non-resident be handled by an accredited intermediary. All
registered banks and credit institutions in France are accredited
intermediaries.
48
Under
French law, there is no limitation on the right of non-French residents or
non-French security holders to own, or where applicable, vote securities of
a
French company. A non-resident of France must file a déclaration
administrative,
or
administrative notice, with French authorities in connection with the
acquisition of a controlling interest in any French company. Under existing
administrative rulings, ownership by a non-resident of France or a French
corporation which is itself controlled by a foreign national, of 20% or more
of
a listed company’s share capital or voting rights is regarded as a controlling
interest, but a lower percentage may be held to be a controlling interest in
certain circumstances (depending upon such factors as the acquiring party’s
intentions, its ability to elect directors or financial reliance by the French
company on the acquiring party).
French
Taxation
The
following generally summarizes the material French tax consequences of
purchasing, owning and disposing of Shares or ADSs. The statements relating
to
French tax laws set forth below are based on the laws in force as of the date
hereof, and are subject to any changes in applicable laws and tax treaties
after
such date.
This
discussion is intended only as a descriptive summary and does not purport to
be
a complete analysis or listing of all potential tax effects of the purchase,
ownership or disposition of Shares or ADSs. The following summary does not
address the treatment of Shares or ADSs that are held by a resident of France
(except for purposes of describing related tax consequences for other holders)
or in connection with a permanent establishment or fixed base through which
a
holder carries on business or performs personal services in France, or by a
person that owns, directly or indirectly, 5% or more of the stock of the
Company. Moreover, the following discussion of the tax treatment of dividends
only deals with distributions made on or after January 1, 2006.
There
are
currently no procedures available for holders that are not U.S. residents to
claim tax treaty benefits in respect of dividends received on ADSs or Shares
registered in the name of a nominee. Such holders should consult their own
tax
advisor about the consequences of owning and disposing of ADSs.
Investors
should consult their own tax advisors regarding the tax consequences of the
purchase, ownership and disposition of shares in light of their particular
circumstances.
Taxation
of Dividends on Shares or ADSs - Withholding Tax
In
France, dividends are paid out of after-tax income. Dividends paid to
non-residents normally are subject to a 25% French withholding tax. However,
non-resident holders that are entitled to and comply with the procedures for
claiming benefits under an applicable tax treaty may be subject to a reduced
rate (generally 15%) of French withholding tax. If a non-resident holder
establishes its entitlement to treaty benefits prior to the payment of a
dividend, then French tax generally will be withheld a the reduced rate provided
under the treaty.
New
Tax Credit
As
a
results of the reforms implemented by the French Finance Law for 2004 and
the
French Finance Law for 2006, from January 1, 2006, French resident individuals
are taxed on only 60% of the dividends they receive and, in addition to a
fixed
allowance, are entitled to a tax credit equal to 50% of all dividends received
within on year (the "Tax Credit"). The Tax Credit is capped at €230 for married
couples and members of a union agreement subject to joint taxation and €115 for
single persons, widows or widowers, divorcees or married persons subject
to
separate taxation.
Dividends
paid to non-residents are not normally eligible for the Tax Credit described
above. However, qualifying non-resident individuals may, depending on the
provisions of the tax treaty possibly entered into between France and their
country of residence, benefit from a refund of the Tax Credit (net of applicable
withholding tax) under certain conditions, subject to compliance with the
procedures for claiming benefits under the applicable treaty. The French
tax
authorities have not yet issued any guidance with regard to the procedures
for
claiming the refund of the Tax Credit to non-resident
individuals.
49
Individual
investors are urged to consult their own tax adviers in this
respect.
Taxation
on Sale or Disposition of Shares or ADSs
Subject
to the more favorable provisions of a relevant tax treaty, holders that are
not
residents of France for tax purposes, do not hold Shares or ADSs in connection
with the conduct of a business or profession in France, and have not held more
than 25% of dividend rights (droits
aux bénéfices sociaux)
of the
Company, directly or indirectly, at any time during the preceding five years,
are not subject to French income tax or capital gains tax on the sale or
disposition of Shares or ADSs.
A
1.1%
ad
valorem
registration duty (subject to a maximum of €4,000 per transfer) applies to
certain transfers of shares in French companies. This
duty
does not apply to transfers of shares in listed companies that are not evidenced
by a written agreement, or if any such agreement is executed outside
France.
Estate
and Gift Tax
France
imposes estate and gift tax on shares or ADSs of a French company that are
acquired by inheritance or gift. The tax applies without regard to the tax
residence of the transferor. However, France has entered into estate and gift
tax treaties with a number of countries pursuant to which, assuming certain
conditions are met, residents of the treaty country may be exempted from such
tax or obtain a tax credit.
Wealth
Tax
Individuals
who are not residents of France for purposes of French taxation are not subject
to a wealth tax (impôt
de solidarité sur la fortune)
in
France as a result of owning an interest in the share capital of a French
company, provided that such ownership interest is less than 10% of the company’s
share capital and does not enable the shareholder to exercise influence over
the
company. Double taxation treaties may provide for a more favorable tax
treatment.
Taxation
of U.S. Investors
The
following is a summary of the material French and U.S. federal income tax
consequences of the purchase, ownership and disposition of Shares or ADSs by
a
holder that is a resident of the United States for purposes of the income tax
convention between the United States and France (the ‘‘Treaty’’) and is fully
eligible for benefits under the Treaty (a ‘‘U.S. holder’’). A holder generally
will be entitled to Treaty benefits in respect of Shares or ADSs if he
is:
50
| · |
the
beneficial owner of the shares or ADSs (and the dividends paid with
respect thereto);
|
| · |
an
individual resident of the United States, a U.S. corporation, or
a
partnership, estate or trust to the extent its income is subject
to
taxation in the United States in its hands or in the hands of its
partners
or beneficiaries;
|
| · |
not
also a resident of France for French tax purposes;
and
|
| · |
not
subject to an anti-treaty shopping article that applies in limited
circumstances.
|
Special
rules apply to pension funds and certain other tax-exempt
investors.
For
U.S.
federal income tax purposes, a U.S. holder’s ownership of the company’s ADSs
will be treated as ownership of the company’s underlying shares.
This
summary does not purport to be a comprehensive description of all of the tax
considerations that may be relevant to any particular investor, and does not
discuss tax considerations that arise from rules of general application or
that
are generally assumed to be known by investors. In particular, the summary
does
not deal with Shares or ADSs that are not held as capital assets, and does
not
address the tax treatment of holders that are subject to special rules, such
as
banks, insurance companies, dealers in securities or currencies, regulated
investment companies, persons that elect mark-to-market treatment, persons
holding Shares or ADSs as a position in a synthetic security, straddle or
conversion transaction, persons that own, directly or indirectly, 5% or more
of
the Company’s voting stock or 10% or more of the Company’s outstanding capital
and persons whose functional currency is not the U.S. dollar. The summary is
based on laws, treaties, regulatory interpretations and judicial decisions
in
effect on the date hereof, all of which are subject to change.
This
summary does not discuss the treatment of Shares or ADSs that are held in
connection with a permanent establishment or fixed base through which a holder
carries on business or performs personal services in France. Moreover, the
following discussion of the tax treatment of dividends only deals with
distributions made on or after January 1, 2006.
Holders
should consult their own tax advisers regarding the tax consequences of the
purchase, ownership and disposition of Shares or ADSs in the light of their
particular circumstances, including the effect of any state, local, or other
laws.
Dividends
Generally,
dividend distributions to non-residents of France are subject to French
withholding tax at a 25% rate and are not eligible for the benefit of the Tax
Credit available to French resident individuals, as described above. However,
under the Treaty, holders can claim the benefit of a reduced dividend
withholding tax rate of 15%.
In
addition, individual U.S. holders may be entitled to a refund of the Tax Credit,
less a 15% withholding tax, provided that they are subject to U.S. federal
income tax on the Tax Credit and the dividend to which it relates. The French
tax authorities have not yet issued guidance with respect to the procedures
for
claiming the refund of the Tax Credit to non-resident individuals.
U.S.
holders that are legal entities, pension funds or other tax-exempt holders
are
no longer entitled to tax credit payments from the French Treasury.
French
withholding tax will be withheld at the 15% Treaty rate for holders that have
established before the date of payment that they are residents of the United
States under the Treaty by following the simplified procedure described
below.
The
gross
amount of dividend and Tax Credit that a U.S. holder receives (prior to
deduction of French withholding tax) generally will be subject to U.S. federal
income taxation as ordinary dividend income to the extent paid or deemed paid
out of the current or accumulated earnings and profits of the Company (as
determined under U.S. federal income tax principles). Such
dividends will not be eligible for the dividends received deduction generally
allowed to U.S. corporations.
51
Subject
to certain exceptions for short-term and hedged positions, the U.S. dollar
amount of dividends received by an individual prior to January 1, 2009 with
respect to the Shares or ADSs will be subject to taxation at a maximum rate
of
15% if the dividends are “qualified dividends.” Dividends paid on the Shares or
ADSs will be treated as qualified dividends if (i) the
issuer
is eligible for the benefits of a comprehensive income tax treaty with the
United States that the IRS has approved for the purposes of the qualified
dividend rules and
(ii) the
Company was not, in the year prior to the year in which the dividend was paid,
and is not, in the year in which the dividend is paid, a passive foreign
investment company (“PFIC”). The
Treaty has been approved for the purposes of the qualified dividend rules.
Based
on
the Company’s audited financial statements and relevant market and shareholder
data, the Company believes that it was not treated as a PFIC for U.S. federal
income tax purposes with respect to its 2005 taxable year. In addition, based
on
the Company’s audited financial statements and its current expectations
regarding the value and nature of its assets, the sources and nature of its
income, and relevant market and shareholder data, the Company does not
anticipate becoming a PFIC for its 2006 taxable year. Accordingly, dividends
paid by the Company in 2006 to a U.S. holder should constitute “qualified
dividends” unless such holder acquired its Shares or ADSs during a year in which
the Company was a PFIC and such holder did not make a mark-to-market election
(as described under “—Passive Foreign Investment Company Rules”
below).
The
U.S.
Treasury has announced its intention to promulgate rules pursuant to which
holders of ADSs or common stock and intermediaries though whom such securities
are held will be permitted to rely on certifications from issuers to establish
that dividends are treated as qualified dividends. Because such procedures
have
not yet been issued, it is not clear whether the Company will be able to comply
with them.
Holders
of ADSs and Shares should consult their own tax advisers regarding the
availability of the reduced dividend tax rate in the light of their own
particular circumstances.
Distributions
out of earnings and profits with respect to the Shares or ADSs generally will
be
treated as dividend income from sources outside of the United States and
generally will be treated separately along with other items of “passive” (or, in
the case of certain U.S. holders, “financial services”) income for purposes of
determining the credit for foreign income taxes allowed under the Code. Subject
to certain limitations, French income tax withheld in connection with any
distribution with respect to the Shares or ADSs may be claimed as a credit
against the U.S. federal income tax liability of a U.S. holder if such U.S.
holder elects for that year to credit all foreign income taxes. Alternatively
such French withholding tax may be taken as a deduction against taxable income.
Foreign tax credits will not be allowed for withholding taxes imposed in respect
of certain short-term or hedged positions in securities and may not be allowed
in respect of certain arrangements in which a U.S. holder’s expected economic
profit is insubstantial. U.S. holders should consult their own tax advisors
concerning the implications of these rules in light of their particular
circumstances.
To
the
extent that an amount received by a U.S. holder exceeds the allocable share
of
current and accumulated earnings and profits of the Company, such excess will
be
applied first to reduce such U.S. holder’s tax basis in its Shares or ADSs and
then, to the extent it exceeds the U.S. holder’s tax basis, it will constitute
capital gain from a deemed sale or exchange of such Shares or ADSs.
Dividends
paid in euro will be included in the income of a U.S. Holder in a U.S. dollar
amount calculated by reference to the exchange rate in effect on the date of
receipt by the holder (or, in the case of the ADSs, by the Depositary),
regardless of whether the payment is in fact converted into U.S. dollars. If
such a dividend is converted into U.S. dollars on the date of receipt, a U.S.
holder generally should not be required to recognize foreign currency gain
or
loss in respect of the dividend income.
Procedures
for Claiming Treaty Benefits
The
French tax authorities issued new guidelines in the Instruction No. 4-J-1-05,
dated February 25, 2005 that significantly changed the formalities to be
complied with by non-resident shareholders, including U.S. holders, in order
to
obtain the reduced withholding tax rate on distributions made on or after
January 1, 2005.
52
Pursuant
to the new guidelines, U.S. holders can either claim Treaty benefits under
a
simplified procedure or under the normal procedure. The procedure to be followed
depends on whether the application for Treaty benefits is filed before or after
the dividend payment.
Under
the
simplified procedure, in order to benefit from the lower rate of withholding
tax
applicable under the Treaty before the payment of the dividend, you must
complete and deliver to the paying agent (through its account holder) as
set out
in the Instruction n° 4 J-1-05 mentioned above, a certificate stating
that:
|
·
|
you
are a U.S. resident within the meaning of the
Treaty;
|
|
·
|
the
dividend is not derived from a permanent establishment or a fixed
base
that you own in France;
|
|
·
|
the
dividend received is subject to tax in the United
States.
|
For
partnerships and trusts, claim for Treaty benefits and related attestations
are
made by the partners, beneficiaries or grantors who also have to supply certain
additional documentation.
In
order
to be eligible for Treaty benefits, pension funds and certain other tax-exempt
U.S. holders must comply with the simplified procedure described above, though
they may be required to supply additional documentation evidencing their
entitlement to those benefits.
If
the
certificate is not filed prior to the dividend payment, a withholding tax will
be levied at the 25% rate, and a holder would have to claim a refund for the
excess under the normal procedure by filing a
specific treaty form (No. 5052 RF1-EU or No. 5053 RF1-EU) no
later
than December 31 of the second year following the year in which the dividend
is
paid.
Copies
of
the simplified certificate and of the specific treaty forms are available from
the U.S. Internal Revenue Service and from the Centre
des Impôts des Non-Résidents
(9 rue
d’Uzès, 75094 Paris Cedex 2).
Finally,
as mentioned above, the French tax authorities have not yet issued any guidance
with respect to the procedure for claiming the refund of the Tax Credit to
non-resident individuals.
Capital
Gains
Under
the
Treaty, a U.S. holder will not be subject to French tax on any gain derived
from
the sale or exchange of Shares or ADSs, unless the gain is effectively connected
with a permanent establishment or fixed base maintained by the holder in
France.
For
U.S.
federal income tax purposes, gain or loss realized by a U.S. holder on the
sale
or other disposition of Shares or ADSs will be capital gain or loss, and will
be
long-term capital gain or loss if the Shares or ADSs were held for more than
one
year. The net amount of long-term capital gain recognized by an individual
U.S.
holder generally is subject to taxation at a maximum rate of 20%; however,
net
long-term capital gain recognized by an individual U.S. holder after May 5,
2003
and before January 1, 2009 generally is subject to taxation at a maximum rate
of
15%. U.S. Holders’ ability to offset capital losses against ordinary income is
limited.
Passive
Foreign Investment Company Rules
The
Company will be classified as a PFIC in a particular taxable year if
either:
|
·
|
75%
or more of the Company’s gross income is treated as passive income for
purposes of the PFIC rules; or
|
|
·
|
the
average percentage of the value of the Company’s assets that produce or
are held for the production of passive income is at least
50%.
|
53
As
discussed above (see “—Dividends”) the Company believes that it was not a PFIC
in 2005 and does not anticipate being a PFIC in 2006. However, as discussed
in
Forms 20-F filed by the Company with respect to prior years, the Company
believes that it was a PFIC during certain periods.
If
a U.S.
holder held Shares or ADSs during a year in which the Company was a PFIC and
does not make the mark-to-market election, described in the next paragraph,
such
holder will be subject to a special additional tax, determined as described
below, on certain dividends received and gains realized (‘‘excess
distributions’’) in subsequent years, without regard to whether the Company was
a PFIC in the year the excess distribution was received. The amount of this
tax
is equal to the sum of (i) tax at ordinary rates on the amount of the excess
distribution, plus (ii) an interest charge to compensate for tax deferral,
calculated as if the excess distribution had been earned ratably over the period
the U.S. holder held its Shares or ADSs. Classification as a PFIC may also
have
other adverse tax consequences, including the denial of a step-up in the basis
of Shares and ADSs at death.
U.S.
holders can avoid the unfavorable treatment described above by electing to
mark
their Shares or ADSs to market. For any year in which the Company is a PFIC,
a
U.S. holder who makes a mark-to-market election would include as ordinary income
the excess of the fair market value of the Shares or ADSs at year-end over
the
holder’s basis in those Shares or ADSs. In addition, any gain recognized upon a
sale of Shares or ADSs in such year would be taxed as ordinary
income.
The
Company does not intend to furnish holders with the information necessary to
make a qualified electing fund (‘‘QEF’’) election.
French
Estate and Gift Tax
Under
the
estate and gift tax convention between the United States and France, a transfer
of Shares or ADSs by gift or by reason of the death of a U.S. holder entitled
to
benefits under that convention will not be subject to French gift or inheritance
tax, so long as the donor or decedent was not domiciled in France at the time
of
the transfer, and Shares or ADSs were not used or held for use in the conduct
of
a business or profession through a permanent establishment or fixed base in
France.
French
Wealth Tax
The
French wealth tax does not generally apply to shares or ADSs of a U.S. Holder
if
the holder is a resident of the United States for purposes of the
Treaty.
U.S.
Information Reporting and Backup Withholding Rules
Payments
of dividends and sales proceeds that are made within the United States or
through certain U.S.-related financial intermediaries are subject to information
reporting and may be subject to backup withholding unless the holder (i) is
a
corporation or other exempt recipient or (ii) provides a taxpayer identification
number and certifies that no loss of exemption from backup withholding has
occurred. Holders that are not U.S. persons generally are not subject to
information reporting or backup withholding. However, such a holder may be
required to provide a certification of its non- U.S. status in connection with
payments received within the United States or through a U.S.-related financial
intermediary.
Documents
on Display
The
Company is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended. In accordance with these requirements, the Company
files reports and other information with the Securities and Exchange Commission.
These materials, including this Annual Report and the exhibits hereto, may
be
inspected and copied at the Commission’s Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission’s regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 233 Broadway,
New York, New York 10279. Copies of the materials may be obtained from the
Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribe rates. The public may obtain information on the
operation of the Commission’s Public Reference Room by calling the Commission in
the United States at +1 800 SEC 0330.
54
Item
11. Quantitative and Qualitative Disclosures about Market
Risk
The
Company is exposed to market risk from changes in both foreign currency exchange
rates and interest rates. The Company does not hold or issue derivative or
other
financial instruments for trading purposes. As of December 31, 2005, the Company
had five foreign exchange sale contracts, three for the Japanese yen which
expire on March, June and September 2006 and two for U.S. dollar which expire
on
February and April 2006. As
of
March 31, 2006, the Company had three new foreign exchange sale contracts,
one
for the Japanese yen and two for U.S. dollars.
Exchange
Rate Risk
Revenues
and Expenses in Foreign Currencies
The
Company is exposed to foreign currency exchange rate risk because a significant
portion of its costs are denominated in currencies other than those in which
it
earns revenues. In 2005, approximately 76% of the Company’s selling and general
and administrative expenses and approximately 93% of the Company’s R&D
expenses were denominated in euro. During the same period, only 58% of the
Company’s sales were denominated in euro, the remainder being denominated
primarily in U.S. dollars and Japanese yen.
A
uniform
10% strengthening in the value of the euro as of December 31, 2005 relative
to
the U.S. dollar and the Japanese yen would have resulted in an increase in
income before taxes and minority interests of approximately €28,000 for the year
ended December 31, 2005, compared to an increase of approximately €43,000 for
the year ended December 31, 2004. This calculation assumes that the U.S. dollar
and Japanese yen exchange rates would have changed in the same direction
relative to the euro. In addition to the direct effects of changes in exchange
rates quantified above, changes in exchange rates also affect the volume of
sales. The foreign exchange sale contracts in place as of December 31, 2005
will
be effective as from January 2006. The Company regularly assesses the exposure
of its receivables to fluctuations in the exchange rates of the principal
foreign currencies in which its sales are denominated (in particular, the U.S.
dollar and the Japanese yen) and, from time to time, hedges such exposure by
entering into forward sale contracts for the amounts denominated in such
currencies that it expects to receive from its local subsidiaries. As of
December 31, 2005, the Company had three options to hedge against Japanese
yen
for a total nominal amount of JPY45 million (i.e. €331 thousand), an amount of
JPY15 million each, expiring on March, June and September 2006 respectively
and
two options to hedge against US$ for a total nominal amount of US$200 thousand
(i.e. €160 thousand), an amount of US$100 thousand each, expiring on February
and April 2006. As of March 31, 2006, the Company had three new foreign exchange
sale contracts, one for the Japanese yen and two for U.S. dollars.
Financial
Instruments and Indebtedness
Over
the
past three years, the Company also has had exchange rate exposures with respect
to indebtedness and assets denominated in Japanese yen. Approximately €0.2
million, €0.5 million and €0.3 million of the outstanding indebtedness of the
Company at December 31, 2005, 2004 and 2003, respectively, was denominated
in
Japanese yen. None of the Company’s outstanding indebtedness over the past three
years was denominated in U.S. dollars. In addition, the Company had
approximately €0.5 million, €1.2 million and €0.4 million of cash denominated in
U.S. dollars at December 31, 2005, 2004 and 2003, respectively, and €0.9
million, €1.3 million and €0.7 million of cash denominated in Japanese yen at
December 31, 2005, 2004 and 2003, respectively.
Item
12. Description of Securities Other than Equity Securities
Not
Applicable.
PART
II
Item
13. Defaults, Dividend Arrearages and Delinquencies
Not
Applicable.
Item
14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
Not
Applicable.
55
Item
15. Controls and Procedures
Within
the 90 days prior to date of this Annual Report, the Company carried out an
evaluation under supervision and with the participation of the Company’s
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company’s disclosure
controls and procedures. There are inherent limitations to the effectiveness
of
any system of disclosure controls and procedures, including the possibility
of
human error and the circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures can only provide
reasonable assurance of achieving their control objectives. Based upon and
as of
the date of the Company’s evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the disclosure controls and procedures are
effective in all material respects to ensure that information required to be
disclosed in the reports the Company files and submits under the Exchange Act
is
recorded, processed, summarized and reported as and when required.
There
has
been no change in the Company’s internal control over financial reporting during
the Company’s 2005 fiscal year that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
Item
16A. Audit Committee Financial Expert
The
board
of directors of the Company has determined that the chair of the board’s audit
committee, Mr. Pierre Beysson, an independent Director, qualifies as an audit
committee financial expert.
Item
16B. Code of Ethics
The
Company has adopted a code of ethics applicable to its Chief Executive Officer,
Chief Financial Officer, principal accounting officers and to any persons
performing similar functions. The code of ethics is reviewed every year by
the
Board of Directors. In 2005, there were no waivers of its applicability. The
Company has attached its code of ethics as an exhibit to this report and has
made it available on the Company’s website at www.edap-tms.com.
Item
16C. Principal Accountant Fees and Services
The
‘‘Audit and Non-Audit Services Pre-Approval Policy’’ was approved by the Audit
Committee of EDAP TMS SA Board of Directors on December 22, 2003 and reviewed
on
July 22, 2005. This requires all services which are to be performed by our
external auditors to be pre-approved. This may be in the form of a general
pre-approval or as pre-approval on a case-by-case basis. All services to be
performed by the external auditors were subjected to the above policy and
approved in advance. The Audit Committee has been regularly informed of the
services and the fees to be paid. No services which are classified as prohibited
services by the U.S. Securities and Exchange Commission under the 2003 Rules
were commissioned after May 6, 2003. Our external auditors Ernst & Young
Audit (‘‘ E&Y’’) billed the following services related to our 2005 financial
year:
|
Nature
of the Fees
|
|
|
2004
(in
€)
|
2005
(in
€)
|
|
Audit
fees
|
143,265
|
136,020
|
||
|
Audit-related
fees
|
8,010
|
97,305
|
||
|
Tax
fees
|
-
|
-
|
||
|
All
other fees
|
-
|
-
|
||
|
Total
|
151,275
|
233,325
|
Audit
Fees
The
following services were billed under the category ‘‘audit services’’: audit of
financial statements and services performed in relation to legal obligations,
including the formulation of audit opinions and reports, domestic and
international legal audits and support in the preparation and auditing of the
documents to be filed. Audit services also included the auditing of information
systems and processes and tests, which serve to promote understanding and
reliability of the systems and internal corporate controls, as well as advice
on
issues of billing, accounting and reporting.
56
Audit-Related
Fees
Audit-related
services mainly consisted of services, which are normally performed by the
external auditor in connection with the auditing of the annual financial
statements. Audit-related services also included advice on issues of accounting
and reporting which were not classified as audit services, support with the
interpretation and implementation of new accounting and reporting standards,
auditing of employee benefit plans and support with the implementation of
corporate control requirements for reporting.
Tax
Fees
Tax
services consisted of services relating to issues of domestic and international
taxation (adherence to tax law, tax planning and tax consulting). Furthermore,
services were commissioned for the review of tax returns, assistance with tax
audits, as well as assistance relating to tax law. No tax services were rendered
over 2005 fiscal year.
All
Other Fees
Other
services mainly consisted of routine and administrative follow-up of patents
and
brand names. All these services were unrelated to the audits of our financial
statements.
Item
16D. Exemptions from the Listing Standards for Audit
Committees
Not
applicable
Item
16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
In
2005,
neither the Company nor affiliated purchasers made purchases of equity
securities of the Company registered pursuant to Section 12 of the Exchange
Act.
57
PART
III
Item
17. Financial Statements.
See
Item
18, "Financial Statements,"
Item
18. Financial Statements
The
financial statements listed in the Index to Financial Statements are filed
as a
part of this Annual Report.
Item
19. Exhibits
The
exhibits listed in the Index to Exhibits are filed or incorporated by reference
as a part of this Annual Report.
58
INDEX
TO EXHIBITS
Pursuant
to the rules and regulations of the Securities and Exchange Commission, the
Company has filed certain agreements as exhibits to this annual report on Form
20-F. These agreements may contain representations and warranties by the
parties. These representations and warranties have been made solely for the
benefit of the other party or parties to such agreements and (i) may be intended
not as statements of fact, but rather as a way of allocating the risk to one
of
the parties to such agreements if those statements turn out to be inaccurate;
(ii) may have been qualified by disclosures that were made to such other party
or parties and that either have been reflected in the Company’s filings or are
not required to be disclosed in those filings; (iii) may apply materiality
standards different from what may be viewed as material to investors; and (iv)
were made only as of the date of such agreements or such other
date(s) as may be specified in such agreements and are subject to more recent
developments. Accordingly, these representations and warranties may not describe
the Company’s actual state of affairs at the date hereof.
