Aelis Farma

ANNUAL FINANCIAL REPORT 2021 This document is a free non-binding translation into English prepared for the convenience of English-speaking readers, for information purposes only, of the French language Annual Fi- nancial Report as filed with the Autorité des Marchés Financiers on April 26 2022 in accord- ance with Article L 451-1-2 of the Monetary and Financial Code. In the event of any ambiguity or conflict between corresponding statements or items contained in this English translation and the original French version, the relevant statements or items of the French version shall prevail. The free translations of the auditor’s reports presented in this document apply to the French version of the financial statements Copies of this Annual Financial Report are available free of charge at the registered office of Aelis Farma SA, 146 rue Léo Saignat Institut François Magendie 33000 Bordeaux. This annual report can also be consulted freely on the Company's website (https://www.ae- lisfarma.com) as well as on the centralized storage site for regulated information of listed companies managed by the French Department of legal and administrative information (https://www.info-financi- ere.fr). TABLE OF CONTENTS Section 1 - Statement by the person responsible for the annual financial report......................................................................................................................... 5 1.1. Person responsible for the annual financial report 1.2. Responsibility statement 5 5 5 1.3. Financial Information Officer Section 2 - Definitions.............................................................................................. 6 Section 3 - Management report ............................................................................... 7 3.1. Situation and development of the Company’s activity during the financial year 3.2. Review of accounts and results 7 8 3.3. Progress made and difficulties encountered 12 12 19 19 21 21 22 3.4. Main risks and uncertainties facing the Company 3.5. Use of financial instruments by the Company 3.6. Company activity in terms of research and development 3.7. Activity of subsidiaries and controlled companies 3.8. Foreseeable development and prospects 3.9. Important events since the end of the financial year 3.10. Procedures relating to the preparation and processing of accounting and financial information 23 24 24 24 25 25 3.11. Suggested allocation of the result 3.12. Non-tax-deductible expenses 3.13. Past dividend distributions 3.14. Information on supplier and customer payment terms 3.15. Employee participation in the capital at the end of financial year 3.16. Summary statement of transactions by managers and persons mentioned in Article L. 621-18-2 of the Monetary and Financial Code on Company securities carried out during the past financial year 26 27 3.17. Acquisition of significant holdings in companies having their registered office in France, or takeover of such companies; disposals of such interests 3.18. Information relating to the distribution of capital and treasury stock – Share buyback program 27 29 29 3.19. Changes occurring during the financial year in the composition of the capital 3.20. Share price progression 3.21. Information relating to allocations of share subscriptions or purchase options and free share allocations 29 30 3.22. Table of results for the past 5 years Section 4 - Report on Corporate Governance...................................................... 31 4.1. Corporate Governance code 4.2. Corporate governance 31 32 4.3. Choice made of one of the two methods of exercising general management provided for in Article L. 225-51-1 of the Commercial Code 46 46 4.4. Composition, conditions of preparation and organization of the work of the Board of Directors 2 4.5. Description of the diversity policy applied to members of the Board of Directors 51 51 52 4.6. Potential limitations the Board of Directors places on the power of the Chief Executive Officer 4.7. Specific procedures for the participation of shareholders in the general meeting or the provisions of the articles of association which provide for these procedures 4.8. Procedure organized by the Board of Directors to regularly assess whether agreements relating to current transactions and entered into under normal conditions meet these conditions 53 54 4.9. Structure of the share capital of the Company 4.10. Statutory restrictions on the exercise of voting rights and the transfer of shares or the clauses of the agreements brought to the attention of the Company pursuant to article L. 233-11 of the commercial code 54 4.11. Direct or indirect holdings in the capital of the Company which it is aware of according to Articles L. 223-7 and L. 233-12 of the Commercial Code 55 55 4.12. List of holders of any securities with special control rights and description thereof 4.13. Control mechanisms provided for in a possible staff shareholding system, when the control rights are not exercised by the latter 55 56 56 56 4.14. Agreements between shareholders which the Company is aware of and which may entail restrictions on the transfer of shares and the exercise of voting rights 4.15. Rules applicable to the appointment and replacement of members of the Board of Directors as well to the modification of the articles of association 4.16. Powers of the Board of Directors, in particular with regard to the issue or redemption of shares 4.17. Agreements entered into by the Company modified or terminated in the event of a change in control of the Company, unless such disclosure seriously harms its interests 59 59 4.18. Agreements providing for compensation for directors or employees in the event of resignation or dismissal without real and serious cause or termination of employment following a takeover or exchange offer 4.19. Restrictions imposed by the Board of Directors with regards to share subscription or purchase options granted to executive directors 59 59 67 68 69 69 4.20. Remuneration policy 4.21. Ethics of the members of the Board of Directors 4.22. Senior Management 4.23. Equity ratio 4.24. Corporate Social Responsibility Section 5 - Financial statements prepared in accordance with IFRS as of December 31, 2021 ................................................................................................. 70 5.1. General information 74 74 5.2. Highlights of the year 5.3. General accounting rules and policies 5.4. Foreign currency transactions 5.5. Notes to the statement of financial position 5.6. Notes to the Statement of Net Income 5.7. Note to the cash-flow statement 5.8. Events after the reporting period 5.9. Off-balance-sheet commitments 75 82 83 106 115 117 118 3 5.10. Related Party Transactions 5.11. Auditors’ fee 119 120 120 5.12. Transition to IFRS Section 6 - Individual financial statements prepared in accordance with French Gaap as of December 31, 2021............................................................... 127 6.1. Significant events during the period 6.2. Events after the closing date 6.3. Accounting rules and principles 6.4. Notes to the balance sheet 6.5. Notes to the statement of net income 6.6. Financial commitments 130 130 131 140 142 144 144 145 6.7. Change in Shareholders’ Equity 6.8. Separate note Section 7 - Auditor's reports................................................................................ 147 7.1. Statutory auditor's report on theannual financial statements 7.2. Statutory auditor’s report on the financial statements 7.3. Statutory auditor’s report on related party agreements 147 149 155 4 Section 1 - Statement by the person responsible for the annual financial report 1.1. Person responsible for the annual financial report Pier Vincenzo Piazza, Chief Executive Officer of Aelis Farma. 1.2. Responsibility statement « I certify, to the best of my knowledge, that the accounts have been drawn up in accordance with the applicable accounting standards and give a faithful representation of the assets, financial situ- ation, and results of the Company and that the management report below presents a faithful pic- ture of the development of the business, results and financial situation of the Company and that it describes the main risks and uncertainties that it faces ». April 26, 2022, Pier Vincenzo Piazza, Chief Executive Officer of Aelis Farma 1.3. Financial Information Officer Mrs. Valérie Scappaticci Chief Financial Officer Address: 146 rue Léo Saignat – 33077 Bordeaux – France Phone: +33 (0) 5 57 57 37 70 Email address: [email protected] 5 Section 2 - Definitions In this annual financial report: • The term “AMF” refers to the Autorité des Marchés Financiers acting as competent au- thority pursuant to Regulation (EU) 2017/1129; • The terms the “Company” or “Aelis Farma” designate the company Aelis Farma SA (a Public Limited Company whose head office is located at 146 rue Léo Saignat Institut François Magendie 33000 Bordeaux and registered under number 797 707 627 RCS Bor- deaux); • • The term “Registration Document” refers to the registration document approved by the AMF on January 14, 2022, under number I. 22-003; The term “Annual Financial Report” refers to this annual financial report on the financial statements for the financial year ended December 31, 2021. 6 Section 3 - Management report 3.1. Situation and development of the Company’s activity during the financial year Research and development activity For compound AEF0117, 2021 was particularly focused on: • • • the final validation of the results from our phase 2a clinical study in the United States, which was submitted to the American drug agency, the FDA, in April 2021. This study confirms the absence of significant side effects in cannabis drug addicts and provides the first evidence of efficacy in humans for AEF0117; development and validation with the FDA and our partner Indivior PLC of the protocol for the next phase 2b study. This study coordinated by Columbia University (New York), may involve 330 patients and 9 clinical centers over a period of 2 years, and will confirm the effectiveness of AEF0117 as a treatment for cannabis use disorders; launch of additional pre-clinical toxicity studies, and the production of new clinical batches of the pharmaceutical product which will be used in the phase 2b clinical study. For AEF0217, the Company's second drug candidate, targeting applications in the field of cogni- tive deficits and in particular in the field of Down syndrome, 2021 was focused on: • • • • regulatory filing to the Spanish Medicines Agency (AEMPS) for authorization to start phase 1 studies in healthy volunteers; production of technical and clinical batches of pharmaceutical products (dispersible tab- lets) intended for phase 1 studies; obtaining from the AEMPS authorization to administer AEF0217 to humans on Septem- ber 19, 2021; initiation of the phase 1 clinical program (early October 2021). The results of the first co- horts of healthy volunteers do not show any notable adverse effects and show good phar- macokinetic characteristics of the compound; • launch of additional preclinical toxicity studies (phototoxicity and toxicity 6-9 months) The upstream research program (Discovery program) was mainly focused on the mechanism of action of CB1-SSi and on the characterization of new compounds. Human resources and governance In terms of human resources, the Company made numerous hires during the year: • • • • • three R&D project managers and two laboratory technicians within the Discovery division; two pharmaceutical project managers; two preclinical project managers; a clinical trials manager; a development project manager; 7 • two administrative staff (versatile accountant and lawyer). As at December 31, 2021, the Company had 22 full-time employees (compared to 9 employees as at December 31, 2020), and an apprenticeship contract (quality). During the 2021 financial year, 1,500 BSA were granted to strategic consultants of the Company and 1,789 BSPCE to employees of the Company. As of the date of this report, all employees with more than one year's seniority, researchers under scientific competition contracts and the main key consultants are shareholders of the Company and/or hold securities giving access to the capital (BSA or BSPCE). Financial resources On a financial level, there were several notable developments during 2021: • the signing of an industrial partnership in the form of an exclusive license option agree- ment for the industrial property of AEF0117 in the field of cannabis-related disorders, with Indivior PLC. The first scheduled payment under this agreement, for USD 30 million, was paid in June 2021; • • the collection of the first advances concerning the ICOD (€1.5m) and FEDER2020 (€0.2m) subsidies and the balances of Deeptech (€0.4m) and CRNA2019 (€0.25m) financings; preparation for the Company's initial public offering on the Euronext Paris regulated mar- ket (compartment B), which took place on February 18, 2022. Investments The main acquisitions for the 2021 financial year relate to laboratory equipment. The investments will enable the Company to work on the development of its new library of molecules for which it will hold full ownership of the new discoveries and patents that it will file. 3.2. Review of accounts and results The income statement and the summary balance sheet, prepared according to French account- ing principles, are as follows: INCOME STATEMENT In thousand euros 12/31/21 12/31/20 Revenue 9,075 643 - 70 Other operating revenue Operating revenue 9,718 79 70 Material purchases and inventory changes Other purchases and external expenses Wages, social charges, and salaries Other expenses and depreciation Operating result 3 3,800 2,090 1,849 1,900 47 2,403 1,469 52 (3,856) (76) 457 Financial result Exceptional result 518 Research tax credit net of company tax Profit (loss) for the financial year 891 692 3,356 (2,783) 8 BALANCE SHEET In thousand euros 12/31/21 12/31/20 Intangible and tangible fixed assets Financial fixed assets Total fixed assets Receivables and prepaid expenses Inventory 269 50 69 50 319 119 3,300 17 1,396 - Cash and cash equivalents Total current assets TOTAL ASSETS 24,710 28,028 28,347 2,689 1,039 5,837 2,712 528 4,538 5,935 6,054 (1,845) 1,000 5,632 1,231 35 Equity Other equity Financial debts Operating liabilities Other liabilities Deferred revenue 15,541 28,347 - TOTAL LIABILITIES 6,054 The financial information presented in this section comes from the Company's annual financial statements drawn up in accordance with the presentation rules and valuation methods provided for by the regulations in force. Readers are invited to read this analysis of the financial position and results of the Company to- gether with the financial statements of the Company and their accompanying notes presented in Section 6 of the Annual Financial Report and any other financial information appearing in the Fi- nancial Report. A summary of the financial statements for the previous year ended December 31, 2020 is pro- vided for comparison. During the financial year ended December 31, 2021, revenue amounted to €9,075,395 compared to €0 for the previous financial year. It corresponds to the portion of income from the license op- tion contract with Indivior PLC recognized in fiscal year 2021. The amount of other operating income amounted to €642,644 compared to €70,389 for the previ- ous financial year. These mainly relate, in fiscal year 2021, to the foreign exchange gain linked to the signing of the contract with Indivior PLC settled in dollars. The purchases of materials and changes in stocks is €79,458. This amount includes the pur- chases of raw materials of €96,908 whereas it was €2,653 for the previous financial year. They correspond mainly to consumables for the Company's laboratory. The associated change in inventory amounts to -€17,450 as of December 31, 2021 and corre- sponds to the constitution of the consumables for the Company's laboratory. The number of other purchases and external charges amounted to €3,799,524 compared to €2,402,856 for the previous financial year, i.e. a change of +58.13%. This item includes research and development expenses entrusted to subcontractors, costs of filing and maintenance of pa- tents for which the Company is licensed, and more incidentally consulting fees. The evolution of 9 expenses is in line with the Company's annual research program described in the introduction (§ 3.1). Salaries, wages and social charges amounted to €2,089,783, among which salaries and wages amounted to €1,518,698 compared to €1,163,595 for the previous financial year, i.e. a change of +30.52%, in line with the evolution of the Company's workforce described above, and taking into account the allocation of exceptional bonuses for the contribution of employees to the signing of the license option agreement with Indivior PLC. Social charges amounted to €571,085 compared to €304,820 for the previous financial year, i.e. a change of +87.35% linked to the evolution of the payroll and the end of the JEI (Jeune Entre- prise Innovante) status of the Company for the first year. The workforce at the end of the financial year was 22 full-time people and one apprenticeship contract (quality) compared to 9 for the previous financial year. Other charges and depreciation amounted to €1,849,114 and includes: • the amount of taxes and duties amounted to €63,323 compared to €18,015 for the previ- ous financial year, i.e. a change of +251% linked to the added value contribution and the social solidarity contribution due for the financial year 2021 taking into account the recog- nition of revenue for the 2021 financial year; • depreciation and provisions, which amounted to €13,615 compared to €8,456 for the pre- vious financial year. The amount of other expenses, which amounted to €1,771,176 com- pared to €26,266 for the previous financial year. They mainly relate to the royalty due to AEF0117 patent owners following the signing of the option license agreement with In- divior PLC. The operating result shows a profit for the financial year of €1,900,158 compared to -€3,856,272 for the previous financial year. The financial profit is €47,382 against a loss of -€76,162 for the previous financial year (change linked to the exchange gain recognized at the end of the financial year on the cash balance in USD not being used to hedge futures). The result for the 2021 financial year shows a profit of €3,356,001 after considering: • • the extraordinary result of €517,675 for the financial year compared to a result of €457,085 for the previous financial year: this result relates to the subsidies financing the research expenses incurred within the framework of the FEDER and ICOD programs; taking into account a research tax credit of €1,089,465, and after deduction of corporation tax charge of -€198,679, the net income tax balance is a tax credit of €890,786. This amount should be compared to the net tax credit of €691,703 for the previous financial year. The change in net tax position is linked to a higher research tax credit for 2021, in connection with the evolution of eligible research and development expenses (including payroll) incurred during the financial year compared to the previous financial year. As of December 31, 2021, the Company's balance sheet total amounted to €28,346,699, against €6,054,228 as of December 31, 2020. Fixed assets amount to €318,930 compared to €119,562 for the previous financial year. They are mainly made up of tangible fixed assets for €178,763 compared to €9,381 for the previous finan- cial year, i.e., an increase of +€169,382 in connection with the equipment of the Company's la- boratory. 10 Receivables and deferred expenses amounted to €3,299,767, compared to €1,396,525 for the previous financial year. They correspond to: • prepaid expenses for €1,606,695 as of December 31, 2021 compared to €56,526 as of December 31, 2020, the increase of which corresponds to research and development contracts involving sequential performance and the share of costs incurred in the 2021 financial year in direct connection with the capital increase during the initial public offer- ing; • • the claim for income net of tax on profits of €890,768 for the financial year, compared to €691,703 for the previous financial year; the VAT receivable for €367,581, compared to €107,454 for the previous financial year. Considering the value of inventory and cash at closing, respectively €17,450 and €24,710,551, current assets amount to €28,027,769 compared to €5,934,666 for the previous financial year. Equity amounted to €2,689,153 (compared to €(1,844,693) for the previous financial year), taking into account the result for the financial year of €3,356,001 and the allocation of the result of the previous financial year of €(2,783,646) on the issue premium for €934,958, and on retained earn- ings for €1,848,688. Other equity amounts to €1,039,147 compared to €1,000,000 for the previous financial year and corresponds to conditional advances granted to the Company. Financial debts amount to €5,836,580 for the financial year compared to €5,631,900 as of De- cember 31, 2020 and consist of: • convertible bond debt for €2,234,217, compared to €2,219,025 for the previous financial year. These bonds were converted into shares on the date of the IPO, which took place on February 18, 2022, which led to the cancellation of this debt after the closing date; • • debt from credit institutions for €2,102,296 compared to €2,162,808 for the previous fi- nancial year; and other loans and debts for €1,500,067 compared to €1,250,067 for the previous finan- cial year. Operating debts amounted to €2,711,778 as of December 31, 2021, compared to €1,231,230 as of December 31, 2020, they are mainly made up of supplier debts for €2,243,093, compared to €927,506 for the financial year previous. The amount of miscellaneous debts, €526,983, compared to €31,500 for the previous financial year, corresponds to the valuation difference of derivative financial instruments, relating to hedg- ing transactions. Deferred income amounted to €15,541,000, compared to €0 for the previous financial year and corresponds to the share of Indivior PLC revenue associated with the future performance obliga- tion, recognized over time following costs during the execution of the phase 2b of AEF0117 pro- gram. It should be recalled that the Company had benefited for the 2020 financial year, and for the last year, from the status of Young Innovative Company (JEI, Jeune Entreprise Innovante) and is eli- gible for the research tax credit mechanism in respect of its research and development expenses. 11 3.3. Progress made and difficulties encountered Please refer to Section 3.1 above which describes the progress of the research and development program over the year, the various hires made, and the signing of the license option agreement with Indivior PLC. 3.4. Main risks and uncertainties facing the Company The objective of the Company's risk management policy is to identify and analyze the risks the Company faces, to define the limits within which the risks must be kept and the controls to be im- plemented to ensure this. 3.4.1. Risk management by governance and management bodies The management of strategic, operational and financial risks, and of the Company's internal con- trol, is carefully monitored and managed by the Company's Management, the Audit Committee and the Company's Board of Directors. As part of the preparation of the IPO project, the Compa- ny's Management has initiated a broader and more structured project to identify risks, to assess them and to manage them. The main mission of risk management is to identify, assess and prioritize risks as well as to assist the management of the Company in choosing the most appropriate risk management strategy and, in order to limit the significant residual risks, define and monitor related action plans. The main objective of internal control is to enable the Company to achieve its objectives, by de- fining and implementing the appropriate internal controls in order to address the risks identified in the conduct of the Company's activities. The identification and treatment of the major risks that the Company could face are carried out under the responsibility of the general management, the operations department, and the financial department. Risk management and internal controls are overseen by the Chief Executive Officer, the Director of Operations and the Finance Department. The Company's overall risk management and internal control system is based on several ele- ments, in particular, the control of technological risks, the control of other operational risks, and the monitoring of the Company's internal control system. Systems put in place by the Company to respond to these challenges include in particular: • the establishment of active governance, through a Board of Directors composed of mem- bers representing long-standing investors in the Company, and independent directors with recognized experience and skills in the field of biotechnology in which the Company operates. The Board of Directors meets at least 4 times a year but is convened when any key development in the management or strategy of the Company justifies it; the points discussed during Board meetings include a legal and financial agenda, a progress report on research and development, a progress report on the Company's other operations such as, for example, human resources, actions taken in terms of communication, potential partnerships and search for dilutive and non-dilutive financing. Regular updates are car- ried out, as necessary, with the Chairman of the Board of Directors in order to ensure the quality and relevance of exchanges within the Board. The Chairman of the Board of Di- rectors ensures that each member or censor expresses his opinion on the points pre- sented. 