Exhibit
Description
Number:
|
1.1
|
By-laws
(statuts)
of EDAP TMS S.A. as amended as of June 21, 2005 (together with an
English
translation thereof).
|
|
4.1
|
(a)
|
Distribution
Agreement, dated as of February 25, 2004, among the Company, HT Prostate
Therapy
Management Company, LLC, EDAP S.A. and Technomed Medical Systems,
S.A.(2)
|
| (b) |
Amendment
No. 1 to the Distribution Agreement dated December 23, 2004.(1)
|
| (c) |
Amendment
No. 2 to the Distribution Agreement dated December 29,
2005.
|
| 4.2 | (a) |
Commercial
Leases dated October 1, 2002 and Amendment No. 1 dated October 15,
2002,
between
Maison Antoine Baud and EDAP TMS S.A., EDAP S.A. and Technomed Medical
Systems
S.A. (together with an English translation thereof).
(1)
|
|
(b)
|
Appendix
No. 2 to commercial leases between TMS S.A. and Maison Antoine Baud,
signed on June 28, 2004.
(1)
|
| 8.1 |
List
of subsidiaries of EDAP TMS S.A. as of March 31,
2006.
|
| 11.1 |
Code
of Ethics of the Company, approved by the Board of Directors on July
22,
2005
|
|
12.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
12.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
13.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
Section
906 of the Sarbanes Oxley Act of
2002.
|
| (1) |
Previously
filed.
|
|
(2)
|
Previously
filed with certain confidential portions omitted under Rule 24b-2
under
the Securities Exchange Act of
1934.
|
59
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing
on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
EDAP
TMS
S.A.
Dated:
June 5, 2006
Hugues
de Bantel
Chief
Executive Officer
Dated:
June 5, 2006
Thierry
Turbant
Chief
Financial Officer
60
INDEX
TO FINANCIAL STATEMENTS
|
Audited
Consolidated Financial Statements for EDAP TMS S.A. and Subsidiaries
for
the Years Ended December 31, 2005, 2004 and
2003
|
|
|
Report
of Independent Auditors
|
F-1
|
|
Consolidated
Balance Sheets as of December 31, 2005 and 2004
|
F-2
|
|
Consolidated
Statements of Income for the years ended December 31, 2005, 2004
and 2003
|
F-3
|
|
Consolidated
Statements of Comprehensive Income for the years ended December
31, 2005,
2004 and 2003
|
F-4
|
|
Consolidated
Statements of Shareholders’ Equity for the years ended December 31, 2005,
2004 and 2003
|
F-5
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2005,
2004 and
2003
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
Report
of Independent Auditors
To
the
Board of Directors
and
Shareholders of EDAP TMS S.A.
We
have
audited the accompanying consolidated balance sheets of EDAP TMS S.A. (the
‘‘Company’’) and its subsidiaries as of December 31, 2005 and 2004, and the
related consolidated statements of income, comprehensive income, shareholders’
equity and cash flows for each of the three years in the period ended December
31, 2005. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform
an
audit of the Company’s internal control over financial reporting. An
audit
includes consideration of internal control over financial reporting as a
basis
for designing audit procedures that are appropriate in the circumstances,
but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as
well as evaluating the overall financial statement presentation. We believe
that
our audits provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of EDAP TMS S.A. and
its
subsidiaries at December 31, 2005 and 2004, and the consolidated results
of
their operations and their cash flows for each of the three years in the
period
ended December 31, 2005 in conformity with U.S. generally accepted accounting
principles.
ERNST
& YOUNG Audit
Represented
by
Jean-Luc
Desplat
June
6,
2006
Lyon,
France
F-1
EDAP
TMS S.A. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
As
of December 31, 2005 and 2004
(in
thousands of euros unless otherwise noted)
|
ASSETS
|
Notes
|
2005
|
2004
|
|
Current
assets
|
|||
|
Cash
and cash equivalents
|
2
|
8,317
|
9,398
|
|
Trade
accounts and notes receivable, net of allowance of €663 in 2005 and €705
in 2004
|
3
|
8,769
|
7,722
|
|
Other
receivables
|
4
|
850
|
473
|
|
Inventories
|
5
|
4,450
|
3,939
|
|
Deferred
tax assets
|
21-3
|
0
|
77
|
|
Prepaid
expenses
|
391
|
432
|
|
|
Total
current assets
|
22,777
|
22,041
|
|
|
Property
and equipment, net
|
6
|
3,130
|
2,807
|
|
Intangible
assets, net
|
7
|
86
|
119
|
|
Goodwill
|
7
|
2,412
|
2,412
|
|
Deposits
and other non-current assets
|
391
|
522
|
|
|
Total
assets
|
28,796
|
27,901
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||
|
Current
liabilities
|
|||
|
Trade
accounts and notes payable
|
8
|
4,305
|
3,675
|
|
Deferred
revenues, current portion
|
9
|
771
|
843
|
|
Social
security and other payroll withholdings taxes
|
605
|
513
|
|
|
Employee
absences compensation
|
438
|
424
|
|
|
Income
taxes payable
|
19
|
||
|
Accruals
for restructuring
|
18
|
136
|
|
|
Other
accrued liabilities
|
10
|
2,305
|
1,816
|
|
Short-term
borrowings
|
12
|
899
|
525
|
|
Current
portion of capital lease obligations
|
11
|
385
|
334
|
|
Current
portion of long-term debt
|
13
|
147
|
6
|
|
Total
current liabilities
|
9,874
|
8,
272
|
|
|
Deferred
revenues, long term portion
|
9
|
439
|
442
|
|
Capital
lease obligations, less current portion
|
11
|
474
|
663
|
|
Long-term
debt, less current portion
|
13
|
55
|
—
|
|
Deferred
income taxes
|
21-3
|
7
|
0
|
|
Other
long-term liabilities
|
14
|
575
|
560
|
|
Total
liabilities
|
11,424
|
9,937
|
|
|
Shareholders’
equity
|
|||
|
Common
stock, €0.13 par value, 9,318,875 shares authorized;
|
|||
|
8,362,821
shares issued; 7,782,731 and 7,781,731 shares outstanding at December
31,
|
|||
|
2005
and 2004, respectively
|
1,087
|
1,087
|
|
|
Additional
paid-in capital
|
20,359
|
19,999
|
|
|
Retained
earnings
|
597
|
1,662
|
|
|
Cumulative
other comprehensive loss
|
(2,877)
|
(2,987)
|
|
|
Treasury
stock, at cost; 580,090 and 581,090 shares at December 31, 2005
and 2004,
respectively
|
(1,794)
|
(1,797)
|
|
|
Total
shareholders’ equity
|
15
|
17,372
|
17,964
|
|
Total
liabilities and shareholders’ equity
|
28,796
|
27,901
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F-2
EDAP
TMS S.A. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
For
the years ended December 31, 2005, 2004 and 2003
(in
thousands of euros unless otherwise noted)
|
Notes
|
2005
|
2004
|
2003
|
|
|
Sales
of medical devices
|
10,242
|
11,922
|
8,512
|
|
|
Sales
of disposables, RPPs, leases, spare parts and services
|
10,710
|
10,207
|
9,518
|
|
|
Total
sales
|
16
|
20,952
|
22,129
|
18,030
|
|
Warrants
granted
|
(235)
|
(174)
|
-
|
|
|
Total
net sales
|
16
|
20,717
|
21,955
|
18,030
|
|
Other
revenues
|
17
|
93
|
208
|
443
|
|
Total
revenues
|
20,810
|
22,163
|
18,473
|
|
|
Cost
of sales
|
(12,313)
|
(13,676)
|
(13,094)
|
|
|
Gross
profit
|
8,497
|
8,487
|
5,379
|
|
|
Research
and development expenses
|
(1,784)
|
(1,523)
|
(3,069)
|
|
|
Selling
and marketing expenses
|
(3,758)
|
(3,402)
|
(4,228)
|
|
|
General
and administrative expenses
|
(4,278)
|
(4,074)
|
(4,106)
|
|
|
Non
recurring operating expenses
|
18
|
-
|
(318)
|
(2,097)
|
|
Loss
from operations
|
(1,323)
|
(830)
|
(8,121)
|
|
|
Interest
income, net
|
19
|
135
|
71
|
177
|
|
Foreign
currency exchange gain (loss), net
|
218
|
(38)
|
(928)
|
|
|
Other
income (expense), net
|
20
|
9
|
(74)
|
(218)
|
|
Loss
before taxes
|
(961)
|
(871)
|
(9,090)
|
|
|
Income
tax (expense) benefit
|
21
|
(104)
|
(278)
|
114
|
|
Net
loss
|
(1,065)
|
(1,149)
|
(8,976)
|
|
|
Basic
loss per share
|
1-18
|
(0.14)
|
(0.15)
|
(1.15)
|
|
Weighted
average shares outstanding used in basic
|
||||
|
calculation
|
1-18
|
7,782,731
|
7,781,731
|
7,781,731
|
|
Diluted
loss per share
|
1-18
|
(0.14)
|
(0.15)
|
(1.15)
|
|
Weighted
average shares outstanding used in
|
||||
|
diluted
calculation
|
1-18
|
8,373,574
|
8,074,210
|
7,817,303
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F-3
EDAP
TMS S.A. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
For
the years ended December 31, 2005, 2004 and 2003
(in
thousands of euros unless otherwise noted)
|
2005
|
2004
|
2003
|
|
|
Net
loss
|
(1,065)
|
(1,149)
|
(8,976)
|
|
Other
comprehensive loss:
|
|||
|
Foreign
currency translation adjustments
|
110
|
(36)
|
(547)
|
|
Comprehensive
loss, net of tax
|
(955)
|
(1,185)
|
(9,523)
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F-4
EDAP
TMS S.A. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
For
the years ended December 31, 2005, 2004 and 2003
(in
thousands of euros unless otherwise noted)
|
Number
of
Shares
|
Common
Stock
|
Additional
paid-in
Capital
|
Retained
Earnings
|
Cumulative
Other
Comprehensive
Income
(loss)
|
Treasury
Stock
|
Total
|
|
|
Balance
as of January 1, 2003
|
7,781,731
|
1,087
|
19,811
|
11,787
|
(2,513)
|
(1,797)
|
28,375
|
|
Net
loss
|
(8,976)
|
(8,976)
|
|||||
|
Translation
adjustment
|
(547)
|
(547)
|
|||||
|
Change
in unrealized gain/loss on
|
|||||||
|
investments
available for sale
|
109
|
109
|
|||||
|
Balance
as of December 31, 2003
|
7,781,731
|
1,087
|
19,811
|
2,811
|
(2,951)
|
(1,797)
|
18,961
|
|
Net
loss
|
(1,149)
|
(1,149)
|
|||||
|
Translation
adjustment
|
(36)
|
(36)
|
|||||
|
Warrants
and stock options granted
|
188
|
188
|
|||||
|
Balance
as of December 31, 2004
|
7,781,731
|
1,087
|
19,999
|
1,662
|
(2,987)
|
(1,797)
|
17,964
|
|
Net
loss
|
(1,065)
|
(1,065)
|
|||||
|
Translation
adjustment
|
110
|
110
|
|||||
|
Warrants
and stock options granted
|
1,000
|
360
|
3
|
363
|
|||
|
Balance
as of December 31, 2005
|
7,782,731
|
1,087
|
20,359
|
597
|
(2,877)
|
(1,794)
|
17,372
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F-5
EDAP
TMS S.A. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the years ended December 31, 2005, 2004 and 2003
(in
thousands of euros unless otherwise noted)
|
2005
|
2004
|
2003
|
|
|
Cash
flows from operating activities
|
|||
|
Net
loss
|
(1,065)
|
(1,149)
|
(8,976)
|
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|||
|
Depreciation
and amortization
|
1,202
|
1,049
|
983
|
| Non-cash compensation (1) | 360 | 188 |
—
|
|
Change
in allowances for doubtful accounts & slow-moving
inventories
|
128
|
(834)
|
(147)
|
|
Change
in long-term provisions
|
67
|
(94)
|
46
|
|
Deferred
tax expense/(benefit)
|
84
|
255
|
(226)
|
|
Net
loss (gain) on sale of assets
|
(21)
|
(389)
|
(9)
|
|
Net
loss (gain) on sale of investments available for sale
|
—
|
—
|
123
|
|
Increase/Decrease
in operating assets and liabilities:
|
|||
|
Decrease/(Increase)
in trade accounts and notes and other receivables
|
(1,473)
|
20
|
3,076
|
|
Decrease/(Increase)
in inventories
|
(681)
|
2,341
|
1,110
|
|
Decrease/(Increase)
in prepaid expenses
|
41
|
(9)
|
(36)
|
|
(Decrease)/Increase
in trade accounts and notes payable
|
632
|
(439)
|
(1,025)
|
|
(Decrease)/Increase
in accrued expenses, other current liabilities
|
441
|
(1,884)
|
1,432
|
|
Net
cash (used in) provided by operating activities
|
(285)
|
(945)
|
(3,649)
|
|
Cash
flows from investing activities
|
|||
|
Acquisitions
of property and equipment
|
(372)
|
(247)
|
(400)
|
|
Acquisitions
of intangible assets
|
(24)
|
(18)
|
(27)
|
|
Capitalized
assets produced by the Company
|
(1,042)
|
(750)
|
(780)
|
|
Net
proceeds from sale of assets
|
113
|
722
|
10
|
|
Net
proceeds from sale of leased back assets
|
239
|
342
|
250
|
|
Proceeds
from sale of investments available for sale
|
—
|
—
|
55
|
|
Increase
in deposits and guarantees
|
(21)
|
(108)
|
—
|
|
Reimbursement
of deposits and guarantees
|
48
|
75
|
350
|
|
Net
cash (used in) provided by investing activities
|
(1,059)
|
16
|
(542)
|
|
Cash
flow from financing activities
|
|||
|
Proceeds
from long term borrowings
|
288
|
—
|
—
|
|
Repayment
of long term borrowings
|
(93)
|
(77)
|
(370)
|
|
Repayment
of obligations under capital leases
|
(378)
|
(316)
|
(77)
|
|
Increase/(decrease)
in bank overdrafts and short-term borrowings
|
371
|
310
|
(222)
|
|
Net
cash used in financing activities
|
188
|
(83)
|
(669)
|
|
Net
effect of exchange rate changes on cash and cash equivalents
|
75
|
(19)
|
(466)
|
|
Net
increase/(decrease) in cash and cash equivalents
|
(1,081)
|
(1,031)
|
(5,326)
|
|
Cash
and cash equivalents at beginning of year
|
9,398
|
10,429
|
15,755
|
|
Cash
and cash equivalents at end of year
|
8,317
|
9,398
|
10,429
|
(1)
Certain prior years amounts have been reclassified to conform the current
year's
presentation.
The
accompanying notes are an integral part of the consolidated financial
statements.
F-6
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
1—SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
1-1
Nature of operations
EDAP
TMS
S.A. and its subsidiaries (‘‘the Company’’) are engaged in the development,
production, marketing and distribution of a portfolio of minimally-invasive
medical devices for the treatment of urological diseases. The Company currently
produces devices for treating stones of the urinary tract, benign prostatic
hyperplasia and localized prostate cancer. Net sales consist primarily of
direct
sales to hospitals and clinics in France and Europe, export sales to third-party
distributors and agents, and export sales through subsidiaries based in Italy
and Asia.
The
Company purchases the majority of the components used in its products from
a
number of suppliers but for some components, relies on a single source. Delay
would be caused if the supply of these components or other components was
interrupted and these delays could be extended in certain situations where a
component substitution may require regulatory approval. Failure to obtain
adequate supplies of these components in a timely manner could have a material
adverse effect on the Company’s business, financial position and results of
operation.
1-2
Management estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles (‘‘US
GAAP’’)
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
1-3
Consolidation
The
accompanying consolidated financial statements include the accounts of EDAP
TMS
S.A. and all its domestic and foreign owned subsidiaries, which include
Technomed Medical Systems S.A. (‘‘TMS S.A.’’), EDAP Technomed Inc., Edap
Technomed Sdn Bhd, Edap Technomed Italia S.R.L, EDAP Technomed Co. Ltd.
(formerly Nippon Euro Edap Technomed KK) and EDAP S.A. Edap Technomed Sdn
Bhd
was incorporated in early 1997. Edap Technomed Co. Ltd. was created in late
1996. EDAP S.A. was incorporated in May 2000. All intercompany transactions
and
balances are eliminated in consolidation.
1-4
Revenue recognition
For
medical device sales with no significant remaining vendor obligation, payments
contingent upon customer financing, acceptance criteria that can be subjectively
interpreted by the customer, or tied to the use of the device, revenue is
recognized when evidence of an arrangement exists, title to the device passes
(depending on terms, either upon shipment or delivery), and the customer
has the
intent and ability to pay in accordance with contract payment terms that
are
fixed or determinable. For sales in which payment is contingent upon customer
financing, acceptance criteria can be subjectively interpreted by the customer,
or payment depends on use of the device, revenue is recognized when the
contingency is resolved. The Company provides training and usually provides
a
one-year warranty upon installation. The Company accrues for the estimated
training and warranty costs at the time of sale.
Revenues
related to disposables and spare parts are recognized when goods are delivered.
Maintenance contracts rarely exceed one year and are recognized on a linear
basis. Revenues related to the leasing of devices are recognized on a linear
basis. Billings or cash receipts in advance of services due under maintenance
contracts and leases are recorded as deferred revenue.
Revenues
related to the sale of Ablatherm treatments invoiced on a
‘‘Revenue-Per-Procedure’’ (‘‘RPP’’) basis are recognized when the treatment
procedure has been completed.
F-7
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
1-5
Shipping and handling costs
The
Company recognizes revenue from the shipping and handling of its products
as a
component of revenue. Shipping and handling costs are recorded as a component
of
cost of sales.
1-6
Cash equivalents
Cash
equivalents are cash investments which are highly liquid and have initial
maturities of 90 days or less.
1-7
Accounts Receivables
Accounts
receivables are stated at cost net of allowances for doubtful accounts. The
Company makes judgements as to its ability to collect outstanding receivables
and provides allowances for the portion of receivables when collection becomes
doubtful. Provision is made based upon a specific review of all significant
outstanding invoices. These estimates are based on our bad debt write-off
experience, analysis of credit information, specific identification of probable
bad debt based on our collection efforts, aging of accounts receivables and
other known factors.
1-8
Inventories
Inventories
are valued at the lower of manufacturing cost, which is principally comprised
of
components and labor costs, or market (net realizable value). Cost is determined
on a first-in, first-out basis for components and spare parts and by specific
identification for finished goods (medical devices). The Company establishes
reserves for inventory estimated to be obsolete, unmarketable or slow moving,
first based on a detailed comparison between quantity in inventory and
historical consumption and then based on case-by-case analysis of the difference
between the cost of inventory and the related estimated market
value.
1-9
Property and equipment
Property
and equipment is stated at historical cost. Depreciation and amortization
of
property and equipment are calculated using the straight-line method over
the
estimated useful life of the related assets, as follows:
|
Leasehold
improvements
|
10 years or lease term if shorter |
|
Equipment
|
3-10 years |
|
Furniture,
fixtures, fittings and other
|
2-10 years |
Equipment
includes industrial equipment and research equipment that has alternative
future
uses. Equipment
also includes devices that are manufactured by the Company and leased to
customers through operating leases related to Revenue-Per-Procedure transactions
and devices subject to sale and lease-back transactions. This equipment is
depreciated over a period of five years.
1-10
Long-lived assets
The
Company reviews the carrying value of its long-lived assets, including fixed
assets and intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
fully
recoverable. Recoverability of long-lived assets is assessed by a comparison
of
the carrying amount of the assets (or the Group of assets, including the
asset
in question, that represents the lowest level of separately-identifiable
cash
flows) to the total estimated undiscounted cash flows expected to be generated
by the asset or group of assets. If the future net undiscounted cash flows
is
less than the carrying amount of the asset or group of assets, the asset
or
group of assets is considered impaired and an expense is recognized equal
to the
amount required to reduce the carrying amount of the asset or group of assets
to
its then fair value. Fair value is determined by discounting the cash flows
expected to be generated by the assets, when the quoted market prices are
not
available for the long-lived assets. Estimated future cash flows are based
on
assumptions and are subject to risk and uncertainty.
F-8
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
1-11
Goodwill and intangible assets
Goodwill
represents the excess of purchase price over the fair value of identifiable
net
assets of businesses acquired. Goodwill is not amortized but instead tested
annually for impairment or more frequently when events or change in
circumstances indicate that the assets might be impaired by comparing the
carrying value to the fair value of the reporting units to which it is assigned.
Intangible
assets consist primarily of purchased patents relating to lithotripters,
purchased licenses, a purchased tradename and a purchased trademark. The
basis
for valuation of these assets is their historical acquisition cost. Amortization
of intangible assets is calculated by the straight-line method over the shorter
of the contractual or estimated useful life of the assets, as
follows:
| Patents | 5 years |
| Licenses |
5
years
|
| Tradename and trademark |
7
years
|
1-12
Treasury
Stocks
Treasury
Stocks purchases are accounted for at cost. The sale of treasury stocks is
accounted for using the first in first out method. Gains on the sale or
retirement of treasury stocks are accounted for as additional paid-in capital
whereas losses on the sale or retirement of treasury stock are recorded as
additional paid-in capital to the extent that previous net gains from sale
or
retirement of treasury stocks are included therein, otherwise the losses
shall
be recorded to accumulated benefit (deficit) account. Gains or losses from
the
sale or retirement of treasury stock do not affect reported results of
operations.
1-13
Warranty expenses
The
Company generally provides customers with a warranty for each product sold
and
accrues warranty expense at time of sale based upon historical claims
experience. Actual warranty costs incurred are charged against the accrual
when
paid and are classified in cost of sales in the statement of income. Warranty
expense amounted to €517 thousand, €558 thousand and €690 thousand for the years
ended December 31, 2005, 2004 and 2003, respectively.
1-14
Income taxes
The
Company accounts for income taxes in accordance with SFAS No. 109, ‘‘Accounting
for Income Taxes’’ Under SFAS No. 109, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis
of
assets and liabilities and are measured by applying enacted tax rates and
laws
to taxable years in which such differences are expected to reverse. A valuation
allowance is established if, based on the weight of available evidence, it
is
more likely than not that some portion, or all of the deferred tax assets,
will
not be realized. In accordance with SFAS No. 109, no provision has been made
for
income or withholding taxes on undistributed earnings of foreign subsidiaries,
such undistributed earnings being permanently reinvested.
1-15
Research and development costs
Research
and development costs are recorded as an expense in the period in which they
are
incurred.
The
French government provides tax credits to companies for annual increased
spending for innovative research and development. Income tax benefits correspond
to these French research tax credits, which are credited against income taxes
payable in each of the four years after being incurred or, if not utilized,
are
recoverable in cash. As of December 31, 2005, Edap had total research tax
credits receivable of €64 thousand.
F-9
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
1-16
Advertising costs
Advertising
costs are recorded as an expense in the period in which they are incurred.
Advertising costs for the years ended December 31, 2005, 2004 and 2003 were
not
material to the consolidated financial statements.
1-17
Foreign currency translation and transactions
Translation
of the financial statements of consolidated companies
The
translation rules applicable to the financial statements of foreign subsidiaries
(EDAP Technomed Inc., Edap Technomed Sdn Bhd and Edap Technomed Co. Ltd.)
are as
follows:
|
·
|
assets
and liabilities are translated at year-end exchange
rates;
|
|
·
|
shareholders’
equity is translated at historical exchange rates (as of the date
of
contribution);
|
|
·
|
statement
of income items are translated at average exchange rates for the
year;
and
|
|
·
|
translation
gains and losses are recorded in a separate component of shareholders’
equity.
|
Foreign
currencies transactions
Transactions
involving foreign currencies are translated into the functional currency
using
the exchange rate prevailing at the time of the transactions. Receivables
and
payables denominated in foreign currencies are translated at year-end exchange
rates. The resulting unrealized exchange gains and losses are carried to
the
statement of income.
1-18
Earnings per share
Basic
earnings per share is computed by dividing income available to common
shareholders by the weighted average number of shares of common stock
outstanding for the period. Diluted earnings per share reflects potential
dilution that could occur if securities or other contracts to issue common
stock
were exercised or converted into common stock or resulted in the issuance
of
common stock that then shared in the earnings of the Company. The dilutive
effects of the Company’s common stock options and warrants is determined using
the treasury stock method to measure the number of shares that are assumed
to
have been repurchased using the average market price during the period, which
is
converted from U.S. dollars at the average exchange rate for the
period.
1-19
Derivative instruments
Financial
Accounting Standards Board Statement No. 133 ‘‘Accounting for Derivative
Instruments and Hedging Activities’’ (‘‘SFAS 133’’) requires the Company to
recognize all of its derivative instruments as either assets or liabilities
in
the statement of financial position at fair value. The accounting for changes
in
the fair value (i.e., gains or losses) of a derivative instruments depends
on
whether it has been designated and qualifies as part of a hedging relationship
and further, on the type of hedging relationship. For those derivative
instruments that are designated and qualify as hedging instruments, the Company
must classify the hedging instrument, based upon the exposure being hedged,
as
fair value hedge, cash flow hedge or a hedge of a net investment in a foreign
operation.
Given
the
Company’s minimal use of derivative Instruments, this standard does not have any
significant effect on the Company’s financial position, results of operations or
cash flows.
F-10
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
1-20
Employee stock option plans
At
December 31, 2005, the Company had six stock-based employee compensation
plans.
The Company accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting
for Stock Issued to Employees
(APB
25), and related Interpretations. In accordance with APB 25, the Company
recognizes stock-based employee compensation costs over the vesting period
when
the options granted under those plans have an exercise price lower than the
market value of the underlying common stock on the date of grant. The following
table illustrates the effect on net income and earnings per share if the
Company
had applied the fair value recognition provisions of FASB Statement No. 123,
Accounting
for Stock-Based Compensation,
to
stock-based employee compensation.
|
Year
Ended December 31,
|
|||
|
2005
|
2004
|
2003
|
|
|
Net
loss, as reported
|
(1,065)
|
(1,149)
|
(8,976)
|
|
Add:
Stock-based employee compensation expense included in
|
|||
|
Reported
net loss, net of related tax effects
|
125
|
14
|
—
|
|
Deduct:
Total stock-based employee compensation expense
|
|||
|
Determined
under fair value-based method for all awards, net
|
|||
|
of
related tax effects
|
(231)
|
(44)
|
(56)
|
|
Pro
forma net loss
|
(1,171)
|
(1,179)
|
(9,032)
|
|
Loss
per share:
|
|||
|
Basic,
as reported
|
(0.14)
|
(0.15)
|
(1.15)
|
|
Basic,
pro forma
|
(0.15)
|
(0.15)
|
(1.16)
|
|
Diluted,
as reported
|
(0.14)
|
(0.15)
|
(1.15)
|
|
Diluted,
pro forma
|
(0.15)
|
(0.15)
|
(1.16)
|
The
fair
value of each stock option granted during the year is estimated on the date
of
grant using the Black-Scholes option pricing model with the following
assumptions:
|
Year
Ended December 31,
|
||||||
|
2005
|
2004
|
|||||
|
Weighted-average
expected life (years)
|
2
|
3.08
|
||||
|
Expected
volatility rates
|
75%
|
|
85%
|
|||
|
Expected
dividend yield
|
—
|
—
|
||||
|
Risk-free
interest rate
|
4.3%
|
|
3.3%
|
|||
|
Weighted-average
exercise price (€)
|
2.78
|
2.19
|
||||
|
Weighted-average
fair value of options granted during the year (€)
|
1.82
|
0.51
|
||||
1-21
New accounting pronouncements
In
December 2004, the FASB issued Statement 153, Exchanges of Non-monetary Assets,
an Amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions
(FAS 153). This Statement eliminates the exception from fair value measurement
for non-monetary exchanges of similar productive assets and replaces it with
an
exception for exchanges that do not have commercial substance. FAS 153, is
effective for non-monetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005 and is not expected to have a material impact on the
Company’s results of operations, cash flows or financial position.
F-11
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
On
June
7, 2005, the FASB issued Statement No. 154, “Accounting Changes and Error
Corrections”, a replacement of APB Opinion No. 20, “Accounting Changes”, and
Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”.
Statement 154 changes the requirements for the accounting for and reporting
of a
change in accounting principle. Previously, most voluntary changes in accounting
principles were required recognition via a cumulative effect adjustment within
net income of the period of the change. Statement 154 requires retrospective
application to prior periods' financial statements, unless it is impracticable
to determine either the period-specific effects or the cumulative effect
of the
change. Statement 154 is effective for accounting changes made in fiscal
years
beginning after December 15, 2005; however, the Statement does not change
the
transition provisions of any existing accounting pronouncements. We do not
believe adoption of Statement 154 will have a material effect on our
consolidated financial position, results of operations or cash
flows.
On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued
FASB
Statement No. 123 (revised 2004), Share-Based
Payment,
which
is a revision of FASB Statement No. 123, Accounting
for Stock-Based Compensation.
Statement 123(R) supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees,
and
amends FASB Statement No. 95, Statement
of Cash Flows.
Generally, the approach in Statement 123(R) is similar to the approach described
in Statement 123. However, Statement 123(R) requires
all
share-based payments to employees of the Company, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative.
Statement
123(R) must be adopted no later than the first fiscal year beginning after
June
15, 2005. Early adoption will be permitted in periods in which financial
statements have not yet been issued. The Company will adopt Statement 123(R)
as
of January 1, 2006.
Statement
123(R) permits public companies to adopt its requirements using one of two
methods:
|
1.
|
A
“modified prospective” method, in which compensation cost is recognized
beginning with the effective date (a) based on the requirements
of
Statement 123(R) for all share-based payments granted after the
effective
date and (b) based on the requirements of Statement 123 for all
awards
granted to employees prior to the effective date of Statement 123(R)
that
remain unvested on the effective
date.
|
|
2.
|
A
“modified retrospective” method, which includes the requirements of the
modified prospective method described above, but also permits entities
to
restate based on the amounts previously recognized under Statement
123 for
purposes of pro forma disclosures either (a) all prior periods
presented
or (b) prior interim periods of the year of
adoption.
|
The
Company plans to adopt Statement 123 using the modified prospective
method.
As
permitted by Statement 123, the Company currently accounts for share-based
payments to employees using Opinion 25’s intrinsic value method and, as such,
generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of Statement 123(R)’s fair value method will have a
significant impact on the Company's result of operations, although it will
have
no impact on its overall financial position. The impact of the adoption of
Statement 123(R) cannot be predicted at this time because it will depend
on
levels of share-based payments granted in the future. However, had the Company
adopted Statement 123(R) in prior periods, the impact of that standard would
have approximated the impact of Statement 123.
F-12
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
2—CASH
AND CASH EQUIVALENTS
Cash
and
cash equivalents are comprised of the following:
|
December
31,
|
|||||
|
2005
|
2004
|
||||
|
Cash
held at bank
|
8,317
|
5,659
|
|||
|
Money
market funds
|
-
|
3,739
|
|||
|
Total
|
8,317
|
9,398
|
|||
Gross
realized gains on sales of these money market funds amounted to €101 thousand,
€117 thousand and €214 thousand, for the years ended December 31, 2005, 2004 and
2003, respectively.
3—TRADE
ACCOUNTS AND NOTES RECEIVABLE, NET
Trade
accounts and notes receivable consist of the following:
|
December
31,
|
|||||
|
2005
|
2004
|
||||
|
Trade
accounts receivable
|
9,281
|
8,335
|
|||
|
Notes
receivable
|
151
|
92
|
|||
|
Less:
allowance for doubtful accounts
|
(663)
|
(705)
|
|||
|
Total
|
8,769
|
7,722
|
|||
Notes
receivable usually represent commercial bills of exchange (drafts) with initial
maturities of 90 days or less.
4—OTHER
RECEIVABLES
Other
receivables consist of the following:
|
December
31,
|
|||||
|
2005
|
2004
|
||||
|
Tax
loss carryback receivable from the French State
|
-
|
109
|
|||
|
Value-added
taxes receivable from the French State
|
521
|
210
|
|||
|
Research
and development tax credit receivable from the French State
|
64
|
-
|
|||
|
Other
receivables from the French State
|
31
|
16
|
|||
|
Others
|
234
|
138
|
|||
|
Total
|
850
|
473
|
|||
Research
and development tax credits can be used to offset income taxes due during
the
three years following the year in which the credits were recorded. Any balance
of receivable at the end of this three-year period will be reimbursed by
the
French State.
F-13
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
5—INVENTORIES
Inventories
consist of the following:
|
December
31,
|
|||||
|
2005
|
2004
|
||||
|
Components,
spare parts
|
3,759
|
3,491
|
|||
|
Work-in-progress
|
369
|
326
|
|||
|
Finished
goods
|
1,196
|
826
|
|||
|
Total
gross inventories
|
5,324
|
4,643
|
|||
|
Less:
provision for slow-moving inventory
|
(874)
|
(704)
|
|||
|
Total
|
4,450
|
3,939
|
|||
The
provision for slow moving inventory essentially concerns the components and
spare parts. The allowance for slow moving inventory, which is classified
as a
cost of sales, amounted to €386 thousand, €252 thousand and €569 thousand for
the years ended December 31, 2005, 2004 and 2003, respectively.
6—PROPERTY
AND EQUIPMENT, NET
Property
and equipment consist of the following:
|
December
31,
|
|||||
|
2005
|
2004
|
||||
|
Equipment
|
5,852
|
4,647
|
|||
|
Furniture,
fixture, and fittings and other
|
2,280
|
2,180
|
|||
|
Total
gross value
|
8,132
|
6,827
|
|||
|
Less:
accumulated depreciation and amortization
|
(5,002)
|
(4,020)
|
|||
|
Total
|
3,130
|
2,807
|
|||
Depreciation
and amortization expense related to property and equipment amounted to €1,145
thousand, €934 thousand and €867 thousand for the years ended December 31, 2005,
2004 and 2003, respectively.
Capitalized
costs on assets held under capital leases of €1,297 thousand and €1,058 thousand
are included in property and equipment at December 31, 2005 and 2004,
respectively. Accumulated amortization of these assets leased to third parties
was €550 thousand and €283 thousand, at December 31, 2005 and 2004,
respectively. Amortization expense on assets held under capital leases is
included in total amortization expense and amounted to €267 thousand, €217
thousand and €66 thousand for the years ended December 31, 2005, 2004 and 2003,
respectively.
F-14
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
7—GOODWILL
AND INTANGIBLE ASSETS
As
discussed in Note 1-11, the Company adopted SFAS 142, ‘‘Goodwill and Other
Intangible Assets’’, on January 1, 2002. SFAS 142 requires that goodwill and
other intangible assets that have indefinite lives not be amortized but instead
be tested at least annually for impairment, or more frequently when events
or
change in circumstances indicate that the asset might be impaired, by comparing
the carrying value to the fair value of the reporting unit to which they
are
assigned. The Company considers its SFAS 131 operating segment — High Intensity
Focused Ultrasound (HIFU) and Urology Devices and Services (UDS) — to be its
reporting units for purposes of testing for impairment, as the components
within
each operating segment have similar economic characteristics and thus do
not
represent separate reporting units. Goodwill amounts to €1,767 thousand for the
UDS division and to €645 thousand for the HIFU division, at December 31,
2005.
The
Company completed the required annual impairment test in the fourth quarter
of
2005. To determine the fair value of the Company’s reporting units, the Company
used the discounted cash flow approach for each of the two reportable units.
The
main assumptions used are the following: (i) a five-year business plan approved
by management, (ii) a discount rate of 15%, (iii) a residual value based
on a
multiple of Profit Before Tax (PBT) specific to each segment. In both cases,
the
fair value of the reporting unit was in excess of the reporting unit's book
value, which resulted in no goodwill impairment.
Intangible
assets consist of the following:
|
December
31,
|
|||||
|
2005
|
2004
|
||||
|
Licenses
|
443
|
419
|
|||
|
Tradename
and trademark
|
585
|
583
|
|||
|
Patents
|
412
|
412
|
|||
|
Organization
costs
|
363
|
363
|
|||
|
Total
gross value
|
1,803
|
1,777
|
|||
|
Less:
accumulated amortization
|
(1,717)
|
(1,658)
|
|||
|
Total
|
86
|
119
|
|||
Amortization
expenses related to intangible assets amounted to €57 thousand, €71 thousand and
€77 thousand, for the years ended December 31, 2005, 2004 and 2003,
respectively.
For
the
two coming years, the annual estimated amortization expense for intangible
assets will be approximately €60 thousand.
8—TRADE
ACCOUNTS AND NOTES PAYABLE
Trade
accounts and notes payable consist of the following:
|
December
31,
|
|||||
|
2005
|
2004
|
||||
|
Trade
accounts payable
|
3,532
|
2,913
|
|||
|
Notes
payable
|
773
|
762
|
|||
|
Total
|
4,305
|
3,675
|
|||
Trade
accounts payable usually represent invoices with a due date of 90 days or
less.
Notes
payable represent commercial bills of exchange (drafts) with initial maturities
of 90 days or less.
F-15
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
9—DEFERRED
REVENUES
Deferred
revenues consist of the following:
|
December
31,
|
|||||
|
2005
|
2004
|
||||
|
Deferred
revenues on maintenance contracts
|
375
|
370
|
|||
|
Deferred
revenue on sale of devices
|
645
|
676
|
|||
|
Deferral
of the gain on sale-lease-back
Transactions
|
189
|
239
|
|||
|
Total
|
1,210
|
1,285
|
|||
|
Less
long term portion
|
439
|
442
|
|||
|
Current
portion
|
771
|
843
|
|||
10—OTHER
ACCRUED LIABILITIES
Other
accrued liabilities consist of the following:
|
December
31,
|
||||||
|
2005
|
2004
|
|||||
|
Provision
for warranty costs
|
700
|
660
|
||||
|
Value
added tax payable
|
543
|
273
|
||||
|
Accruals
for social expenses
|
348
|
301
|
||||
|
Conditional
government subsidies
|
398
|
318
|
||||
|
Advance
to debtors
|
29
|
28
|
||||
|
Others
|
287
|
236
|
||||
|
Total
|
2,305
|
1,816
|
||||
Changes
in the provision for warranty costs are as follows:
|
December
31,
|
|||||
|
2005
|
2004
|
||||
|
Beginning
of year
|
660
|
694
|
|||
|
Amount
used during the year (payments)
|
(477)
|
(592)
|
|||
|
New
warranty expenses
|
517
|
558
|
|||
|
End
of year
|
700
|
660
|
|||
F-16
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
11—LEASE
OBLIGATIONS
11-1
Capital leases
The
Company leases certain of its equipment under capital leases. At December
31,
2005, this equipment consists of medical devices for an amount of €699 thousand
and vehicles for an amount of €160 thousand. Future minimum lease payments under
capital leases for the years ending December 31, are as follows:
|
December
31, 2005
|
||||
|
2006
|
417
|
|||
|
2007
|
302
|
|||
|
2008
|
151
|
|||
|
2009
|
61
|
|||
|
Total
minimum lease payments
|
931
|
|||
|
Less:
amount representing interest
|
(72)
|
|||
|
Present
value of minimum lease payments
|
859
|
|||
|
Less:
current portion
|
(385)
|
|||
|
Long-term
portion
|
474
|
|||
Interest
paid under capital lease obligations was €28 thousand, €19 thousand, and €4
thousand for the years ended December 31, 2005, 2004, and 2003, respectively.
11-2
Operating leases
On
June
30, 2004, following the reduction in headcount implemented early in 2004,
the
Company reduced its rented office space and cancelled two lease contracts.
As of
December 31, 2005, operating leases having initial or remaining non-cancelable
lease terms greater than one year consists of one lease for the facilities
of
TMS S.A. in Vaulx-en-Velin, France and several leases for facilities in Japan.
The French lease contract has a lease term of nine years expiring at the
option
of the lessee at the end of a first four-year period, then a two-year and
finally a three-year period, through 2011 (i.e., in 2006, 2008 or 2011).
Future
minimum lease payments for these operating leases consist of the following
amounts, unless leases are otherwise cancelled by the lessees:
|
TMS
|
Japan
|
||||
|
2006
|
241
|
187
|
|||
|
2007
|
-
|
47
|
|||
|
2008
|
-
|
6
|
|||
|
Total
|
241
|
241
|
|||
Total
rent expense under operating leases amounted to €703 thousand, €899 thousand and
€918 thousand for the years ended December 31, 2005, 2004 and 2003,
respectively. These total rent expenses include the above mentioned operating
leases, but also lease expenses related to subsidiaries office rentals, office
equipment and car rentals.
F-17
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
12—SHORT-TERM
BORROWINGS
As
of
December 31, 2005, short-term borrowings consist of a loan in euros amounting
to
€155 thousand due to mature on December 20, 2006 at an annual variable rate
based on Eonia +0.5% and €744 thousand of account receivables factored and for
which the Company is supporting the risk of uncollectibility. As of December
31,
2004, short-term borrowings consist of loans in Japanese yen amounting to
JPY 20
million (€143 thousand), JPY 30 million (€215 thousand) and JPY 23 million (€167
thousand) due to mature on March 30, May 30 and June 28, 2005, respectively,
at
an annual rate of 2.2%.
13—LONG-TERM
DEBT
Long-term
debt consists of the following:
|
December
31,
|
|||||
|
2005
|
2004
|
||||
|
Japanese
yen term loan
|
202
|
-
|
|||
|
Other
financial debts
|
-
|
6
|
|||
|
Total
|
202
|
6
|
|||
|
Less
current portion
|
(147)
|
(6)
|
|||
|
Total
long-term portion
|
55
|
0
|
|||
Long-term
debt at December 31, 2005 matures as follows:
|
2006
|
147
|
||||
|
2007
|
55
|
||||
|
Total
|
202
|
As
of
December 31, 2005, long-term debt consist of loan in Japanese yen amounting
to
JPY 28.1 million (€202 thousand) with a 2.4% interest rate, due to mature on May
11, 2007.
14—OTHER
LONG-TERM LIABILITIES
Other
long-term liabilities consist of the following:
|
December
31,
|
|||||
|
2005
|
2004
|
||||
|
Provision
for retirement indemnities
|
469
|
379
|
|||
|
Other
|
106
|
181
|
|||
|
Total
|
575
|
560
|
|||
F-18
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
Pension,
post-retirement, and post-employment benefits for most of the Company’s
employees are sponsored by European governments. The Company’s liability with
respect to these plans is mostly limited to specific payroll deductions.
In
addition to government-sponsored plans, certain subsidiaries within the Company
have defined benefit retirement indemnity plans in place. The provision for
retirement indemnities at December 31, 2005 represents an accrual for lump-sum
retirement indemnity payments to be paid at the time an employee retires.
The
largest part of this liability relates to employees in France. This provision
has been calculated taking into account the estimated payment at retirement
(discounted to the current date), turnover and salary increases. Calculations
have been performed by an actuary consultant.
The
actuarial assumptions as of year-end are as follows:
|
Pension
Benefits - France
|
|||||
|
2005
|
2004
|
2003
|
|||
|
Weighted
average assumptions:
|
|||||
|
Discount
rate
|
4.00%
|
4.50%
|
4.50%
|
||
|
Salary
increase
|
2.00%
|
2.00%
|
2.50%
|
||
|
Retirement
age
|
65
|
65
|
63
|
||
|
Average
retirement remaining service period
|
27
|
26
|
25
|
||
|
Pension
Benefits - Japan
|
|||||
|
2005
|
2004
|
2003
|
|||
|
Weighted
average assumptions:
|
|||||
|
Discount
rate
|
1.50%
|
1.50%
|
1.50%
|
||
|
Salary
increase
|
1.80%
|
1.80%
|
1.80%
|
||
The
reconciliation between projected benefit obligations and the accumulated
benefit
obligations is as follows as of December 31, 2005 (in Keuros):
|
France
|
Japan
|
||
|
Projected
benefit obligation
|
229
|
262
|
|
|
Normal
cost
|
23
|
36
|
|
|
Accumulated
benefit obligation
|
163
|
225
|
|
|
Accrued
pension cost
|
202
|
132
|
F-19
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
Detailed
reconciliation of pension cost components (in Keuros) during fiscal year
ending
December 31, 2005:
|
France
|
2005
|
2004
|
|
Change
in benefit obligations
|
||
|
Benefit
obligations at beginning of year
|
132
|
155
|
|
Service
cost
|
17
|
19
|
|
Interest
cost
|
6
|
7
|
|
Plan
amendments
|
-
|
-
|
|
(gain)
/ loss
|
74
|
(49)
|
|
Benefits
paids
|
-
|
-
|
|
Benefit
obligations at end of year
|
229
|
132
|
|
Change
in plan assets
|
||
|
Fair
value of plan assets at beginning of year
|
-
|
-
|
|
Employer
contribution
|
-
|
-
|
|
Return
on plan assets
|
-
|
-
|
|
Benefits
paid
|
-
|
-
|
|
Fair
value of plan assets at end of year
|
||
|
Unrecognized
actuarial (gain) loss
|
27
|
(49)
|
|
Unrecognized
prior service cost
|
-
|
-
|
|
Accrued
pension cost
|
202
|
181
|
|
JAPAN
|
2005
|
2004
|
|
Change
in benefit obligations
|
||
|
Benefit
obligations at beginning of year
|
217
|
140
|
|
Service
cost
|
35
|
-
|
|
Interest
cost
|
3
|
-
|
|
Plan
amendments
|
-
|
-
|
|
Termination
benefits
|
-
|
25
|
|
(gain)
/ loss
|
7
|
136
|
|
Benefits
paids
|
-
|
(84)
|
|
Benefit
obligations at end of year
|
262
|
217
|
|
Change
in plan assets
|
||
|
Fair
value of plan assets at beginning of year
|
-
|
-
|
|
Employer
contribution
|
-
|
-
|
|
Return
on plan assets
|
-
|
-
|
|
Benefits
paid
|
-
|
-
|
|
Fair
value of plan assets at end of year
|
||
|
Unrecognized
actuarial (gain) loss
|
130
|
136
|
|
Unrecognized
prior service cost
|
0
|
0
|
|
Accrued
pension cost
|
132
|
81
|
F-20
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
15—SHAREHOLDERS’
EQUITY
15-1
Common stock
As
of
December 31, 2005, EDAP TMS S.A.’s common stock consisted of 9,318,875
authorized shares with a par value of €0.13 each, of which 8,362,821 were issued
and fully paid and 7,782,731 were outstanding.
15-2
Preemptive subscription rights
Shareholders
have preemptive rights to subscribe on a pro
rata
basis
for additional shares issued by the Company for cash. Shareholders may waive
such preemptive subscription rights at an extraordinary general meeting of
shareholders under certain circumstances. Preemptive subscription rights,
if not
previously waived, are transferable during the subscription period relating
to a
particular offer of shares.
15-3
Dividend rights
Dividends
may be distributed from the statutory retained earnings, subject to the
requirements of French law and the Company’s by-laws. The Company has not
distributed any dividends since its inception. Distributable statutory retained
earnings amounted to €22,906 thousand and €23,967 thousand at December 31, 2005
and 2004, respectively. Dividend distributions, if any, will be made in euros.
The Company has no plans to distribute dividends in the foreseeable
future.
15-4
Treasury stock
As
of
December 31, 2005, the 580,090 shares of treasury stock consisted of (i)
177,750
shares acquired on December 2, 1996 for €707 thousand, (ii) 352,800 shares
acquired between August and December 1998 for €1,016 thousand, and (iii) 49,540
shares acquired in June and July 2001 for €150 thousand. All 580,090 shares of
treasury stock have been acquired to cover outstanding stock options (see
Note
15-5).
15-5
Stock-option plans
As
of
December 31, 2005, EDAP TMS S.A. sponsored six stock purchase and subscription
option plans:
On
December 2, 1996, the shareholders of EDAP TMS S.A. authorized the Board
of
Directors to grant up to 177,750 options to purchase pre-existing Shares
and
156,625 options to subscribe for newly issued Shares at a fixed exercise
price
of €6.97 per share. The authorization to grant the options expired at the end
of
the five-year period beginning December 2, 1996. On February 7 and March
3,
1997, the Board of Directors granted the 177,750 options to buy pre-existing
Shares and 134,750 of the options to subscribe for newly issued Shares to
10
employees. 25% of the options were exercisable as of the date of grant and
the
right to exercise the remaining 75% of the options vested at the rate of
25%
each January 1 following the date of grant. The options expired five years
after
the date of grant. On October 29, 1998, the Board of Directors amended the
terms
of 124,125 of the options to conform to the terms of the 1998 option plan
discussed below.
On
May
14, 1998, the shareholders of EDAP TMS S.A. authorized the Board of Directors
to
grant up to 713,425 options to purchase pre-existing Shares at a fixed exercise
price to be set by the Board of Directors at the time of grant provided that
the
exercise price may not be less than the average stock market price of the
Shares
over the 20 business days preceding the date of grant. The shareholders also
authorized the Board of Directors to cause EDAP TMS S.A. to repurchase up
to
535,675 of its own Shares (treasury stock) to cover the options granted under
the new plan. The authorization to grant the options expired one year after
the
completion of the share repurchase program, which was completed in December
1998. Up to 279,000 of the 713,425 options were reserved for modifications
to
the terms of pre-existing options.
F-21
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
On
October 29, 1998, the Board of Directors granted 327,000 options to French
employees meeting certain tenure criteria. The exercise price was fixed at
€3.81
per Share for 152,000 options and €1.83 per Share for 175,000 options; both
exercise prices were not less than the average stock market price of the
Shares
over the 20 business days preceding the date of grant and also exceeded the
market price of the Shares on the date of grant. The options were to begin
vesting two years after the date of grant and were fully vested as of January
1,
2002 (i.e., four years and two months after the date of grant). Shares acquired
pursuant to the options cannot be sold prior to five years from the date
of
grant. The options expire on December 31, 2008 (i.e., ten years and two months
after the date of grant) or when employment with the Company ceases, whichever
occurs earlier. As noted above, on October 29, 1998, the Board of Directors
amended the terms of 124,125 of the options granted in 1997 to conform to
the
terms of the 1998 stock option plan.
Conforming
to the 1998 stock option plan, on January 4, 1999, the Board of Directors
granted 24,000 options to French employees meeting certain tenure criteria.
The
exercise price was fixed at €3.81 per Share for 11,000 options and €1.83 per
Share for 13,000 options. The options were to begin vesting two years after
the
date of grant and were fully vested as of January 1, 2002 (i.e., three years
after the date of grant). Shares acquired pursuant to the options cannot
be sold
prior to five years from the date of grant. The options expire on December
31,
2008 (i.e., ten years after the date of grant) or when employment with the
Company ceases, whichever occurs earlier. On March 15, 1999, the Board of
Directors granted 60,000 options to certain employees of the Company; 40,000
options were granted with an exercise price of €3.81 and 20,000 options at an
exercise price of €2.74. Exercise prices corresponding to options granted on
these two dates were not less than the average stock market price of the
Shares
over the 20 business days preceding the date of grant. Among these options
granted on March 15, 1999: 50,000 were to begin vesting two years after the
date
of grant and were fully vested as of June 1, 2002 (i.e. three years and two
and
half months after the date of grant); Shares acquired pursuant to the options
cannot be sold prior to five years from the date of grant; 40,000 options
expire
on March 31, 2009 (i.e. ten years after the date of grant) and 10,000 options
expire on December 31, 2009 (i.e. ten years and nine months after the date
of
grant) or when employment with the Company ceases, whichever occurs earlier.
For
the remaining 10,000 options, granted on March 15, 1999, 50% of the options
are
exercisable as of the date of grant and the right to exercise the remaining
50%
of the options vested at the rate of 25% each January 1 following the date
of
grant. The options expired on December 31, 2003 (i.e., four years and nine
months after the date of grant).
On
September 27, 1999, the Board of Directors decided to grant 2,425 options
to
certain employees of the Company at an exercise price of €1.83, which is not
less than the average stock market price of the Shares over the 20 business
days
preceding the date of grant. The options were to begin vesting two years
after
the date of grant and were fully vested as of January 1, 2003 (i.e., three
years
and three months after the date of grant). Shares acquired pursuant to the
options cannot be sold prior to five years from the date of grant. The options
expire on December 31, 2009 (i.e., ten years and three months after the date
of
grant) or when employment with the Company ceases, whichever occurs
earlier.
On
June
12, 2001, the shareholders of EDAP TMS S.A. authorized the Board of Directors
to
grant up to 300,000 options to purchase pre-existing Shares and 80,000 options
to subscribe to new Shares, at a fixed exercise price to be set by the
Supervisory Board. Conforming this plan, on September 25, 2001, the Board
of
Directors granted 307,115 options to purchase Shares (among which 33,540
options
were related to the plan authorized by the shareholders on June 24, 1999)
and
granted 80,000 options to subscribe to new Shares to employees of the Company
meeting certain tenure criteria. The exercise price was fixed at U.S.$1.92
(€2.08) per share. Options were to begin vesting one year after the date of
grant and will be fully vested as of September 25, 2005. Shares acquired
pursuant to the options cannot be sold prior to four years from the date
of
grant. The options expire on September 25, 2011 (i.e., ten years after the
date
of grant) or when employment with the Company ceases, whichever occurs
earlier.