12 • authorizations are obtained in the event of anticipated overspending of certain budget en- velopes initially defined, of new studies programmed, or of reorientations in the scientific development programs, either through budget revisions, or through specific deliberations. Committees have been set up and meet at least twice a year (Audit Committee and Compensa- tion Committee): • • the Audit Committee deepens the budget preparation process at the end of the year to ensure the relevance and consistency of the proposed expenditure envelopes. It also meets for the review of the annual accounts, reviews the accounting options adopted, the differences between the expenses incurred and the expenses budgeted, and exchanges with the auditor on the content of its mission, the key elements analyzed during its work the identified risks and their accounting translation; the Compensation Committee proposes to the Board the objectives of the Chief Execu- tive Officer at the beginning of the year, on the basis of the Company's strategic and fi- nancial plan; these objectives may relate in particular to meeting deadlines for key sched- uled studies, filing patents to improve the Company's industrial property protection, ob- taining dilutive or non-dilutive financing, recruiting key personnel. At the end of the year, the Committee meets to assess the achievement of the identified objectives, also taking into account other events occurring during the year which would have focused the efforts of the management team and proposes to the Board of Directors the corresponding varia- ble compensation. As of the admission of the Company's shares to the regulated market of Euronext Paris, the Compensation Committee is also in charge of appointments and social and environmental responsibility; • • on an operational level, the Company's internal control is based in particular on the sepa- ration of tasks and the strong involvement of managers in expenditure commitments, set- tlement authorizations and payments to third parties; the development and regular monitoring of the expenditure budget, with fine granularity, provides a predictive management tool for any budgetary changes thanks in particular to regular and frequent exchanges with the key operational players of the Company. The im- plementation of cost accounting and time tracking tools per employee strengthens the Company's ability to provide reliable and relevant information to the various stakeholders (shareholders, funders, banking partners, etc.). 3.4.2. Management of risks related to the development of the company's products The Company's R&D activities are focused on the development of AEF0117, its most advanced product candidate, and AEF0217, as well as the development of new drug candidates. The value of the Company is significantly dependent on the conduct and success of preclinical studies and future clinical trials of present and future drug candidates. The Company’s strategy for its Research and Development activities is based on the following steps: • diversification of its product portfolio: in 2018 the Company initiated the development of AEF0217 in the cognitive deficits of Down syndrome (trisomy 21) in order to add a sec- ond drug candidate to the Company's pipeline. The entry into the clinical phase of this compound since October 2021 (phase 1 program) and the financing through the ICOD program (H2020), allow the Company to consider carrying out other phase 2 clinical 13 studies. to establish evidence of efficacy in other CB1 receptor-mediated cognitive defi- cits. Finally, the Company aims to strengthen the development and qualification of its CB1-SSi library with the aim of selecting a third drug candidate than can enter a regula- tory preclinical development stage; • establishment of strategic partnerships with Key Opinion Leaders (KOL) and key institu- tions in the targeted areas. Thus, the development of AEF0117 in cannabis addiction has been part of a collaboration since 2014 with the NIDA (National Institute on Drug Abuse, an institute that is part of the NIH, the National Institute of Health of the United States). Beyond the significant funding provided by NIDA, the Company has benefited from its support, particularly in the development of preclinical proofs of concept in monkeys, and in the definition of the clinical development strategy and in the interactions with regulatory authorities (FDA). In the case of AEF0217, the meeting of a scientific committee made up of KOLs in the field of cognitive disorders allowed the validation of the preclinical proofs of concept obtained by the Company and was a key step for the decision to initiate the stud- ies necessary for the first administration of this compound in humans. Thanks to the ICOD project funded by the European Commission's H2020 scheme, the Company was able to bring together European KOLs and a network of clinical centers around its AEF0217 development project that will conduct the phase 2 study in cognitive deficits of Down syndrome; • strengthening of clinical teams, under the aegis of Helle Mengel, Director of Clinical De- velopment of the Company, in order to benefit from the expertise of specialists in clinical development and in regulatory issues specific to the field of neurosciences. The contribu- tion of Ms. Mengel and the clinical team is also essential in the process of selecting exter- nal service providers to supervise the progress of the studies as well as in the choice of clinical centers to secure the recruitment and the realization operational studies. The Company believes that this team’s in-depth knowledge of the characteristics of the inno- vative mechanism of action of the Company's drug candidates, proofs of preclinical con- cepts, and pharmacological safety studies, are all assets to allow the carrying out of stud- ies targeting the right therapeutic objectives and minimizing the risks of execution. The clinical team’s in-depth knowledge of best practices in the sector, particularly in the field of quality control and auditing, has enabled the implementation of internal procedures that comply with the standards of the sector in which the Company operates. Regular interac- tion with the Company's Operations Department ensures a process of exchange allowing the anticipation of difficulties, high degree of reactivity in the face of any operational haz- ards encountered, and the identification of and control over any delays and budget over- runs that any project of this magnitude is faced with. • the Company constantly monitors developments in the field of CB1 receiver modulators in order to identify developments, markets, potential competitors, and to be in a position, where appropriate, to establish partnerships with academic groups or private structures developing relevant technologies for its strategy. 3.4.3. Management of risks related to regulatory authorizations and the future marketing of the company's products Having the potential to be the first company able to develop and, if successful, market a drug in the two main indications targeted by the Company (cannabis addiction and cognitive deficits re- lated to Down syndrome), the Company is faced with the risks inherent in the absence of a clear regulatory path with the regulatory agencies. 14 To meet these challenges, the Company has a policy of surrounding itself with external skills very early in the development process of its products. To this end, it works in close collaboration with renowned regulatory consulting firms, having participated in the marketing of numerous mole- cules. These interactions allow the Company to develop key supports for regulatory development, in particular the Quality Target Product Profile (QTPP), the Target Product Profile (TPP), as well as the anticipation of complete development plans detailing the interactions necessary with the regulatory agencies and considering the possibility of benefiting from accelerated regulatory pro- cedures (fast track, orphan drug in particular). In addition, for AEF0117, the Company thus requested, at the end of the phase 2a clinical study, a "type B meeting" with the FDA to discuss the overall development plan for this drug candidate for the treatment of disorders related to the excessive use of cannabis as well as the protocol for the future phase 2b. The signature of the industrial partnership with Indivior PLC in June 2021 al- lows it today to benefit from exchanges with a specialist in the addiction sector: the recurring Joint Steering Committees between the two parties allow the Company to benefit from the expertise of this Group in the “downstream” regulatory and commercial stages (including the future coverage of treatments by the health agencies of the various key target countries). In the case of AEF0217 in Down syndrome deficits, the constitution of the ICOD consortium, fi- nanced by a European H2020 program, allows the Company to structure a development strategy shared with the most recognized European experts in this field, and thus to secure the areas of development selected. These various exchanges, and participation in international congresses in the Company's areas of expertise, allow the Company to carry out scientific and strategic monitoring. Issues relating to the competitive positioning of the Company's drug candidates and technologies are mainly analyzed internally, with the possible acquisition of relevant studies, and solicitation of the KOL network from which the Company benefits. 3.4.4. Management of legal, compliance and intellectual property risks 3.4.4.1. Product liability In order to protect itself against the risk of incurring liability in the event of damage generated by the use of its products, specific insurance policies are taken out by the Company for each of the clinical trials for which the Company is the promoter. Pricing and guaranteed amounts depend on the regulations and local legislation applicable to the clinical investigation center concerned. In France, the Public Health Code provides for an insurance obligation for sponsors of clinical trials. In countries where there is no such obligation, the Company has nevertheless taken out an insur- ance policy covering its liability for carrying out clinical trials. The overall amount of the premiums depends on the number of patients included in the trials and their geographical location. The Company believes that it is sufficiently covered for each of the trials in progress. 3.4.4.2. Intellectual property risk management Since its creation, the Company has implemented an intellectual protection policy internally and with regards to third parties. 15 Internally, the teams of researchers are made aware of the key issues related to intellectual pro- tection. Any exchange with potential partners, whether academic or commercial, is done in com- pliance with the rules of protection by the establishment of confidentiality agreements, MTA (Ma- terial Transfer Agreement, or agreements for the use of the Company’s compounds) and review of the contractual clauses by the internal legal team of the Company, and by specialized consult- ants if necessary. Thus, the Company has two in-house employees combining legal and scientific skills to manage intellectual property issues and to be the expert interlocutors with industrial prop- erty consulting companies. Externally, the Company has recourse to international consulting firms, including those based in the United States, to ensure the quality of the patent application files filed with regard to the regu- lations of the various countries, but also to exchange with the examiners during the period When applications are assessed. Aelis Farma pursues an active strategy to protect its inventions and its intellectual property, favor- ing patents conferring strong protection on the drug candidate molecule itself (composition pa- tent), and subsequently strengthening this intellectual property by filing patents of specific appli- cation in the therapeutic fields or therapeutic indications of interest. By systematically protecting the structure of the molecules of drug candidates developed by the Company, and their main uses, the Company aims to prevent any commercial exploitation of its drug candidates by any third party in any field during the term of validity of composition patents and reinforced in the therapeutic applications of interest by application patents. The Company also monitors the products marketed by its competitors and will take action for in- fringement if such actions are revealed. All patent applications and external patents brought to the Company's attention, in particular dur- ing the Company's application assessment procedures, are subject to scrupulous examination as to their possible impact on the freedom to operate the Company's technologies. 3.4.4.3. Compliance with personal and medical data protection regulations The Company also takes a legal approach to securing every project by protecting the rights of in- dividuals in legal frameworks such as contracts, privacy statements and consent forms. The Company implements procedures to protect the personal data of its employees, patients, healthcare professionals and other partners with whom it interacts. In the context of clinical trials carried out in the United States, the Company uses service provi- ders who are compulsorily or voluntarily subject to the General Data Protection Regulations and as such have the level of data protection required by Europe. 3.4.5. Management of risks related to company operations Issues relating to the selection and monitoring of partners in charge of the production of the Com- pany's products, and clinical and preclinical developments are closely managed by the Compa- ny's Operations Department. The process put in place is based on almost systematic competition between the main partners, the taking into account in this process of their financial strength, their 16 ability to offer the Company scalable solutions to enable these relationships to develop over time (capitalization on the knowledge and know-how of the partners). As far as possible, the Company uses first-rate service providers, whose size allows them to deal with any contingencies by relocating the activity in the event of force majeure, and who can en- sure the implementation of rapid remediation plans if necessary. In accordance with practices in the pharmaceutical industry, the Company has implemented an internal quality process focused in particular on the evaluation of service providers and the monitoring of identified deviations. The Company carries out quality audits of the main service providers in accordance with the stand- ards in force in the pharmaceutical industry. The search for diversification of supply sources is underway to secure materials qualified as stra- tegic. Finally, the Company's recruitment policy, which makes it possible to diversify experience and in- tegrate people with knowledge of the various players in the sector, makes it possible to benefit from feedback and to develop the Company’s practices. 3.4.5.1. Risks related to the absence of a sales, marketing and distribution organization The Company's business model is based on the development of a drug candidate until it is mar- keted and on finding, at least initially, partners for its marketing. Thus, for AEF0117, the Company has demonstrated its ability to implement such a strategy by signing an option license agreement for the marketing of this drug candidate in the field of pathologies induced by the excessive use of cannabis. The management team has therefore acquired valuable experience in negotiating and setting up partnerships, including through the use of specialized external advisers so that they are at its side if opportunities are identified for the other drug candidates. In order to implement this partner search strategy, the Company monitors players in the sector and communicates regularly to publicize its compounds. Its ambition is to intensify its participa- tion in numerous congresses and meetings in the biotechnology sector to strengthen its visibility. Listing on the regulated market is part of this strategy. 3.4.5.2. Key employee management policy The Company has implemented a recent recruitment policy allowing it to duplicate the Company's key positions, diversify the profiles of its employees and cope with the evolution of its Research and Development programs. In this context, its salary policy aims to position its remuneration at market level in order to attract talent on a national or even international level. Aelis Farma also plans to continue its policy of granting profit-sharing tools in the Company's capital, open to all employees of the Company, with the main criterion of retaining employees over time. In the cur- rent context of changing working methods following the Covid-19 pandemic, the Company has also put in place a device and the necessary technical means allowing it to switch to remote working mode without loss of efficiency as soon as that might be necessary. 17 3.4.5.3. Cybersecurity risks The organization of the Company's data is structured around a third-party data solution in the cloud, reducing exposure to a targeted attack through the security and redundancy systems im- plemented by this service provider. Strict internal procedures for changing passwords, updating security software, and backing up redundant systems have been put in place. For the security of its means of exchange and storage of clinical data, the Company uses service providers with procedures that comply with the GDPR allowing the security of clinical data, includ- ing their backup and their integrity. 3.4.5.4. Risks linked to the health crisis for general and clinical operations During the Covid-19 pandemic, the Company implemented a remote working policy favoring re- mote work in accordance with government recommendations. This change was accompanied by the provision of all the necessary tools and materials to facilitate remote working, as well as the establishment of frequent and structured interactions to integrate new employees and strengthen cohesion and 'team spirit. At the level of its service providers, it has set up frequent communica- tion with its subcontractors to ensure the continuity of services under the best possible conditions, or, where applicable, their discontinuation or controlled postponement. With clinical service pro- viders, regular contacts are in place to assess their level of preparation, exposure and anticipa- tion of risks related to clinical studies in a Covid environment. 3.4.6. Financial risk management 3.4.6.1. Funding and liquidity The Company's highly capital-intensive activity has led it to develop approaches based on identi- fying and anticipating financial needs. The management of these risks is based on: • a regular budget process, mainly oriented towards cash management and control of the evolution of the R&D budget, shared internally between the various players within the Company, and regularly supervised by the governance of the Company (Board of Admin- istration, Audit Committee); • the search for non-dilutive financing by the management team, with national, European and international partners. This search for funding has enabled the Company to benefit from funding from Bpifrance, the Conseil Régional Nouvelle-Aquitaine and banking part- ners, as well as subsidies from the European Union and the NIDA-NIH; • • the search for dilutive financing from specialized investors and funds that have historically supported the Company; the initial public offering on the regulated market of Euronext (compartment B), carried out after the closing in February 2022, allows the Company to diversify its sources of equity financing by having the possibility of having recourse to the financial markets. When significant financing is set up (fundraising, industrial partnerships), the funds made availa- ble are placed with the Company's banking partners, on risk-free instruments. 18 3.4.6.2. The research tax credit (CIR) The research tax credit constitutes a significant source of financing for the Company. In order to respond in the most appropriate way to the evolution of the regulations and the complexity of the applicable rules, the Company has set up an internal organization aimed at managing these is- sues as well as possible, in particular for the purposes of selecting expenses and eligible service providers, drawing up the appropriate documentation, and anticipating any adverse develop- ments. This organization is based on: • • • the use of external expertise (accountant and firm specializing in this field and particularly applied to the health sector); the establishment of regular regulatory monitoring to anticipate changes, learn about case law, ensure the quality of the documentation produced; the implementation of a risk management process within the operational teams, in order to identify, as soon as the order is placed, the eligibility of service providers and services for the CIR mechanisms at the instigation of the Finance Department; • • the qualification of the potential eligibility of expenditure as soon as the budget is drawn up, making it possible to control the issues of financial flows linked to this mechanism; the implementation of a time monitoring network adapted to the particularities of the Com- pany's research activity and the eligibility or not of each of the milestones as defined by the French Ministry of Research. 3.5. Use of financial instruments by the Company The Company's exposure to foreign exchange risk is linked to the existence of expenses in a cur- rency other than the euro (mainly in US dollars), the Company's functional currency and the presentation currency of the financial statements. In 2020, the Company had not implemented a foreign exchange risk hedging policy using hedg- ing instruments. In 2021, the Company chose to set up auto-hedging in dollars following the receipt of the $30 mil- lion for the license option agreed with Indivior PLC. Thus, these funds in dollars will be used to finance the future costs of the research program carried out in this currency (studies related to AEF0117 in the United States), thus constituting a natural exchange rate hedge. 