F-22
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
On
March
21, 2002, a Member of the Management Board exercised his option to subscribe
to
47,421 new Shares (out of the 86,885 options to subscribe to new Shares
authorized on June 24, 1999) at an exercise price of U.S.$1.561 (€1.76). The
capital of the Company was thus increased from €1,081 thousand to €1,087
thousand and the number of Shares issued increased from 8,315,400 to
8,362,821.
On
June
18, 2002, conforming the June 12, 2001 stock option plan, the Board of Directors
granted the remaining 26,425 options to French employees meeting certain
tenure
criteria. The exercise price was fixed at U.S.$1.92 (€2.02) per share. Options
were to begin vesting one year after the date of grant and will be fully
vested
as of June 18, 2006 (i.e., four years after the date of grant). Shares acquired
pursuant to the options cannot be sold prior to four years from the date
of
grant. The options expire on June 18, 2012 (i.e., ten years after the date
of
grant) or when employment with the Company ceases, whichever occurs earlier.
All
Shares that may purchased through the exercise of stock options are currently
held as treasury stock.
On
January 29, 2004, the shareholders of EDAP TMS S.A. authorized the Board
of
Directors to grant up to 240,000 options to purchase pre-existing Shares
and
100,000 options to subscribe to new Shares, to employees of the Company meeting
certain tenure criteria, at a fixed exercise price to be set by the Board
of
Directors.
Conforming
this stock option plan, on February 24, 2004, the Board of Directors granted
225,000 options to purchase pre-existing Shares to certain employees of EDAP
TMS. The exercise price was fixed at €2.60 per share. Options were to begin
vesting one year after the date of grant and will be fully vested as of February
24, 2008 (i.e., four years after the date of grant). Shares acquired pursuant
to
the options cannot be sold prior to four years from the date of grant. The
options expire on February 24, 2014 (i.e., ten years after the date of grant)
or
when employment with the Company ceases, whichever occurs earlier. All Shares
that may be purchased through the exercise of stock options are currently
held
as treasury stock.
On
February 24, 2004, the Board of Directors granted 100,000 options to subscribe
to new Shares to the Chief Executive Officer of EDAP S.A. and TMS S.A. The
exercise price was fixed at €1.28 per share. All options were to begin vesting
one year after the date of grant. Shares acquired pursuant to the options
cannot
be sold prior to four years from the date of grant. The options expire on
February 24, 2014 (i.e., ten years after the date of grant) or when employment
with the Company ceases, whichever occurs earlier.
On
January 28, 2005, the Board of Directors granted 15,000 options to purchase
pre-existing Shares to certain employees of EDAP TMS. The exercise price
was
fixed at €2.78 per share. 3,750 options were to begin vesting on December 31,
2005 and 11,250 on December 31, 2006. The options expire on January 28, 2015
(i.e., ten years after the date of grant) or when employment with the Company
ceases, whichever occurs earlier. All Shares that may be purchased through
the
exercise of stock options are currently held as treasury stock.
On
February 17, 2005, the shareholders of EDAP TMS S.A. authorized the Board
of
Directors to grant up to 625,000 free shares to be issued to certain employees
of the Company, subject to compliance with the conditions and performance
criteria fixed by the Board of Directors. On March 30, 2005, 500,900 rights
to
subscribe to free shares were granted to by the Board of Directors, based
on
certain performances and criteria to be met for years 2005 and 2006. However,
given the shift of business model, during 2005, from the sales of Ablatherm
equipment towards the sales of treatment procedures (RPPs), the Board of
Directors decided to modify the conditions and performance criteria to be
met by
employees, to reflect the new business model. Therefore, on January 6, 2006,
the
Board of Directors cancelled the Free Performance Share Plan approved on
March
30, 2005 and set up a new Plan with performance criteria based on the new
RPP
business model for years 2006 and 2007, in accordance with the Performance
Stock
plan approved by the shareholders. On January 6, 2006, 564.100 rights to
subscribe to new shares were distributed, including new entrants. This plan
will
be accounted for in compliance with FASB 123-(R). See
Item
5, “Operating and Financial Review and Prospects—New Accounting
Pronouncements.”
F-23
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
As
of
December 31, 2005, a summary of stock option activity to purchase or to
subscribe to Shares under these plans is as follows:
|
2005
|
2004
|
2003
|
||||
|
Options
|
Weighted
average
exercise
price
(€)
|
Options
|
Weighted
average
exercise
price
(€)
|
Options
|
Weighted
average
exercise
price
(€)
|
|
|
Outstanding
on January 1,
|
580,262
|
2.49
|
391,262
|
2.68
|
654,341
|
2.58
|
|
Granted
|
15,000
|
2.78
|
325,000
|
2.19
|
0
|
|
|
Exercised
|
(1,000)
|
1.62
|
0
|
0
|
||
|
Forfeited
|
(1,000)
|
3.81
|
(136,000)
|
2.34
|
(263,079)
|
2.43
|
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Outstanding
on December 31,
|
593,262
|
2.50
|
580,262
|
2.49
|
391,262
|
2.68
|
|
Exercisable
on December 31,
|
409,652
|
2.45
|
219,547
|
2.99
|
272,442
|
2.94
|
|
Shares
purchase options available for grant on December 31
|
0
|
-
|
0
|
-
|
0
|
-
|
The
following table summarizes information about options to purchase Shares already
held by the Company as treasury Shares, or to subscribe to new Shares, at
December 31, 2005:
|
Outstanding
options
|
Exercisable
options
|
|||||
|
Exercise
price (€)
|
Options
|
Weighted
average
remaining
contractual
life
|
Weighted
average
exercise
price
(€)
|
Options
|
Weighted
average
exercise
price
(€)
|
|
|
3.81
|
116,625
|
2.5
|
3.81
|
116,625
|
3.81
|
|
|
2.78
|
15,000
|
9.1
|
2.78
|
3,750
|
2.78
|
|
|
2.60
|
225,000
|
8.2
|
2.60
|
56,250
|
2.60
|
|
|
2.08(1)
|
112,000
|
6.0
|
2.08
|
112,000
|
2.08
|
|
|
2.02(2)
|
14,425
|
6.5
|
2.02
|
10,815
|
2.02
|
|
|
1.83
|
10,212
|
3.5
|
1.83
|
10,212
|
1.83
|
|
|
1.28
|
100,000
|
8.2
|
1.28
|
100,000
|
1.28
|
|
|
1.28
to 3.81
|
593,262
|
6.3
|
2.50
|
409,652
|
2.11
|
|
|
(1)
|
All
the 112,000 options were granted on September 25, 2001 with an
exercise
price expressed in U.S. dollars ($1.92) and converted here to euros
based
on the noon buying rate on September 25, 2001 ($1 = €
1.085).
|
|
(2)
|
All
the 14,425 options were granted on June 18, 2002 with an exercise
price
expressed in U.S. dollars ($1.92) and converted here to euros based
on the
noon buying rate on June 18, 2002 ($1 = €
1.0545).
|
F-24
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
The
Company applies Accounting Principles Board Opinion No. 25, ‘‘Accounting
for Stock- Based Compensation’’
(APB
25), and its related interpretations in accounting for its employee stock
options. Under APB 25 and its related interpretations, the options granted
or
modified in 2002 and 2001 did not result in recording any compensation expense,
additional compensation expense or reversal of compensation expense. Options
granted in 2005 and 2004 generated a compensation expense amounting to €10
thousand in 2005 and €14 thousand in 2004.
15-6
Warrants granted to certain employees
As
of
December 18, 2002, the shareholders of two of the Company’s wholly owned and
fully consolidated subsidiaries, TMS S.A. and EDAP S.A., authorized the
respective Boards of Directors to grant certain Senior Executive Officers
warrants to subscribe to an aggregate of 604,538 new shares of TMS S.A.’s and
EDAP S.A.’s common stock. The average exercise price of such warrants is
equivalent to the higher of either (a) the share value of the capital of
each
company or (b) the net book value, each such amount to be calculated on
the date
of exercise. Following the resignation of the President of EDAP S.A. in
November
2003, outstanding warrants allow today's President of both divisions, to
subscribe to an aggregate of 252,111 new shares of each of TMS S.A.’s and EDAP
S.A.’s common stock. The total number of warrants granted, if exercised, would
represent 3.5% and 2.5% of the respective share capital of TMS S.A. and
EDAP
S.A. after subscription. These warrants begin vesting three years after
their
date of grant. These warrants to subscribe to shares expire on the earlier
of December 18, 2007 or when employment with the Company ceases. According
to
APB25, a compensation charge has been booked for an amount of €115
thousand as at December 31, 2005, €0 as at December 31, 2004 and €0 as at
December 31, 2003.
16—NET
SALES
Net
sales
consist of the following:
|
2005
|
2004
|
2003
|
|
|
Medical
devices
|
10,242
|
11,922
|
8,557
|
|
Disposables
|
1,956
|
1,901
|
1,850
|
|
RPPs
|
1,747
|
1,422
|
562
|
|
Leases
|
1,399
|
1,564
|
1,462
|
|
Spare
parts & services
|
5,608
|
5,320
|
5,599
|
|
Total
sales
|
20,952
|
22,129
|
18,030
|
|
Warrants
granted
|
(235)
|
(174)
|
|
|
Total
net sales
|
20,717
|
21,955
|
18,030
|
Warrants
On
February 25, 2004, the Company entered into a distribution agreement with
HealthTronics granting it, among other things, (i) the right to begin clinical
trials in the U.S. with the Ablatherm, (ii) the right to seek PMA for the
Ablatherm from the FDA and (iii) exclusive Ablatherm distribution rights
in the
United States, when and if a PMA is granted. Under the terms of the distribution
agreement, the Company also agreed to grant HealthTronics 1 million warrants
on
January 28, 2005, each entitling HealthTronics to purchase a share of the
Company at a price of U.S.$1.50 upon their vesting. The distribution agreement
allows HealthTronics to exercise specified numbers of warrants as it meets
various specified milestones set out in the distribution agreement, some
of
which relate to HealthTronics’s commitment to purchase a specified number of
lithotripter units and others which relate to completion of various stages
of
the clinical trials and the regulatory process leading to the PMA for the
Ablatherm.
F-25
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
In
accordance with EITF 96-18, the company accounts for the warrants issued
to
HealthTronics under the distribution agreement based upon the fair value
of the
warrants, measured at the date of milestone achievement, as there is no
performance obligation from HealthTronics. The related amount, which is a
non-cash charge, is then recorded as a reduction of revenue. On December
29,
2005, HealthTronics, through its subsidiary, and EDAP TMS entered into an
amendment to the distribution agreement. HealthTronics wishes to focus its
efforts on obtaining the PMA for Ablatherm and on developing the HIFU market
potential on the US territory, and does not want to pursue the distribution
of
EDAP's lithotripters
in the US, therefore the parties decided to amend the terms and conditions
of
the contract. No more warrants are directly linked to the purchase of additional
lithotripters and future revenues from the sales of lithotripters will not
be
impacted by warrants.
As
of
December 31, 2005, the non-cash charge, amounting to €235 thousand, was
calculated at the fair value of the warrants using the Black & Scholes
pricing model based on the following assumptions:
Risk-Free
Interest Rate (%): 4.30,
Strike
(U.S.$): 1.50,
Volatility
(%): 75,
Share
price (U.S.$): 3.53,
Dividend
(%): 0.
The
Back
& Scholes valuation was made at the date the performance target was
achieved, e.g. November 11, 2005.
This
non-cash charge of €235 thousand recorded for 2005 related to a series of
warrants is linked to HealthTronics's purchase of two lithotripters and one
Ablatherm in 2005, in accordance with the terms of the Amendment to the
distribution agreement dated December 29, 2005.
17—OTHER
REVENUES
Other
revenues consists of the following:
|
2005
|
2004
|
2003
|
|
|
Royalties
|
47
|
163
|
124
|
|
Grants
and others
|
46
|
45
|
319
|
|
Total
|
93
|
208
|
443
|
TMS
S.A.
and EDAP S.A. received grants of €6 thousand in 2005, €25 thousand in 2004 and
€75 thousand in 2003, from the French Ministry of Research and Development.
18—OPERATING
EXPENSES
Operating
expenses include bad debt expenses amounting to €274 thousand, €204 thousand,
€41 thousand for the years ended December 31, 2005, 2004, and 2003. These
operating expenses also include allowance for slow moving inventory which
is
classified as cost of goods sold and amounts to€386
thousand, €252 thousand and €569 thousand for the years ended December 31, 2005,
2004 and 2003 respectively.
In
2004,
following the Company’s decision in 2003 to reduce headcount in both divisions
(discussed below), the Company recorded non-recurring expenses of €0.3 million,
including €0.2 million of employee termination expenses. In 2003, after an
extensive review of the businesses, with consideration of the current economic
situation and in order to maintain the competitiveness of the Company, EDAP
TMS
S.A. implemented a reduction in headcount in its two French operational
divisions.
F-26
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
The
reductions represented a decrease of 22% of the French-based workforce. The
Company recorded nonrecurring expenses of €2.1 million, including €1.8 million
of employee termination expenses and €0.2 million of legal and various expenses
linked to this reorganization. The balance of the provision as of December
31,
2003 amounted to €2.0 million. This provision was used over year 2004, for an
amount of €1.7 million of employee termination expenses and €0.2 million of
legal and various expenses linked to this reorganization. The balance of
the
provision as of December 31, 2004 amounted to €0.1 million and was used in 2005.
19—INTEREST
INCOME, NET
Interest
(expense) income, net consists of the following:
|
2005
|
2004
|
2003
|
|
|
Interest
income
|
187
|
146
|
284
|
|
Interest
expense
|
(52)
|
(75)
|
(107)
|
|
Total
|
135
|
71
|
177
|
20—OTHER
INCOME (EXPENSE), NET
Other
income (expense), consists of the following:
|
2005
|
2004
|
2003
|
|
|
Net
loss on sale of Urologix common stock
|
--
|
--
|
(123)
|
|
Other
income (expense), net
|
9
|
(74)
|
(95)
|
|
Total
|
9
|
(74)
|
(218)
|
21—INCOME
TAXES
21-1
Loss before income taxes
Loss
before income taxes is comprised of the following:
|
2005
|
2004
|
2003
|
|
|
France
|
(755)
|
(361)
|
(8,509)
|
|
Other
countries
|
(206)
|
(510)
|
(581)
|
|
Total
|
(961)
|
(871)
|
(9,090)
|
F-27
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
21-2
Income tax (expense)/ benefit
Income
tax (expense)/benefit consists of the following:
|
2005
|
2004
|
2003
|
|
|
Current
income tax expense:
|
|||
|
France
|
38
|
6
|
(22)
|
|
Other
countries
|
(57)
|
(29)
|
(78)
|
|
Sub-total
current income tax expense
|
(19)
|
(23)
|
(100)
|
|
Deferred
income tax (expense) benefit:
|
|||
|
France
|
(90)
|
(255)
|
149
|
|
Other
countries
|
5
|
-
|
65
|
|
Sub-total
deferred income tax (expense) benefit
|
(85)
|
(255)
|
(214)
|
|
Total
|
(104)
|
(278)
|
114
|
21-3
Deferred income taxes:
Deferred
income taxes reflect the impact of temporary differences between the amounts
of
assets and liabilities reported for financial reporting purposes and such
amounts as measured in accordance with tax laws. The tax effect of temporary
differences which give rise to significant deferred tax assets (liabilities)
are
as follows:
|
December
31,
|
|||
|
2005
|
2004
|
||
|
Elimination
of intercompany profit in inventory
|
212
|
199
|
|
|
Other
items
|
431
|
413
|
|
|
Net
operating loss carryforwards
|
5,941
|
5,707
|
|
|
Total
deferred tax assets
|
6,584
|
6,319
|
|
|
Capital
leases treated as operating leases for tax
|
(9)
|
(4)
|
|
|
Exit
tax
|
(161)
|
(161)
|
|
|
Other
items
|
(198)
|
(88)
|
|
|
Total
deferred tax liabilities
|
(368)
|
(253)
|
|
|
Net
deferred tax assets
|
6,216
|
6,066
|
|
|
Valuation
allowance for deferred tax assets
|
(6,223)
|
(5,989)
|
|
|
Deferred
tax assets (liabilities), net of allowance
|
(7)
|
77
|
|
Net
operating loss carryforwards of €2,109 thousand, €1,801 thousand, €1,910
thousand, €263 thousand, €325 thousand and €10,987 thousand as of December 31,
2005 are available at EDAP Technomed Inc., TMS S.A., EDAP S.A., Edap Technomed
Italia S.R.L.,Edap Technomed Co Ltd Japan and EDAP TMS S.A., respectively.
These
net operating losses generate deferred tax assets of €5,941 thousand.
Realization of these assets is contingent on future taxable earnings in the
applicable tax jurisdictions. As of December 31, 2005, €5,711 thousand out of
these €5,941 thousand net operating loss carry-forwards have no expiration date.
The remaining tax loss carry-forwards expire in years 2006 through 2012.
In
accordance with SFAS No. 109, a valuation allowance is recorded as realization
of those amounts are not considered probable.
Deferred
taxes have not been provided on the undistributed earnings of domestic
subsidiaries as these earnings, with the exception of the earnings of TMS
S.A.,
which benefited from the tax exemption, can be distributed tax-free to EDAP
TMS
S.A. The tax exempted earnings of TMS S.A. would normally be taxable if
distributed to EDAP TMS S.A. via dividends. However, no taxes will be due
if the
Company first incorporates these earnings into statutory capital and then
makes
a distribution via a statutory capital reduction (redemption). As the Company
intends on implementing this tax planning opportunity in the event a
distribution were to be made, no deferred taxes have been provided on these
earnings.
F-28
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
In
2005,
the Company recorded a corporate income tax benefit of €0.1 million, principally
reflecting income tax with respect to the results of various subsidiaries.
In
2004, the Company recorded a corporate income tax benefit of €0.3 million in
2004, principally reflecting income tax with respect to the results of various
subsidiaries and an exceptional exit tax in France of 2.5% (which was enacted
in
compensation for the phase-out of capital gains tax on participation shares).
In
2004, the
Company has booked a deferred tax liability amounting to €161 thousand related
to this exit tax, which will be paid in two equal installments in 2006 and
2007,
pursuant to the Amended Finance Law of 2004, dated December 30, 2004.
21-4
Effective tax rate
A
reconciliation of differences between the statutory French income tax rate
and
the Company’s effective tax rate is as follows:
|
2005
|
2004
|
2003
|
|
|
French
statutory rate
|
33.8%
|
34.3%
|
34.3%
|
|
Research
and development tax credit
|
7.6%
|
||
|
Income
of foreign subsidiaries taxed at different tax rates
|
1.5%
|
1.9%
|
0.1%
|
|
Effect
of net operating loss carryforwards and valuation
|
|||
|
Allowances
|
(22.5%)
|
(31.4%)
|
(23.5%)
|
|
Non
deductible entertainment expenses
|
(4.9%)
|
(2.6%)
|
(0.3%)
|
|
Other
|
(27.7%)
|
(34.1%)
|
(9.3%)
|
|
Effective
tax rate
|
(12.2%)
|
(31.9%)
|
(1.3%)
|
22—EARNINGS
(LOSS) PER SHARE
A
reconciliation of the numerators and denominators of the basic and diluted
EPS
calculations for the years ended December 31, 2005, 2004 and 2003 is as
follows:
|
For
the year ended Dec. 31, 2005
|
For
the year ended Dec. 31, 2004
|
For
the year ended Dec. 31, 2003
|
|||||||
|
Loss
in euro (Numerator)
|
Shares
(Denominator)
|
Per-Share
Amount)
|
Loss
in euro (Numerator)
|
Shares
(Denominator)
|
Per-Share
Amount
|
Loss
in euro (Numerator)
|
Shares
(Denominator)
|
Per-Share
Amount
|
|
|
Basic
EPS
|
|||||||||
|
Loss
available to
|
|||||||||
|
common
Shareholders
|
(1,065,375)
|
7,782,731
|
(0.14)
|
(1,148,792)
|
7,781,731
|
(0.15)
|
(8,975,846)
|
7,781,731
|
(1.15)
|
|
Effect
of dilutive securities:
|
|||||||||
|
Stock
options
|
590,843
|
292,479
|
35,572
|
||||||
|
Diluted
EPS
|
|||||||||
|
Loss
available to
|
|||||||||
|
common
shareholders,
|
|||||||||
|
Including
assumed
|
|||||||||
|
Conversions
|
(1,065,375)
|
8,373,574
|
(0.14)
|
(1,148,792)
|
8,074,210
|
(0.15)
|
(8,975,846)
|
7,817,303
|
(1.15)
|
F-29
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
23—COMMITMENTS
AND CONTINGENCIES
23-1
Commitments
The
Company currently has commitments regarding its operating leases as described
in
Note 11- 2.
23-2
Litigation
To
date,
the Company is a party to two product liability actions in the United States
by
patients claiming to have been injured in the course of a Prostatron procedure.
The Company has agreed to retain liability for these two cases following
the
sale of the Prostatron business in October 2000. However, in one of the two
cases, the Company believes that it may be able to claim indemnification
from
Urologix. The Company believes that the patients’ claims against the Company are
without merit. While it is not possible to predict the outcome of legal actions
brought against the Company, the Company believes that the liability resulting
from the pending claims and suits would not have a material adverse effect
on
the results of its operations, cash flows, or financial position as of December
31, 2005, and for the year then ended.
24—FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
following disclosure of the estimated fair value of financial instruments
was
made in accordance with the requirements of SFAS No. 107 ‘‘Disclosure about fair
value of financial instruments.’’ The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. The estimates of fair values of the Company’s financial
instruments are compared below to the recorded amounts at December 31, 2005
and
2004.
|
December
31,
|
December
31,
|
|||
|
2005
Recorded
Value
|
2005
Estimated
Fair
Value
|
2004
Recorded
Value
|
2004
Estimated
Fair
Value
|
|
|
Assets:
|
||||
|
Cash
and cash equivalents
|
8,317
|
8,317
|
9,398
|
9,398
|
|
Trade
accounts and notes receivable, net
|
8,025
|
8,025
|
7,722
|
7,722
|
|
Liabilities:
|
||||
|
Short-term
borrowings
|
155
|
155
|
525
|
525
|
|
Trade
accounts payable
|
3.532
|
3,532
|
2,913
|
2,913
|
|
Notes
payable
|
773
|
773
|
762
|
762
|
|
Long-term
debt
|
55
|
53
|
6
|
6
|
The
recorded amount of cash and cash equivalents, investments available for sale,
trade accounts and notes receivable (drafts), short-term borrowings, and
trade
accounts and notes payable (drafts) are a reasonable estimate of their fair
value due to the short-term maturities of these instruments.
Fair
value of long-term debt is estimated based on borrowing rates currently
available to the Company for loans with similar terms and
maturities.
F-30
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
25—CONCENTRATION
OF CREDIT RISK
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist principally of cash and cash equivalents and trade accounts
and
notes receivable from customers, primarily located in France, Japan and the
United States. The Company maintains cash deposits with major banks. Management
periodically assesses the financial condition of these institutions and believes
that any possible credit risk is limited.
The
Company has procedures in effect to monitor the creditworthiness of its
customers. The Company obtains bank guarantees for first-time or infrequent
customers, and in certain cases obtains insurance against the risk of a payment
default by the customer. The Company reviewed individual customer balances
considering current and historical loss experience and general economic
conditions in determining the allowance for doubtful accounts receivable
of €0.7
million as of December 31, 2005 and 2004. Ultimate losses may vary from the
current estimates, and any adjustments are reported in earnings in the periods
in which they become known.
In
2005
and 2004, the Company did not generate significant revenue with a single
customer.
26—FOREIGN
CURRENCY TRANSACTIONS
The
Company generates a significant percentage of its revenues, and of its operating
expenses, in currencies other than euro. The Company’s operating profitability
could be materially adversely affected by large fluctuations in the rate
of
exchange between the euro and such other currencies. The Company engages
in
foreign exchange hedging activities when it deems necessary, but there can
be no
assurance that hedging activities will be offset by the impact of movements
in
exchange rates on the Company’s results of operations. As of December 31, 2005,
the Company had three options to hedge against Japanese yen for a total nominal
amount of JPY45 million (i.e. €331 thousand), an amount of JPY15 million each,
expiring on March, June and September 2006 respectively and two options to
hedge
against US$ for a total nominal amount of US$200 thousand (i.e. €160 thousand),
an amount of US$100 thousand each, expiring on February and April 2006. The
fair
value of these derivatives was not material as of December 31,
2005.
27—SEGMENT
INFORMATION
In
July
of fiscal year 2002, the Company announced an organizational realignment
that
created two operating divisions within the Company. For reporting purposes,
this
organizational realignment created three reporting segments: the holding
company, EDAP TMS S.A., the High Intensity Focused Ultrasound division and
the
Urological Devices and Services division. The following tables set forth
the key
income statement figures, by segment for fiscal years 2005, 2004 and 2003
and
the key balance sheet figures, by segment, for fiscal years 2005 and
2004.
The
business in which the Company operates is the development and production
of
minimally invasive medical devices, primarily for the treatment of urological
diseases. Substantially all revenues result from the sale of medical devices
and
their related license and royalty payments from third parties. The segments
derive their revenues from this activity.
F-31
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
Segment
operating profit or loss and segment assets are determined in accordance
with
the same policies as those described in the summary of significant accounting
policies except that interest income and expense, current and deferred income
taxes, and goodwill are not allocated to individual segments. A reconciliation
of segment operating profit or loss to consolidated net loss is as
follows:
|
2005
|
2004
|
2003
|
|
|
Segment
operating loss
|
(1,323)
|
(830)
|
(8,121)
|
|
Interest
income, net
|
135
|
71
|
177
|
|
Foreign
Currency exchange (losses) gains, net
|
218
|
(38)
|
(928)
|
|
Other
income, net
|
9
|
(74)
|
(218)
|
|
Income
tax (expense) credit
|
(104)
|
(278)
|
114
|
|
Consolidated
net loss
|
(1,065)
|
(1,149)
|
(8,976)
|
A
summary
of the Company’s operations by business unit is presented below for years ending
December 31, 2005, 2004 and 2003:
|
HIFU
Division
|
UDS
Division
|
EDAP
TMS
(Corporate)
|
Consolidation
|
Total
consolidated
|
|
|
2005
|
|||||
|
External
sales of medical devices
|
4,260
|
5,982
|
10,242
|
||
|
External
sales of spares parts,
|
|||||
|
Supplies
& services
|
3,685
|
7,025
|
10,710
|
||
|
Internal
segment revenues
|
3
|
3,185
|
(3,188)
|
||
|
Total
sales
|
7,948
|
16,192
|
(3,188)
|
20,952
|
|
|
Warrants
granted
|
(118)
|
(117)
|
(235)
|
||
|
Total
net sales
|
7,830
|
16,075
|
(3,188)
|
20,717
|
|
|
External
other revenues
|
14
|
79
|
93
|
||
|
Internal
other revenues
|
105
|
-
|
(105)
|
-
|
|
|
Total
revenues
|
7,949
|
16,154
|
(3,293)
|
20,810
|
|
|
Total
COS
|
(3,998)
|
(11,457)
|
3,142
|
(12,313)
|
|
|
Gross
margin
|
3,951
|
4,697
|
(151)
|
8,497
|
|
|
R&D
|
(1,042)
|
(742)
|
(1,784)
|
||
|
Selling
expenses
|
(1,983)
|
(1,775)
|
(3,758)
|
||
|
G&A
|
(791)
|
(1,937)
|
(1,550)
|
(4,278)
|
|
|
Total
expenses
|
(3,816)
|
(4,454)
|
(1,550)
|
(9,820)
|
|
|
Operating
income (loss)
|
135
|
243
|
(1,550)
|
(151)
|
(1,323)
|
|
Total
Assets
|
9,177
|
22,163
|
5,620
|
(8,164)
|
28,796
|
|
Capital
expenditures
|
696
|
645
|
1,341
|
||
|
Long-lived
assets
|
2,172
|
3,787
|
59
|
6,018
|
|
|
Goodwill
|
645
|
1,767
|
2,412
|
F-32
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
|
HIFU
Division
|
UDS
Division
|
EDAP
TMS
(Corporate)
|
Consolidation
|
Total
consolidated
|
|
|
2004
|
|||||
|
External
sales of medical devices
|
3,733
|
8,189
|
11,922
|
||
|
External
sales of spares parts,
|
|||||
|
Supplies
& services
|
2,915
|
7,291
|
10,206
|
||
|
Internal
segment revenues
|
287
|
1,905
|
(2,192)
|
||
|
Total
sales
|
6,935
|
17,385
|
(2,192)
|
22,128
|
|
|
Warrants
granted
|
(174)
|
(174)
|
|||
|
Total
net sales
|
6,935
|
17,211
|
(2,192)
|
21,954
|
|
|
Other
revenues
|
34
|
174
|
208
|
||
|
Total
revenues
|
6,969
|
17,385
|
(2,192)
|
22,162
|
|
|
Total
COS
|
(3,749)
|
(12,119)
|
2,192
|
(13,676)
|
|
|
Gross
margin
|
3,220
|
5,266
|
8,486
|
||
|
R&D
|
(817)
|
(706)
|
(1,523)
|
||
|
Selling
expenses
|
(1,275)
|
(2,128)
|
(3,403)
|
||
|
G&A
|
(659)
|
(2,221)
|
(1,193)
|
(4,073)
|
|
|
Non
recurring
|
(82)
|
(27)
|
(208)
|
(317)
|
|
|
Total
expenses
|
(2,833)
|
(5,082)
|
(1,401)
|
(9,316)
|
|
|
Operating
income (loss)
|
387
|
184
|
(1,401)
|
(830)
|
|
|
Total
Assets
|
7,162
|
20,334
|
6,645
|
(6,256)
|
27,885
|
|
Capital
expenditures
|
287
|
844
|
2
|
1,133
|
|
|
Long-lived
assets
|
1,781
|
4,048
|
31
|
5,860
|
|
|
Goodwill
|
645
|
1,767
|
2,412
|
F-33
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
|
HIFU
Division
|
UDS
Division
|
EDAP
TMS
(Corporate)
|
Consolidation
|
Total
consolidated
|
|
|
2003
|
|||||
|
External
sales of medical devices
|
1,148
|
7,364
|
8,512
|
||
|
External
sales of spares parts,
|
|||||
|
supplies
& services
|
1,709
|
7,809
|
9,518
|
||
|
Internal
segment revenues
|
3
|
1,967
|
(1,970)
|
—
|
|
|
Other
revenues
|
99
|
342
|
2
|
443
|
|
|
Total
revenues
|
2,959
|
17,482
|
2
|
(1,970)
|
18,473
|
|
Total
COS
|
(2,056)
|
(12,771)
|
—
|
1,733
|
(13,094)
|
|
Gross
margin
|
903
|
4,711
|
—
|
(237)
|
5,379
|
|
R&D
|
(2,345)
|
(725)
|
(3,070)
|
||
|
Selling
expenses
|
(2,023)
|
(2,205)
|
(4,228)
|
||
|
G&A
|
(747)
|
(2,005)
|
(1,353)
|
(4,105)
|
|
|
Non
recurring
|
(1,590)
|
(463)
|
(44)
|
(2,097)
|
|
|
Total
expenses
|
(6,705)
|
(5,398)
|
(1,397)
|
—
|
13,500
|
|
Operating
income (loss)
|
(5,802)
|
(687)
|
(1,395)
|
(237)
|
(8,121)
|
|
Total
Assets
|
9,432
|
21,050
|
5,238
|
(3,810)
|
31,910
|
|
Capital
expenditures
|
635
|
1,138
|
25
|
1,798
|
|
|
Long-lived
assets
|
1,951
|
4,054
|
35
|
6,040
|
|
|
Goodwill
|
645
|
1,767
|
2,412
|
F-34
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
28—VALUATION
ACCOUNTS
|
Allowance
for doubtful accounts
|
Slow-moving
inventory
|
|
|
Restated
balance as of January 1, 2003
|
862
|
1,528
|
|
Charges
to costs and expenses
|
41
|
569
|
|
Deductions:
write-off provided in prior periods
|
(377)
|
(380)
|
|
Restated
balance as of December 31, 2003
|
526
|
1,717
|
|
Charges
to costs and expenses
|
204
|
252
|
|
Deductions:
write-off provided in prior periods
|
(25)
|
(1,265)
|
|
Restated
balance as of December 31, 2004
|
705
|
704
|
|
Charges
to costs and expenses
|
274
|
386
|
|
Deductions:
write-off provided in prior periods
|
(316)
|
(216)
|
|
Restated
balance as of December 31, 2005
|
663
|
874
|
29—SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
Interest
and income taxes paid are as follows:
|
2005
|
2004
|
2003
|
|
|
Income
taxes paid (refunds received)
|
(66)
|
(82)
|
(560)
|
|
Interest
paid
|
7
|
19
|
21
|
|
Interest
received
|
119
|
120
|
223
|
|
Non-cash
transactions:
|
2005
|
2004
|
2003
|
|
Capital
lease obligations incurred
|
859
|
998
|
792
|
30—RELATED
PARTY TRANSACTIONS
The
General Manager of the Company's Korean branch "EDAP-TMS Korea" is also Chairman
of a Korean company named Dae You.
EDAP-TMS
Korea subcontracts to Dae You the service contract maintenance of the Company
medical devices installed in Korea for an amount of €136 thousand, €63 thousand
and €33 thousand, for 2005, 2004 and 2003 respectively.
Dae
You
is also acting as an agent to promote the Company's medical devices in South
Korea, and receives commissions on sales.
F-35
EDAP
TMS S.A. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands of euros unless otherwise noted, except per share
data)
Dae
You
also purchased medical devices from the Company and operates them in partnership
with hospitals or clinics for an amount of €396 thousand, €401 thousand and €309
thousand in 2005, 2004 and 2003 respectively.
As
of
December, 31 2005, receivables amounted to €148 thousand and payables to €83
thousand. As of December 31, 2004, there were no receivables nor payables,
related to DAE YOU.
The
Company purchases certain technological elements to Siemens AG. Total purchases
amounted to €547 thousand in 2005, €405 thousand in 2004 and €360 thousand in
2003. As of December 31, 2005, payables due to Siemens AG amounted to €46
thousand and as of December 31, 2004, payables due to Siemens AG amounted
to €3
thousand.
F-36
EXHIBIT
1.1.
EDAP
TMS
Société
anonyme au Capital de 1.087.166,73 Euros
Siège
Social Parc d'activité La Poudrette Lamartine
4,
rue du Dauphiné
69120
Vaulx-en-Velin - France
R.C.S.
Lyon B 316 488 204
STATUTS
Portant
modifications consécutives à
-
la mise en conformité avec la loi NRE
et
à l’adoption d’un mode d’administration de type classique
et
-
l'assemblée Générale Extraordinaire
du
21 juin 2005 sur la limite d'âge des administrateurs
TITRE
I
FORMATION
- OBJET - DENOMINATION SOCIALE
ARTICLE
1 - FORME DE LA SOCIETE
Il
existe, entre les propriétaires des actions ci-après créées, et de celles qui
pourront l’être ultérieurement, une société anonyme qui est régie par les lois
en vigueur et par les présents statuts.
ARTICLE
2 - OBJET
La
Société a pour objet :
|
-
|
La
prise de participations financières dans tous groupements, Sociétés ou
entreprises, français ou étrangers, créés ou à créer, et ce par tous
moyens, notamment par voie d'apports, de souscription ou d'achat
d'actions, de parts sociales ou de parts bénéficiaires, de fusion, de
sociétés en participation, de groupement, d'alliance ou de commandite
;
|
|
-
|
La
gestion de ces participations
financières ;
|
|
-
|
La
direction, la gestion, le contrôle et la coordination de ces filiales et
participations ;
|
|
-
|
Toutes
prestations de services administratifs, financiers, techniques
ou autres
;
|
|
-
|
Et
plus généralement, la réalisation de toutes opérations financières,
commerciales, industrielles, civiles, mobilières ou immobilières, pouvant
se rapporter directement ou indirectement, en totalité ou en partie à
l'objet social ou à tous autres objets similaires ou connexes pouvant en
favoriser l'extension et le
développement.
|
ARTICLE
3 - DENOMINATION SOCIALE
La
dénomination sociale de la Société est :
EDAP
TMS
ARTICLE
4 - SIEGE SOCIAL
Le
siège
social est fixé : Parc d'activité La Poudrette Lamartine - 4, rue du
Dauphiné - 69120 Vaulx-en-Velin - France.
Page
2/21
Il
pourra
être transféré en tout endroit du département ou d'un département limitrophe,
par simple décision du Conseil d’administration sous réserve de ratification par
la plus prochaine Assemblée Générale Ordinaire et, partout ailleurs, en vertu
d'une délibération de l'Assemblée Générale Extraordinaire.
Des
sièges administratifs, succursales, bureaux et agences pourront être créés en
tous lieux par le Conseil d’administration, sans qu'il en résulte une dérogation
à l'attribution de juridiction établie par les présents statuts.
ARTICLE
5 - DUREE
La
durée
de la Société est de soixante (60) années, à compter de la date de
l'immatriculation de la Société au Registre du Commerce et des Sociétés, sauf en
cas de dissolution anticipée ou de prorogation prévue aux présents
statuts.
TITRE
II
CAPITAL
SOCIAL
ARTICLE
6 - CAPITAL SOCIAL
Le
capital social est fixé à la somme de 1.087.166,73 Euros, divisé en 8.362.821
actions, d'une valeur nominale de 0,13 Euro chacune, intégralement
libérées.
ARTICLE
7 - AUGMENTATION DU CAPITAL SOCIAL
Le
capital social peut être augmenté en une ou plusieurs fois, par la création
d'actions nouvelles, en représentation d’apports en nature ou en espèces, par la
transformation en actions de réserves disponibles de la Société, ou par tout
autre moyen en vertu d’une délibération de l'Assemblée Générale Extraordinaire.
Cette Assemblée fixe les conditions de l'émission des nouvelles actions dans le
cadre des dispositions légales en vigueur, ou délègue ses pouvoirs à cet effet
au Conseil d'administration. Il peut être créé en représentation des
augmentations de capital, soit des actions de même type que celles d'origine,
soit des actions de tout autre type, pouvant notamment dans les conditions
prévues par la loi, conférer un droit de priorité ou un avantage quelconque sur
les autres actions. Le Conseil d'administration a tout pouvoir pour traiter,
le
cas échéant avec toute banque ou tout syndicat financier pour faciliter ou
garantir les émissions d'actions ci-dessus visées, en se conformant à toute
disposition légale, notamment en ce qui concerne le droit préférentiel de
souscription au profit des actionnaires anciens.
Aucune
augmentation de capital en numéraire ne peut toutefois être réalisée, si le
capital ancien n'est pas au préalable intégralement libéré. Les augmentations de
capital doivent être réalisées dans un délai de cinq ans à compter de
l'Assemblée Générale qui les a décidées ou autorisées.
Page
3/21
Si
l'augmentation du capital a lieu par l'émission d'actions avec prime, cette
prime, dont la totalité devra être intégralement versée lors de la souscription
des actions ne sera pas considérée comme un bénéfice répartissable au même titre
que les bénéfices d'exploitation ; elle constituera un versement supplémentaire
en dehors et en sus du capital des actions et appartiendra exclusivement
à tous
les actionnaires sauf à recevoir l'affectation qui sera décidée par l'Assemblée
Générale Ordinaire ou Extraordinaire.
En
cas
d'augmentation faite par l'émission d'actions libérables en numéraire, et sauf
décision contraire de l'Assemblée Générale Extraordinaire, les propriétaires des
actions antérieurement créées ayant effectué les versements appelés, auront en
proportion du montant de ces actions, un droit de préférence sur la souscription
des actions nouvelles, lequel droit s'exercera de la manière et dans le délai
déterminé par le Conseil d'administration en conformité avec la Loi, et sera
négociable dans les mêmes conditions que les actions pendant la durée de la
souscription.
Ceux
des
actionnaires, qui en raison du nombre de leurs titres, ne pourraient obtenir
une
action nouvelle ou un nombre entier d'actions nouvelles, auront la faculté de se
réunir pour exercer leur droit, mais sans qu'il puisse jamais en résulter une
souscription indivise.
ARTICLE
8 - REDUCTION DE CAPITAL
L’Assemblée
Générale Extraordinaire peut aussi décider la réduction du capital social, pour
quelque cause et de quelque manière que ce soit, notamment au moyen d'un
remboursement aux actionnaires d'un rachat d'actions de la Société, ou d'un
échange des anciens titres d'actions contre de nouveaux titres, pour un
nombre
équivalent ou moindre ayant ou non le même montant nominal et, s'il y a lieu,
avec l'obligation de cession ou d'achat d'actions anciennes pour permettre
l'échange, ou encore avec le paiement d'une soulte.
L'Assemblée
Générale peut également déléguer au Conseil d'administration tous pouvoirs à
l'effet de réaliser la réduction du capital.
Le
projet
de réduction du capital est communiqué aux Commissaires aux Comptes, quarante
cinq jours au moins avant la réunion de l'Assemblée. L'Assemblée statue sur le
rapport des Commissaires qui font connaître leur appréciation sur les causes et
conditions de l'opération.
Lorsque
la réduction du capital n'est pas motivée par des pertes, les créanciers
peuvent, dans le délai de trente jours à compter de la date de dépôt au Greffe
du Tribunal de Commerce, du procès-verbal de délibération de l’Assemblée
Générale qui a décidé ou autorisé la réduction, former opposition à la
réduction. L'opposition est portée devant le Tribunal de Commerce.
Page
4/21
TITRE
III
ACTIONS
ARTICLE
9 - LIBERATION DES ACTIONS
Lors
des
augmentations de capital, le montant des actions à souscrire en numéraire doit
être libéré du quart au moins au moment de la souscription; le surplus des
versements sera effectué dans un délai maximum de cinq ans, à compter du jour où
l'augmentation de capital sera devenue définitive, en une ou plusieurs fois, aux
époques et dans les proportions qui seront déterminées par le Conseil
d'administration. Les appels de fonds seront portés à la connaissance des
actionnaires quinze jours au moins avant l'époque fixée pour chaque versement
par lettre recommandée.
Le
montant des actions de numéraire faisant partie des augmentations de capital
pourra être libéré en tout ou partie par voie de compensation avec une dette
certaine, liquide et exigible de la Société.
Le
Conseil d'administration pourra autoriser à toute époque les actionnaires à se
libérer par anticipation du montant non encore appelé de leurs
actions.
A
défaut
pour les actionnaires d'effectuer les versements aux époques déterminées,
l'intérêt du montant de ces versements courra de plein droit, pour chaque jour
de retard, à raison de 12 % l'an à compter de la date d'exigibilité fixée dans
la lettre recommandée prévue ci-dessus, et sans qu’il soit besoin d'une demande
en justice ou d'une mise en demeure.
Si
dans
le délai fixé lors de l'appel de fonds, certaines actions n'ont pas été libérées
des versements exigibles, la Société peut un mois après une mise en demeure
spéciale et individuelle notifiée à l'actionnaire défaillant, par lettre
recommandée ou par acte extra-judiciaire, proposer aux autres actionnaires les
actions à libérer par lettre recommandée adressée à chacun d'eux.
Pour
mettre en oeuvre ce droit de préemption, le Conseil d'administration devra dès
après l'expiration du délai fixé lors de 1'appel de fonds, offrir aux
actionnaires les actions à libérer par lettre recommandée adressée à chacun
d'eux.
Si
plusieurs actionnaires se portent acquéreurs, les actions seront réparties entre
eux proportionnellement à leurs droits dans la Société.
Si
une
telle répartition proportionnelle n'est pas possible, les actions résiduelles
sont attribuées par voie de tirage au sort.
Si
dans
un délai de un mois après que les actionnaires aient été avertis, certaines
actions demeurent non libérées, la Société pourra procéder à leur mise en vente
dans les conditions prévues dans l'article L. 228-27 du Code de commerce, par le
décret du 23 mars 1967, pris pour son application.
Page
5/21
La
vente
des actions est effectuée aux enchères publiques par un agent de change ou par
un notaire. A cet effet, la Société publie dans un journal d'annonces légales du
département du siège social, trente jours au moins après la mise en demeure
prévue à l'alinéa précédent, un avis concernant la vente des actions. Elle avise
le débiteur, et le cas échéant, ses co-débiteurs, de la mise en vente par lettre
recommandée contenant l'indication de la date et du numéro du journal dans
lequel la publication a été effectuée. Il ne peut être procédé à la mise en
vente des actions moins de quinze jours après l'envoi de la lettre
recommandée.
Le
produit net de la vente revient à la Société à due concurrence et s'impute sur
ce qui est dû en principal et intérêts par l'actionnaire défaillant et ensuite
sur le remboursement des frais exposés par la Société pour parvenir à la vente.
L'actionnaire défaillant reste débiteur ou profite de la
différence.
A
l'expiration du délai prévu au cinquième alinéa ci-dessus, les actions non
libérées des versements exigibles cessent de donner droit à l'admission et au
vote dans les Assemblées d'actionnaires et sont déduites pour le calcul du
quorum. Le droit aux dividendes et le droit préférentiel de souscription sont
suspendus. Si l'actionnaire se libère des sommes dues en principal et intérêts,
il peut demander le versement des dividendes non prescrits, mais il ne
peut
exercer une action du chef du droit préférentiel de souscription à une
augmentation de capital après expiration du délai fixé pour l'exercice de ce
droit.
ARTICLE
10 - FORME ET CONDITIONS DE VALIDITE DES TITRES
Les
actions émises par la Société revêtent obligatoirement la forme nominative et
sont matérialisées par une inscription en compte par la Société.
Les
comptes d’actions sont tenus dans les conditions et selon les modalités prévues
par la loi, par la Société ou tout autre mandataire dont le nom ou la
dénomination et l'adresse seront publiés au Bulletin des Annonces Légales
Obligatoires.
Les
comptes d'actions mentionnent :
|
-
|
les
éléments d'identification des personnes physiques ou morales au
nom
desquels ils ont été ouverts et, le cas échéant, la nature juridique de
leurs droits ou les incapacités dont elles sont
affectées
|
|
-
|
la
dénomination, la catégorie, le nombre et, le cas échéant, la valeur
nominale des actions inscrites,
|
|
-
|
les
restrictions dont ces actions peuvent être frappées (nantissement,
séquestre, etc .)
|
Lorsque
les actions ne sont pas intégralement libérées à la souscription, les versements
sur ces actions sont inscrits en compte et constatés par une
attestation.
Chaque
action donne droit, dans la propriété de l'actif social à une part
proportionnelle au nombre des actions émises. Elle donne droit, en outre, à une
part dans les bénéfices, ainsi qu’il est stipulé sous l'article 27
ci-après.
Page
6/21
Les
actionnaires ne sont responsables que jusqu'à concurrence du montant des actions
qu'il possèdent, et, au-delà, tout appel de fonds est interdit. Ils ne peuvent
être soumis à aucune restitution d'intérêts ou dividendes régulièrement
perçus.
ARTICLE
11 - TRANSMISSION DES ACTIONS
Les
actions sont librement négociables dans les conditions fixées par la loi. En cas
d'augmentation de capital, les actions sont négociables à compter de la
réalisation de celle-ci.
Les
actions demeurent négociables après la dissolution de la Société et jusqu'à la
clôture de la liquidation.
ARTICLE
12 - INDIVISIBILITE DES ACTIONS - SCELLES
Les
actions sont indivisibles à l'égard de la Société. Les copropriétaires indivis
d'une action sont tenus à se faire représenter auprès de la Société par une
seule personne nommée d'accord entre eux.
Chaque
fois qu'il sera nécessaire de posséder plusieurs actions anciennes pour exercer
un droit quelconque, et notamment pour exercer le droit de préférence prévu
ci-dessus ou encore en cas d'échange ou d'attribution de titre provenant d'une
opération telle que : réduction du capital, augmentation du capital par
incorporation de réserves, fusion, donnant droit à un titre nouveau contre
remise de plusieurs actions anciennes, les titres isolés ou en nombre inférieur
à celui requis ne donneront aucun droit à leur porteur contre la Société, les
actionnaires ayant à faire leur affaire personnelle du groupement du nombre
d’actions nécessaires.
Les
héritiers, représentants, ayants-droit ou créanciers d’un actionnaire ne peuvent
sous aucun prétexte que ce soit, requérir l'apposition des scellés sur les biens
et papiers de la Société, en demander le partage ou la licitation, ni s’immiscer
en aucune manière dans son administration; ils doivent, pour l'exercice de leurs
droits, s'en rapporter aux inventaires sociaux et aux décisions de 1’Assemblée
Générale.
Toutes
les actions qui composent ou composeront le capital social seront
toujours
assimilées les unes aux autres, en ce qui concerne les charges fiscales.
En
conséquence, tous impôts et taxes qui, pour quelque cause que ce soit,
pourraient - à raison de tout remboursement du capital de ces actions, ou plus
généralement, de toute distribution à leur profit - , devenir exigibles pour
certaines d'entre elles seulement, soit au cours de l'existence
de la Société,
soit à la liquidation, seront répartis entre toutes les actions composant le
capital lors de ce ou de ces remboursements ou distributions,
de façon que
toutes les actions actuelles ou futures confèrent à leurs propriétaires, - tout
en tenant compte éventuellement du montant nominal et non amorti des actions et
des droits des actions de catégories différentes les mêmes avantages effectifs
leur donnant droit à recevoir la même somme nette.
Page
7/21
TITRE
IV
ADMINISTRATION
DE LA SOCIÉTÉ
ARTICLE
13 - CONSEIL D'ADMINISTRATION
La
Société est administrée par un conseil composé de personnes physiques ou morales
dont le nombre est fixé par l'assemblée générale ordinaire dans les limites de
la loi.
Toute
personne morale doit, lors de sa nomination, désigner une personne physique en
qualité de représentant permanent au Conseil d'administration. La durée du
mandat du représentant permanent est la même que celle de l'administrateur
personne morale qu'il représente. Lorsque la personne morale révoque son
représentant permanent, elle doit aussitôt pourvoir à son remplacement. Les
mêmes dispositions s'appliquent en cas de décès ou démission du représentant
permanent.
Pendant
la durée de son mandat chaque administrateur doit être propriétaire d'au moins
une action de la Société. Aucun nombre minimal d’actions n’est cependant requis
lorsque l’administrateur est un actionnaire salarié.
Si,
au
jour de sa nomination, un administrateur n'est pas propriétaire du nombre
d'actions requis ou si, en cours de mandat, il cesse d'en être propriétaire, il
est d'office réputé démissionnaire s'il n'a pas régularisé sa situation dans le
délai de trois mois.
La
durée
des fonctions des administrateurs est de six années, l'année étant la période
qui sépare deux Assemblées Générales Ordinaires annuelles consécutives. Le
mandat d'un administrateur prend fin à l'issue de la réunion de l'Assemblée
Générale Ordinaire des actionnaires ayant statué sur les comptes de l'exercice
écoulé et tenue dans l'année au cours de laquelle expire le mandat dudit
administrateur.
Les
administrateurs sont toujours rééligibles ; ils peuvent être révoqués à
tout moment par décision de l'Assemblée Générale des actionnaires.
Une
même
personne physique ne peut exercer plus de cinq mandats d’administrateur ou de
membre du Conseil de surveillance de sociétés anonymes ayant leur siège social
sur le territoire français, les mandats exercés au sein des sociétés contrôlées
- au sens de l’article L. 233-16 du Code de commerce - par la Société, n'étant
pas pris en compte pour le calcul de ce plafond.
En
cas de
vacance par décès ou par démission d'un ou plusieurs sièges d'administrateurs,
le Conseil d'administration peut, entre deux Assemblées Générales, procéder à
des nominations à titre provisoire.
Les
nominations effectuées par le conseil, en vertu de l'alinéa ci-dessus, sont
soumises à la ratification de la plus prochaine Assemblée Générale
Ordinaire.
Page
8/21
A
défaut
de ratification, les délibérations prises et les actes accomplis antérieurement
par le conseil n'en demeurent pas moins valables.
Lorsque
le nombre des administrateurs est devenu inférieur au minimum légal, les
administrateurs restants doivent convoquer immédiatement l'Assemblée Générale
Ordinaire, en vue de compléter l'effectif du conseil.
L'administrateur
nommé en remplacement d'un autre administrateur dont le mandat n'est
pas expiré,
ne demeure en fonction que pendant la durée du mandat de son prédécesseur
restant à courir.
Un
salarié de la Société peut être nommé administrateur. Son contrat de travail
doit toutefois correspondre à un emploi effectif. Il ne perd pas, dans ce cas,
le bénéfice de son contrat de travail.
Le
nombre
des administrateurs qui sont liés à la Société par un contrat de travail ne peut
excéder le tiers des administrateurs en fonction, sans toutefois
pouvoir excéder
le nombre de cinq.