3.6. Company activity in terms of research and development The Company has developed a new pharmacological class, Signaling Specific inhibitors of the type 1 receptor of the endocannabinoid system (CB1-SSi), which could make it possible to offer viable treatments for certain pathological conditions linked to hyperactivity of the CB1 receptor, the main receptor of the endocannabinoid system. CB1-SSi mimic a natural mechanism the brain uses to combat CB1 receptor overactivity. This receptor is involved in the regulation of several physiological functions and therefore in the occurrence of several brain diseases, thus giving ac- cess to multiple therapeutic areas. CB1-SSi seem capable of inhibiting only the cellular signals involved in the pathology while spar- ing the normal physiological activity of the receptor. Thanks to this very innovative mode of 19 action, never tested before in humans, Aelis Farma was able to show that CB1-SSi are, to date, not only effective but also well tolerated and devoid of significant side effects. This mode of action is very different from that of previous generations of CB1 antagonists which blocked all receptor activity resulting in severe side effects which made their use in humans difficult. For these rea- sons, CB1-SSi promise to provide therapeutic solutions for diseases that currently have no treat- ment. The products developed by Aelis Farma are new molecular entities (NMEs) belonging to the gen- eral chemical class of small molecules and to the new pharmacological class called Signaling Specific inhibitors of the CB1 receptor of the endocannabinoid system (CB1-SSi). Aelis Farma has two clinical-stage drug candidates: • AEF0117, the most advanced drug candidate, to combat the harmful effects of cannabis and in particular Cannabis Use Disorders (CUD) which is the current definition of canna- bis addiction in the diagnostic manual reference DSM-5. It is estimated that in the Euro- pean Union, United States, Canada and Australia, 7.2 million individuals have been diag- nosed with CUD, the DSM-5 definition of cannabis addiction. The Company's animal and human studies with AEF0117 suggest that this compound may decrease both motivations to use cannabis and the negative impact of cannabis on the brain. In addition, AEF0117 demonstrated favorable pharmacokinetic, toxicological, pharmaceutical and tolerability characteristics confirming its potential for the treatment of CUD. The current development program of AEF0117, carried out in collaboration with Indivior PLC, the leader in addiction medicine, aims to carry out a phase 2b study, which should start in the first half of 2022, in patients suffering from CUD and to conduct additional clinical and non-clinical studies in order to prepare the entry of AEF0117 into confirmatory phase 3 studies. • AEF0217, the second drug candidate, is being developed for the treatment of cognitive disorders, with the primary target being Down syndrome cognitive impairment (trisomy 21), a significant unmet medical need. An estimated 0.8 million people are living with Down syndrome in the European Union, United States, Canada, Australia and Japan, with an increasing prevalence due to late pregnancy and longer life expectancy for these people. AEF0217 was able to restore working memory deficit in Down syndrome mice, a key cognitive deficit in Down syndrome, without inducing identifiable behavioral or physio- logical side effects within the therapeutic dose range. Thanks to this unique combination of efficacy and safety, particularly important for the fragile Down syndrome population, AEF0217 could allow a prodigious leap in the quality of life and social integration of peo- ple living with Down syndrome. AEF0217 is currently in a phase 1 study in healthy volun- teers, with no major adverse effects reported to date, and is expected to enter phase 1/2 in subjects with Down syndrome in the fourth quarter of 2022/first quarter of 2023. Disorders linked to cannabis excessive usage and cognitive deficits associated with Down syn- drome have been selected as a priority by Aelis Farma because they represent major unmet medical needs, thus potentially opening up access to large markets. Aelis Farma is also develop- ing several new CB1-SSi, now in early pre-clinical research, which could offer therapeutic solu- tions for other brain diseases involving the CB1 receptor, such as attention deficit hyperactivity disorder (ADHD), autism spectrum disorders, 22q11 deletion syndrome (an orphan disease asso- ciated with hyperactivity and psychosis). 20 Aelis Farma has developed and operates a Research and Development (R&D) platform, which enables the Company to discover drug candidates that act as specific modulators of target recep- tor signaling. The Aelis Farma R&D platform is made up of three major components: • • • a library of new original molecules which modify the activity of the CB1 receptor in a spe- cific and selective way of certain signaling pathways of this receptor. This library has al- ready generated two drug candidates that are now in the clinical stage: AEF0117 for can- nabis-related disorders and AEF0217 for cognitive deficits. It also contains several new compounds that Aelis Farma is developing to treat other brain diseases that involve the CB1 receptor; an efficient research platform composed of: i. A screening laboratory using High Content Screening techniques, which gives Aelis Farma the ability to identify molecules that act as signaling specific inhibitors; ii. An original multifactorial screening procedure, which as- sesses toxicity, bioavailability and formulation upstream in order to reduce the attrition rate of the drug development pipeline; iii. Innovative behavioral models that aim to im- prove the prediction of therapeutic efficacy in humans; structuring partnerships with prestigious national and international partners who offer Ae- lis Farma the best environment to implement the Company's programs. 3.7. Activity of subsidiaries and controlled companies The Company has no subsidiary and does not control any company. 3.8. Foreseeable development and prospects The Company's 2021-2025 development program includes a large number of clinical and preclini- cal studies to advance research programs and enable them to reach the next stage of value crea- tion: • • for AEF0117: a phase 2b clinical study in the United States in cannabis use disorders (CUD) which is planned to start in the first half of 2022 with the results are expected in 2024; in parallel, clinical and preclinical studies will be conducted to prepare for the transi- tion of AEF0117 to phase 3; for AEF0217: phase 1 clinical studies (whose results are expected in the fourth quarter of 2022), phase 1/2 (which is planned to start in the last quarter of 2022/first quarter of 2023) and phase 2b (which is planned to start in the event of success of phase 1/2, in the last quarter of 2023) in the cognitive deficits observed in Down syndrome (also called tri- somy 21). The Company is also considering an additional clinical study to assess the effi- cacy of AEF0217 in another cognitive deficit; • early preclinical and then regulatory studies allowing to select and administer to humans a new drug candidate from the Company's research platform (“Discovery” program). The Company estimated that it had the necessary financial resources at the end of the 2021 fi- nancial year to enable it to carry out the phase 2b study for AEF0117 in CUD and for AEF0217 in cognitive deficits of Down syndrome, the completion of which is respectively scheduled for H1 2024 and H2 2024 and to repay financing agreed with third parties. 21 In order to finance its development and its future additional investments, the Company carried out, after the closing, a capital increase within the framework of the admission of its shares to the regulated market of Euronext Paris to: • • • expand the phase 2 clinical program of AEF0217 to at least one other type of cognitive disorders in order to evaluate the full potential of this compound, based on the preliminary evidence of efficacy of AEF0217 in other cognitive disorders; to carry out, in parallel with the phase 2b studies of AEF0117 and AEF0217, the addi- tional clinical and non-clinical developments necessary for these compounds to be ready to enter phase 3 at the end of phase 2; to select and introduce a new drug candidate in development to target new brain dis- eases that involve the CB1 receptor. The Company could subsequently have recourse to other financing by capital increase and/or borrowing. In addition, to ensure its financing, the Company may also rely on the payment of the CIR as well as repayable advances and subsidies that it could request in the future as it has been able to do in the past. 3.9. Important events since the end of the financial year 3.9.1. Transformation into a public limited company with a Board of Directors The General Meeting of January 11, 2022 approved the transformation of the Company into a public limited company with a Board of Directors, the said transformation taking effect on the same day. 3.9.2. Modification of the nominal unit value of the Company’s shares The General Meeting of January 11, 2022 decided to divide the par value of the shares by 24. It was thus reduced from €0.096 to €0.004, thus increasing the number of Company shares from 399,698 to 9,592,752. 3.9.3. IPO and capital increase On February 15, 2022, the Company announced the success of its IPO on compartment B of the regulated market of Euronext Paris, carried out by way of an open price offer (the "OPO") and of a global placement (the "Global Placement", together with the OPO, the "Offer"). The Offer price was set at €14.02 per new ordinary share. 1,822,794 ordinary shares were allocated under the Offer, representing an amount of €25.55 million. The capital increase of an initial amount of €25 million, i.e. 1,783,167 new shares, has been increased to approximately €25.3 million after partial exercise of the over-allotment option by issuing 20,691 additional new shares. This last capital increase was carried out on March 17, 2022, by decision of the Chief Executive Officer acting within the framework of the sub-delegation, granted by the Board of Directors by its decision dated February 15, 2022, within the framework of the delegation made to it by the Combined General Meeting of January 11, 2022. 22 The start of listing on the Euronext market took place on February 18, 2022, after completion of the capital increase and implementation of settlement-delivery on February 17, 2022. This IPO also involved: • the conversion into ordinary shares of ABSA B resulting in the cancellation of the BSA Ratchet 2017 and 2019; • the issue, on the date of completion of the initial public offering, of new ordinary shares, because of: the conversion of the Convertible Bonds issued previously (OC2017 and OC2019), for re- spective amounts of €700,002 and €1,500,022.93 into ordinary shares of the Company. It was therefore considered that this conversion had no impact on the maturity of the CBs at the end of the financial year: the 2017 CBs are presented with a maturity of less than one year and the 2019 CBs are presented with a maturity of one to five years; the exercise of 600 BSA2019, 2,682 BSA2020, 20 BSPCE2017-1 and 300 BSPCEOCT2020 ; • allocation to the issue premium of the costs related to this fundraising, for a total amount estimated at approximately €2.8 million. In this respect, as at December 31, 2021, the costs incurred in the 2021 financial year in direct connection with the capital increase dur- ing the IPO, i.e., €421,293.42, were recognized as prepaid expenses. and will be de- ducted from the issue premium for the 2022 financial year. 3.9.4. Situation in Ukraine The conflict initiated in February 2022 between Russia and Ukraine has no direct significant im- pact on the Company's operational activity, as it has no service provider or ongoing operation in these two countries. 3.10. Procedures relating to the preparation and processing of accounting and financial information The Company has implemented internal control procedures to ensure control of the process for processing and producing accounting and financial data, including: • • clear definition of roles and responsibilities; separation of functions between operational, control, accounting and payment approval activities; • • application of a strict expenditure commitment authorization process, based on an order validation circuit with the Director of Operations, Finance and the Managing Director; verification of each invoice and its merits using a systematic reconciliation with the initial purchase order (in terms of quantity/service rendered, price, reference) and identification of the analytical code associated with the budget line; • • payment of invoices only when they have been entered and approved beforehand. Checks prior to payment (list of invoices validated and good to pay, bank details) are car- ried out by the Financial Director using a transfer proposal drawn up by the accounting operator; expenditure commitment procedures systematically include identification of eligibility for the research tax credit as well as their possible attachment to a specific financing pro- gram. 23 The Company also relies on the skills of its chartered accountant in the treatment of complex or new accounting subjects. The latter are also subject, before implementation, to the evaluation by the auditor. In addition, the Company has developed approaches based on the identification, anticipation and monitoring of financial needs using: • a budget process subject to periodic updates, mainly oriented towards cash management and monitoring of costs on multi-year research and development projects, shared inter- nally between the various players within the Company; • • budget analysis statements showing the progress of expenditure on the various research and development programs; cash monitoring tables, drawn up monthly. These documents are reviewed monthly with the Operations Department and General Manage- ment. They are regularly supervised by the governance of the Company (board of directors, audit committee), as described in the paragraph 3.4.1 - Risk management by governance and man- agement bodies. 3.11. Suggested allocation of the result It is suggested to approve the annual accounts (balance sheet and income statement) closed on December 31, 2021 as they are presented and which show a profit of +€3,356,001. It is suggested: • • • to allocate the profit for the year in the amount of €3,356,001 to the “Carried forward” ac- count, the balance of which will thus be brought to a positive balance of €1,507,314; then to allocate part of the balance of the “Retained earnings” account, namely an amount of €399.70, to the “Legal reserve” account, which is thus increased from €0 to €399.70; and to allocate the balance, i.e., €1,507,313.75 to “Other reserves”. 3.12. Non-tax-deductible expenses In accordance with the provisions of article 223 quater of the General Tax Code, approval is pro- posed of the expenses and charges referred to in article 39-4 of the General Tax Code (non-tax deductible charges) amounting to a total amount of €27,531 related to the tax reintegration of part of the expenses relating to directors' fees in application of the regulations in force. It is also specified that in the accounts closed on December 31, 2021 the non-tax deductible ex- penses (not covered by article 39-4 of the CGI) amount to €0. 3.13. Past dividend distributions In order to comply with the provisions of article 243 bis of the General Tax Code, it is reminded that no dividend distribution has been made since the incorporation of the Company. 24 3.14. Information on supplier and customer payment terms Pursuant to Articles L. 441-6-1 and D. 441-4 of the Commercial Code, the information relating to payment terms for suppliers and customers defined by the decree of March 20, 2017 is as fol- lows: ARTICLE D. 441 I. - 1° OF THE FRENCH COMMERCIAL CODE: INVOICES RECEIVED AND NOT PAID ON THE CLOSING DATE OF THE FINANCIAL YEAR WHOSE TERM HAS EXPIRED 91 Total (1 day and 1 to 30 days 31 to 60 days 61 to 90 days 0 day (indicative) days and more Invoice analysis more) (A) Late payment tranche 4 4 - - - - - - 4 Number of invoices concerned Total amount of invoices concerned including VAT €28,011 €32,708 €32,708 Percentage of the total amount of purchases for the financial year in- cluding tax 0.60% 0.70% 0.70% (B) Invoices excluded from (A) relating to disputed or unrecognized payables and receivables Number of invoices excluded - - - - 4 - - 4 8 Total amount of invoices excluded including tax €9,751 €61,037 €70,788 (C) Benchmark payment terms used (contractual or legal deadline - article L. 441-6 or article L. 443-1 of the Commercial Code) Payment terms used for the calcula- Legal Deadline tion of late payments Customer payment term All invoices issued were paid on the closing date. 3.15. Employee participation in the capital at the end of financial year The share of the Company's capital held by employees exceeds 3%. The Company has not set up a company savings plan. 25 3.16. Summary statement of transactions by managers and persons mentioned in Article L. 621-18-2 of the Monetary and Financial Code on Company securities carried out during the past financial year 3.16.1. Continuation of agreements and commitments entered into during a previous financial year No agreement concluded for the 2020 financial year continued during the 2021 financial year. In- deed, all the contracts concluded with the directors are without tacit renewal and are therefore re- approved annually. 3.16.2. Agreements and commitments entered into during the 2021 financial year 3.16.2.1.With Mr. François Thomas, member of the Board of Directors The Board of Directors, in its meeting of February 24, 2021, authorized the Company to renew the consultancy contract with the company Thomas Conseil SPRL, of which Mr. François Thomas is the Chairman. The purpose of the contract is to provide assistance to the Company in the search for dilutive and non-dilutive financing, and assistance in negotiation. The contract runs from January 1 to December 31, 2021, without tacit renewal. This agreement was established in order to allow the Company to benefit from the resources and means necessary to seek possible additional financing. The compensation of Thomas Conseil SPRL, initially set at €15,000 excluding tax, was revised on July 19, 2021 and was set at €20,000 excluding tax for the 2021 financial year. Under this contract, the expense for the year thus amounted to €20,000. 3.16.2.2.With Mr. Anders Gersel, Chairman of the Board of Directors The Board of Directors, in its meeting of February 24, 2021, authorized the Company to enter into a consultancy contract with the company Gerselconsult Aps, of which Mr. Anders Gersel is the Chairman. The purpose of the contract was to provide assistance to the Company in terms of clinical studies, regulatory procedures, search for industrial and financial partners, and assistance in negotiating contracts. It was terminated by decision of the Board of Directors on October 14, 2021, with retroactive ef- fect from January 1, 2021. No compensation was paid in 2021 under this contract. In accordance with Article L. 227-10 of the French Commercial Code, these agreements have been communicated to the Statutory Auditor. 26 3.17. Acquisition of significant holdings in companies having their registered office in France, or takeover of such companies; disposals of such interests No equity participation or control is to be reported. It is recalled that the Company does not hold any shareholdings. 3.18. Information relating to the distribution of capital and treasury stock – Share buyback program The table below shows the percentage of capital and voting rights at the end of the 2021 financial year. The number of shares and voting rights indicated below, however, takes into account the division of the nominal by 24 approved by the General Meeting of shareholders dated January 11, 2022, concomitantly with the transformation of the Company into a public limited company. 27 BREAKDOWN OF THE CAPITAL AND VOTING RIGHTS OF THE COMPANY AS OF DECEMBER 31, 2021 AFTER TAKING INTO ACCOUNT THE DIVISION BY 24 OF THE PAR AUTHORIZED BY THE GENERAL MEETING OF JANUARY 11, 2022 Distribution of share capital and voting rights Distribution of share capital and voting rights on on a non-diluted basis a fully diluted basis (4) Theoreti- cal % of Number of Theoreti- cal % of voting rights voting rights Shareholders % of Number of share Theoretical voting rights % of share capital Theoretical shares voting rights shares capital Pier Vincenzo Piazza (Chief Executive Officer) Anders Gersel Pedersen 2,083,200 21.72% 2,083,200 21.72% 2,664,000 21.76% 0.78% 2,664,000 21.76% - - - - 96,000 96,000 0.78% (Chairman of the Board of Directors) Total individual executive officers 2,083,200 21.72% 2,083,200 21.72% 2,760,000 22.54 % 2,760,000 22.54% Inserm Transfert Initiative 1,487,040 15.50% 1,487,040 15.50% 1,568,784 12.82% 1,568,784 12.82% Nouvelle-Aquitaine Co-investissement (1)(5) 924,432 302,400 286,032 9.64% 3.15% 2.98% 924,432 302,400 286,032 9.64% 3.15% 2.98% 924,432 302,400 7.55% 2.47% 9.60% 924,432 302,400 7.55% 2.47% 9.60% Aqui-Invest (1)(5) Nouvelle-Aquitaine Region (5) 1,174,872 1,174,872 Aquitaine Création Investissement (1) 562,896 745,680 5.87% 7.77% 562,896 745,680 5.87% 7.77% 562,896 745,680 4.60% 6.09% 562,896 745,680 4.60% 6.09% Aelis Innovation (2) FPS Bpifrance In- novation I (3) 1,798,440 18.65% 1,789,440 18.65% 1,789,440 14.62% 1,789,440 14.62% Total Investors 6,097,920 63.57% 6,097,920 63.57% 7,068,504 57.73% 7,068,504 57.73% Founders-manag- ers / managers who are not cor- porate officers Total employees, consultants and individual non-ex- ecutive directors Other individual founder share- holders 586,032 6.11% 586,032 6.11% 1,125,336 9.19% 6.66% 1,125,336 9.19% 350,400 475,200 3.65% 4.95% 350,400 475,200 3.65% 4.95% 815,208 475,200 815,208 475,200 6.66% 3.88% 3.88% Total 9,592,752 100.00% 9,592,752 100.00% 12,244,248 100.00% 12,244,248 100.00% (1) It is specified that the Company Aquiti Gestion has a management mandate for the Aquitaine Création Inves- tissement fund (a private investment structure in which the Nouvelle-Aquitaine Region is a 30% shareholder), and an advisory mandate for the Aqui-Invest and Nouvelle-Aquitaine Co-Investissement. (2) The Aelis Innovation fund is represented by the management Company, Irdi Capital Investissement. (3) The FPS Bpifrance Innovation I fund is represented by the management Company, Bpifrance Investissement. (4) The fully diluted base comprises (i) founders’ share warrants (BSPCEs) issued between 2017 and 2021, (ii) share warrants (BSAs) issued between 2013 and 2021, and convertible bonds issued in 2017 and 2019. (5) The sub-total of the Company’s capital held by the Nouvelle-Aquitaine Region and by funds that have a capital link with the Nouvelle-Aquitaine Region: (i) the percentage of capital and voting rights on a non-diluted basis: 9.3%; (ii) the percentage of capital and voting rights on a fully diluted basis: 15.02%. A table presenting the Company's shareholding at the date of this Report is provided in Section 4.9. The Company did not undertake a share buyback program in 2021. 28 3.19. Changes occurring during the financial year in the composition of the capital During the 2021 financial year, 218 BSAs were exercised and gave rise to a capital increase of €2.18 (218 shares with a par value of €0.01). 3.20. Share price progression As the listing on compartment B of the Euronext Paris regulated market took place on February 18, 2022, i.e. after the closing date, this point is not applicable for the 2021 financial year. 3.21. Information relating to allocations of share subscriptions or purchase options and free share allocations The table below details the BSA and BSPCE allocation programs and the outstanding warrants for the 2021 financial year. DETAILS OF THE BSA AND BSPCE ALLOCATION PROGRAMS Maximum number of shares that Number of outstanding warrants Grant Date Type 12/31/20 Granted Exercised Obsolete 06/30/21 can be subscribed for BSA 12/19/13 06/27/18 12/18/18 03/19/19 10/23/20 04/29/21 06/13/17 06/27/18 03/04/19 315 800 - - - - - - - - - - - - - - - - - - - - - - - - - - - 315 800 31,500 BSA 2017 BSA 2018 BSA 2019 BSA 2020 BSA 2021 BSPCE - 800 150 150 - 150 600 - 600 600 2,400 - - 2,400 1,500 20 2,400 1,500 2,000 15,000 3,917 6,200 4,400 1,789 70,256 1,500 20 - BSPCE 2017 BSPCE 2019 15,000 3,917 6,200 4,400 - - 15,000 3,917 6,200 4,400 1,789 37,091 - BSPCE 02.2020 02/21/20 BSPCE 10.2020 10/21/20 - - BSPCE 2021 04/29/21 1,789 3,289 TOTAL 33,802 () Amount taking into account the division by 24 of the nominal voted by the Combined General Meeting of January 11, 2022. 