Les
administrateurs ne peuvent être âgés de plus de 75 ans. Lorsque cette limite
vient à être dépassée en cours de mandat, l'administrateur le plus âgé est
d'office réputé démissionnaire à l'issue de l'assemblée générale des
actionnaires la plus proche.
ARTICLE
14 - RÉUNION DU CONSEIL D'ADMINISTRATION
14.1. Le
Conseil d'administration se réunit aussi souvent que l'intérêt de la Société
l'exige.
14.2. Les
administrateurs sont convoqués aux séances du conseil par le Président. La
convocation peut être faite par tous moyens, par écrit ou
oralement.
De
plus,
les administrateurs représentant au moins un tiers des membres du conseil ou le
Directeur général peuvent valablement demander au Président de convoquer le
conseil si ce dernier ne s’est pas réuni depuis plus de deux mois. En ce cas,
ils doivent indiquer l'ordre du jour de la séance.
Lorsqu'il
a été constitué un Comité d'entreprise, les représentants de ce comité, désignés
conformément aux dispositions du Code du Travail, devront être convoqués à
toutes les réunions du Conseil d'administration.
Les
réunions du conseil ont lieu soit au siège social soit en tout autre endroit en
France ou hors de France.
14.3. Pour
la
validité des délibérations du conseil, le nombre des membres présents doit être
au moins égal à la moitié des membres.
Page
9/21
Dans
les
limites prévues par l’article L. 225-37, alinéa 3 du Code de commerce et sous
réserve de la mise en place d’un règlement intérieur, le Conseil
d’administration pourra décider que pour le calcul du quorum et de la majorité
des administrateurs, il sera tenu compte de la participation
d’un ou de
plusieurs administrateurs au Conseil d’administration par des moyens de
visioconférence et ce, dans le respect des dispositions réglementaires.
Il
est
précisé que toute décision d'attribution d'options de souscription ou d'achat
d'actions à un administrateur titulaire d'un contrat de travail, au Président ou
au Directeur Général de la Société, si ce dernier est administrateur, dans le
cadre d'une autorisation consentie par l'assemblée générale extraordinaire
conformément aux dispositions des articles L. 225-177 et suivants
du Code de
commerce, sera prise à la majorité des voix des administrateurs présents ou
représentés, l'administrateur intéressé, ainsi que tout autre administrateur
susceptible de se voir consentir des options de souscription
ou d'achat
d'actions, ne pouvant prendre part au vote.
Les
décisions du Conseil d'administration sont prises à la majorité des voix ; en
cas de partage des voix, celle du Président est prépondérante.
14.4. Tout
administrateur peut donner, même par lettre, télégramme, télex ou télécopie,
pouvoir à un autre administrateur de le représenter à une séance du conseil,
mais chaque administrateur ne peut disposer au cours d'une
séance que d'une
seule procuration.
14.5. Les
copies ou extraits des délibérations du Conseil d'administration sont
valablement certifiés par le Président du Conseil d'administration, le Directeur
général, l'administrateur délégué temporairement dans les fonctions de Président
ou un fondé de pouvoirs habilité à cet effet.
ARTICLE
15 - POUVOIRS DU CONSEIL D'ADMINISTRATION
Le
Conseil d'administration. détermine les orientations de l’activité de la Société
et veille à leur mise en œuvre. Sous réserve des pouvoirs expressément attribués
aux Assemblées d’actionnaires et dans la limite de l’objet social, il se saisit
de toute question intéressant la bonne marche de la Société et règle par ses
délibérations les affaires qui la concernent.
ARTICLE
16 - PRÉSIDENCE DU CONSEIL
Le
Conseil d'administration élit parmi ses membres un Président qui doit être une
personne physique. Il détermine la durée de ses fonctions, qui ne peut excéder
celle de son mandat d'administrateur, et peut le révoquer à tout moment. Le
conseil fixe sa rémunération.
Le
Président représente le Conseil d’administration dont il organise et dirige les
travaux. Ces derniers font l’objet d’un compte rendu par ce même Président à
l’Assemblée Générale. Le Président veille au bon fonctionnement des organes de
la Société et s’assure notamment de ce que les administrateurs sont en mesure
de
remplir leur mission.
Page
10/21
Conformément
aux dispositions de l'article 706-43 du Code de procédure pénale, le Président
peut valablement déléguer à toute personne de son choix le pouvoir de
représenter la Société dans le cadre des poursuites pénales qui pourraient être
engagées à l'encontre de celle-ci.
Le
Président du conseil ne peut être âgé de plus de 75 ans. Si le Président atteint
cette limite d'âge au cours de son mandat de Président, il est réputé
démissionnaire d'office. Son mandat se prolonge cependant jusqu'à la réunion la
plus proche du Conseil d'administration au cours de laquelle
son successeur sera
nommé. Sous réserve de cette disposition, le Président du conseil est toujours
rééligible.
ARTICLE
16 bis - DIRECTION GÉNÉRALE
La
direction générale est assumée, sous sa responsabilité, soit par le Président du
Conseil d’administration, soit par une autre personne physique nommée par le
Conseil d’administration et portant le titre de Directeur général.
Le
choix
entre les deux modalités d'exercice revient au Conseil d’administration et est
opéré dans les conditions prévues par les présents statuts.
Les
actionnaires et les tiers sont informés de ce choix dans des conditions définies
par le décret no 2002-803 du 3 mai 2002.
Le
Directeur général est investi des pouvoirs les plus étendus pour agir en toute
circonstance au nom de la Société. il exerce ses pouvoirs dans la limite de
l'objet social et sous réserve de ceux que la loi attribue expressément aux
assemblées d'actionnaires et au Conseil d'administration.
Il
représente la Société dans ses rapports avec les tiers. La Société est engagée
même par les actes du Directeur général qui ne reflètent pas l'objet social, à
moins qu'elle ne prouve que le tiers savait que l'acte dépassait cet objet ou
qu'il ne pouvait l'ignorer compte tenu des circonstances,
étant exclu que la
seule publication des statuts suffise à constituer cette preuve.
La
rémunération du Directeur général est déterminée par le Conseil
d’administration. Il peut être révoqué à tout moment par le Conseil
d’administration. Si la révocation est décidée sans juste motif, elle peut
donner lieu à dommages et intérêts, sauf lorsque le Directeur général assume les
fonctions de Président du conseil d'administration.
Le
Directeur général ne pourra exercer aucun autre mandat de directeur général ou
de membre du Directoire dans des sociétés anonymes ayant leur siège sur le
territoire français, qu'à la double condition que (i) l’autre mandat soit exercé
dans une société contrôlée - au sens de l’article L. 233-16 du Code de commerce
- par la Société, et (ii) que les titres de la Société contrôlée ne soient pas
admis aux négociations sur un marché réglementé.
Le
Directeur général ne peut être âgé de plus de 70 ans. Lorsque le Directeur
général atteint cette limite d’âge, il est réputé démissionnaire d’office. Son
mandat se prolonge cependant jusqu’à la réunion la plus prochaine du Conseil
d’administration au cours de laquelle le nouveau Directeur
général sera
nommé.
Page
11/21
ARTICLE
17 - DIRECTEUR GÉNÉRAL DÉLÉGUÉ
Sur
la
proposition du Directeur général, le Conseil d'administration donne mandat à une
ou plusieurs personne(s) physique(s) d'assister le Directeur
général en qualité
de Directeur général délégué.
Le
Directeur général délégué est révocable à tout moment par le Conseil
d'administration sur proposition du Directeur général.
En
accord
avec le Directeur général, le Conseil détermine l'étendue et la durée des
pouvoirs délégués au Directeur général délégué. Le Conseil fixe la rémunération
du Directeur général délégué.
A
l'égard
des tiers, le Directeur général délégué dispose des mêmes pouvoirs que le
Directeur général ; il a notamment le pouvoir d'ester en justice.
Un
Directeur général délégué ne peut être âgé de plus de 70 ans. Lorsqu'un
Directeur général délégué atteint cette limite d'âge, il est réputé
démissionnaire d'office. Son mandat se prolonge cependant jusqu'à la réunion la
plus prochaine du Conseil d'administration au cours de laquelle
le nouveau
directeur général délégué sera nommé.
En
tout
état de cause, le nombre maximum de Directeurs généraux délégués ne peut excéder
cinq.
ARTICLE
18 - CONVENTIONS SOUMISES A AUTORISATION
18.1. Les
cautions, avals et garanties, donnés par la Société doivent être autorisées par
le Conseil d'administration dans les conditions prévues par la loi.
18.2. Toute
convention intervenant - soit directement, soit par personne
interposée - entre
la Société et l'un de ses administrateurs, son Directeur général, l’un de ces
Directeurs généraux délégués, l’un de ses actionnaires disposant d’une fraction
de droit de vote supérieure à 5% ou - s’il s’agit d’une société actionnaire - la
société la contrôlant au sens de l’article L. 233-3 du Code de commerce, doit
être soumise à l'autorisation préalable du Conseil d'administration. Il en est
de même des conventions auxquelles ces personnes sont indirectement
intéressées.
Toutefois,
une telle autorisation préalable n’est pas requise dans le cas d’une convention
qui - bien qu’intervenant entre des personnes sus-mentionnées - porte sur des
opérations courantes et a été conclue à des conditions normales. Une telle
convention doit néanmoins être communiquée par l’intéressé au Président du
Conseil d’administration. En outre, les listes et objets de telles
conventions
seront communiqués par le Président aux membres du Conseil d’administration et
aux Commissaires aux Comptes.
Page
12/21
Il
en est
de même pour les conventions entre la Société et une autre entreprise si le
Directeur général ou l’un des Directeurs généraux délégués ou l'un des
administrateurs est propriétaire, associé indéfiniment responsable, gérant,
administrateur, Directeur général, membre du Directoire ou du Conseil de
surveillance ou de façon générale dirigeant de ladite entreprise.
L'autorisation
préalable du Conseil d'administration sera requise dans les
conditions prévues
par la loi. Il est à cet égard précisé que l'administrateur concerné ne sera pas
pris en compte pour le calcul du quorum et que son vote ne
sera pas pris en
compte pour le calcul de la majorité.
ARTICLE
19 - CONVENTIONS INTERDITES
Il
est
interdit aux administrateurs autres que les personnes morales,
de contracter,
sous quelque forme que ce soit, des emprunts auprès de la Société, de se faire
consentir par elle un découvert en compte-courant ou autrement, et de faire
cautionner ou avaliser par elle leurs engagements envers
les tiers.
La
même
interdiction s'applique aux Directeurs généraux, aux Directeurs généraux
délégués et aux représentants permanents des personnes morales administrateurs.
Elle s'applique également aux conjoints, ascendants et descendants des personnes
visées au présent article, ainsi qu'à toute personne interposée.
TITRE
V
COMMISSAIRES
AUZ COMPTES
ARTICLE
20 - COMMISSAIRES AUX COMPTES
L'Assemblée
Générale Ordinaire des actionnaires désigne pour la durée dans les conditions et
avec la mission fixée par la loi, un ou deux Commissaires aux Comptes ainsi que
des Commissaires aux Comptes suppléants.
Les
Commissaires aux Comptes sont nommés pour six exercices. Leur mandat prend fin
avec l'Assemblée Générale qui statue sur les comptes du sixième
exercice.
Le
Commissaire nommé en remplacement d'un autre ne demeure en fonction que jusqu'à
l'expiration du mandat de son prédécesseur.
Les
Commissaires sont indéfiniment rééligibles.
Un
ou
plusieurs actionnaires représentant au moins le vingtième du capital social
peuvent demander en justice la récusation d'un ou plusieurs Commissaires aux
Comptes nommés par l’Assemblée et la désignation d'un ou plusieurs autres
Commissaires qui exerceront leurs fonctions aux lieu et place
du ou des
Commissaires récusés. A peine d’irrecevabilité de la demande, celle-ci doit être
portée devant le Président du Tribunal de Commerce statuant en référé dans un
délai de trente jours à compter de la nomination contestée.
Page
13/21
Les
Commissaires aux Comptes doivent être convoqués à la réunion du Conseil
d'administration au cours de laquelle sont arrêtés les comptes de l'exercice
écoulé, ainsi qu'à toutes les Assemblées d'actionnaires.
ARTICLE
21 - EXPERTISE
Un
ou
plusieurs actionnaires représentant au moins le vingtième du capital social
peuvent demander au Président du Tribunal de Commerce statuant en référé, la
désignation d'un expert chargé de présenter un rapport sur une ou plusieurs
opérations de gestion.
Le
rapport de l'expert, éventuellement nommé doit être adressé aux demandeurs, au
Conseil d'administration, au Ministère Public, au Comité d'entreprise ainsi qu'à
la COB : il doit également être annexé au rapport du ou des Commissaires aux
Comptes établi en vue de la prochaine Assemblée Générale et recevoir la même
publicité.
TITRE
- VI
ASSEMBLEES
GENERALES
ARTICLE
22 - REGLES GENERALES
1)
L'Assemblée Générale Ordinaire annuelle est obligatoirement réunie dans les six
mois qui suivent la clôture de chaque exercice, sous réserve de la prolongation
de ce délai par décision de justice.
2)
Des
Assemblées Générales Extraordinaires ou des Assemblées Générales Ordinaires
convoquées extraordinairement peuvent, en outre, être réunies sur convocation,
soit du Conseil d'administration, soit des Commissaires aux
Comptes, soit encore
d'un mandataire désigné en justice, en cas d’urgence à la demande de tout
intéressé ou du Comité d'entreprise, ou d’un ou plusieurs actionnaires
réunissant au moins le vingtième du capital social.
3)
Les
Assemblées Générales sont réunies au siège social ou en tout autre lieu figurant
sur la convocation, même en dehors du département du siège social.
En
cas
d’urgence, le Comité d’entreprise peut demander en justice la désignation d’un
mandataire chargé de convoquer l’assemblée générale des
actionnaires.
Il
peut
également requérir l'inscription de projets de résolutions à l'ordre du jour des
assemblées.
Deux
membres du Comité d’entreprise désignés par ce dernier, l'un faisant partie de
la catégorie des cadres techniciens et agents de maîtrise et l’autre appartenant
à la catégorie des employés et ouvriers peuvent assister aux assemblées
générales. Ils doivent, à leur demande, être entendus lors de toutes les
délibérations requérant l’unanimité des associés.
Page
14/21
4)
Les
convocations des Assemblées Générales sont faites quinze jours au moins à
l'avance par lettre simple ou recommandée adressée à chaque
actionnaire.
Au
cas où
l'Assemblée Générale n’aurait pu délibérer valablement faute de quorum requis,
une deuxième Assemblée est convoquée dans les mêmes formes que la première et
l'avis de convocation rappelle la date de celle-ci. Le délai de convocation est
toutefois ramené à six jours.
5)
L'avis
de convocation indique la dénomination sociale, éventuellement suivie de son
sigle, la forme de la Société, le montant du capital social, l'adresse du siège
social, les numéros d’immatriculation de la Société au Registre du Commerce et à
l'Institut National de la Statistique et des Etudes Economiques,
les jours,
heure et lieu de l'Assemblée, ainsi que sa nature, extraordinaire, ordinaire ou
spéciale, et son ordre du jour.
Sous
réserve des questions diverses qui ne doivent présenter qu'une minime
importance, les questions inscrites à l'ordre du jour sont libellées de telle
sorte que leur contenu et leur portée apparaissent clairement, sans qu’il y ait
lieu de se reporter à d'autres documents.
Un
ou
plusieurs actionnaires peuvent, dans les conditions prévues par les articles 128
à 131 du décret 67-236 du 23 mars 1967, requérir l'inscription à l'ordre du jour
de projets de résolutions ne concernant pas la présentation de candidats au
Conseil d'administration.
L'Assemblée
ne peut délibérer sur une question qui n’est pas inscrite à son ordre du jour,
néanmoins, elle peut en toutes circonstances, révoquer un ou plusieurs membres
du Conseil d'administration, et procéder à leur remplacement.
L'ordre
du jour de l'Assemblée ne peut être modifié sur deuxième
convocation.
6)
L’Assemblée Générale se compose de tous les actionnaires quel que soit le
nombre
de leurs actions, pourvu quelles aient été libérées des versements
exigibles.
7)
Un
actionnaire ne peut se faire représenter que par un autre actionnaire ou par son
conjoint même si ce dernier n'est pas actionnaire.
Le
mandat
est donné pour une seule Assemblée, il peut cependant être donné pour deux
Assemblées, l'une ordinaire, l'autre extraordinaire, tenues le même jour, ou
dans un délai de sept jours.
Le
mandat
donné pour une Assemblée vaut pour les Assemblées successives convoquées avec le
même ordre du jour.
A
toute
formule de procuration adressée aux actionnaires doivent être joints les
documents suivants :
|
-
|
l'ordre
du jour de l'Assemblée,
|
|
-
|
le
texte des projets de résolutions présentés par le Conseil d'administration
et le cas échéant par des actionnaires ou le Comité
d'entreprise,
|
Page
15/21
|
-
|
un
exposé sommaire de la situation de la Société pendant l'exercice écoulé,
accompagné d'un tableau faisant apparaître les résultats de la Société au
cours de chacun des cinq derniers exercices ou
de chacun des exercices
clos depuis la constitution de la Société si leur nombre est inférieur à
cinq,
|
|
-
|
une
formule de demande d'envoi des documents et renseignements
visés à
l'article 135 du décret précité, informant l'actionnaire qu'il peut
obtenir sur demande unique de sa part, l'envoi
systématique des documents
et renseignements précités à l'occasion de chacune des Assemblées
d'actionnaires ultérieures.
|
La
formule de procuration doit informer l'actionnaire de manière très apparente
qu'à défaut d'indication de mandataire, il sera émis en son nom un vote
favorable à l'adoption des projets de résolution présentés ou agréés par le
Conseil d'Administration. Pour émettre tout autre vote, l'actionnaire doit faire
choix d'un mandataire qui accepte de voter dans le sens indiqué par son
mandat.
La
procuration doit être signée par l’actionnaire représenté et indiquer ses nom,
prénom usuel et domicile, le nombre d'actions dont il est titulaire
et le nombre
de voix attachées à ses actions.
Le
mandataire désigné nommément sur la procuration n'a pas la faculté de se
substituer une autre personne.
8)
L'Assemblée est présidée par le Président du Conseil d'administration ou, en son
absence, par un administrateur spécialement délégué à cet effet par le conseil.
A défaut, l'assemblée élit elle-même son Président.
Les
fonctions de scrutateurs sont remplies par les deux membres
de l'Assemblée
disposant du plus grand nombre de voix acceptant cette fonction.
Le
Bureau
désigne le secrétaire qui peut être choisi en dehors des
actionnaires.
9)
Il est
tenu une feuille de présence contenant :
|
-
|
les
nom, prénom usuel et domicile de chaque actionnaire, présent ou
représenté, le nombre d'actions dont il est titulaire et
le nombre de voix
attachées à ses actions.
|
|
-
|
les
nom, prénom usuel et domicile de chaque mandataire, le
nombre d'actions de
ses mandats, ainsi que le nombre de voix attachées à ces
actions.
|
Les
mentions concernant les actionnaires représentés peuvent ne pas figurer sur la
feuille de présence à la condition que les pouvoirs soient annexés à celle-ci et
que leur nombre y soit indiqué.
La
feuille de présence, dûment signée par les actionnaires présents ou représentés,
est certifiée exacte par le bureau.
Page
16/21
10)
Le
scrutin secret a lieu lorsqu'il est réclamé par le Bureau ou par des membres de
l’Assemblée représentant plus de la moitié du capital représenté à cette
Assemblée.
11)
Dans
toutes les Assemblées, le quorum est calculé sur l'ensemble des actions
composant le capital social, déduction faite de celles qui sont privées du droit
de vote en vertu de dispositions législatives ou réglementaires.
12)
Chaque membre de l'Assemblée a autant de voix qu'il possède et représente
d'actions, tant en son nom personnel que comme mandataire,
sans limitation.
Toutefois, aux Assemblées destinées à vérifier les apports en nature ou des
avantages particuliers, chaque actionnaire ne peut disposer
de plus de dix
voix.
En
cas
d'usufruit, le droit de vote attaché à l'action appartient à l'usufruitier dans
les Assemblées Générales Ordinaires et au nu-propriétaire dans les Assemblées
Générales Extraordinaires ou spéciales.
Les
propriétaires indivis d'actions doivent être représentés par un seul d'entre eux
ou par un mandataire unique.
Enfin,
le
droit de vote est exercé par le propriétaire des titres remis en
gage.
13)
Les
délibérations des Assemblées Générales sont constatées par des procès-verbaux
contenant les mentions requises établies sur un registre spécial tenu au siège
social dans les conditions prévues ci-dessus et signés par les membres du
Bureau.
Les
copies ou extraits des procès-verbaux de l'assemblée sont valablement certifiés
par le Président du conseil d'administration, par un administrateur
exerçant les
fonctions de Directeur général ou par le secrétaire de l'assemblée. En cas de
liquidation, ils sont valablement certifiés par un liquidateur.
14)
Les
actionnaires exercent leur droit de communication et de copie
dans les
conditions prévues par la loi.
15)
Les
votes des actionnaires participant à l’assemblée par visioconférence ou par des
moyens de télécommunication permettant leur identification dans le respect
des
dispositions réglementaires, sera pris en compte pour le calcul du quorum
et de
la majorité de ladite assemblée
ARTICLE
23 - ASSEMBLEES GENERALES EXTRAORDINAIRES
L'Assemblée
Générale Extraordinaire est seule habilitée à modifier les statuts dans toutes
leurs dispositions; toute clause contraire est réputée non écrite. Elle ne peut,
toutefois, augmenter les engagements des actionnaires, sous
réserve des
opérations résultant d'un regroupement d'actions régulièrement
effectué.
Page
17/21
Elle
ne
délibère valablement que si les actionnaires présents ou représentés possèdent
au moins sur première convocation la moitié et sur deuxième convocation le quart
des actions ayant le droit de vote. A défaut de ce dernier quorum, la deuxième
Assemblée peut être prorogée à une date postérieure de deux mois au plus à celle
à laquelle elle avait été convoquée.
Elle
statue à la majorité des deux tiers des voix dont disposent les actionnaires
présents ou représentés y compris les votes par correspondance.
ARTICLE
24 - ASSEMBLES GENERALES ORDINAIRES
L'Assemblée
Générale Ordinaire prend toutes les décisions autres que celles qui sont de la
compétence de l'Assemblée Générale Extraordinaire.
Elle
ne
délibère valablement sur première convocation que si les actionnaires présents
au représentés possèdent au moins le quart des actions ayant le droit au vote.
Sur deuxième convocation, aucun quorum n'est requis. Elle statue à la majorité
des voix dont disposent les actionnaires présents ou représentés y compris les
votes par correspondance.
TITRE
VII
INVENTAIRES
- BENEFICES - RESERVES
ARTICLES
25 - EXERCICE SOCIAL
Chaque
exercice social a une durée de douze mois, il commence le premier janvier et
expire le 31 décembre suivant.
ARTICLE
26 - INVENTAIRE - COMPTES
Il
est
tenu une comptabilité régulière des opérations sociales, conformément à la
loi.
A
la
clôture de chaque exercice, le Conseil d'administration dresse
l'inventaire
ainsi que les comptes annuels.
Il
établit un rapport de gestion sur la situation de la Société durant l'exercice
écoulé, son évolution prévisible, les événements importants survenus entre la
date de la clôture de l'exercice et la date à laquelle le rapport de gestion est
établi et ses activités en matière de recherche et de
développement.
Tous
ces
documents sont mis à la disposition des Commissaires aux Comptes dans les
conditions et délais légaux.
Page
18/21
ARTICLE
27 - FIXATION - AFFECTATION ET REPARTITION DES
BENEFICES
Sur
le
bénéfice de chaque exercice diminué, le cas échéant, des pertes antérieures, il
est d'abord prélevé cinq pour cent pour constituer le fonds de réserve légale ;
ce prélèvement cesse d'être obligatoire lorsque ledit fonds atteint le dixième
du capital social ; il reprend son cours lorsque, pour
une cause quelconque la
réserve légale est descendue au-dessous de ce pourcentage.
L'Assemblée
Générale peut prélever toutes sommes en vue de les affecter à la dotation de
tous fonds de réserves facultatives, ordinaires ou extraordinaires, ou
de
reporter à nouveau.
Le
bénéfice distribuable est constitué par le bénéfice de l'exercice, diminué des
pertes antérieures et des sommes à porter en réserve en application de la loi ou
des statuts, et augmenté du report bénéficiaire.
Après
approbation des comptes et constatation des sommes distribuables,
l'Assemblée
Générale détermine la part attribuée aux actionnaires sous forme de dividende.
L'Assemblée Générale peut, en outre, décider la mise en distribution de sommes
prélevées sur les réserves dont elle a la disposition, soit pour fournir
ou
compléter un dividende, soit à titre de distribution exceptionnelle, en ce cas,
la décision indique expressément les postes de réserves sur lesquels les
prélèvements sont effectués. Toutefois, les dividendes sont prélevés par
priorité sur le bénéfice distribuable de l'exercice.
ARTICLE
28 - PAIEMENT DES DIVIDENDES
Les
modalités de paiement des dividendes votées par l'Assemblée Générale sont fixées
par elle ou à défaut par le Conseil d'administration. Toutefois la mise
en
paiement doit avoir lieu dans le délai maximal de neuf mois après la clôture de
l'exercice, sauf prolongation de ce délai par décision de justice.
Les
dividendes non réclamés dans les cinq ans de leur exigibilité sont prescrits
conformément à la loi.
Page
19/21
TITRE
VIII
PROROGATION
- DISSOLUTION - LIQUIDATION
ARTICLE
29 - PROROGATION
Un
an au
moins avant la date d’expiration de la Société, le Conseil d'administration doit
convoquer une Assemblée Générale Extraordinaire des actionnaires à l'effet de
statuer sur la prorogation de la Société, laquelle prorogation ne peut excéder
99 années.
A
défaut,
tout actionnaire pourra, quinze jours après une mise en demeure adressée au
Président du Conseil d'administration, par lettre recommandée avec demande
d'avis de réception et demeurée infructueuse, demander en justice la désignation
d'un mandataire chargé de convoquer l'Assemblée.
ARTICLE
30 - DISSOLUTION
L'assemblée
générale extraordinaire peut, à toute époque, prononcer la dissolution anticipée
de la Société.
Si
du
fait des pertes constatées dans les documents comptables, les capitaux propres
de la Société deviennent inférieurs à la moitié du capital social, le Conseil
d'administration doit, dans les quatre mois de l'approbation
des comptes ayant
fait apparaître cette perte, convoquer l'Assemblée Générale Extraordinaire à
l'effet de décider s'il y a lieu à dissolution anticipée de la
Société.