29 3.22. Table of results for the past 5 years INFORMATION ON THE RESULTS FOR THE PAST 5 YEARS Type of information (in euros) 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 I. – Capital at the end of the financial year a) Share capital 2,925 3,627 3,995 3,995 3,997 b) Number of shares issued 294,549 14,900 362,652 399,480 399,480 399,698 c) Number of bonds convertible into shares 14,900 40,441 40,441 40,441 II. – Operating revenue and operation income a) Revenue excluding tax 85,472 39,959 (3,474,388) 938,132 (2,540,554) - 8,851 (3,701,755) 790,739 (2,918,550) - - 9,075,395 2,479,830 890,786 3,356,001 - b) Profit before tax, depreciation and provisions (2,004,470) 1,002,929 (1,002,795) - (3,466,893) 691,703 (2,783,646) - c) Income taxes d) Profit after tax, depreciation and provisions e) Amount of profits distributed III. – Earnings per share a) Profit after tax, but before de- preciation and provisions (4.77) (8.37) (7.85) (6.95) 8.44 b) Profit after tax, depreciation and provisions (4.78) - (8.38) - (7.87) - (6.97) - 8.40 - c) Dividend paid for each share IV. - Staff a) Number of employees (average workforce) 8 9 11 10 14 b) Payroll amount 555,309 150,224 772,169 208,239 1,107,363 298,870 1,163,595 304,820 1,518,698 571,085 c) Amount paid for social benefits (social security, works, etc.) 30 Section 4 - Report on Corporate Governance 4.1. Corporate Governance code The Company refers to the Corporate Governance Code for midcaps and small caps as updated in September 2021 by MiddleNext (the “MiddleNext Code”) as its reference code from the admis- sion of its shares to the Euronext Paris regulated market. The Company does not currently comply with all the recommendations of the MiddleNext Code but has the objective of doing so. The table below lists the various recommendations of this Code and specifies those with which the Company will or will not comply. MIDDLENEXT CORPORATE GOVERNANCE CODE RECOMMENDATIONS Company does not comply Company complies Upcoming compliance Category of recommandation “Supervisory” authority R1 - Conduct of the members of the board X X R2 - Conflicts of interest R3 - Composition of the board - Presence of independ- ent members X X R4 - Information to be provided to members of the board X (1) R5 - Training to be provided to members of the board R6 - Organization of board and committee meetings R7 - Establishment of committees X X R8 - Establishment of a specialist corporate social re- sponsibility (CSR) committee X (2) R9 - Adoption of rules of procedure for the board R10 – Choice of each director X X R11 - Terms of office of board members R12 - Compensation of members of the board R13 - Evaluation of the work carried out by the board R14 - Relations with shareholders X (3) X X (4) X (5) R15 - Diversity and gender equality policy at the Com- pany X (6) Executive authority 31 R16 - Definition and transparency of the compensation of executive officers X R17 - Preparations for the succession of executive management X (7) R18 - Officers with employment contracts R19 - Severance pay N/A X (8) N/A R20 - Supplementary pension plans R21 - Stock options and bonus shares R22 - Review of key areas of concern X (9) X (1) The Company plans to set up a three-year training program for its directors during the 2022 financial year in accordance with the recommendations of the MiddleNext Code. (2) the CSR Committee is integrated into the Remuneration and Appointments Committee. (3) It is specified that all the directors of the Board of Directors were simultaneously appointed as directors of the limited company by the General Meeting of shareholders on January 11, 2022. In addition, the Company's articles of association provide, since the admission of the Company's shares to trading on the Euronext Paris market, that, as an exception to the normal term of office of director of three (3) years and in order to allow exclusively the implementation or maintenance of the staggered terms of directors, the Ordinary General Meeting of the Com- pany may appoint one or more members of the Board for a term of two (2) years or one (1) year. To date, the terms of office of the members of the Board of Directors are therefore not staggered. (4) This recommendation provides that once a year, the Chairman of the Board invites the members to express their views on the functioning of the Board, any Committees, as well as on the preparation of its work. This dis- cussion is recorded in the minutes of the meeting. The chairman reports in his report that this procedure has taken place. This recommendation has been implemented by the Company. (5) This recommendation provides that, outside the General Meeting, moments of discussion with significant shareholders be organized in such a way as to establish the conditions for a fruitful dialogue. Prior to the General Meeting, the manager or the person(s) in charge of financial communication ensures that they meet the signifi- cant shareholders who so wish. The Board of Directors will also pay particular attention to negative votes by ana- lyzing, among other things, how the majority of minority shareholders expressed themselves. This person will need to consider what may need to change, with a view to the next General Meeting, in to negative votes and about the possibility of a announcement on this subject. This recommendation will be implemented within the framework of future board meetings which will take place from the date of the aforementioned General Meeting. (6) The Company plans to implement a policy aimed at gender balance and equity in accordance with the recom- mendations of the MiddleNext Code during the first half of 2022, and will report on the implementation, or not, of each new recommendation, as part of the next Corporate Governance Report. The Board of Directors of the Company at the date of writing this report on corporate governance has 3 female directors, 3 directors and a non- voting member. On the closing date of the accounts closed on December 31, 2021, out of 26 employees (23 employees and 3 full-time equivalent consultants), the Company has 17 women, i.e. 65% of the workforce. (7) The choice was made to separate the functions of Chairman of the Board of Directors and Chief Executive Officer. (8) The severance pay for the Chief Executive Officer amounts to 6 months of gross compensation (which in- cludes fixed, variable and exceptional compensation if applicable) and would be due in the event of termination of his duties resulting from a decision of the Board of Directors. (9) No performance condition is currently envisaged for the exercise of all or part of the stock options or the defini- tive allocation of all or part of the free shares. The loyalty criterion is considered essential by the Company, which does not plan to derogate from it for future allocations. 4.2. Corporate governance 4.2.1. Board of Directors in 2021 Aelis Farma was a Company in the form of a simplified joint stock company (SAS) until January 11, 2022. Prior to this date, due to the choice of governance put in place by the Company and its 32 shareholders, a statutory board of directors as well as audit and compensation committees within it had been set up, and included independent directors. The composition of the Board of Directors in 2021 was as follows: • • • • • • Chairman of the Board: Anders Gersel Pedersen (Independent Director) Pier Vincenzo Piazza, Chairman of the SAS Inserm Transfert Initiative, represented by François Thomas, Alain Sainsot, Independent Director, Thibaut Richebois, representative of the NACO and Aqui Invest regional funds The Nouvelle-Aquitaine Region, represented by Brahim Guetarni (appointed at the Gen- eral Assembly of July 2021) • Aelis Innovation, represented by Benedikt Timmerman, censor. 4.2.2. Changes in the composition of the Board of Directors The composition of Aelis Farma Board of Directors has changed: • as of January 11, 2022 as part of the transformation of the Company into a limited com- pany with a Board of Directors. The shareholders of the Company have opted for the sep- aration of functions between Chairman and Chief Executive Officer. Alongside Anders Gersel Pedersen, Pier Vincenzo Piazza and the Nouvelle-Aquitaine Region, represented by Mr. Brahim Guetarni, three new directors, Karina Hansen, Karen Linehan and Irina Staatz-Granzer, have been appointed as of the General Meeting of Partners on January 11, 2022 and qualified as independent by the Board of Directors. Similarly, Inserm Transfert Initiative, represented by Mr. François Thomas, until then di- rector, was appointed censor on the same date. Finally, Irdi Capital Investissement, rep- resented by Mr. Benedikt Timmerman, and Mr. Thibaut Richebois were also appointed censors. • as of the date of the listing of the Company on the regulated market of Euronext Paris: Irdi Capital Investissement and Mr. Thibaut Richebois, who had undertaken with the Chairman of the Board of Directors to resign from their functions within the Board of Di- rectors subject to the listing of the Company on the regulated market of Euronext Paris, from the first day of trading in the Company's shares, resigned from the Company on February 18, 2022. 4.2.3. Presentation of the members of the Board of Directors, and its committees at the date of closing of the accounts On the closing date of the financial statements for the year ended December 31, 2021, the Board of Directors had 7 members (including 6 directors and a non-voting member). Among the 6 direc- tors, 2 are considered by the Board of Directors as having the status of independent directors with regard to the conditions defined by the MiddleNext Code. As of January 11, 2022, the Company has 6 directors and one censor. Among the 6 directors, 4 are considered by the Board of Directors as having the status of independent directors with re- gard to the conditions defined by the MiddleNext Code. 33 All members of the Board of Directors are professionally domiciled at the Company's registered office, i.e. at 146 rue Léo Saignat Institut François Magendie 33000 Bordeaux. The table below and the biographies that follow only present the 7 members (6 directors and a non-voting member) who, following the listing of the Company's shares on the regulated market of Euronext Paris, make up the Board of Directors of the Company on the date of the Board of Directors' approval of the financial statements for the financial year ended December 31, 2021. COMPOSITION OF THE BOARD OF DIRECTORS Appointments, compensation Committee and CSR committee Surname, first name, title or role of directors Indepen- dent director Year of first appointment Expiry of term of office Audit At the end of the an- nual AGM ruling on the accounts closed on 12/31/2024 Anders Gersel Peder- sen, Chairman of the Board of Directors Yes Yes Yes No 2020 2017 Chairman At the end of the an- nual AGM ruling on the accounts closed on 12/31/2024 Pier Vincenzo Piazza, CEO and director No Yes No No No Nouvelle-Aquitaine Region, represented by Brahim Guetarni, Director At the end of the an- nual AGM ruling on the accounts closed on 12/31/2024 No 2021 At the end of the an- nual AGM ruling on the accounts closed on 12/31/2024 Karina Hansen, Director Yes Yes Yes 2022 2022 2022 Yes Yes No At the end of the an- nual AGM ruling on the accounts closed on 12/31/2024 Karen Linehan, Director Yes Chairman At the end of the an- nual AGM ruling on the accounts closed on 12/31/2024 Irina Staatz-Granzer, Director No Inserm Transfert Initiative, represented by François Thomas, Observer At the end of the an- nual AGM ruling on the accounts closed on 12/31/2024 No 2022 Yes No * These dates correspond to the dates of appointment to the Board of Directors of the Company before its conver- sion into a limited company, as decided by the general meeting of January 11, 2022. At the general meeting of Jan- uary 11 2022 all the members of the Board of Directors mentioned in the table above were appointed to the Board of Directors of the Company as of its conversion into a limited company. ** Prior to its appointment as an observer on January 11, 2022, Inserm Transfert Initiative, represented by François Thomas, had held the position of director of the Company since 2018. 4.2.4. Biographies of members of the Board of Directors Anders Gersel Pedersen, Chairman of the Board of Directors, Danish Anders Gersel Pedersen was born in 1951 and received his medical degree and doctoral degree in medical sciences from Copenhagen University and an undergraduate degree from Copenha- gen Business School. He then worked for Eli Lilly for 11 years, 10 of which as a director oversee- ing worldwide clinical research in oncology. In 2000, he joined the Lundbeck group (a 34 pharmaceutical Company that is focused exclusively on brain diseases) as Vice-President of In- ternational Clinical Research. He was then appointed Executive Vice-President of Drug Develop- ment and, in 2011, was appointed head of all Research and Development activities at Lundbeck. Anders Gersel Pedersen is also Vice-Chairman of Bavarian Nordic A/S and a board member of a number of scientific societies, including: Fonden Lundbeck International Neuroscience Founda- tion (Chairman), the Danish Society for Medical Oncology, the Danish Society for Internal Medi- cine, the International Association for the Study of Lung Cancer, the European Society for Medi- cal Oncology and the American Society of Clinical Oncology. Pier Vincenzo Piazza, Director and Chief Executive Officer, French Pier Vincenzo Piazza was born in 1961 and is an entrepreneur and renowned scientist who has been involved in establishing biotech companies and academic research institutes. He obtained his medical degree with distinction in 1985 from the Faculty of Medicine of the University of Pa- lermo (Italy), where he also obtained a PhD in neuroscience in 1991. He founded and managed INSERM's Neurocentre Magendie for 10 years (2007-2017), and published numerous scientific articles in prestigious journals (Science and Nature), and his research has to date received more than 28,000 citations (https://scholar.google.com/citations?hl=fr&user=xtnhQ0wAAAAJ). His most significant contribution is to the understanding of the mechanisms of behavioral pathologies, which led to the discovery of CB1-SSi. For this discovery, he received the Grand Prix de Neurolo- gie de l’Académie des Sciences and the INSERM Grand Prix in 2015, the most prestigious French awards in the field of neurology and medicine. In 2013, he co-founded Aelis Farma and was initially its Chief Scientific Officer, before becoming Chairman and Chief Executive Officer in December 2017. Under his management, Aelis Farma has brought two drug candidates to clinical trials, secured the financing required by its development programs, established a network of lead- ing international partners (Columbia University, Yale, NIH-NIDA and IMIM) and secured a major industrial partnership. Nouvelle-Aquitaine Region, represented by Brahim Guetarni, Director, French Brahim Guetarni was born in 1971 and holds a master’s in law and a master’s in business admin- istration from the University of Limoges. In 2005, he was appointed a project manager by the Li- mousin Region, a role that he carried out for 9 years. He then joined the Nouvelle-Aquitaine Re- gion in 2015 as a project manager, before being appointed Deputy Secretary and Head of Finan- cial Engineering (Economic Development Division). Karina Hansen, Director, Danish Karina Hansen, born in 1973, is a health economist with a doctorate in health economics from the University of Paris-Sud, France, and a master's degree in economics from the University of Co- penhagen in Denmark. Karina Hansen is Executive Director of the Center of Expertise in Health Economics within Global HEOR (Health Economics and Outcomes Research) at AbbVie. In addi- tion, she has held various senior HEOR international positions at Allergan and previously worked at Lundbeck for over 18 years as Vice President of Global Health Economics and Epidemiology, as well as other positions such as Division Director of HTA (Health Technology Assessment) Management, Director of Global HEOR, Director of Global Market Access. Her area of expertise lies in research on health economics outcomes, real-world evidence and market access, with par- ticular emphasis on translating and complementing development and R&D strategy with HEOR and RWE (Real-World Evidence) studies, economic models and comparative efficiency solutions to ensure optimal assessment of health technologies (HTA) worldwide. Her areas of therapeutic 35 expertise include neuroscience, eye care, gastroenterology and women's health. Karen Hansen is a peer reviewer of scientific journals within HEOR and a member of several scientific societies. Karen Linehan, Director, Danish Karen Linehan was born in 1959. She holds a BA in American Studies and a Juris Doctorate from Georgetown University in the United States. Prior to practicing law, Karen Linehan started out as an attaché in the office of the Speaker of the US House of Representatives from September 1977 to August 1986. Until December 1990 she was a partner in a medium-sized law firm in New York. In January 1991, she joined Sanofi, a global healthcare Company, as Deputy Legal Director of the American subsidiary. Karen then moved to Paris in July 1996 to handle Sanofi's international legal affairs and held various positions within the legal department, including that of deputy direc- tor of legal operations. From March 2007 until her retirement on December 31, 2021, she was Ex- ecutive Vice President and General Counsel of Sanofi. Karen was also a member of Sanofi’s Ex- ecutive Committee, a member of the Board of Directors of several Sanofi subsidiaries, and a founding member of the Sanofi Gender Balance Board. Irina Staatz-Granzer, Director, German Irina Staatz-Granzer was born in 1960 and has a doctorate in pharmacy from the Philipps-Univer- sität Marburg and the University of Tübingen University (Germany). She has held positions in business development for several pharmaceutical and biotechnology companies, notably in busi- ness development at Hermal (a subsidiary of Merck KGaA), Boots Healthcare International, Knoll (BASF Pharma, then Abbott), and as CEO of Scil Technology GmbH, CEO of U3 Pharma AG and President of Blink SAS biomedical. She is also President of the German Pharmaceutical Li- cense Club (PLCD). She founded and currently heads the Staatz Business Development & Strat- egy consultancy. Dr Staatz-Granzer is also Chairwoman of Emergence Therapeutics AG and Vice Chairwoman of the Supervisory Board of Innate Pharma, a role she has held since 2009. Inserm Transfert Initiative, represented by François Thomas, Observer, French Inserm Transfert Initiative (ITI) is a French investment company, based in Paris, specializing in seed funding for early-stage life sciences companies and in particular spin-offs from large French academic research centers. François Thomas was born in 1957 and is a medical oncologist (Paris Faculty of Medecine), a former clinical head at Gustave Roussy, and holds an MBA from the Massachusetts Institute of Technology. He is currently operating partner for health at Quadrille Capital. He was Chairman of the Inserm Transfert Initiative (ITI) fund, one of the first financial investors in Aelis Farma. He has also previously held the positions of Vice-President of Clinical Development at Ipsen, Manager at Bioserve Ltd Consulting, Director of Development and Medical Affairs at Genset and Chief Exec- utive Officer of Cythéris. He was also a partner at Atlas Venture and head of the healthcare cor- porate finance business at Bryan Garnier (investment bank). François Thomas has been a mem- ber of the Boards of Directors of more than 20 biotech companies in the EU and North America. 4.2.5. Independent members of the Board of Directors With regard to the independence criteria defined by recommendation no. 3 of the MiddleNext Code, the Board of Directors considered that 4 members of the Board of Directors, Anders Gersel Pedersen and Karina Hansen, Karen Linehan and Irina Staatz- Granzer, are independent direc- tors on the Board of Directors. 36 THE COMPANY’S ANALYSIS OF THE INDEPENDENCE CRITERIA SET OUT IN THE MIDDLENEXT CODE Must not have been, in the last two years, Must not have been, in the last five years, material busi- and must not be an em- ployee or ex- ecutive officer of the Com- pany and must not be party to any Must not have a close rela- tionship or close family ties with a Company of- ficer or refer- ence share- holder Must not be a reference Must not have been, in the last six years, the Com- shareholder in the Company or hold a sig- nificant per- centage of its voting rights Members of the Board of Directors ness relation- ship with the Company (as a customer, supplier, com- petitor, service provider, cred- itor or banker, etc.) pany’s auditor Anders Gersel Pedersen (1) ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Karina Hansen Board Director Karen Linehan Board Director Irina Staatz- Granzer ✓ ✓ ✓ ✓ ✓ Board Director (1) Anders Gersel Pedersen owns 4,000 founders’ share warrants (BSPCEs), representing 0.78% of the fully diluted capital of the Company. Furthermore, Gerselconsult ApS, whose Chief Executive Officer is Anders Gersel Pedersen, en- tered into a consultancy agreement with the Company on February 18, 2020. This agreement, as amended, was terminated with effect from January 1, 2021 and was not in effect in this financial year. The annual fee under the aforementioned consultancy agreement was capped at €35,000. Since this amount was not considered to be “material” either for Anders Gersel Pedersen or for the Company, the Company considers that Anders Gersel Pedersen has not, in the most recent two years, had a material business relationship with the Company and may be classified as an inde- pendent director for the purposes of the MiddleNext Code. It is also specified that on a diluted basis, the percentage of capital and voting rights that would result from the exercise by Mr. Gersel Pedersen of the BSPCEs held by him, i.e. 0.78% on the date of this Report, remains limited. The Board of Directors appointed by the shareholders at the General Meeting held on 11 Janu- ary, 2022, at which the shareholders resolved to convert the Company into a société anonyme (public limited company), has confirmed, based on the criteria set out in recommendation 3 in the table above that 4 of its members (Anders Gersel Pedersen, Irina Staatz-Granzer, Karen Linehan, and Karina Hansen) may be classified as independent members. There are no close family ties between the directors. 37 4.2.6. External roles held by directors of the Company CURRENT EXTERNAL ROLES OF DIRECTORS OF THE COMPANY Name and position Relevant companies Nature of the position(s) Anders Gersel Pedersen, Chairman of the board of directors Genmab Director Director Director Director Hansa Medical AB Bond Avillion 2 Bavarian Nordic A/S Pier Vincenzo Piazza, Chief Executive Officer and director None None Brahim Guetarni, Director None None Karina HA Hansen, Director AbbVie Executive Director, Head of Center of Expertise of Health Economics, Global HEOR Karen Linehan, Director Veon Ltd. Independent Director Member of the Audit & Risk Commit- tee and the Nominating & Corporate Governance Committee Global Antibiotic R&D Partnership (GARDP), North America Independent Director Irina Staatz, Director Staatz Business Development & Strategy Founder and CEO Innate Pharma SA Vice Chairman and member of the Supervisory Board Chairman Emergence Therapeutics AG PLCD (German Pharma Licensing Club) Chairman François Thomas, Representing Inserm Transfert Initiative Observer BergenBio Integragen Gamamabs Cardiawave Biomodex Director Director Director Director Director 38 EXTERNAL ROLES AND PRINCIPAL ACTIVITIES UNDERTAKEN DURING THE PAST FIVE YEARS WHICH HAVE CEASED Nature of the position(s) and/or principal activities Name and position Relevant companies Anders Gersel Pedersen, Chairman of the board of directors Lundbeck Executive Vice-President with responsibility for Research and Development activities Pier Vincenzo Piazza, Chief Executive Officer and director None None None Brahim Guetarni, Director None Karina HA Hansen, Director Allergan Executive Director of International Health Economics & Outcomes Research, Global HEOR Lundbeck Lundbeck VP of Health Economics & Epidemiology Division Divisional Director of Health Economics & HTA Management Division, Global Outcomes Research Karen Linehan, Director Sanofi Sanofi Executive Vice President and General Counsel Responsible for Legal, Ethics & Business Integrity Member of the Executive Committee beneath the CEO EuroApi and Sanofi Aventis Deutschland GmbH Supervisory Board Member Irina Staatz, Director Talix Therapeutics NV Blink Biomedical SAS Blink Therapeutics Ltd Chairman Chairman Chairman François Thomas, Representing Inserm Transfert Initiative Bioaxial Director Director Director Director Director Director Sensorion Enyo Pharma Eyevensys Step Pharma Therachon 4.2.7. Agreements between a corporate officer or shareholder holding at least 10% of the voting rights of a company and another controlled by the former within the meaning of Article L. 233-3 of the French Commercial Code There is no other agreement with a corporate officer or a shareholder holding at least 10% of the voting rights, apart from those described in paragraph 3.16 - Summary statement of the opera- tions of the managers and the persons mentioned in article L. 621 -18-2 of the Monetary and Fi- nancial Code on Company shares made during the past financial year. 39 4.2.8. Summary table of currently valid financial delegations and showing the use made of these delegations during the financial year The currently valid financial delegations were adopted by the general meeting of shareholders of the Company on January 11, 2022. Consequently, the table presented below shows the currently valid delegations and the use that has been made of them in 2022 since this date: SUMMARY TABLE OF CURRENTLY VALID FINANCIAL DELEGATIONS Price Date and terms of use by the Board Purpose of the resolution Duration Ceilings determination methods of Directors Authorization to be given to the Board of Directors for the purchase by the Company of its own shares (22nd resolu- tion of the AGM of January 11, 2022) 18 months Maximum purchase price per share: €42.06 - Buyback program adopted on February 15, 2022 and Li- quidity contract implemented as of March 18, 2022 Overall ceiling of €10,000,000 10% of the amount of share capital Authorization to be given to the Board of Directors to re- duce the share capital by canceling shares within the framework of the authoriza- tion to buy back its own 18 months Maximum purchase price per share: €42.06 - Not used Cancellation within the maximum limit of 10% of the amount of the share capital per period of 24 months shares (23rd resolution of the AGM of January 11, 2022) Delegation of authority to the Board of Directors to increase the share capital by issuing ordinary shares and/or other securities, without sharehold- ers' preferential subscription rights, by means of a public offering other than those re- ferred to in Article L. 411-2 1° of the Monetary and Financial Code (24th resolution of the AGM of January 11, 2022). 26 months 80% of the share capital on the date of the capital in- crease decision by the Board of Directors (2) Refer to (1) 18.59% of the share capital as of February 15, 2022 was used in the context of the is- sue on the same day of new shares on the occasion of the IPO (Open Price Offer and Placement global IPO) Delegation of authority to be granted to the Board of Direc- tors with a view to increasing the capital by issuing ordinary shares and/or any securities which are capital securities giving access to other capital securities or giving right to the allocation of debt securities, and/or securities giving ac- cess to equity securities to be issued, with maintenance of shareholders' preferential subscription rights (26th reso- lution of the AGM of 11 Janu- ary 2022) 26 months 100% of the share capital on the date of the capital in- the Board of Direc- crease decision by the Board of Directors (1) At the discretion of Not used tors 40 Price Date and terms of use by the Board Purpose of the resolution Duration Ceilings determination methods of Directors Delegation of authority to be granted to the Board of 26 months Within the limit of 20% of the share capital per period of 12 months (2) Refer to (3) Not used Directors with a view to in- creasing the capital by issu- ing ordinary shares and/or any transferable securities which are capital securities giving access to other capital securities or giving right to al- location of debt securities and/or securities giving ac- cess to equity securities to be issued, with cancellation of shareholders' preferential subscription rights to be is- sued as part of an offer for the benefit of qualified inves- tors or a restricted circle of in- vestors referred to in 1° of ar- ticle L.411-2 of the monetary and financial code (26th resolution of the AGM of January 11, 2022) Delegation of authority to be granted to the Board of Direc- tors with a view to increasing the capital by issuing ordinary shares and/or any securities which are capital securities giving access to other capital securities or giving right to the allocation of debt securities and/or securities giving ac- cess to equity securities to be issued with cancellation of shareholders' preferential 18 months 80% of the share capital on the date of the capital in- crease decision by the Board of Directors (1) Refer to (4) Not used subscription rights in favor of categories of persons sounds meeting specific characteris- tics (27th resolution of the AGM of January 11, 2022) Delegation of authority to the Board of Directors to increase the number of shares to be is- sued in the event of a capital increase with or without pref- erential subscription rights (28th resolution of the AGM of January 11, 2022) 26 months Within the limit of 15% of the initial issue (1) Same price as the original issue Used on 17 March 2022 for 1.16% (i.e. 20,691 new shares) of the issue carried out on February 17, 2022 as part of the IPO following the partial exercise of the over-al- lotment option Authorization to the Board of Directors, in the event of the issue of shares or any securi- ties with cancellation of 26 months Within the limit of 10% of the share capital Refer to (5) Not used shareholders' preferential subscription rights, to set the issue price within the annual limit of 10% share capital and within the limits set by the General Meeting (29th resolu- tion of the AGM of January 11, 2022) 41 Price Date and terms of use by the Board Purpose of the resolution Duration Ceilings determination methods of Directors Delegation of authority 26 months Capital increase: 10% of Not used granted to the Board of Direc- tors to issue ordinary shares and securities giving access to the capital of the Company, in the event of a public offer comprising a component of exchange initiated by the Company (30th resolution of the AGM of January 11, 2022) the share capital as it exists on the date of the transac- tion in question (1) Debt securities: €50,000,000 Delegation of power to grant to the Board of Directors for the purpose of deciding to is- sue ordinary shares of the Company or securities giving access by any means, imme- diately and/or in the future, to ordinary shares of the Com- pany, within the limit of 10% of the capital, to remunerate contributions in kind of capital securities or transferable se- curities giving access to the capital of third-party compa- nies outside of a public ex- change offer (31st resolution of the AGM of 11 January 2022) 26 months Within the limit of 10% of the share capital as it exists on the date of the transac- tion in question (1) - Not used Delegation of authority to be granted to the Board of Direc- tors to decide on any merger- absorption, demerger or par- tial contribution of assets (32nd resolution of the AGM of January 11, 2022) 26 months 26 months Not used Delegation of authority to be granted to the Board of Direc- tors with a view to increasing the capital by issuing ordinary shares and/or any securities giving access to the capital in the context of a merger-ab- sorption, demerger or partial contribution of assets decided by the Board of Directors un- der the delegation referred to in the 32nd resolution (33rd resolution of the AGM of Jan- uary 11, 2022) 10% of the share capital on the date of the capital in- crease decision by the Board of Directors Not used Overall limit on the number of issues made under the 24th resolution, the 25th resolu- tion, the 26th resolution and the 27th resolution, the 30th resolution, the 31st resolu- tion, the 32nd and the 33rd resolution (34th resolution of the AGM of January 11, 2022) - 100% of the share capital on the date of the capital in- crease decision by the Board of Directors - Based on the share capital on the date of the annual finan- cial report, the overall limit on the amount of issues amounts to a maximum nomi- nal value of €50,004.648 cor- responding to 12,501.162 shares. Debt securities: €50,000,000 42 Price Date and terms of use by the Board Purpose of the resolution Duration Ceilings determination methods of Directors Delegation of authority 26 months 10% of the share capital on - Not used granted to the Board of Direc- tors to increase the capital by incorporating premiums, re- serves, profits or other (35th resolution of the AGM of Jan- uary 11, 2022) the date of the capital in- crease decision by the Board of Directors Authorization to be given to the Board of Directors to grant options to subscribe or purchase Company shares (36th resolution of the AGM of January 11, 2022) 38 months 38 months 4% of the share capital on the day the delegation is used (6) Refer to (7) Not used Not used Authorization to be given to the Board of Directors to pro- ceed with the free allocation of existing shares or shares to be issued to all or part of the employees and/or corpo- rate officers of the Company or of the companies of the group, in accordance with the provisions of articles L. 225- 197-1 et seq. of the French Commercial Code with auto- matic cancellation of share- holders' preferential subscrip- tion rights (37th resolution of the AGM of January 11, 4% of the share capital on the day the delegation is used (6) - 2022) Delegation of authority to be granted to the Board of Direc- tors for the purpose of issuing and allocating share subscrip- tion warrants for the benefit of (i) members and non-voting members of the Board of Di- rectors of the Company in of- fice on the date of allocation of warrants who are not em- ployees or managers of the Company or one of its subsid- iaries (if applicable) or (ii) per- sons bound by a service or consultant contract to the 18 months 4% of the share capital on the day the delegation is used (6) Any stock warrants allocated to per- sons in the catego- ries listed opposite will be allocated under market con- ditions, both with regard to their is- sue price and their exercise price – Refer to the (8) Used on April, 1st 2022 for 0.04% (i.e. 5,000 warrants) of the share capital on the day of the use of the delegation. Company or to the one of its subsidiaries (if applicable) or (iii) members of any commit- tee set up by the Board of Di- rectors or that the Board of Directors may set up who do not have the status of em- ployees or managers of the Company or one of its subsid- iaries (if applicable) (38th resolution of the AGM of January 11, 2022) 43 Price Date and terms of use by the Board Purpose of the resolution Duration Ceilings determination methods of Directors Delegation of authority to be granted to the Board of Direc- tors in order to decide on the issue of subscription warrants for business creator shares (the "BSPCE2022") with can- cellation of the preferential subscription right in favor of a category of person (39th res- olution of the AGM of January 11, 2022) 18 months 4% of the share capital as (9) Used on April, 1st 2022 for 1.24% (i.e. 155,000 BSPCEs) of the share capital on the day of the use of the delega- tion. will be recognized immedi- ately upon admission to trading of the Company's shares on the regulated market of Euronext Paris (6) Overall limit on the amount of issues made under the 36th resolution, the 37th resolu- tion, the 38th resolution and the 39th resolution (40th res- olution of the AGM of January 11, 2022) - 4% of the share capital on the day of the use of the delegation - On the basis of the share capital on the date of the an- nual financial report, the over- all limit on the amount of is- sues amounts to a maximum of a nominal value of €2,000.18 corresponding to 500,046 shares. Delegation granted to the Board of Directors to increase the share capital by issuing Company shares for the ben- efit of employees participating in the group savings plan (41st resolution of the AGM of January 11, 2022) 18 months 3 % of share capital Determined by the Board of Directors, it being however specified that if, when the delega- tion is used, the Company's shares were admitted to trading on Euronext Paris, the price Not used would be set in ac- cordance with the provisions of Article L. 3332-19 of the Labor Code (1) The issue price of shares and securities that may be issued under this delegation is set by the Board of Direc- tors, and according to the following terms : in respect of the initial public offering, the subscription price for a new share will result from the offer of shares and the subscription requests issued by investors within the framework of the so-called "con- struction of the order book”, as developed by professional practice; after the initial public offering, the price will be set in accordance with the provisions of articles L. 225- 136-1°, L.22-10-52 and R.22-10-32 of the French commercial code (i.e. on the day of this meeting at least equal to the weighted average of the prices of the last three trading sessions preceding the start of the public offering within the meaning of Regulation (EU) no. ° 2017/1129 of June 14, 2017, possibly re- duced by a maximum discount of 10%). (2) These amounts are not cumulative. The maximum cumulative ceiling authorized by the General Meeting for capital increases is set at 100% of the share capital on the date of the capital increase decision by the Board of Directors. (3) The issue price of the shares and securities, likely to be issued by virtue of this delegation, will be set by the Board of Directors, in accordance with the provisions of Article L. 225-136-1° of the Code of commerce and will therefore be at least equal to the weighted average of the quoted prices of the last three trading days preceding the launch of the offer, such as, where applicable, reduced by the maximum discount authorized by law (i.e., cur- rently, 10 %) and corrected in the event of a difference in the date of entitlement, it being specified that (i) in the event of the issue of transferable securities giving access to the capital, the issue price of the shares likely to re- sult from their exercise , their conversion or their exchange may, where applicable, be set, at the discretion of the Board of Directors, by reference to a calculation formula defined by the latter and applicable after the issue of the said securities (during the exercise, conversion or exchange) in which case the aforementioned maximum dis- count may be assessed, if the Board of Directors deems it appropriate, on the date of application of the said for- mula (and not on the date of fixing the price of the issue), and that (ii) the issue price of the securities giving 44 access to the capital issued pursuant to this resolution will be such that the amount received immediately by the Company, increased, where applicable, by that likely to be received subsequently by it during the exercise, con- version or exchange of said securities, or, for each share issued as a result of the exercise, conversion or ex- change of these securities, at least equal to the price issue defined above. (4) The issue price of the shares issued by virtue of this delegation will be determined by the Board of Directors and will be at least equal, at the discretion of the Board of Directors, (i) either to the closing share price of the Company on the regulated Euronext Paris market during the last trading session preceding its fixing, possibly re- duced by a maximum discount of 20%, (ii) either at the volume-weighted average (in the central order book and excluding off-market blocks) of the prices of the Company's shares on the regulated Euronext Paris market during the last 3 trading sessions preceding the setting of the issue price, possibly reduced by a maximum discount of 20%, (iii) either the weighted average share price of the Company on the day preceding the setting of the offer price, possibly reduced by a maximum discount of 20%, (iv) i.e. the average of 5 consecutive quoted share prices chosen from the last 30 trading sessions preceding the fixing of the offer price, possibly reduced by a maximum discount of 20%, taking into account, where applicable, the possible date of entitlement and it being specified that the issue price of the securities giving access to the capital , possibly issued by virtue of this delegation, must be such that the amount received immediately by the Company, increased by the amount likely to be received by the latter upon the exercise or conversion of these securities, is, for each share issued following the issue of these securities, at least equal to the aforementioned minimum amount, it being finally specified that the day of fixing the price may be understood, at the discretion of the Board of Directors, in particular from the date of the decision of the issue of ordinary shares by direct issue or by issue following the exercise or conversion of securities. It is also specified that for the implementation of said delegation, the preferential subscription right of sharehold- ers to ordinary shares and other securities giving access to the capital to be issued pursuant to Article L. 228-91 of the French Commercial Code will be deleted in favor of one or more person(s) belonging to one or more of the following categories of persons: natural or legal person(s), including companies, trusts, investment funds or other investment vehicles regardless of their form, under French or foreign law, investing on a regular basis in the pharmaceutical, biotechnology, or medical technology sector, where applicable on the occasion of the conclusion of an industrial, commercial, licensing, research or partnership agreement with the Company, and or; company(ies), institution(s) or entity(ies) whatever their form, French or foreign, exercising a significant part of their activity in these sectors or in the cosmetics or chemical field or medical devices or research in these fields or having entered into an industrial, commercial, licensing, research or partnership agree- ment with the Company, and or; any credit institution, any French or foreign investment service provider or member of an investment banking syndicate or any company or investment fund undertaking to subscribe to any issue likely to re- sult in a capital increase term that could be carried out by virtue of this delegation within the framework of the setting up of a line of financing in equity or bond, and or; provider(s) of French or foreign investment services, or any foreign institution(s) having an equivalent status, likely to guarantee the completion of an issue intended to be placed with persons referred to in (i) and/or (ii) above and, in this context, to subscribe to the securities issued. (5) Within the limit of 10% of the capital of the Company (as existing on the date of the transaction) per period of 12 months, to derogate from the conditions for fixing the price provided for by the aforementioned resolutions and to fix the price of issue of ordinary shares and/or securities giving immediate or future access to issued capital, according to the following terms. The issue price of ordinary shares that may be issued under said post-IPO dele- gations of authority will be set by the Board of Directors and must be at least equal to: either the weighted average price of the Company's share on the day preceding the setting of the offer price, possibly reduced by a maximum discount of 20%, or the volume-weighted average (in the central order book and excluding off-market blocks) of the Com- pany's share price on the regulated Euronext Paris market during the last 3 trading sessions preceding the issue price, possibly reduced by a maximum discount of 20%, either the average of 5 consecutive quoted prices (either closing price or weighted average price, for the 5 consecutive prices) of the Company's share chosen from the last 30 trading sessions preceding the fixing of the price of the offer, possibly reduced by a maximum discount of 20%. (6) These amounts are not cumulative. The maximum cumulative ceiling authorized by the General Meeting for issues of securities giving access to capital is set at 4% of the Company's share capital on the day of use by the Board of Directors of the delegation concerned. (7) The purchase or subscription price per share will be set by the Board of Directors, with the option of sub-dele- gating under the conditions provided for by law, at a price at least equal to the closing price of an ordinary share of the Company admitted to trading on the regulated market Euronext Paris, possibly reduced by a maximum dis- count of 20%, the day preceding that on which the options are granted, it being specified that its exercise price, in accordance with the provisions of Article L 225-177 of the Commercial Code, may not be less than 80% of the average quoted price for the twenty trading sessions preceding the day on which the options are granted. (8) The issue price of a BSA will be determined by the Board of Directors on the day of issue of said BSA accord- ing to the characteristics of the latter will be at least equal to the weighted average (in the central order book and excluding off-market blocks) by the volumes of the closing price of a common share of the Company admitted to trading on the Euronext Paris regulated market recorded for a period of at least five consecutive trading days to a maximum of thirty consecutive trading days among the thirty trading days preceding the setting of the subscription price, possibly reduced by a maximum discount of 15%. 45 (9) Each BSPCE2022 will allow the subscription, under the conditions of article 163 bis G III of the general tax code as well as the conditions defined below, of one ordinary share with a par value of four thousandths (€0.004) of a euro at an exercise price, determined by the Board of Directors on the date of allocation of the BSPCE2022, it be- ing specified that this price must be at least equal: to the IPO price of the Company's shares to trading on the regulated Euronext market in Paris as the latter will be set by the Board of Directors at the end of the placement period and be the result of the number of shares offered for subscription and subscription requests from investors within the framework of the global placement, according to the technique known as "construction of the order book" and this, for any allocation occurring within 6 months of the completion of the capital increase of the Company which will be carried out within the framework of the admission of its shares to trading on the regulated market of Euronext in Paris and subject to the provisions set out in the point below in the event of a capi- tal increase in the 6 months preceding the implementation of this delegation by the Board of Directors in the event of one or more capital increases in the 6 months preceding the implementation of this dele- gation by the Board of Directors, at the subscription price of the ordinary shares adopted during the most recent of the said capital increases assessed on the date of allocation of each BSPCE2022, less, where applicable, a discount corresponding to the loss in economic value of the ordinary share since this issue; for any allocation that would occur outside of the assumptions referred to in the two points above, at the weighted average of the prices of the last 20 trading sessions preceding the date of allocation of said BSPCE2022 by the Board of Directors. 4.3. Choice made of one of the two methods of exercising general management provided for in Article L. 225-51- 1 of the Commercial Code In accordance with Article L. 225-51-1 of the Commercial Code, the general management of the Company is assumed, under his responsibility, either by the chairman of the board of directors, or by another natural person appointed by the board of directors and bearing the title of general manager. Pursuant to Article 9 of the Company's Articles of Association, the Board of Directors decided during the Board meeting of January 11, 2022 that the general management of the Company will be assumed by a natural person appointed by the Board of Directors and bearing the title of Chief Executive Officer. The Chief Executive Officer is vested with the broadest powers to act in all circumstances on be- half of the Company. He exercises these powers within the limits of the corporate purpose and subject to those that the law and the Articles of Association expressly attribute to the meetings of Shareholders and to the Board of Directors. He represents the Company in its relations with third parties. Pursuant to Article 15 of the Company's Articles of Association, the Board of Directors, after hav- ing deliberated, decided to appoint as Chief Executive Officer Mr. Pier Vincenzo Piazza. 4.4. Composition, conditions of preparation and organization of the work of the Board of Directors 4.4.1. Board of Directors The Board of Directors of the Company is chaired by Mr. Anders Gersel Pedersen. The General Management of the Company is undertaken by Mr. Pier Vincenzo Piazza as Chief Executive Of- ficer, who in this capacity represents the Company with regard to third parties. The Company is administered by a Board of Directors made up of between three and eighteen directors. 46 The directors are appointed by the shareholders at a General Meeting, voting pursuant to the quorum and majority requirements for ordinary general meetings. Directors may be natural persons or legal entities. Legal entity directors must, at the time they are appointed, name a permanent representative who shall be subject to the same requirements and obligations and shall be subject to the same liability as if he/she were a director in his/her own name, without prejudice to the joint and several liability of the legal entity he/she represents. Terms of office of directors appointed during the Company’s lifetime last three (3) years. Terms of office expire at the close of the meeting called to vote on the financial statements of the past fi- nancial year and held in the year in which the term expires. Directors may be removed from office, at any time and without cause, by the shareholders at a General Meeting, voting in accordance with the quorum and majority requirements for ordinary general meetings. The proportion of directors aged over eighty (80) may not exceed one-third of the members of the Board. In the event that one or more directorships becomes vacant as a result of death or resignation, the Board of Directors may, between two general meetings, make temporary appointments in or- der to increase the number of directors. Any such temporary appointments made by the Board shall be subject to ratification by the share- holders at the next Ordinary General Meeting. If they are not ratified, the resolutions adopted, and acts performed shall nevertheless remain valid. Where the number of directors falls below the statutory minimum, the remaining directors must immediately convene an Ordinary Meeting in order to increase the number of members of the Board. A director appointed to replace another director shall only remain in office for the remainder of the term of office of his/her predecessor. Directors who are natural persons may not simultaneously act as directors on more than five boards of directors or supervisory boards of sociétés anonymes (limited companies) headquar- tered in mainland France, subject to the exceptions provided for by law. Employees of the Company may only be appointed directors if their employment contract relates to an actual role at the Company. They shall not lose the benefit of such employment contracts. The number of directors who have an employment contract with the Company may not exceed one-third of the directors in office. The general meeting can appoint an observer to the Company, natural or legal person, share- holder or not. The Board of Directors may also appoint one directly, subject to ratification at the next meeting. On the date of this Governance Report, the Board of Directors has a non-voting member, Inserm Transfert Initiative, represented by Mr. François Thomas. The observer will only have consultative power individually or collectively and will not have the right to vote on the Board of Directors. In accordance with the Company's internal regulations approved by the Company's board of di- rectors on January 11, 2022, the observer is subject to Regulation (EU) No. 596/2014 of the 47 European Parliament and of the Council of April 16, 2014 on market abuse (regulation on market abuse). The members of the Board of Directors may be remunerated by remuneration for the activity, the total amount of which is distributed among the members of the Board of Directors, taking into ac- count in particular their attendance at meetings of the Board of Directors and their participation in specialized committees. The number of meetings of the Board of Directors takes into account the various events that punctuate the life of the Company. Thus, the Board of Directors meets as often as the interests of the Company require. During the financial year ended December 31, 2021, the Board of Directors met ten times and the average attendance rate for directors was 97.3%. 