Si
la
dissolution n'est pas prononcée, le capital doit au plus tard à la clôture du
deuxième exercice suivant celui au cours duquel la constatation
des pertes est
intervenue, et sous réserve des dispositions légales relatives au capital
minimum des sociétés anonymes, être réduit d'un montant au moins égal à celui
des pertes qui n'ont pu être imputées sur les réserves, si dans ce délai les
capitaux propres n'ont pas été reconstitués à concurrence d'une valeur au moins
égale à la moitié du capital social.
A
défaut
de réunion de l'assemblée générale, comme dans le cas où cette assemblée n'a pu
délibérer valablement, tout intéressé peut demander en justice la dissolution de
la société.
La
Société est en liquidation dès l'instant de sa dissolution pour quelque cause
que ce soit. Sa personnalité morale subsiste pour les besoins de cette
liquidation jusqu'à la clôture de celle-ci.
Pendant
toute la durée de la liquidation, l'assemblée générale conserve les mêmes
pouvoirs qu'au cours de l'existence de la société.
Les
actions demeurent négociables jusqu'à la clôture de la liquidation.
La
dissolution de la Société ne produit ses effets à l'égard des tiers qu'à compter
de la date à laquelle elle est publiée au Registre du Commerce et des
Sociétés.
Page
20/21
ARTICLE
31 - LIQUIDATION
La
liquidation de la Société sera effectuée dans les conditions prévues par les
articles L. 237-1 à L. 237-31 du Code de commerce et par les dispositions
du
décret n° 67236 du 23 mars 1967.
Après
l’extinction du passif, il sera procédé au remboursement du capital nominal des
actions. Le boni de liquidation est réparti entre les actionnaires au prorata de
leurs droits respectifs.
TITRE
IX
CONTESTATION
- ELECTION DE DOMICILE
ARTICLE
32 - CONTESTATIONS
Toutes
les contestations qui peuvent s'élever pendant le cours de la Société ou de sa
liquidation, soit entre les actionnaires et la Société, soit entre les
actionnaires eux-mêmes, au sujet des affaires sociales, sont soumises
à la
juridiction des Tribunaux compétents du lieu du siège social.
Page
21/21
EXHIBIT
1.1 (English translation of by-laws)
EDAP
TMS
A
stock company (société anonyme)
with
a capital of Euros 1,087,166.73
Head
office: Parc d’activité- La Poudrette Lamartine
4
rue du Dauphiné
69120
Vaulx en Velin - France
MEMORANDUM
AND ARTICLES OF ASSOCIATION
-
BYLAWS -
including
modifications regarding the
"Loi
NRE"
and the adoption of an usual way of management
and
the
age limit for the Board Members (Shareholders' Meeting dated June 21, 2005)
Articles
– June 2005 English translation for information purposes only
1/21
TITLE
I
FORMATION
- PURPOSE - CORPORATE NAME
REGISTERED
OFFICES - DURATION
ARTICLE
1 - FORMATION OF THE COMPANY
A
stock
company exists between the owners of the shares created hereinafter and those
which could
be
created at a later stage ; it is organized and exists under the laws in force
and under the following bylaws.
ARTICLE
2 - CORPORATE PURPOSES
The
purpose of the Company is:
|
-
|
the
taking of financial interests under whatever form in all French
or foreign
groups, companies or businesses which currently exist or which
may be
created in the future, mainly through contribution, subscription
or
purchasing of shares, obligations or other securities, mergers,
holding
companies, groups, alliances or partnerships ;
|
|
-
|
the
management of such financial interests ;
|
|
-
|
the
direction, management, supervision and coordination of its subsidiaries
and interests ;
|
|
-
|
the
provision of all administrative, financial, technical or other
services ;
|
|
-
|
and
generally, all operations of whatever nature, financial, commercial,
industrial, civil, relating to property and real estate which may
be
connected directly or indirectly, in whole or in part, to the company's
purposes or to any similar or related purposes which may favor
the
extension or development of said purpose.
|
ARTICLE
3 - CORPORATE NAME
The
corporate name of the Company is:
EDAP
TMS
ARTICLE
4 - REGISTERED OFFICE
The
registered office is fixed at: Parc d'activité La Poudrette Lamartine
4
rue du
Dauphiné- (F) 69120 Vaulx en Velin - France.
Articles
– June 2005 English translation for information purposes only
2/21
It
may be
transferred to any other location within the department or a nearby department
further to a simple resolution from the Board, subject to ratification by
the
earliest Ordinary General Meeting, and every other location by virtue of
a
resolution from the Extraordinary Shareholders' General Meeting. The Board
may
set up administrative seats, subsidiaries, offices and branches in all places
without any derogation related to the choice of jurisdiction as provided
in
these bylaws.
ARTICLE
5 - DURATION
The
duration of the Company is sixty (60) years as of the date of incorporation
of
the Company recorded in the Trade and Corporate Registry unless an anticipated
dissolution or a prorogation is decide as provided for in these
bylaws.
TITLE
II
REGISTERED
CAPITAL
ARTICLE
6 - REGISTERED CAPITAL
The
registered capital is fixed at the amout of one million eighty seven thousand
one hundred sixty-six Euros and seventy three cents (Euros 1,087,166.73)
divided
into eight million three hundred and sixty-two thousand eight hundred and
twenty-one (8,362,821) shares with a nominal value of thirteen cents (Euros
0.13) each, fully paid up.
ARTICLE
7 - INCREASE OF THE REGISTERED CAPITAL
The
registered capital may be increased once or several times through the creation
of new shares, representing contributions in kind or contributions in cash,
the
transformation of available corporate reserves into shares or through any
other
mean by virtue of a resolution from the Extraordinary Shareholders' General
Meeting. Such meeting shall fix the conditions for the issuing of new shares
within the framework of the legal provisions in force, or delegate its powers
for such purpose to the Board. As a representation of capital increases may
be
created, either shares similar to the existing ones, or shares of a totally
different type which may, within the conditions provided by law, grant a
preferential right or whatever privilege on the other shares. The Board has
all
powers to negotiate, if any,
with
any bank or financial syndicate to facilitate or guarantee the issuance of
shares as mentioned hereabove complying with any legal provision, in particular
as far as preferential rights of subscription for the benefit of the older
shareholders are concerned.
Articles
– June 2005 English translation for information purposes only
3/21
No
capital increase in shares paid up in cash may however be implemented if
the
existing capital has not been priorly fully paid up. Capital increases must
be
implemented within five years as of the date on which the Shareholders' General
Meeting has taken or authorized such resolution.
Capital
increases may occur through the issue of shares with a premium. That premium
of
which the total amount shall have to be paid at the time of the subscription
of
the shares shall not be regarded as a profit to be distributed under operating
profit ; it shall represent an additional payment to the capital in shares
and
shall belong exclusively to all shareholders, except otherwise provided for
by
the Ordinary or Extraordinary Shareholders' Meeting.
In
case
of an increase through the issue of shares payable in cash, and unless otherwise
provided further to a resolution from the Extraordinary Shareholders' General
Meeting, the owners of existing shares who have duly contributed as they
were
called up shall receive in proportion to the amount of these shares, a
preferential right to subscribe to the new shares. The Board shall determine
the
manner in which
that right shall be exercised and its validity period in compliance with
(French) law; it shall be negotiable under the same conditions as the shares
during the subscription.
Those
shareholders who, due to the number of shares they hold, may not obtain a
new
share or a full number of new shares, shall be entitled to group to exercise
their right but however no joint subscription may result from such a
grouping.
ARTICLE
8 - CAPITAL REDUCTION
The
Extraordinary Shareholders' General Meeting may also decide a reduction of
the
registered capital for whatever reason and in whatever manner, in particular
through the reimbursement to the shareholders of a repurchasing of the corporate
shares or the exchange of old shares by new shares, for the same or a lower
number of shares, with or without the same nominal amount and, if any, the
obligation of selling or buying old shares to enable the exchange or also
through the payment of a balance in cash.
The
General Meeting may also delegate to the Board all powers to implement the
capital reduction.
The
Auditors shall be informed on the project of capital reduction at least forty
five days prior to the Meeting. The General Meeting shall decide on the report
from the Auditors who shall provide their appreciation on the causes and
the
conditions of the operation.
When
losses do not motivate the capital reduction, creditors may within a period
of
thirty days as of the date of the filing with the Clerk of the Trade Court
of
the minutes of the resolution from the General Meeting who decided or authorized
the reduction, oppose to the reduction. The opposition is brought before
the
Trade Court.
Articles
– June 2005 English translation for information purposes only
4/21
TITLE
III
SHARES
ARTICLE
9 - PAYMENT OF THE SHARES
At
the
time of capital increase, the shares to be subscribed in cash must be paid
up of
at least one fourth at the time of the subscription. The balance of payments
shall be paid within a maximum of five years, as of the day on which the
capital
increase shall have become effective, in one or several times, at the times
and
in the proportions determined by the Board. The calling up of capital
contributions shall be communicated to the shareholders by registered letter
at
least fifteen days prior to the date fixed for each payment.
The
shares contributed in cash as part of the capital increases may be paid up
partly or totally through the compensation of a debt which is fixed, liquid
and
due to the company.
The
Board
may authorize at any time the shareholders to prepay the amount of their
shares
which are not yet called up.
Should
the shareholders not proceed with the payments on the set dates, the interest
of
the amount of these payments shall run by law for each day of delay at a
rate of
12% per annum as of the date of payment fixed in the registered letter above
mentioned and without a claim or formal notice being necessary.
If
within
the period fixed at the time of calling up the capital, some shares have
not
been paid up from the required payments, the Company may, one month after
a
special formal individual notice notified to the defaulting shareholder -
by
registered letter or extra judicial writ - offer, to the other shareholders,
the
shares to be paid up by registered letter sent to each of them.
To
implement this preemptive right, the Board shall have, upon the expiration
of
the fixed time limit, at the time of the calling up of capital, to offer
to the
shareholders the shares to be paid up by registered letter sent to each of
them.
If
several shareholders are purchasers, the shares shall be distributed among
them
in proportion to their rights in the Company.
If
such a
proportional distribution is not possible, the remaining shares shall be
distributed through draw lots.
If
within
a time limit of one month further to the shareholders having been warned,
some
shares are still not paid up, the Company may sale them within the terms
and
conditions stipulated under Section L.228-27 of the French Commercial Code
through the decree of March 23, 1967 referred to for its
application.
Articles
– June 2005 English translation for information purposes only
5/21
The
sale
of the shares shall be carried in public auctions by a stock broker or a
public
notary. For such purpose, the Company shall publish in a legal gazette within
the department of the registered offices, at least thirty days further to
the
notice scheduled in the previous paragraph, a notice concerning the sale
of the
shares. It shall inform the debtor and, if any, its co-debtors, of the sale
by a
registered letter containing indications on the date and the issue number
of the
gazette in which the publication has been made. The sale of the shares may
not
take place less than fifteen day as from the sending of the registered
letter.
The
Company shall be entitled to the net proceeds of the sale up to the due amount
and shall be deducted from the principal amount and interests due by the
defaulting shareholder before the reimbursement of the costs incurred by
the
company to realize the sale. The defaulting shareholder remains debtor or
benefits from the difference.
Upon
the
expiration of the time limit as scheduled in the fifth paragraph above, the
shares not paid up from the required payments shall stop permitting the
admission and the voting rights in shareholders meetings and shall be deducted
for the counting of the quorum. The right to the dividends and the preferential
right of subscription shall be suspended. If the shareholder pays up the
principal sum and its interests, he/she may ask for the payment of non
prescribed dividends but he/she may not exercise an action under a preferential
right of subscription to a capital increase after the expiration of the time
limit fixed for the exercise of that right.
ARTICLE
10 - LEGAL FORM AND CONDITIONS OF VALIDITY OF SHARES
The
shares are compulsorily issued by the Company as registered shares and are
materialized through a registration into the accounts of the
Company.
The
share
accounts are kept under the conditions and terms provided by law, by the
Company
or any other authorized Agent the name or denomination and address of which
shall be published in the "Bulletin
des Annonces Légales Obligatoires"
(Bulletin for compulsory legal announcements).
The
share
accounts mention:
|
-
|
the
identification data of natural persons or legal entities in the
name of
whom they have been opened and, if any, the legal nature of their
rights
or incapacities ;
|
|
-
|
the
name, the category, the number and, if any, the nominal value of
the
registered shares ;
|
|
-
|
the
restrictions which may concern these shares (pledge, escrow account,
etc...).
|
Articles
– June 2005 English translation for information purposes only
6/21
Whenever
the shares are not fully paid upon subscription, the payments on these shares
are put in and witnessed as such by a certificate.
Each
share gives right to a part of the ownership of the Company's assets, in
proportion with the number of issued shares. Besides, it gives right to a
part
of profits as stipulated under Article 27 hereinafter.
Shareholders
are only responsible up to the amount of shares they possess and above that
amount, any calling up of capital is forbidden. They cannot be subject to
any
restitution of interests or dividends which were regularly
distributed.
ARTICLE
11 - SHARE TRANSFERS
Shares
may be freely traded under the conditions defined by law. In the event of
a
capital increase, the shares may be traded from the completion
thereof.
Shares
shall remain negotiable following the Company’s dissolution, and until the
closing of its liquidation.
ARTICLE
12 - INDIVISIUM OF SHARES - SEALS
In
respect of the Company the shares are indivisible. Joint owners of a share
shall
be represented before the Company by a single person they shall have appointed
further to a common agreement.
Whenever
the ownership of several existing shares shall be necessary to exercise any
right whatsoever and in particular to exercise the preferential right as
hereabove provided for, or still, in the case of exchange or attribution
of the
shares further to an operation such as: capital reduction, capital increase
by
incorporation of reserves, merger, entitling to a new share against providing
existing shares, isolated shares or shares in a number lower than the one
required shall grant no right to the holder against the Company ; shareholders
shall be personally responsible for the regrouping of the necessary number
of
shares.
The
heirs, representatives or creditors of a shareholder shall under no
circumstances whatsoever neither call for the seals on the Company's assets
and
documents requesting the partition or the sale by auction of a lot held by
indivisium, nor interfere in whatever manner in its management ; they must
- for
the exercise of their rights - refer to the corporate inventories/ books
and the
decisions from the General Meeting.
Articles
– June 2005 English translation for information purposes only
7/21
All
shares which form or shall form the registered capital shall always be
assimilated to one another as regards tax costs. Consequently, all duties
and
taxes which for whatever reason could - with respect to any reimbursement
of
capital of these shares, or more generally, any distribution of their profit
become claimable for only some of them, either during the existence of the
Company or during its winding-up, shall be distributed among all shares
representing the capital at the time of that or those reimbursements or
distributions in such a way that all current or future shares shall confer
on
their owners - whilst taking into account the nominal amount of shares and
rights not amortized of different categories, the same effective privileges
giving them the right of receiving the same net amount.
TITLE
IV
MANAGEMENT
OF THE COMPANY
ARTICLE
13 - BOARD OF DIRECTORS
The
Company is managed by a Board of Directors made up of individuals or legal
persons whose number is determined by the Ordinary Shareholders Meeting within
the limits provided for by the law.
A
legal
entity must, at the time of its appointment, designate an individual who
will be
its permanent representative at the Board of Directors. The duration of the
office of this permanent representative is the same as that of the Director
legal body he/she represents. In the event the legal body revokes its permanent
representative, it must replace said representative immediately. The same
rules
apply in case of death or resignation of the permanent
representative.
Each
Director must own at least one share during his term of office. However there
is
no minimal obligation if the Director is, at the same time, a shareholder
linked
to the Company with an employment contract.
If
- at
the time of his/her appointment - the Director does not own the requested
number
of shares or if during his/her term, he/she no longer owns the requested
number
of shares, he/she is considered to have automatically resigned, if he/she
has
failed to regularize his/her situation within three months.
The
Directors’ term of office is for six years; one year being calculated as the
period in between two consecutive annual Ordinary General Shareholders Meetings.
The tenure of a Director terminates at the end of the Ordinary General
Shareholders Meeting which meets to vote upon the accounts of the then preceding
fiscal year and is held in the year during which the office of said Director
comes to an end.
The
Directors may always be re-elected, they may also be revoked at any time
by the
Shareholders' General Meeting.
Articles
– June 2005 English translation for information purposes only
8/21
An
individual person cannot to hold more than five positions as a member of
a Board
of Directors or a member of a Supervisory Board in companies registered in
France; the directorship held in controlled companies (as defined by Section
L.233-16 of the French Commercial Code) by the Company, are not taken into
account.
In
case
of death or resignation of one or several Director(s), the Board of Directors
may make (a) provisional appointment(s), even between two General Shareholders
Meetings.
Any
such
provisional appointment(s) made pursuant to the previous paragraph need to
be
ratified by the next following Ordinary Shareholders' General Meeting.
Failing
ratification, the resolutions and acts approved beforehand by the Board remain
nonetheless valid.
When
the
number of Directors falls below the compulsory legal minimum, the remaining
directors must summon immediately the Ordinary General Shareholders Meeting,
in
order to reach the full complement of the Board.
Any
Director appointed in replacement of another Director whose tenurehas not
expired remains in office only for the remaining duration of the tenureof
his
predecessor.
An
employee of the Company may be appointed as a Director. His/her contract
of
employment must however correspond to an effective work. In this case, he/she
does not loose the benefit of his/her employment contract.
The
number of Directors who are also linked to the Company by an employment contract
can not exceed one third of the Directors in office or five members.
Directors
cannot be more than seventy-five years old. In case one of the Directors
reaches
this limit during his/her office, the older Director is automatically considered
as having resigned at the next General Shareholders Meeting.
ARTICLE
14 - MEETINGS OF THE BOARD
14.1
The
Board
of Directors meets as often as the interests of the Company require.
14.2
The
Chairman summons the Directors to the Meetings of the Board. The notification
of
the Meetings may be made by all means, whether oral or written.
Articles
– June 2005 English translation for information purposes only
9/21
Furthermore,
if there has not been a Board Meeting for two months, members of the Board
representing at least one third of the members of the Board, or the Chief
Executive Officer, may validly require the President to summon the Board.
In
such a case, they must indicate the agenda for the meeting.
In
case a
Labor Committee exists, the representatives of this committee - appointed
pursuant to the Labor Code - must be invited to every meeting of the
Board.
The
meeting takes place either at the registered office or at any other place
in
France or abroad.
14.3
For
the
resolutions of the Board of Directors to be valid, at least one half of its
members must be present.
Within
the limits set out by Section L.225-37, paragraph 3 of the French Commercial
Code and subject to the setting up of internal rules, the Board will be entitled
to take into account for its quorum and majority rules, the participation
of
Directors by means of videoconference, still in respect of the legal
provisions.
Any
decision granting options to purchase new or existing shares of the Company
to a
Director who is also an employee, to the President or to the Chief Executive
Officer of the Company (when he/she is also a Director), within the framework
of
an authorization given by the Extraordinary Shareholders' General Meeting,
pursuant to Sections L.225-177 et seq. of the French Commercial Code, shall
be
taken by a majority vote among the Directors who are present or represented.
The
concerned Director as well as any other Director who is likely to be granted
similar options cannot take part in the vote.
The
resolutions of the Board shall be taken at a majority vote ; in case of a
split
decision, the President has casting vote.
14.4
Any
Director may grant a proxy - even by letter, telegram, telex or fax - to
any
other Director to represent him/her at a Board Meeting; however, each Director
is not allowed to have more than one proxy per meeting.
14.5
The
copies or abstracts of the minutes of the Board of directors are certified
by
the Chairman of the Board, the Chief Executive Officer, the Director temporarily
delegated in the duties of President or by a representative duly authorized
for
that purpose.
Articles
– June 2005 English translation for information purposes only
10/21
ARTICLE
15 - POWERS OF THE BOARD
The
Board
of Directors defines the orientations of the Company's activity and supervises
their implementation. Within the limits set out by the corporate purposes,
and
the powers expressly granted by law to the General Shareholders Meeting,
the
Board may deliberate upon the business of the Company and take any decisions
thereof.
ARTICLE
16 - CHAIRMAN
The
Board
elects one of its members as Chairman of the Board, who must be an individual.
The Board determines the duration of the office of the Chairman: it cannot
exceed that of his/her office as a Director. The Board may revoke the Chairman
at any time. The remuneration of the Chairman is decided by the Board of
Directors.
The
Chairman represents the Board and organizes its work. The General Shareholders'
Meeting must be informed of this work, by the Chairman. The Chairman is
responsible for the good functioning of the Company's organisation and, in
particular, has to check the ability of the Board members to perform their
mission.
Pursuant
to Section 706-43 of the French criminal proceedings Code, the Chairman may
validly delegate to any person he/she chooses the powers to represent the
Company within the framework of criminal proceedings which might be taken
against the Company.
The
Chairman of the Board of Directors cannot be over seventy-five years old.
In
case the Chairman reaches this limit during his/her tenure, he/she will
automatically be considered as having resigned. However, his/her tenure is
extended until the next Board of Directors Meeting, during which his/her
successor shall be appointed. Subject to this provision, the Chairman of
the
Board may always be re-elected.
ARTICLE
16 bis - CHIEF EXECUTIVE OFFICER
The
general management of the Company is performed, under his responsibility,
either
by the Chairman of the Board or by another individual, elected by the Board
and
bearing the title of Chief Executive Officer.
The
choice between these two methods of management belongs to the Board and must
be
made as provided for by these bylaws.
Shareholders
and third parties will be informed of this choice in the conditions set out
by
the decree n° 2002-803 of May, 3rd,
2002.
The
Chief
Executive Officer is vested with the most extensive powers to act under all
circumstances on behalf of the Company, within the limits set out by the
corporate purposes, and subject to the powers expressly granted by law to
the
Board of Directors and the General Shareholders Meeting.
Articles
– June 2005 English translation for information purposes only
11/21
The
Chief
Executive Officer represents the Company with third parties. The Company
is
bound by the acts of the Chief Executive Officer overcoming the corporate
purposes, unless proven that the third party knew such act overcame the
corporate purposes or could not ignore so in light of the circumstances;
yet,
the sole publication of the bylaws is not enough to constitute a sufficient
evidence thereof.
The
remuneration of the Chief Executive Officer is decided by the Board of
Directors. The Chief Executive Officer can be revoked at any time by the
Board
of Directors. If this revocation is not justified, damages may be allocated
to
the Chief Executive Officer, except when the Chief Executive Officer is also
the
Chairman of the Board.
The
Chief
Executive Officer may not hold another position as Chief Executive Officer
or
member of a Supervisory Board in a company registered in France except when
(i)
such company is controlled (as referred to in Section L.233-16 of the French
Commercial Code) by the Company and (ii) when this controlled company’s shares
are not quoted on a regulated market.
The
Chief
Executive Officer cannot be over seventy years old. In case the Chief Executive
Officer reaches this limit during his/her tenure, he/she will automatically
be
considered as having resigned. However, his/her tenure is extended until
the
next Board of Directors meeting, during which his/her successor shall be
appointed.
ARTICLE
17 - DEPUTY CHIEF EXECUTIVE
Upon
the
Chief Executive Officer’s proposal, the Board of Directors may appoint one or
several individual(s) as Deputy Chief Executive(s) with the aim of assisting
the
Chief Executive Officer.
The
Deputy Chief Executive may be revoked at any time by the Board, upon proposal
of
the Chief Executive Officer.
In
agreement with the Chief Executive Officer, the Board of Directors shall
determine the scope and duration of the powers delegated to the Deputy Chief
Executive. The remuneration of the Deputy Chief Executive is decided by the
Board of Directors.
Towards
third parties, the Deputy Chief Executive has the same powers as the Chief
Executive Officer, among which the ability to represent the Company in
court.
The
Deputy Chief Executive Officer cannot be over seventy years old. In case
a
Deputy Chief Executive Officer would reach this limit during his/her office,
he/she would automatically be considered as having resigned. However, his/her
office is extended until the soonest Board of Directors meeting, during which
his/her successor shall be appointed.
In
any
case, the maximum number of Deputy Chief Executive(s) cannot exceed
five.
Articles
– June 2005 English translation for information purposes only
12/21
ARTICLE
18 - AGREEMENTS SUBJECT TO AUTHORIZATION
18.1
Securities,
endorsement of drafts and guarantees provided for by the Company shall be
authorized by the Board of Directors in compliance with the conditions provided
for by the law.
18.2
Any
agreement to be entered into - either directly or indirectly or through an
intermediary - between the Company and one of its Directors, its Chief Executive
Officer or Deputy Chief Executive, one of its shareholders holding more than
5%
of the voting rights or, if it is a company, the company controlling it (as
referred to in the Section L.233-3 of the French Commercial Code) is subject
to
a prior authorization of the Board of Directors. The same authorization applies
to the agreements in which these persons are indirectly interested.
Such
prior authorization is not required for agreements which, even though they
are
entered into by the above mentioned persons, concern usual operations which
have
been entered into on standard conditions. Nevertheless, such agreements have
to
be reported to the Chairman by the concerned person. Furthermore, the lists
and
purposes of these agreements shall be communicated by the Chairman to the
Board
of Directors and to the Statutory Auditors.
The
same
shall apply for agreements between the Company and another company, whenever
one
of the Directors, Chief Executive Officer(s) or Deputy Chief Executive(s)
of the
Company is the owner, a partner with unlimited liability, a manager, Director,
Chief Executive Officer, member of the Executive Board or Supervisory Board
of
said company.
The
prior
authorization of the Board of Directors is required pursuant to the conditions
provided for by law. It being specified that said director shall not be taken
into account for the quorum calculation and that his/her vote shall not be
taken
into consideration for the calculation of the majority.
ARTICLE
19 - PROHIBITED AGREEMENTS
Directors
who are not legal bodies are prohibited from taking out loans from the Company,
under any form whatsoever, from getting an overdraft on a current account
or
otherwise, and benefiting from a guarantee from the Company for the agreements
they have entered into with third parties.
The
same
prohibition applies to Chief Executive Officers, Deputy Chief Executives
and to
permanent representatives of the Directors legal bodies. It also applies
to
spouses, ascendants and descendants of the persons referred to in the previous
paragraph, as well as to any interposed person.
Articles
– June 2005 English translation for information purposes only
13/21
TITLE
V
AUDITORS
ARTICLE
20 - AUDITORS
The
Ordinary Shareholders' General Meeting shall appoint one or two Auditors
and
substitute Auditors for a duration under the conditions and for the task
complying with (French) Law.
The
Auditors are appointed for six fiscal years. Their mandate ends at the time
of
the General Meeting deciding upon the statements of the sixth fiscal
year.
The
Auditor appointed to replace another shall only remain in service until the
expiration of the mandate of his predecessor.
Auditors
are indefinitely reeligible.