4.4.1.1. Assessment of the work of the Board of Directors This will take place at the end of the first fiscal year of the Board of Directors of the public limited company appointed on January 11, 2022, or at any time deemed appropriate by the Chairman of the Board of Directors. 4.4.1.2. Skills The Board of Directors shall establish the Company’s business policies and ensure that they are implemented. Subject to the powers expressly reserved for the general meetings of shareholders and within the limits imposed by the Company’s corporate purposes, the Board shall review all issues concerning the Company's operations and shall deal with all matters concerning the Com- pany. The Board of Directors shall carry out the checks and verifications it deems appropriate. All direc- tors shall be sent the information they require to carry out their duties and may ask to be sent any documents they consider to be relevant. 4.4.2. Committees of the Board of Directors On the date this report on Governance was drawn up, the Company had set up two Committees: • • Audit committee; Appointments, Compensation and Corporate Social Responsibility (“CSR”) Committee. The main provisions of the internal regulations of these Committees are presented below. 4.4.2.1. Audit Committee Composition The Audit Committee must have at least two members, who should, to the extent possible, be in- dependent, appointed by the Board of Directors, based on a recommendation of the Appoint- ments, Compensation and CSR Committee members, being specified that the Chief Executive Officer cannot be a member of the audit committee. They are appointed for an indefinite period, which may not exceed their term of office as a member of the Board of Directors and may be re- moved from office by the Board of Directors. Their term of office is renewable an unlimited 48 number of times. At least one member of the Board must be an independent member with spe- cific expertise in finance or accounting, it being specified that all members must have a minimum level of financial and accounting expertise. At the date of this Report, the members of the Audit Committee are: • • • • Karen Linehan, Chairwoman of the Audit Committee, Director Brahim Guetarni, Director Anders Gersel Pedersen, Chairman of the Board of Directors, and; Inserm Transfert Initiative, represented by François Thomas, observer Duties The Audit Committee is responsible for overseeing questions relating to the preparation and audit of accounting and financial information and, to that end, has responsibility for: • • overseeing the closing of the financial statements and, as necessary, issuing any recom- mendations to ensure their integrity; overseeing the effectiveness of the internal control and risk management systems, and any internal audits of procedures relating to the preparation and processing of accounting and financial information, without undermining its independence; • • overseeing the statutory auditors' review of any annual financial statements and consoli- dated financial statements; issuing a recommendation on the appointment of statutory auditors by the shareholders at a General Meeting and issuing a recommendation to the Board of Directors when the term of office of the statutory auditor(s) comes up for renewal; • ensuring that the statutory auditors carry out their duties and take into consideration the findings and conclusions of the Haut conseil du commissariat aux comptes (French audit control board) consecutive to audits they have undertaken; • • • ensuring that the statutory auditors comply with the independence conditions and take any appropriate steps where necessary; approving the supply of non-audit services by the statutory auditors (Article L. 822-11-2 of the French Commercial Code); reporting on a regular basis to the Board of Directors regarding the progress of its work and on the results of the statutory audit, on the way in which that work contributed to the integrity of the financial information and the role it played in that process. The Audit Com- mittee immediately reports any problems encountered to the Board of Directors; • • reviewing the Company's procedures for receiving, storing and processing complaints in respect of internal accounting and accounting controls, audit-related issues as well as documents sent by employees anonymously and confidentially that may call into question accounting or auditing practices; and more generally, offering all appropriate advice and recommendations in the above-men- tioned areas. 49 4.4.2.2. Appointments, Compensation and CSR Committee Composition The Appointments, Compensation and Corporate Social Responsibility (CSR) Committee is com- prised of at least two members appointed by the Board of Directors. They are appointed for an indefinite period, which may not exceed their term of office as a member of the Board of Directors and may be removed from office by the Board of Directors. Their term of office is renewable an unlimited number of times. For the avoidance of doubt, it should be noted that no member of the Board of Directors exercis- ing management duties within the Company may be a member of the Appointments, Compensa- tion and CSR Committee. At the date of this Report, the members of the Appointments, Compensation and CSR committee are: • Anders Gersel Pedersen, Chairman of the Committee, Chairman of the Board of Direc- tors • • Karina Hansen, Director Karen Linehan, Director Duties The Appointments, Compensation and CSR Committee is responsible for: In relation to appointments • making recommendations to the Board of Directors in respect of the positions of Chief Ex- ecutive Officer and any Deputy Chief Executive Officers, the composition of the Board of Directors and its Committees; • • • issuing an annual list to the Board of Directors of directors who may qualify as “independ- ent members” under the criteria set out in the MiddleNext Code; preparing a list of persons recommended to be appointed as Chief Executive Officer, Deputy Chief Executive Officer or Director; and preparing a list of the directors recommended to be appointed to Board Committees. In relation to compensation • reviewing the key objectives proposed by the Chief Executive Officer and any Deputy Chief Executive Officers in relation to the compensation of the Company's managers who are not executive directors, including bonus share plans, BSPCE plans and options to subscribe for or purchase shares and incentive arrangements; • • reviewing the compensation of managers who are not executive directors, including bo- nus share plans and options to subscribe for or purchase shares, pension and personal protection plans and benefits in kind; submitting recommendations and proposals to the Board of Directors regarding: the compensation, pension and protection plans, benefits in kind and other financial rights, including in the event the Company ceases trading, of the Chief Executive Officer and any Deputy Chief Executive Officers. The Compensation Committee pro- poses compensation amounts and structures and, in particular, criteria for calculating the variable portion of compensation, taking account of the Company’s strategy, objectives and results, as well as market practices, and 50 bonus share plans, options to subscribe for or purchase shares and any other similar in- centive mechanisms and, in particular, specific awards to the Chief Executive Officer and any Deputy Chief Executive Officers; • • reviewing total compensation based on the activity of the Board of Directors and the sys- tem for allocating it among the members of the Board of Directors, as well as the condi- tions for the reimbursement of any expenses incurred by members of the Board of Direc- tors; participating in drawing up and overseeing gender equality policies and ensuring that gender equality principles are effectively implemented at all hierarchical levels of the Company; • • preparing and submitting any reports required under the rules of procedure of the Com- pensation Committee; and submitting any other recommendations that may be requested of it by the Board of Direc- tors or the Chief Executive Officer in relation to compensation. In relation to CSR • • • ensuring that corporate social responsibility matters are taken into account in the Com- pany’s strategy and in its implementation; reviewing the Company's commitments in relation to sustainable development, in view of the issues associated with its business activities and objectives; and reporting to the Board of Directors on the Company's long-term development, including economic development, as a result of its CSR activities. More generally, the Appointments and CSR Committee shall provide all appropriate advice and recommendations in the above-mentioned areas. 4.5. Description of the diversity policy applied to members of the Board of Directors Balanced representation of men and women From the settlement-delivery of the Company’s shares as part of their admission to trading on the Euronext Paris regulated market, the Board of Directors will have 3 female directors i.e. 50% of the members of the Board of Directors. The composition of the Board of Directors will therefore comply with the provisions of Articles L. 225-18-1 and L. 22-10-3 of the French Commercial Code, which requires a balanced representation of men and women on the Boards of Directors of companies whose shares are admitted to trading on a regulated market. 4.6. Potential limitations the Board of Directors places on the power of the Chief Executive Officer The Chief Executive Officer is vested with the broadest powers to act in all circumstances on be- half of the Company, within the limits of the corporate purpose, and subject to those expressly granted by law and the articles of association to shareholders' meetings. and the Board of Direc- tors. The Managing Director manages the Company. 51 4.7. Specific procedures for the participation of shareholders in the general meeting or the provisions of the articles of association which provide for these procedures In accordance with articles 20 and 21 of the Company’s Articles of Association: All shareholders have the right to attend meetings and participate in the deliberations: • • • • • personally, or by giving power of attorney to any natural or legal person of their choice, or by sending a power of attorney to the Company without indicating the mandate, or by voting by mail, or by videoconference or by another means of telecommunication in accordance with the applicable legal and regulatory provisions. Participation in general meetings, in any form whatsoever, is subject to registration or registration of shares under the conditions and within the time limits provided for by the regulations in force. The final date for returning postal ballots is set by the Board of Directors and communicated in the notice of meeting published in the Bulletin d'Annonces Légales et Obligatoires (BALO). This date cannot be earlier than three days before the Meeting. Shareholders who voted by post will no longer be able to participate directly in the meeting or to be represented. In the event of the return of the proxy form and the postal voting form, the proxy form is taken into consideration, subject to the votes cast in the postal voting form. Any shareholder may be represented at Meetings by any natural or legal person of their choice, by means of a proxy form sent to them by the Company: • or at his request, sent to the Company by any means. This request must be received at the registered office at least five days before the date of the Meeting, • or at the initiative of the Company. The proxy given by a shareholder to be represented at a Meeting is signed by him, if necessary, by a secure electronic signature process or by any other reliable identification process guarantee- ing its link with the act to which it is attached. The proxy is revocable in the same way as required for its designation. All the documents and information provided for by the regulations in force must be attached to any proxy form sent to shareholders by the Company for each Meeting. The proxy given by a shareholder is only valid for a single Meeting or for successive Meetings convened with the same agenda. It can also be given for two Meetings, one Ordinary, the other Extraordinary, held on the same day or in a period of fifteen days. Any shareholder may vote by mail using a voting form sent to him/her by the Company. • at his/her request, sent in writing. This request must be submitted or received at the regis- tered office at least six days before the date of the Meeting, or 52 • • at the initiative of the Company, or as an appendix to a proxy voting form under the conditions provided for by the regulations in force. All postal voting forms sent to shareholders by the Company must be accompanied for each Meeting by all the documents and information provided for by the regulations in force. The postal voting form sent by a shareholder is only valid for a single Meeting or for successive Meetings convened with the same agenda. 4.8. Procedure organized by the Board of Directors to regularly assess whether agreements relating to current transactions and entered into under normal conditions meet these conditions This procedure falls within the scope of the provisions of Article L.22-10-12 of the French Com- mercial Code, requiring the Board of Directors of companies whose shares are admitted to trad- ing on a regulated market to set up a procedure for regularly assessing whether agreements re- lating to current transactions and entered into under normal conditions meet these conditions. It aims, on the one hand, to provide details as to the criteria used by the Company to identify and qualify current transactions entered into under normal conditions to which it is a party, and, on the other hand, to formalize a procedure enabling the regular assessment of whether these agree- ments continue to meet these conditions. Since current transactions entered into under normal conditions are excluded from the authoriza- tion regime for regulated agreements defined in Article L.225-86 of the Commercial Code, it is ad- visable to ensure on a regular basis that the conditions allowing such qualification are met, in par- ticular with regard to the case law in force and the doctrine of the Compagnie Nationale des Com- missaires aux comptes. The procedure for evaluating current agreements entered into under normal conditions will be validated by the Board of Directors during the first half of 2022. 53 4.9. Structure of the share capital of the Company CAPITAL STRUCTURE ON APRIL 5, 2022 Breakdown of capital and Breakdown of capital and voting rights on a non-diluted voting rights on a fully diluted basis basis Shareholders % of capital and theoretical voting rights % of capital and theoretical voting rights Number of shares Number of shares Pier Vincenzo Piazza, CEO Anders Gersel Pedersen, Chairman Total executive directors Inserm Transfert Initiative 2,083,200 16.66% 2,664,000 1066,000 2,770,000 1,604,447 1,023,718 334,782 18.75% 0.75% 19.50% 11.29% 7.20% 2.36% 8.27% 4.54% 5.75% 13.10% 4.94% 57.45% 2,083,200 1,604,447 1,023,718 334,782 16.66% 12.83% 8.64% 2,68% 9.40% 5.16% 6.54% 14.88% 5.61% 65.29% Nouvelle Aquitaine Co-Investissement (1) (4) Aqui-Invest (1) (4) Région Nouvelle Aquitaine (4) Aquitaine Création Investissement (1) Aelis Innovation (2) 1,174,872 645,206 1,174,872 645,206 817,006 817,006 FPS Bpifrance Innovation I (3) Indivior UK Ltd. 1,860,766 701,469 1,860,766 701,469 Total Investors 8,162,266 8,162,266 Founders-managers/managers who are not executive directors Total employees, consultants and indi- vidual non-executive directors Other shareholders who are individual non-executive founders 620,366 453,600 4.96% 3.63% 1,193,902 900,708 8.40% 6.34% 478,766 702,964 3.83% 5.62% 478,766 702,964 3.37% 4.95% Free float Total 12,501,162 100.00 % 14,208,606 100.00% (1) Aquiti Gestion has a management mandate for the Aquitaine Création Investissement fund (private investment structure in which the Nouvelle Aquitaine Region is a 30% shareholder, and an advisory mandate for the Aqui-Invest funds, and Nouvelle Aquitaine Co-Investment. (2) The Aelis Innovation fund is represented by the management company Irdi Capital Investissement. (3) The FPS Bpifrance Innovation I fund is represented by the management company Bpifrance Investissement. (4) The total represented by the Aquitaine Region and the Aquitaine regional funds represents 20.72% of the capital and voting rights on a non-diluted basis, and 17.83% of the capital and voting rights on a fully diluted basis. 4.10. Statutory restrictions on the exercise of voting rights and the transfer of shares or the clauses of the agreements brought to the attention of the Company pursuant to article L. 233-11 of the commercial code Each share gives the right, as regards the profits and corporate assets, to a share proportional to the share of the capital that it represents. In addition, it gives the right to vote and to representation at General Meetings under legal and statutory conditions. Shareholders are only liable up to the nominal amount of the shares they own, beyond which any call for funds is prohibited. 54 Ownership of a share automatically implies adherence to the Company's Articles of Association and to the decisions of the General Meeting. The heirs, creditors, assignees, or other representatives of a shareholder may not request the af- fixing of seals to the Company's assets and securities, nor request their division or auction, nor interfere in the acts of its administration, they must, for the exercise of their rights, refer to the Company records and the decisions of the General Meeting. Each time it is necessary to own several shares to exercise any right, in the event of an ex- change, consolidation or allocation of securities, or as a result of a capital increase or reduction, merger or other corporate operation, the owners of securities that are isolated or in fewer than the required number can only exercise these rights on the condition that they make it their personal business to group together and, possibly, buy or sell the necessary securities. However, the Company may, in the event of exchanges of securities following a merger or de- merger, capital reduction, consolidation or division and mandatory conversion of bearer securities into registered securities, or distributions of securities allocated to reserves or linked to a capital reduction, or distributions or allocations of free shares, by simple decision of the Board of Direc- tors, sell securities whose beneficiaries have not requested delivery, on the condition of having carried out, at least two years in advance, the publication formalities provided for by the regula- tions. From the date of this sale, the old shares or the old rights to distributions or allocations are, as necessary, canceled and their holders can only claim the distribution in cash of the net proceeds from the sale of the shares unclaimed. 4.11. Direct or indirect holdings in the capital of the Company which it is aware of according to Articles L. 223-7 and L. 233-12 of the Commercial Code The shareholding of the Company is detailed in Section 4.9. The Company is not aware of any indirect holdings modifying these holding rates. 4.12. List of holders of any securities with special control rights and description thereof As of the date of this report, there are no special rights granted to holders of the capital. The shareholders' agreement existing on December 31, 2021, and conferring special rights, was ren- dered null and void upon settlement-delivery on February 17, 2022. 4.13. Control mechanisms provided for in a possible staff shareholding system, when the control rights are not exercised by the latter As the Company has not set up any share allocations under a Company Savings Plan, no direc- tor representing employee shareholders has been appointed. 55 4.14. Agreements between shareholders which the Company is aware of and which may entail restrictions on the transfer of shares and the exercise of voting rights The Company is not aware of any agreement between shareholders. 4.15. Rules applicable to the appointment and replacement of members of the Board of Directors as well to the modification of the articles of association The applicable rules regarding the appointment and replacement of members of the Board of Di- rectors are described in Section 4.4.1 – Board of Directors. The Extraordinary General Meeting alone is authorized to modify the Articles of Association in all their provisions and in particular to decide on the transformation of the Company into a company of another form. It may not, however, increase shareholders' commitments, subject to operations resulting from a duly carried out consolidation of shares. The Extraordinary General Meeting can only deliberate validly if the shareholders present, repre- sented or voting by mail hold at least, on first call, one quarter of the shares with voting rights and, on second call, one fifth of the shares with voting rights. In the absence of this last quorum, the second Meeting may be postponed by a maximum of two months from the date on which it was convened. It rules by a majority of two-thirds of the votes cast by the shareholders present, represented or voting by post or participating in the Meeting by videoconference or by another means of tele- communication in accordance with legal and regulatory provisions. By legal derogation from the preceding provisions, the General Meeting which decides on a capi- tal increase by way of incorporation of reserves, profits or issue premiums, may rule under the quorum and majority conditions of an Ordinary General Meeting. 4.16. Powers of the Board of Directors, in particular with regard to the issue or redemption of shares For a description of the delegations and authorizations to issue shares granted to the Board of Directors, see Section 4.2.8 of the Report on Corporate Governance. As part of the Company's plan to list the Company on Euronext Paris, the general meeting of shareholders of the Company on January 11, 2022 authorized, under the terms of its 22nd reso- lution, the Board of Directors, for a period of eighteen months from the date of the meeting, to im- plement a Company share buyback program under the conditions provided for in Articles L. 22- 10-62 et seq. of the French Commercial Code and in accordance with the provisions of the gen- eral regulations of the AMF. The general meeting thus: • decided that the acquisition, sale or transfer of these shares may be carried out by any means, on one or more occasions, in particular via the market or over the counter, 56 including by acquisition or sale of blocks, public offers, by using optional or derivative mechanisms, under the conditions provided for by the market authorities and in compli- ance with the applicable regulations; • decided that the authorization may be used to: ensure the liquidity of the Company's shares under a liquidity contract to be entered into with an investment services provider, acting independently, in accordance with market practice accepted by the AMF; honor obligations related to stock option plans, free share allocations, employee savings plans or other allocations of shares to employees and managers of the Company or com- panies that related to it as well as to carry out all hedging transactions relating to these transactions under the conditions and in accordance with the provisions provided for by the applicable laws and regulations; deliver shares on the occasion of the exercise of rights attached to securities giving ac- cess to the capital as well as to carry out all hedging transactions relating to these trans- actions under the conditions and in accordance with the provisions provided for by the laws and applicable regulations; purchase shares for retention and subsequent delivery for exchange or payment in the context of any external growth, merger, demerger or contribution operations; cancel all or part of the shares thus repurchased under the terms indicated in the 23rd resolution approved by the general meeting of January 11, 2022, or; more generally, to operate for any purpose that may be authorized by law or any market practice that may be accepted by the market authorities, it being specified that, in such a case, the Company would inform its Shareholders by a press release; • • decided to set the maximum unit purchase price per share (excluding fees and commis- sions) at 300% of the price per share retained in the context of the IPO, with an overall ceiling of €10,000,000, being specified that this purchase price will be subject to any nec- essary adjustments to take account of capital transactions (particularly in the event of in- corporation of reserves and free allocation of shares, splits or consolidation of shares) which would take place during the period of validity of this authorization, decided that the maximum number of shares that may be purchased pursuant to this res- olution may not, at any time, exceed 10% of the amount of the share capital at any time whatsoever, this percentage applying to an adjusted capital depending on the transac- tions affecting it subsequent to the present, it being specified that when the shares are acquired for the purpose of promoting the liquidity of the Company's shares, the number of shares taken into account for the calculation of this limit will correspond to the number of shares purchased after deduction of the number of shares resold during the duration of the authorization, and • granted all powers to the Board of Directors with the option of sub-delegation under the conditions provided for by law, in order to implement this authorization, in particular to judge the advisability of launching a buyback program and to determine terms, place all stock market orders, sign all deeds of assignment or transfer, conclude all agreements, all liquidity contracts, all option contracts, make all declarations to the AMF and any other body, and all necessary formalities, in particular allocating or reassigning the acquired shares to the various formalities, and, in general, doing all that is necessary (the “Authori- zation”). By using this Authorization, the Board of Directors on February 15, 2022 authorized the imple- mentation of a share buyback program with a view to: 57 • • ensure the liquidity of the Company's shares under a liquidity contract to be entered into with an investment services provider, acting independently, in accordance with market practice accepted by the AMF; honor obligations related to stock option plans, free share allocations, employee savings plans or other allocations of shares to employees and managers of the Company or com- panies related to it as well as to carry out all hedging operations relating to these opera- tions under the conditions and in accordance with the provisions provided for by the appli- cable laws and regulations; • deliver shares on the exercise of rights attached to securities giving access to the capital as well as to carry out all hedging transactions relating to these transactions under the conditions and in accordance with the provisions provided for by law and applicable regu- lations; • • • purchase shares for retention and subsequent delivery for exchange or payment in the context of any external growth, merger, demerger or contribution operations; cancel all or part of the shares thus repurchased under the terms indicated in the 23rd resolution approved by the general meeting of January 11, 2022, or; more, generally, to operate for any purpose that may be authorized by law or any market practice that may be accepted by market authorities, it being specified that, in such a case, the Company would inform its Shareholders by way of a press release. In this context, the Company entered into a liquidity contract on February 15, 2022 with ODDO BHF SCA, in accordance with the legal framework in force. This contract became active at the end of the over-allotment period. The Liquidity Contract was concluded for a period of 12 months and is renewable by tacit agree- ment for periods of one (1) year, except in the cases of termination provided for in the contract, it being specified that, by way of derogation, the first year will begin from the date of its signature and will end on December 31. The purpose of the Liquidity Contract is for the intervention of ODDO BHF SCA on Euronext Paris, on behalf of the Company, with a view to promoting the liquidity of the Company’s shares and to ensure share price stability in order to avoid price shifts not justified by the market trend. For the implementation of this contract, the Company has decided to allocate an amount of €500,000 to the liquidity account. The execution of the Liquidity Contract will be suspended in the cases provided for by the AMF and/or Euronext, in the event of suspension of the price of the shares by Euronext, in the event that the Company no longer has a buy-back authorization. of its own shares or, in accordance with the provisions of Article 5 of AMF Decision No. 2021-01 of June 22, 2021, during the imple- mentation of stabilization measures within the meaning of the Market Abuse Regulation as well as during a public pre-offer period and until the closing of the offer, when the issuer is the initiator of the offer or when its securities are targeted by the offer. The Liquidity Contract entered into force from the end of the stabilization period of the Offer, i.e. from March 18, 2022. 58 4.17. Agreements entered into by the Company modified or terminated in the event of a change in control of the Company, unless such disclosure seriously harms its interests At the date of this report, there are no significant agreements entered into by the Company which are modified, or which terminate in the event of a change of control of the Company, with the ex- ception of certain public financing contracts awarded to the Company. 4.18. Agreements providing for compensation for directors or employees in the event of resignation or dismissal without real and serious cause or termination of employment following a takeover or exchange offer An indemnity equal to 6 months of gross compensation (based on the annual compensation which includes the fixed part, the variable part and, if applicable, exceptional compensation) would be paid to Pier Vincenzo Piazza in the event of termination of his duties as Chief Executive Officer resulting from a decision of the Board of Directors. 4.19. Restrictions imposed by the Board of Directors with regards to share subscription or purchase options granted to executive directors No restrictions are imposed by the Board of Directors. 4.20. Remuneration policy 4.20.1. Compensation of executive officers 4.20.1.1.Compensation of executive officers in the previous two financial years The tables below show the compensation paid to Anders Gersel Pedersen, Chairman of the Board of Directors since his appointment on February 18, 2020 (the role of Chairman of the Board of Directors was fulfilled in 2019 and until the appointment of Anders Gersel Pedersen by François Thomas, representative of Inserm Transfert Initiative and, as such, was unpaid) and to Pier Vincenzo Piazza, Chief Executive Officer, of the Company in the financial years ending De- cember 31, 2020 and 2021. 59 TABLE 1 OF APPENDIX 2 OF THE AMF POSITION-RECOMMENDATION DOC-2021-02 - SUMMARY OF THE COMPENSATION AND THE OPTIONS AND SHARES AWARDED TO EACH EXECUTIVE OFFICER Financial year 2020 Financial year 2021 Amounts in euros Pier Vincenzo Piazza, Chief Executive Officer (1) Compensation payable in respect of the financial year (de- tailed in Table 2) 346,643 None 501,137 None Valuation of the multi-year variable compensation awarded during the financial year Value of options awarded during the year Value of other long-term compensation plans Total for Pier Vincenzo Piazza None None None None 346,643 501,137 (1) Since the Company's conversion to a société anonyme (limited company), on January 11th, 2022, the Chief Executive Officer appointed by the newly formed Board of Directors is Pier Vincenzo Piazza. The compensation amounts set out in this table therefore relate exclusively to the compensation received by Pier Vincenzo Piazza in respect of the two most recent financial years, during which periods he was Chairman (within the meaning of Arti- cle 227-6 of the French Commercial Code) of Aelis Farma while it was incorporated in the form of a société par actions simplifiée (simplified joint-stock company). TABLE 1 OF APPENDIX 2 OF THE AMF POSITION-RECOMMENDATION DOC-2021-02 – SUMMARY OF THE COMPENSATION AND THE OPTIONS AND SHARES AWARDED TO EACH EXECUTIVE OFFICER Financial year 2020 Financial year 2021 Amounts in euros Anders Gersel Pedersen, Chairman of the Board of Directors (1) Compensation payable in respect of the financial year (de- tailed in Table 2) 66,500 - 70,000 - Valuation of the multi-year variable compensation awarded during the financial year Value of options awarded during the year (2) Value of other long-term compensation plans Total for Anders Gersel Pedersen 87,290 - - - 153,790 70,000 (1) Compensations mentioned in this table related exclusively to the compensations received by Ander Gersel Pedersen as statutory Chairman of the Board of Directors of Aelis Farma while it was incorporated as a simplified joint-stock company. (2) This value relates to the 4,000 BSPCEs attributed to Anders Gersel Pedersen. 60 TABLE 2 OF APPENDIX 2 OF THE AMF POSITION-RECOMMENDATION DOC-2021-02 - SUMMARY OF THE COMPENSATION OF EACH EXECUTIVE OFFICER (PIER VINCENZO PIAZZA) Amounts in euros Financial year 2020 Financial year 2021 Pier Vincenzo Piazza, Chief Executive Officer (1) Awarded Paid 209,804 Awarded Paid Annual fixed compensation 209,804 88,334 0 238,773 118,750 0 238,773 118,750 0 Annual variable compensation Multi-annual variable compensation Extraordinary compensation 158,334 (2) 0 24,084 24,084 (2) 120,000 120,000 Compensation awarded for director- ships 0 0 0 0 Accommodation allowance 24,421 24,421 23,614 23,614 Total for Pier Vincenzo Piazza 346,643 416,643 501,137 501,137 (1) Since the Company's conversion into a société anonyme (limited company), on January 11th, 2022, the Chief Executive Officer appointed by the newly formed Board of Directors is Pier Vincenzo Piazza. The compensation amounts set out in this table correspond exclusively to the compensation received by Pier Vincenzo Piazza in re- spect of the two most recent financial years, during which periods he was Chairman (within the meaning of Article 227-6 of the French Commercial Code) of Aelis Farma while it was incorporated in the form of a société par ac- tions simplifiée (simplified joint stock Company). (2) The amounts of variable compensation paid in 2020 include variable compensation for 2019 (€70,000) and 2020 (€88,334 in annual variable compensation). The Chief Executive Officer’s annual variable compensation is awarded based on targets set at the start of the financial year by the Board of Directors on a recommendation from the Compen- sation Committee, and taking into account any other event that, during the year, caused the tar- gets decided at the start of the year to be modified or changed. All these criteria are reviewed at the end of the year by the Board of Directors based on the proposal of the Compensation Com- mittee. The criteria are based on targets that may change from one year to the next and that may include, for example, financial targets (raising of dilutive and/or non-dilutive funds) and opera- tional targets (adherence to the timetable for clinical and preclinical studies and for filing patent applications, or recruitment targets). An exceptional bonus may be awarded in the event that any of these criteria are exceeded by a considerable degree, or a major event is successfully han- dled. The criteria set by the remuneration committee for the variable portion of Pier Vincenzo Piazza’s compensation were based on the following objectives: Fiscal year 2020 The objectives, evaluated in the context of a year turned upside down by the pandemic, were as follows: • compliance with the development schedule of the various research programs (clinical and pre-clinical) with specific objectives for each program, and taking into account the uncer- tainty caused by the pandemic; • obtaining non-dilutive financing in the context of the pandemic. These objectives were considered to be 100% achieved. An exceptional bonus of 10% was granted to Pier Vincenzo Piazza in view of the quality of the scientific results achieved (phase 2a 61 study of AEF0117) and the high level of secured non-dilutive funds and the efficient reorganiza- tion of the Company under the new working conditions imposed by the pandemic. Fiscal year 2021 The objectives evaluated during fiscal year 2021 were as follows: • • • compliance with the development schedule and the regulatory schedule of the various re- search programs (clinical and pre-clinical) with specific objectives for each program; obtaining non-dilutive or non-dilutive financing over the financial year (quantified objec- tive); implementation of the recruitment plan defined over the financial year. These targets were considered to be 95% achieved. An exceptional bonus of €120,000 was granted to Pier Vincenzo Piazza following the signing of the license option agreement with In- divior PLC in June 2021. Pier Vincenzo Piazza, like the Company’s other employees, may benefit from invention bonuses upon the filing of patents under the Company’s intellectual property development policy. He re- ceived an exceptional bonus of €2,000 under this policy on December 31, 2020. Fiscal year 2022 In accordance with the authorization given at the Board of Directors meeting of December 21, 2021, the Board of Directors meeting of April 1, 2022 decided to award, on the proposal of the Compensation Committee, an exceptional bonus of €125,000 to the Chief Executive Officer in connection with the listing of the Company on the regulated Euronext market on February 18, 2022. The Board of Directors of April 1, 2022 set, on the proposal of the Compensation Committee, the objectives which will be assessed during the 2022 financial year, and which will determine the al- location of the variable part of the compensation of the Chief Executive Officer: • Comply with the research and development schedule and the regulatory schedule for the various research programs (AEF0117, AEF0217 and New CB1-SSi) according to the ob- jectives announced to the market; • • Submit new scientific publications and patents; Establish and implement a roadmap for new recruitments, investor relations and commu- nication. 62 TABLE 2 OF APPENDIX 2 OF THE AMF POSITION-RECOMMENDATION DOC-2021-02- SUMMARY OF THE COMPENSATION OF EACH EXECUTIVE OFFICER (ANDERS GERSEL PEDERSEN) Amounts paid in euros Financial year 2020 Financial year 2021 Anders Gersel Pedersen, Chairman of the Board of Directors (1) Awarded Paid 35,000 Awarded Paid Annual fixed compensation (2) Annual variable compensation Multi-annual variable compensation Extraordinary compensation 35,000 - - - - - - - - - - - - - - Compensation awarded for directorships (2) Benefits in kind 31,500 - 0 - 70,000 - 70,000 - Total for Anders Gersel Pedersen 66,500 35,000 70,000 70,000 (1) The compensation amounts set out in this table correspond exclusively to the compensation received by An- ders Gersel Pedersen in respect of the two most recent financial years, during which periods he was Chairman of the Board of Directors of Aelis Farma while it was incorporated in the form of a société par actions simplifiée (sim- plified joint stock Company). (2) The annual compensation of 2020 comprises (i) the compensation received by Anders Gersel Pedersen for carrying out his role as a Director (€31,500) and (ii) the compensation he received under the consultancy agree- ment entered into on February 18, 2020 by Gerselconsult ApS, whose Chief Executive Officer is Anders Gersel Pedersen, and the Company (€35,000). This agreement, as amended, was terminated in 2021. 4.20.1.2.Compensation of the executive officers in respect of the current financial year TABLE 11 OF APPENDIX 2 OF THE AMF POSITION-RECOMMENDATION DOC-2021-02) COMPENSATION OF THE EXECUTIVE OFFICERS IN RESPECT OF THE CURRENT FINANCIAL YEAR Compensation or benefits due or Employment Supplementary that might be due Compensation under a contract pension plan because of the termination or change of position non-compete clause Executive officers Yes No Yes No Yes No Yes No Pier Vincenzo Piazza, Chief Executive Officer X X X X X () X X Anders Gersel Pedersen, Chair- man of the Board of Directors X () By a resolution of the Board of Directors dated December 15, 2020, a compensation equal to six months’ gross compensation (based on annual compensation which includes fixed and variable and, if applicable, excep- tional compensation) is to be paid to Pier Vincenzo Piazza in the event that he ceases to act as Chairman/Chief Executive Officer pursuant to a resolution of the Board of Directors. 63 4.20.1.3.Other components of compensation Award of bonus shares None. Stock subscription or purchase options Please refer to section 4.20.5. 4.20.2. Compensation of members of the Board of Directors In relation to the 2021 financial year, the shareholders at the General Meeting held on June 25, 2021 approved an overall compensation package for the members of the Board of Directors of €55,000, of which the Board of Directors has paid a total amount of €43,000 to its members in re- spect of the 2021 financial year. Additional compensation of €35,000, excluding attendance fees, was also paid to Mr. Anders Gersel Pedersen for his duties as Chairman of the Board of Direc- tors. 4.20.2.1.Compensation of members of the Board of Directors The table below sets out the compensation paid to directors and the other compensation received by non-executive officers during the financial years ended on December 31, 2020 and 2021. TABLE 3 OF APPENDIX 2 OF THE AMF POSITION-RECOMMENDATION DOC-2021-02) COMPENSATION PAID TO DIRECTORS AND OTHER COMPENSATION RECEIVED BY NON-EXECUTIVE OFFICERS Amounts awarded in respect of the 2020 financial year Amounts paid Amounts Amounts paid during the 2021 financial year during the 2020 financial year awarded in respect of the 2021 financial year Non-executive officers (euros) (euros) (euros) (euros) Inserm Transfert Initiative, Represented by François Thomas, observer (1)(2) Compensation (fixed, variable) Other compensation 15,000 15,000 20,000 20,000 Les Thélémites, Represented by Alain Sainsot, director (1)(2) Compensation 8,000 12,200 - 13,000 - 13,000 - (fixed, variable) Other compensation - (1) These individual representatives and legal entity directors were remunerated through their respective consult- ing companies. (2) As of the date of this Report these persons are no longer directors of the Company. Inserm Transfert Initiative, represented by François Thomas, was a director until January 11, 2022 and was appointed as censor on that date. 64 4.20.2.2.Other compensation relating to all officers As the officers have neither received nor exercised any BSAs or BSPCEs (subscription warrants) during the financial year ending December, 31 2021, this Report does not include tables 4 and 5 appended to the AMF Position - Recommendation DOC-2021-02 entitled "Guide to the prepara- tion of universal registration documents” for the financial years 2020 and 2021. During its meeting of April 1, 2022, the Board of Directors decided to allocate BSAs and BSPCEs (subscription warrants) to corporate officers under the following conditions: APRIL 1ST2022 ALLOCATION OF BSAS AND BSPCES Number and date of the Valuation Number Type of warrants of of Exercise price Exercise period Officers warrants (1) warrants granted plan Anders Pedersen, Gersel 04/30/2024 - 03/31/2032 BSPCE2022 04/01/2022 BSPCE BSPCE BSPCE BSPCE - - - - 10,000 5,000 5,000 5,000 14.02€ 14.02€ 14.02€ 14.02€ Karina Hansen Irina Staatz BSPCE2022 04/01/2022 04/30/2024 - 03/31/2032 BSPCE2022 04/01/2022 04/30/2024 - 03/31/2032 Karen Linehan BSPCE2022 04/01/2022 04/30/2024 - 03/31/2032 (1) the valuation of these warrants will be determined when preparing the half-year financial statements of June 30, 2022, in accordance with IFRS2. 4.20.2.3.Loans and security interests granted to members of the Company’s administrative, management or supervisory bodies None. 4.20.3. Compensation of members of the Board of Directors once the Company’s shares are admitted to trading on the Euronext Paris regulated market The shareholders at the meeting held on January 11th, 2022 approved an overall compensation package for the members of the Board of Directors of €300,000 which the Board of Directors will be able to pay to its members in respect of the 2022 financial year, and €300,000 in respect of subsequent financial years, until a new resolution is passed by the shareholders at a General Meeting. Only independent directors will receive compensation, which will include a fixed part, as compen- sation for their functions as independent director and, where applicable, member or chairman of one of the Committees of the Board of Directors, and a variable part, the amount of which will de- pend on their effective participation in the meetings of the Board of Directors and, where applica- ble, in the meetings of the Committees of which they are members. 65 Mr. Anders Gersel Pedersen, Chairman of the Board of Directors, will receive, in his capacity as independent director only, a fixed annual remuneration of €100,000. Karina Hansen, Karen Linehan, and Irina Staatz-Granzer will each receive, in their capacity as independent directors, fixed annual remuneration of €20,000to which will be added a variable remuneration of €1,500 per meeting of the Board of Directors, this variable remuneration increases to €2,500 for chairing a committee. It is planned to increase the compensation of the Chief Executive Officer of the Company after the Company's admission to the regulated market to €300,000 of fixed compensation, associated with variable compensation equivalent to 50% of the fixed compensation (on the basis of criteria described above), and any exceptional bonuses that may be offered by the Compensation Com- mittee. On April 1st, the Board of Directors also decided to grant the Chief Executive Officer a bonus re- lating to the listing of the Company's shares on the regulated market of Euronext Paris in the amount of €125,000 (out of a maximum amount of €150,000 authorized ex-ante by the Board of Directors on January 11, 2022). The payment of the housing allowance to the Chief Executive Of- ficer is intended to continue after the Company's IPO (for an annual amount of approximately €25,000). Similarly, the payment to the latter of an indemnity equal to 6 months of gross remuner- ation (based on the annual remuneration which includes the fixed part, the variable part, and, if applicable, exceptional remuneration) in the event of termination of his functions resulting from a decision of the Board of Directors, is intended to continue. 4.20.4. Amounts set aside by the Company to pay allowances, pensions and other benefits to officers The Company has not set aside any amounts to pay allowances, pensions and other benefits to officers. The Company has not made any golden handshake or golden hello payments to officers. 4.20.5. Shareholdings and stock-options of members of the Board of Directors The table below presents, on the date of preparation of this report on Governance, the interests held by each corporate officer, on a non-diluted and fully diluted basis. 