One
or
several shareholders representing at least one twentieth of the registered
capital may ask in court the objection to one or several Auditors appointed
by
the meeting and the designation of one or several other Auditors who shall
provide their services replacing the objected Auditors. Under penalty of
unacceptability of the request, the latter shall have to be made before the
President of the Commercial Court who shall rule in chambers within a period
of
thirty days as from the rejected nomination.
The
Auditors must be called at the Board meeting during which the accounts of
the
ended financial year shall be closed and at all shareholders
meetings.
ARTICLE
21 - EXPERTISE
One
or
several shareholders representing at least one twentieth of the registered
capital may ask to the President of the Commercial Court to rule in chambers
to
designate an expert in charge of presenting a report on one or several
management operations.
The
report from the expert possibly appointed must be sent to the petitioners,
to
the Board, to the Ministère
Public ("Attorney General"),
to the
Labor Committee and to the COB (French
SEC)
; it
shall also be attached to the report from the Auditor(s) prepared for the
forthcoming General Meeting and should be granted the same
advertising.
Articles
– June 2005 English translation for information purposes only
14/21
TITLE
VI
GENERAL
MEETINGS
ARTICLE
22 - GENERAL RULES
| 1) |
The
annual Ordinary General Meeting shall have to meet every six month,
following the end of each financial year subject to an extension
of that
period further to a court decision.
|
|
2)
|
Extraordinary
Shareholders' General Meetings or Ordinary Shareholders' General
Meetings
called up extraordinarily may also be called up further to a notice
from
either the Board or the Auditors or the Agent designated by the
court upon
the petition of the Labor Committee or any interested person in
case of an
urgent matter or one or several shareholders representing at least
one
twentieth of the registered
capital.
|
|
3)
|
The
General Meetings are held at the head office or in any other place
indicated in the notice which may even be out of the department
of the
head office.
|
In
case
of an urgent matter, the Labor Committee may go to court and ask for the
appointment of an Agent who will be in charge of convening the Shareholders'
General Meeting.
The
Labor
Committee may also require the registration of resolution proposals on the
agenda.
Two
members of the Labor Committee, one from the "cadres
techniciens et Agents de ma trise" category,
and
one
from the "employés
et ouvriers" category,
may be appointed by the Labor Committee in order to assist to the Shareholders'
General Meetings. Upon their demand, they must be listened to during for
all
deliberations requiring an unanimous vote from the shareholders.
|
4)
|
The
notices for General Meetings are sent to each shareholder at least
fifteen
days prior to these meetings either by simple mail or registered
mail.
|
Should
the General Meeting not have been able to decide validly due to the failing
of
the required quorum, a second meeting is called up the same way as the first
one
and the calling up notice shall remind its date. However the time limit for
such
a notice is reduced to six days.
|
5)
|
The
calling up notice shall indicate the corporate name possibly followed
by
its acronym, the corporate form, the amount of registered capital,
the
address of its registered offices, the corporate identification
numbers
with the French Trade Registry and the National Institute of Statistics
and Economic Surveys (Institut National de la Statistique et des
Etudes
Economiques INSEE), the dates, hour and place of the meeting and
its
nature, extraordinary, ordinary or special together with its
agenda.
|
Articles
– June 2005 English translation for information purposes only
15/21
Subject
to miscellaneous questions which should be of no major importance, questions
indicated on the agenda are mentioned in such a manner that their content
and
scope appear clearly without having to refer to other documents.
One
or
several shareholders may under the conditions provided in Sections 128 to
131 of
the decree n° 67-236 dated March 23rd,
1967
require the recording on the agenda of resolution projects which do not concern
the presentation of candidates to the Board.
The
Meeting cannot deliberate on a question which is not listed on the agenda;
however, it may in all circumstances revoke one or several members from the
Board and proceed with their replacement.
The
Meeting agenda cannot be modified on the second calling up.
| 6) |
All
shareholders attend the General Meeting whatever the number of
their
shares as long as they have been paid up for required
payments.
|
| 7) |
A
shareholder can only be represented by another shareholder or his/her
spouse who may not be a
shareholder.
|
The
mandate is granted for a single meeting ; however it can be granted for two
meetings, an ordinary meeting and an extraordinary meeting held on the same
day
or within a period of seven days.
The
mandate granted for a meeting is valid for successive meetings called up
covering the same agenda.
The
following documents must be attached to any proxy form sent to the shareholders
:
|
-
|
the
meeting agenda
|
|
-
|
the
text of the projects of resolutions presented by the Board and
if need be
by the shareholders or the Labor
Committee.
|
|
-
|
a
summary on the corporate situation during the ended financial year
with a
chart on the corporate results during the past five financial years
or
each of the financial years since the incorporation of the Company
if
their number is inferior to five.
|
|
-
|
a
form for the sending of the documents and information listed under
article
135 of the decree mentioned hereabove, informing the shareholder
that
he/she may obtain by simple request the automatic sending of the
documents
and information mentioned above for each forthcoming Shareholders'
Meetings.
|
The
proxy
form must inform the shareholder in a very clear manner that failing any
indication of Agent, a favorable vote shall be issued in his/her name to
adopt
the resolution projects presented or consented by the Board. To issue any
other
vote, the shareholder must chose an Agent who accepts to vote in line with
his/her mandate.
Articles
– June 2005 English translation for information purposes only
16/21
The
proxy
must be signed by the represented shareholder and indicate his/her name,
usual
first name and domicile, the number of shares he/she holds and the number
of
votes related to his/her shares.
The
Agent
namely designated on the proxy may not a substitute another person to
him/herself.
|
8)
|
The
Meeting is presided over by the Chairman of the Board of Directors
or, if
he/she is absent, by a director duly delegated for that purpose
by the
Board. Otherwise, the Meeting elects its own
president.
|
The
two
members of the meeting with most votes shall, if they accept that position,
fulfill the tasks of scrutinizers
The
Meeting Committee designates the secretary who may be selected among persons
who
are not shareholders.
| 9) |
An
attendance sheet is kept and
contains :
|
|
-
|
the
name, usual first name and domicile of each shareholder, attending
or
represented, the number of shares he/she holds and the number of
votes
related to these shares.
|
|
-
|
the
name, usual first name and domicile of each Agent, the number of
shares
represented by his/her mandates and the number of votes related
to his/her
shares.
|
Comments
on the represented shareholders may not be mentioned on the attendance sheet
provided the powers are attached thereto and their number is
indicated.
The
Meeting Committee shall certify as true the attendance sheet duly signed
by the
present or represented shareholders.
|
10)
|
Secret
ballot vote shall be adopted whenever claimed by the Meeting Committee
or
members of the meeting representing more than half of the registered
capital represented at that
Meeting.
|
|
11)
|
For
all meetings, the quorum is counted on the total amount of shares
forming
the registered capital deducting those which are not entitled to
the
voting right by virtue of the legislative or regulatory
provisions.
|
| 12) |
Each
member of the meeting has as much votes as he/she possesses and
represents
shares, both under his/her personal name and as Agent, without
limitations. However, in meetings held for the checking the shares
invested in kind or specific advantages, each shareholder may not
dispose
of more than ten votes.
|
In
the
case of beneficial ownership, the right to vote related to the share belongs
to
the beneficial owner in Ordinary General Meetings and to the bare owner in
Extraordinary or Special General Meetings.
Articles
– June 2005 English translation for information purposes only
17/21
The
joint
owners of shares must be represented by only one among them or by a sole
Agent.
Finally,
the owner of the securities pledged again shall have the right to
vote.
| 13) |
Minutes
shall witness resolutions voted in General Meetings and shall contain
the
required comments on a special register kept in the registered
office
under the conditions provided hereabove and signed by the members
of the
Board Committee.
|
Copies
or
extracts of the minutes of the General Meeting are validly certified by the
Chairman of the Board, a Director duly empowered to act as a Chief Executive
Officer, or by the secretary of the meeting.
| 14) |
Shareholders
exercise their rights related to communications and copies under
the
conditions provided by law.
|
| 15) |
The
votes of the Shareholder attending to the meeting by means of
videoconference or telecommunications, according to regulatory
provisions,
shall be taken into account for the calculation of the quorum and
the
majority of the said meeting.
|
ARTICLE
23 - EXTRAORDINARY GENERAL MEETINGS
The
Extraordinary Shareholders' General Meeting is alone entitled to modify bylaws
as far as all their provisions : any contrary clause shall be declared void.
However, it may not increase shareholders' commitments subject to operations
resulting from a regrouping of shares regularly carried out.
The
Extraordinary Shareholders' General Meeting validly deliberates if the attending
or represented shareholders hold at least on the first notice of convening
half
and on the second notice of convening a fourth of the shares giving the right
to
vote. Failing this last quorum, the second meeting may be postponed
on another date at the utmost two months later than the date of the initial
calling up.
Resolutions
shall be adopted by the majority of two third of the voting rights of the
attending or represented shareholders, including the shareholders voting
by
mail.
Articles
– June 2005 English translation for information purposes only
18/21
ARTICLE
24 - ORDINARY GENERAL MEETINGS
The
Ordinary Shareholders' General Meeting takes all decisions except those which
are of the competence of the Extraordinary Shareholders' General
Meeting.
The
Ordinary Shareholders' General Meeting only deliberates validly on a first
notice of convening if the attending or represented shareholders own at least
the fourth of the voting rights. Upon the second notice of convening no quorum
is required. It shall act by a majority of votes owned by the attending or
represented shareholders, including the shareholders voting by
mail.
TITLE
VII
INVENTORIES
- PROFITS - RESERVES
ARTICLE
25 - COMPANY’S FISCAL YEAR
Each
fiscal year shall cover a period of twelve months starting on January
1st
and
ending on next December 31st.
ARTICLE
26 - INVENTORY - ACCOUNTS
Regularly
accounting of corporate operations is held in compliance with Law.
At
the
end of the each fiscal year, the Board draws up an inventory and the financial
statements.
A
management report is prepared on the situation of the Company over the last
fiscal year, its expected evolution, the major events which occurred between
the
date of the end of the last fiscal year and the date on which the management
report is prepared and on its activities in research and
development.
All
these
documents are made available to the Auditors disposal according the provisions
set forth by the law.
ARTICLE
27 - FIXING, ALLOCATION AND DISTRIBUTION OF PROFITS
On
the
profit of each fiscal year subject to reduction of the amount of the previous
law, an amount equal to 5 % of it shall be allocated in order to constitute
the
legal funds ; such allocation is no
longer
compulsory when the said funds amount to 10 % of the registered capital ;
should
the amount of the legal funds become inferior of the registered capital,
such
allocation should have to be implemented.
The
General Meeting may allocate any amount to the appropriation of all optional,
ordinary or extraordinary funds or carrying it forward.
Articles
– June 2005 English translation for information purposes only
19/21
The
profit of the fiscal year reduced by the amount of previous losses and by
the
amount to be allocated to the reserves according any legal provisions or
bylaws
and increased by the amount of the carried forward profit constitute the
distributable profit.
Further
to the approval on the financial statement and the determination of the
distributable amounts, the General Meeting decides the amount of the dividends
to be distributed to the shareholders. The General Meeting may also decide
on
the distribution of amounts appropriated from the reserves it has available
either to provide or complete dividends or as extraordinary distribution
; in
such a case, the decision shall expressly indicate the reserve items from
which
the distributions are made. However, the dividends have to be priorly
distributed from the distributable profit of the current fiscal
year.
ARTICLE
28 - PAYMENT OF DIVIDENDS
The
terms
and conditions of payment of dividends voted by the General Meeting are decided
by the relevant meeting or, failing such decision, by the Board. However,
the
payment must occur within a period which can not exceed nine months from
the end
of the fiscal year unless a court decision authorizes an extension of such
time
limit for payment.
Dividends
which are not claimed within five years from their maturity date shall be
bared.
TITLE
VIII
EXTENSION
- DISSOLUTION - WINDING UP
ARTICLE
29 - EXTENSION
At
least
one year prior to the expiration date of the Company, the Board must convene
a
Extraordinary Shareholders' General Meeting to decide the prorogation of
the
Company; such prorogation may not exceed 99 years.
Failing
such Extraordinary Shareholders' General Meeting, any shareholder may fifteen
days further to a formal notice sent to the Chairman of the Board, by registered
letter remaining unsuccessful, request from the courts the appointment of
a
Agent in charge
of
convening the meeting hereabove.
ARTICLE
30 - DISSOLUTION
The
Extraordinary Shareholders' Meeting may, at any time, decide the accelerated
dissolution of the Company.
If
- as a
consequence of the losses showed by the Company's accounts, the net assets
of
the Company are reduced below one half of the registered capital of the Company,
the Board of Directors must, within four months from the approval of the
accounts showing this loss, convene an Extraordinary Shareholders' General
Meeting in order to decide whether the Company should be dissolved before
its
statutory term.
Articles
– June 2005 English translation for information purposes only
20/21
If
the
dissolution is not declared, the registered capital must - at the latest
at the
closing of the second fiscal year following that which has showed the losses
and
subject to the legal provisions concerning the minimum capital of sociétés
anonymes
be
reduced by an amount at least equal to the losses which could not be charged
on
reserves, if during that period the net assets have not been restored up
to an
amount at least equal to one half of the capital.
Failing
such meeting of the Extraordinary Shareholders' General Meeting as well as
when
the meeting has not been able validly to take its resolutions, any person
with
an interest to do so may file a claim before a court for the dissolution
of the
Company.
The
Company is in liquidation at the time of its dissolution, whatever the reason.
Its legal personality remains for the needs of the liquidation until it is
closed.
During
the liquidation, the General Meeting keeps the same powers as when the Company
existed.
The
shares remain negotiable until the liquidation is closed.
The
dissolution of the Company is opposable to third parties only as from the
date
when the dissolution is published at the Trade and Corporate
Registry.
ARTICLE
31 - WINDING UP
The
winding up of the Company shall be carried out under the conditions provided
for
sectuions L.237-1 to L.237-31 of the French Commercial Code and under the
provisions of the decree of March 23rd,
1967
referred to for their application.
Further
to the extinction of the liabilities, the reimbursement of the shares nominal
(registered) capital shall be carried out. The liquidation bonus shall be
distributed to the shareholders in a due proportion of their respective
rights.
TITLE
IX
DISPUTES
- ELECTION OF DOMICILE
ARTICLE
32 - DISPUTES
Any
disputes arising during the existence or the winding up of the Company either
between the shareholders and the company or between the shareholders themselves
and related to corporate matters shall be submitted to the Courts of the
location of the registered office.
Articles
- June 2005 English translation for information purposes only
21/21
EXHIBIT
4.1 (c)
AGREEMENT
AND AMENDMENT NO. 2 OF THE DISTRIBUTION AGREEMENT DATED FEBRUARY 25,
2004
|
Between :
|
-
EDAP TMS S.A., a French société
anonyme having
its registered office at Parc d'activité La Poudrette Lamartine, 4-6, rue
du Dauphiné , 69120 Vaulx-en-Velin, France (“EDAP
TMS”)
|
|
-
EDAP S.A., a French société
anonyme having
its registered office at 4-6, rue du Dauphiné , 69120 Vaulx-en-Velin,
France (“EDAP”)
|
|
|
-
Technomed Medical Systems S.A., a French société
anonyme having
its registered office at 4-6, rue du Dauphiné , 69120 Vaulx-en-Velin,
France (“Technomed”)
(collectively,
the “EDAP
Parties”)
On
the one hand,
|
|
|
And
:
|
HT
Prostate Therapy Management Company L.L.C., a limited liability company
incorporated under the laws of Delaware (United States), having
its registered office at 1841 West Oak Parkway,
Suite A, Marietta, GA 30062, United
States (“HT
Prostate”)
On
the other hand,
|
WHEREAS,
the
parties entered into a Distribution Agreement as of February 25, 2004, which
contemplated, inter
alia,
the
issuance of warrants by EDAP TMS in favor of HT Prostate;
WHEREAS,
the parties entered into an amendment to the Distribution Agreement (Amendment
No. 1) as of December 23, 2004, which waived the exclusivity on the use of
Ablatherm related trademarks prior to receipt of the PMA;
WHEREAS,
acting
upon delegation granted to it by the general meeting of the shareholders of
EDAP
TMS held on January 29, 2004, the board of directors of EDAP TMS issued, on
January 28, 2005, 1,000,000 (one million) warrants (bons
de souscription d’actions)
divided
into seven categories (categories A to G), with each warrant giving its holder
the right to subscribe one share of EDAP TMS upon certain conditions (the
“Warrants”),
including (without limitation):
|
-
|
100,000
warrants of category D, which may be exercised as from January 1,
2006 if
HT Prostate Therapy Management
Company L.L.C. or any other Healthtronics Company purchases from
EDAP TMS
or its subsidiaries, at least four (4) lithotripters in
2005 (“Warrants
D”);
|
|
-
|
100,000
warrants
of category E,
which may be exercised as from January 1, 2007 if HT Prostate Therapy
Management
Company L.L.C. or any other Healthtronics Company purchases from
EDAP TMS
or its subsidiaries, at least four (4) lithotripters in
2006 (“Warrants
E”);
|
|
-
|
100,000
warrants
of category F, which
may be exercised as from January 1, 2008 if HT Prostate Therapy
Management
Company L.L.C. or any other Healthtronics Company purchases from
EDAP TMS
or its subsidiaries, at least four (4) lithotripters in 2007
(“Warrants
F”).
|
1
WHEREAS,
given
the fact that HT Prostate wishes to focus its efforts on obtaining the PMA
for
Ablatherm and on developing the HIFU market potential on the US territory,
and
does not want to pursue the distribution of EDAP's lithotriptors in the US,
the
Parties wish to amend the terms and conditions of Warrants D, Warrants E and
Warrants F as follows:
Article
1
HT
Prostate, as sole holder of all Warrants E and Warrants F, hereby definitively
and irrevocably waives any and all rights that it may have to exercise, now
or
in the future, the Category E Warrants and Category F Warrants that were issued
to it, and consequently hereby acknowledges and agrees that all Category E
and
Category F Warrants are thus null and void, which shall be acknowledged by
EDAP
TMS.
Article
2
The
EDAP
Parties hereby acknowledge HT Prostate’s definitive and irrevocable waiver of
all rights to exercise the Category E and Category F Warrants, and that EDAP
TMS
will thus declare and acknowledge that such Warrants have become null and
void.
Article
3
HT
Prostate, as sole holder of all Category D Warrants, and the EDAP Parties agree
to amend the conditions upon which Category D Warrants may be exercised as
follows:
“Warrants
D may be exercised as from January 1, 2006 if, in 2005, HT Prostate Therapy
Management
Company L.L.C. or any other Healthtronics Company (i) purchases from EDAP TMS
or
its subsidiaries at least two (2) lithotripters, and (ii) places an irrevocable
order to EDAP TMS or its subsidiaries for the purchase of one (1) Ablatherm
at a
net price equal to USD 490,000”
;
it
being
specified that such amendment is subject to, and will be effective upon, a
decision by the board of directors of EDAP TMS to adopt such amendment.
Article
4
HT
Prostate, as sole holder of all Category D, Category E and Category F Warrants,
hereby
agrees and undertakes to reiterate its decisions contained in Articles 1 to
3
above in separate documents (including minutes or “procès-verbaux”)
upon
the request of EDAP TMS, as may be appropriate in light of French corporate
law
requirements and other relevant formalities.
Article
5
|
5.1
|
As
a result of the foregoing provisions, and subject to the
decision by the board of directors of EDAP TMS to adopt the amendment
set
forth in Article 3 above, the
Parties hereby agree to amend the Distribution Agreement as follows,
which
amendment shall become effective upon adoption of the amendment referred
to in Article 3 above:
|
(a) the
minutes of the Board of Directors relating thereto will be attached as a new
Exhibit E to the Distribution Agreement.
2
(b) the
following sentence shall be added at the end of Section 12.1(a) of the
Distribution Agreement:
“The
Warrant Exercise Milestone relating to the Warrants of category D, as set forth
in the resolution of the Board of Directors dated January 28, 2005, as per
Exhibit A, is amended as reflected in a new resolution of the Board of Directors
of the Parent Corporation set forth as Exhibit E. In addition, HT Prostate
has
waived any and all rights it may have under the 100,000 Category E Warrants
and
the 100,000 Category F Warrants that it holds, which have become null and void
and may no longer be exercised, as is also reflected in a resolution of the
Board of Directors of the Parent Corporation set forth in Exhibit
E.”
|
5.2
|
Except
as amended in Article 5.1 above, all of the provisions of the Distribution
Agreement remain in full force and
effect.
|
IN
WITNESS WHEREOF, the
undersigned have executed this Agreement on December 29, 2005.
|
EDAP
TMS S.A.
S/
HUGUES DE BANTEL
By:
Hugues de Bantel
Title:
Directeur
Général
|
EDAP
S.A.
S/
HUGUES DE BANTEL
By:
Hugues de Bantel
Title:
Président
- Directeur Général
|
|
TECHNOMED
MEDICAL SYSTEMS S.A.
S/
HUGUES DE BANTEL
By:
Hugues de Bantel
Title:
Président - Directeur Général
|
HT
PROSTATE THERAPY MANAGEMENT LLC
S/
CHRISTOPHER SCHNEIDER
By:
Christopher Schneider
Title:
President, Medical Devices
|
3
EXHIBIT
8.1
LIST
OF EDAP TMS S.A. SUBSIDIARIES
(as
of March 31, 2006)
|
Name
of Subsidiary
|
Juridiction
of Incorporation
|
||
|
Techomed
Medical Systems S.A.
|
France
|
||
|
EDAP
S.A.
|
France
|
||
|
EDAP
Technomed S.r.l.
|
Italy
|
||
|
EDAP
Technomed, Inc.
|
United
States
|
||
|
EDAP
Technomed Co. Ltd.
|
Japan
|
||
|
EDAP
Technomed Sdn Bhd
|
Malaysia
|
||
EXHIBIT
11.1
 |
CODE OF ETHICS
EDAP
TMS 03-04 B
|
EDAP
TMS
CODE
OF ETHICS
As
an
employee of EDAP TMS S.A and/or its Subsidiaries (the “Company”), I will adhere
to the following principles and responsibilities, as well as the Company’s other
legal and compliance policies and procedures:
| · |
Act
with honesty and integrity, avoiding actual or apparent conflicts
of
interest involving personal and professional relationships;
|
| · |
Provide
other officials and constituents of the Company with information
that is
full, fair, accurate, complete, objective, timely and
understandable;
|
| · |
Comply,
to the best of my knowledge, with rules and regulations of governmental
entities as well as other private or public regulatory agencies to
which
the Company is subject;
|
| · |
Act
at all times in good faith, responsibly, with due care, competence
and
diligence, and without any misrepresentation of material
facts;
|
| · |
Act
objectively, without allowing my independent judgment to be
subordinated;
|
| · |
Respect
the confidentiality of Company information, except when authorized
or
otherwise required to make any disclosure, and avoid the use of any
Company information for personal
advantage;
|
| · |
Share
my knowledge and skills with others to improve the Company’s communication
to its constituents;
|
| · |
Promote
ethical behavior among employees under my supervision at the Company;
and
|
| · |
Achieve
responsible use of and control over all assets and resources of the
Company entrusted to me.
|
| · |
Report
violations of the Code to the Chief Executive Officer promptly if
there
are reasonable and objective reasons to believe this Code has been
violated.
|
| Date: |
_______________________________________
|
Name:
Title:
EXHIBIT
12.1
Annual
Certification
Pursuant
to Section 302 of Sarbanes-Oxley Act of 2002
I,
Hugues
de Bantel, Chief Executive Officer of EDAP TMS S.A., certify that:
| 1. |
I
have reviewed this annual report on Form 20-F of EDAP TMS
S.A.;
|
| 2. |
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
| 3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
Company
as of, and for, the periods presented in this report;
|
| 4. |
The
Company’s other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in
Exchange
Act Rules 13a-15(e) and 15d-15(e)) for the Company and we have:
|
| a) |
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
| b) |
Evaluated
the effectiveness of the company’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the
disclosure controls and procedures, as of the end of the period covered
by
this report based on such evaluation;
and
|
| c) |
Disclosed
in this report any change in the company’s internal control over financial
reporting that occurred during the period covered by the annual report
that has materially affected, or is reasonably likely to materially
affect, the company’s internal control over financial reporting;
and
|
| 5. |
The
Company’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to
the
company’s auditors and the audit committee of the Company’s board of
directors (or persons performing the equivalent functions):
|
| a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record,
process, summarize and report financial information;
and
|
| b) |
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the company’s internal control
over financial reporting.
|
| Dated: June 5, 2006 |
S/
HUGUES DE BANTEL
|
Title:
Chief Executive Officer
EXHIBIT
12.2
Annual
Certification
Pursuant
to Section 302 of Sarbanes-Oxley Act of 2002
I,
Thierry Turbant, Chief Financial Officer of EDAP TMS S.A., certify that:
| 1. |
I
have reviewed this annual report on Form 20-F of EDAP TMS
S.A.;
|
| 2. |
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
| 3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
Company
as of, and for, the periods presented in this report;
|
| 4. |
The
Company’s other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in
Exchange
Act Rules 13a-15(e) and 15d-15(e)) for the Company and we have:
|
| a) |
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
| b) |
Evaluated
the effectiveness of the Company’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the
disclosure controls and procedures, as of the end of the period covered
by
this report based on such evaluation;
and
|
| c) |
Disclosed
in this report any change in the company’s internal control over financial
reporting that occurred during the period covered by the annual report
that has materially affected, or is reasonably likely to materially
affect, the company’s internal control over financial reporting;
and
|
| 5. |
The
company’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to
the
company’s auditors and the audit committee of the company’s board of
directors (or persons performing the equivalent functions):
|
| a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record,
process, summarize and report financial information;
and
|
| b) |
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the Company’s internal control
over financial reporting.
|
| Dated: June 5, 2006 |
S/
THIERRY TURBANT
|
Title:
Chief Financial Officer
EXHIBIT
13.1
Annual
Certification
Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
Section 1350, Chapter 63 of Title 18, United States Code), each of the
undersigned officers of EDAP TMS S.A. (the "company"),
does
hereby certify, to such officer's knowledge, that:
The
Annual Report on Form 20-F for the year ended December 31, 2005 of the Company
fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and information contained in the Form 20-F fairly presents,
in all material respects, the financial condition and results of operations
of
the company.
| Dated: June 5, 2006 |
S/
HUGUES DE BANTEL
|
Hugues
de
Bantel
Chief
Executive Officer
| Dated: June 5, 2006 |
S/
THIERRY TURBANT
|
Thierry
Turbant
Chief
Financial Officer
A
signed
original of this written statement required by Section 906 of the Sarbanes-Oxley
Act has been provided to EDAP TMS S.A. and will be retained by EDAP TMS S.A.
and
furnished to the Securities and Exchange Commission or its staff upon
request.