66 SHARES HELD BY EACH MEMBER OF THE BOARD OF DIRECTORS Undiluted Capital BSPCE BSA Diluted capital Members of the Board of Directors % of capital and voting exercise of rights BSPCE Number of shares upon Number of shares upon exercise of BSA % of capital and voting rights Number of shares Number of shares Mr. Anders Gersel Pedersen, Chairman of the Board of Directors 0 0 96,000 0 96,000 0.68 M. Pier Vincenzo Piazza, Chief Executive Officer 2,083,200 1,174,872 16.69 9.41 218,400 0 362,400 0 2,664,000 1,174,872 18.99 8.38 Région Nouvelle-Aqui- taine, represented by M. Brahim Guetarni Karina Hansen Director 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Karen Linehan Director Irina Staatz-Granzer Director Inserm Transfert Initiative, represented by M. François 1,604,447 12.86 0 0 1,604,447 11.44 Thomas, Censor The number of shares indicated above takes into account the division of the nominal by 24 de- cided at the AGM of January 11, 2022, and the transactions carried out on February 17, 2022 within the framework and following the introduction of the Company on the regulated market of Euronext Paris. 4.21. Ethics of the members of the Board of Directors In accordance with recommendation no. 1 of the MiddleNext Code, each director is made aware of the responsibilities incumbent on him/her at the time of his appointment and is encouraged to observe the rules of ethics relating to his term of office and in particular: • • • • the search for exemplarity which implies, at all times, consistent behavior between words and deeds, a guarantee of credibility and trust, when accepting the mandate; each member of the Board of Directors becomes aware of the resulting obligations and, in particular, those relating to the legal rules for the accumulation of directorships; at the beginning of his/her term of office, he/she signs the internal regulations of the Board of Directors; during the term of office, each director must inform the Board of Directors of any situa- tions of potential conflict of interest (client, supplier, competitor, consultant, etc.) or proven (other terms of office) concerning him/her; 67 • • • in the event of a conflict of interest, and depending on its nature, the director abstains from voting, or even from participating in the deliberations, and in the extreme, resigns; each member of the Board of Directors is diligent and takes part in the meetings of the Board of Directors and of the Committees of which he is a member; each member of the Board of Directors ensures that he has obtained all the necessary information and in sufficient time on the subjects that will be discussed during the meet- ings; • • each member of the Board of Directors respects true professional secrecy with regard to third parties, and; each member of the Board of Directors attends the meetings of the General Assembly. 4.22. Senior Management It was decided, on January 11, 2022, to separate the functions of Chairman of the Board of Direc- tors and Chief Executive Officer. At the date of this Financial Report, General Management is provided by Mr. Pier Vincenzo Pi- azza, who performs the duties of Chief Executive Officer with no other limitation of powers than those provided for by the texts in force concerning the specific powers of the Board of Directors or the General Meeting of shareholders. The Chief Executive Officer has the option of partially delegating his powers to one or more agents. The Chief Executive Officer's business address is the registered office of the Company. SENIOR MANAGEMENT Date of initial appointment and end of term Principal roles and offices outside the Company Name Position First appointed: January 11, 2022 Expiry of term of office: Unlimited duration Pier Vincenzo Piazza Chief Executive Officer None Prior to his appointment as Chief Executive Officer of the Company by the Board of Directors meeting on Janu- ary 11 (following the transformation of the Company from a joint-stock company (SAS) into a limited company). Pier Vincenzo Piazza held the position of Chairman of the SAS since December 20, 2017. 68 4.23. Equity ratio The table below details executive compensation in the form of salaries, benefits in kind, attend- ance fees and other employee benefits, determined in accordance with IFRS2. EQUITY RATIOS Fiscal year 2021 Fiscal year 2020 Fiscal year 2019 Fiscal year 2018 Fiscal year 2017 Chair- Chair- man CEO of of the Chair- man CEO of of the Chair- man of the Board of Direc- tors Chair- man of the Board of Com- Direc- tors man of CEO CEO of the Com- pany CEO of the Type of ratio of the Com- pany the the Com- pany the Com- pany Board of Direc- tors Board of Direc- tors Board of Direc- tors pany Executive compensation / average employee compensation 6.49 9.05 0.91 1.26 3.27 5.01 6.41 2.22 2.84 7.28 3.99 0.19 0.28 0.96 5.41 5.07 0.36 0.34 1.24 0.83 0.91 2.99 - - - Executive compensation / median employee compensation 5.69 Executive compensation / 23.37 16.42 19.71 18.73 annual wage minimum 4.24. Corporate Social Responsibility As part of its IPO on Euronext Paris and in accordance with the recommendations of the Middlen- ext code, the Company set up, after December 31, 2021, a CSR committee. The latter is partof the Remuneration Committee, which has not yet met on the date of preparation of this report. Given its service and research and development activity, the Company will endeavor, from the 2022 financial year, to reflect on its environmental impact and in particular that of its molecules on the environment, through studies measuring the penetration of its product into the environment (in particular into the aquatic environment). 69 Section 5 - Financial statements prepared in accordance with IFRS as of December 31, 2021 STATEMENT OF NET INCOME In thousands of euros Note 12/31/21 12/31/20 Revenue 5.2 5.3 9,075 1,687 10,762 (6,870) (1,340) 2,552 - - Other operating income 1,137 1,137 (3,388) (658) (2,910) 70 Revenue from ordinary activities Research and Development costs General and administrative costs Recurring operating profit (loss) Other operating income and expenses Operating profit (loss) 5.4 5.5 5.8 5.9 2,552 (794) 1,759 (1,185) 574 (2,840) (202) (3,042) 956 Financial income (loss) Profit (loss) before tax Income tax expense 5.10 Net income (loss) (2,086) (5,22) (5,22) Basic earnings per share (€/share) Diluted earnings per share (€/share) 4.6.3 4.6.3 1,44 3,87 STATEMENT OF COMPREHENSIVE INCOME In thousands of euros Note 12/31/21 12/31/20 Net income (loss) 574 (2) (2) - (2,086) Items will not be reclassified subsequently to profit or loss Actuarial gain (loss) on employee benefit obligation Tax effect (2) (2) - 4.8 3.4 Items that may be reclassified subsequently to profit or loss 527 - Fair value gain/(loss) arising on hedging instruments during the period 527 - (1) Tax effect - - Comprehensive profit (loss) (1,098) (2,088) (1) Application of hedge accounting to end-of-period cash 70 STATEMENT OF FINANCIAL POSITION In thousands of euros Note 12/31/21 12/31/20 Intangible assets 4.1 4.2 90 196 60 48 Property, plant and equipment Deferred tax assets 5.10 0 956 Total non-current assets Receivables and prepaid expenses Inventory 287 1,064 1,396 4.4 4.5 3,299 17 Cash and cash equivalents Total current assets 24,710 28,027 28,313 899 4,538 5,935 6,999 (709) 110 TOTAL ASSETS Shareholders’ equity Employee commitments Non-current financial debts Other debts – non-current Passive derivatives 4.6 4.8 101 4.9 5,254 6,339 1,505 13,199 1,158 2,243 469 5,787 - 4.10 4.9 222 Total non-current liabilities Current financial liabilities Trade payables and related items Fiscal and social debts Deferred revenue 6,119 328 4.9 4.10 4.10 4.10 927 304 10,346 - - Other current debts 32 Total current liabilities TOTAL EQUITY AND LIABILITIES 14,216 28,313 1,590 6,999 71 CASH FLOW STATEMENT In thousands of euros Note 12/31/21 12/31/20 Profit (loss) for the period 5 574 36 (2,086) 30 (+) Depreciation and amortization of intangible and tangible assets (+) Expenses related to share-based payments (+) Expenses related to defined benefit plans 5.7 5.6 443 24 172 25 4.8.3 (+) Neutralization of the impact of the restatement of government grants on net income 5.3 (16) 19 (+) Reclassification of interest income and expenses (+) Income tax expense 5.9 740 103 5.10.1 1,185 (956) Net cash flow from operating activities before changes in working capital requirements, financial interest and income taxes 2,985 (2,693) Change in working capital requirement (net of impairments of trade receivables and inventories) 16,383 116 (-) Research tax credit and income taxes for the year (+) Research tax credit collected 5.3 5.3 (1,089) 692 (692) 791 Net cash flows from operating activities 18,970 (2,478) 4.1 4.2 Acquisitions of intangible and tangible assets (213) (35) Financial interest received on investments Net cash flows from investing activities Capital increase net of the conversion of bonds Costs relating to the capital increase Issuance of bond loans net of fees Subscription of BSA 1 (212) - 1 (34) - - - - - 4.6.1 35 2 Issuance of bank loans - 63 Receipt of advances and loans for innovation, net of costs Repayment of advances and loans for innovation Repayment of debt on lease liabilities Gross financial interest paid 4.9.2 4.9.2 4.9.2 4.9.2 5.9 447 (140) (25) (63) (74) 180 1,350 (70) (24) - Net cash flows from financing activities Effect of exchange rate changes (44) 1,277 4.9.4 5.9 Net increase or decrease in cash and cash equivalents 1,235 - Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Profit (loss) for the period 20,172 4,538 (1,235) 5,771 4,538 24,710 72 STATEMENT OF CHANGES IN EQUITY Other compre- capital premium hensive income Reserve and retained earnings Share Share Total equity In thousands of euros Equity at 12/31/19 4 6,631 (20) (5,411) 1,203 Profit (loss) for the period Other comprehensive income Total comprehensive income Capital increase net of fees Share-based payments Other - - - (2,086) (2,086) - - - - - - - - (2,086) (2,086) - - - - - 172 - - - - 172 - - - - (20) - Equity at 12/31/20 4 - 6,631 (7,325) 574 - (711) 574 525 1,099 35 Profit (loss) for the period Other comprehensive income Total comprehensive income Capital increase net of fees Share-based payments Other - - - 525 525 - - - 574 - - 35 - - - - 443 34 443 34 - - Equity at 12/31/21 4 6,666 505 (6,275) 899 73 5.1. General information At the date of establishment of these financial statements, the simplified joint-stock company Ae- lis Farma (hereinafter "Aelis Farma" or "the Company"), incorporated in October 2013, is a com- pany domiciled in France, whose registered office is located in Bordeaux (33000) at 146, rue Léo Saignat, and registered with the BORDEAUX Trade and Companies Register under number 797 707 627. Aelis Farma was a simplified joint-stock company until the General Meeting of Jan- uary 11, 2022, which recorded its transformation into a public limited company with a board of di- rectors. Aelis Farma is a biotechnology company specializing in the research and development of treat- ments for brain diseases. It should be noted that the Company has not, since its creation, taken control of any other entity within the meaning of IFRS 10 "Consolidated Financial Statements". These financial statements are therefore not consolidated financial statements but individual financial statements of Aelis Farma only. These accounts constitute an additional set of accounts compared to the historical social accounts of Aelis Farma which are established according to French generally accepted ac- counting principles. On 04/01/2022, the Chairman approved and authorized the publication of the individual financial statements prepared according to IFRS for the year ended 12/31/2021. These financial state- ments have been prepared in connection with the listing of the Company's shares for trading on the French regulated market. 5.2. Highlights of the year Industrial partnership In June 2021, the Company entered into an industrial partnership in the form of an exclusive li- cense option agreement of the industrial property of AEF0117 in the field of cannabis-related dis- orders, with Indivior PLC. This agreement provides: • • firstly, an exclusive license option granted to Indivior PLC, until the end of the phase 2b clinical study for AEF0117. At the end of this study, Indivior PLC may or may not exercise the option. During this period, Aelis Farma undertakes to make its best efforts to carry out the phase 2b study and certain toxicity studies, and to communicate the results to Indivior PLC. This option was remunerated by a payment at the signing of the contract of an amount of 30 million USD, non-refundable and without retrocession to Indivior PLC. if Indivior PLC exercises this option at the end of the phase 2b study, it will benefit from an exclusive license allowing it to complete the development of the project, then to pro- duce and market the drug. Aelis Farma would then license, in particular, the two patents protecting AEF0117, research results, knowledge and know-how acquired since the start of the project. Indivior PLC will then pay an amount of 100 million USD upon signing of the license agreement then various sums at the achievement of technical, regulatory and commercial milestones, up to 340 million USD as well as royalties on drug sales ranging between 12 and 20%. 74 This agreement allows the Company to generate significant revenue over the period for the first time. The treatment of this contract under IFRS 15 “Revenue from contracts with customers” is specified below in Note 5.2 “Revenue”. Research and Development activities For compound AEF0117, 2021 was focused on: • • • the final validation of the results from our phase 2a clinical study in the United States, which was submitted to the American drug agency, the FDA, in April 2021. This study confirms the absence of significant side effects in cannabis drug addicts and provides the first evidence of efficacy in humans for AEF0117; development and validation with the FDA and our partner Indivior PLC of the protocol for the next phase 2b study. This study coordinated by Columbia University (New York), will involve 330 patients and 6 clinical centers over a period of 2 years, and will confirm the effectiveness of AEF0117 as a treatment for cannabis use disorders; launch of additional pre-clinical toxicity studies, and the production of new clinical batches of the pharmaceutical product which will be used in the phase 2b clinical study. For AEF0217, the Company's second drug candidate, targeting applications in the field of cogni- tive deficits and in particular in the field of Down syndrome, 2021 was focused on: • • • • regulatory filing to the Spanish Medicines Agency (AEMPS) for authorization to start phase 1 studies in healthy volunteers; production of technical and clinical batches of pharmaceutical products (dispersible tab- lets) intended for phase 1 studies; obtaining from the AEMPS the authorization to administer AEF0217 to humans on Sep- tember 19, 2021; initiation of the phase 1 clinical program (early October 2021). The results of the first co- horts of healthy volunteers do not show any notable adverse effects and show good phar- macokinetic characteristics of the compound; • launch of additional pre-clinical toxicity studies (phototoxicity and toxicity 6-9 months). The upstream research program (Discovery program) was mainly focused on the mechanism of action of CB1-SSi and on the characterization of new compounds. 5.3. General accounting rules and policies 5.3.1. Declaration of conformity These financial statements have been prepared in connection with the listing of the Company's shares for trading on the French regulated market. These financial statements have been prepared in accordance with international accounting standards IFRS in accordance with the principles defined by the IASB (International Accounting Standards Board), as adopted by the European Union as at 31 December 2021. All of the stand- ards adopted by the European Union can be consulted on the European Commission website: 75 http://eur-lex.europa.eu/legal-content/FR/TXT/?uri=CELEX%3A02008R1126-20160101. The international framework includes IFRS (International Financial Reporting Standards), IAS (In- ternational Accounting Standards), as well as their interpretations SIC (Standard Interpretations Committee) and IFRIC (International Financial Reporting Interpretations Committee). There is no difference impacting the Company between the standards used and the standards adopted by the IASB whose application is mandatory for the year presented. The accounting principles applied remain unchanged from those of the previous year, with the ex- ception of the adoption of the following standards, applied since January 1, 2021: • amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 “Interest rate benchmark reform, phase 2” • amendments to IFRS 16 “Covid-19-related rent relief beyond June 30, 2021” These standards, amendments or interpretations have no significant impact on the consolidated financial statements as of December 31, 2021. In May 2021, IFRS-IC published the final decision “Attributing Benefit to Periods of Service” on the application of IAS 19 “Employee Benefits”. This interpretation relates to certain post-employ- ment benefits whose calculation is based on seniority, the latter being capped at a certain num- ber of years of service. This interpretation recommends allocating the rights to indemnities gradu- ally acquired by employees – and therefore constituting the provision – at the end of their career, during the length of service capped by the scheme for calculating the indemnity. The Company is affected by this new interpretation for the valuation of the provision for retire- ment indemnities payable in France. Indeed, the method historically applied by the Company consisted of a linear constitution of the provision over the entire career of the employee, as soon as he/she joined the workforce, and not over the length of service capped at the end of his/her career. The consequences of this decision are to be analyzed as a change in accounting method within the meaning of IAS 8 “Accounting methods, changes in accounting estimates and errors”. The Company applied for the first time the method described by IFRS-IC for the valuation of the provision for retirement benefits as of December 31, 2021, the date of the first closing since the publication of the interpretation. The Company has assessed the impact of this change on previous years and considers it not to be significant. In accordance with IAS 8, it has therefore not carried out a retrospective restate- ment of the financial statements. The Company has not decided on the early application of any other standard, interpretation or amendment. The standards, interpretations and amendments published with mandatory applica- tion after December 31, 2021 that may have an impact on the Company's financial statements are as follows: • • • • amendments to IFRS 3: “Reference to the Conceptual Framework”; amendments to IAS 16: “Tangible assets: Proceeds before intended use”; amendments to IAS 37: “Onerous Contracts — Cost of Performing the Contract”; amendments to IAS 1: “Classification of liabilities as current or non-current – postpone- ment of the effective date to January 2023”; 76 • amendments to IAS 1 and the statement of practice in IFRS 2: “Disclosures about ac- counting policies”; • • amendments to IAS 8: “Definition of Accounting Estimates”; amendments to IAS 12: “Deferred tax attached to assets and liabilities arising from the same transaction”; • annual improvements to IFRS standards 2018-2020. The Company does not expect any significant impacts on these accounts related to the applica- tion of these new standards, interpretations or amendments. 5.3.2. Preparation basis The financial statements have been prepared on a historical cost basis, except for the revaluation of certain assets and financial instruments that have been measured at fair value at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The Company considering this to be the presentation modality providing the most relevant relia- ble information, pursuant to the option offered by IAS 1 "Presentation of Financial Statements", presents its statement of income by function (destination) of expenses and not by nature of ex- penses. The financial statements provide comparative information with respect to previous periods. Unless otherwise indicated, financial information is presented in thousands of euros without deci- mal places, with the euro being the Company's presentation currency. 5.3.3. Critical accounting judgments and key sources of uncertainty in estimates The application of the Company's accounting policies, which are described in these notes to the financial statements, requires management to make judgments, estimates and assumptions that may materially affect the carrying amounts of assets and liabilities, equity and certain income and expenses. These underlying estimates and assumptions are based on past experience and other factors considered relevant. Actual results may differ from these estimates. The underlying estimates and assumptions are regularly reviewed to ensure that they are rea- sonable in light of the Company's history, economic conditions and information available to the Company. Revisions to the accounting estimates shall be recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and in subsequent periods if the revision has an impact on the period under review and on subsequent periods. The main estimates and assumptions that have been determined in the preparation of Aelis Farma's financial statements concern: • • • the assessment of the fair value of share-based payments plans; the assessment of the fair value of financial instruments granted to investors; the assessment of the fair value of derivatives attached to bond issues; 77 • • the valuation of obligation for pension liabilities; the term of the contracts to be used for the application of IFRS 16 to leases as well as the determination of incremental borrowing rates; • • the market rate used for the application of IAS 20 on repayable advances; the recognition of deferred tax assets. 5.3.3.1. Fair value assessment of share-based payment plans The Company has implemented a number of share-based payment plans (founders warrants “BSPCE” and share purchase warrant “BSA” plans) granted to the Company's founders, directors and employees. These plans fall within the scope of IFRS 2 "Share-based payments". The fair value determined on the date of allocation of the shares is recognized as personnel expenses, in return for an increase in equity, over the period during which the employees render services to the Company. The measurement of this fair value, based on the application of the Black and Scholes method, takes into account the following factors: the price of the shares at the valuation date, the exercise price of the instrument, the observed volatility, the expected maturity of the instruments, the turn- over regarding the estimate of the number of instruments to be acquired, the risk-free interest rate (based on government bonds) and an illiquidity discount. These factors are determined on the basis of market data. The service acquisition and performance conditions attached to the rights are not taken into account in the fair value assessment but reflected by adjusting the num- ber of equity instruments and the acquisition period. • Observed volatility The volatility of a share can be calculated implicitly or on the basis of an observation of historical price changes. In the absence of listed derivatives that would allow a satisfactory measure of implied volatility, the volatility retained corresponds to the market volatility as calculated and published by A. Dam- odaran (Stern NYU) for each date of allocation of the bonds. • Expected duration In the context of the valuation of a share purchase warrant (BSA), it is customary to rely on the exercise history of beneficiaries under similar instruments. In the absence of information, it is cus- tomary to retain the half-exercise period (mid-maturity) i.e., the duration between the "grant date" and the date corresponding to the middle of the operating window of the instruments. In this case, the "grant date" corresponds to the date on which the two parties reached an agree- ment, i.e., in practice the date of signature of the subscription form. • Risk-free interest rates The risk-free rate used corresponds to the 1-year average of the TEC 10 rate, calculated on each allocation date of the bonds (source: Banque de France). This rate reflects the actuarial return on a Treasury bond over a 10-year horizon, which is the reference for risk-free investing. • Expected dividend yield The Company has never declared or paid cash dividends and does not currently plan to pay cash dividends for the foreseeable future. 78 • Probability of exercise of the warrants As the exercise of the warrants is subject to tranche objectives, the Company has determined the likelihood that the conditions for the exercise of the warrants will be met for each of the tranches. • Discount "Bad Leaver" In order to protect financial investors from the premature departure of a key man from the Com- pany, "Bad Leaver" clauses were put in place in the Shareholders' Agreement of December 22, 2017. These clauses concern founding employees as well as researchers under the status of sci- entific competition. For the warrants covered by the "Bad Leaver" clauses, the Company applied a discount to the value of the warrants to take into account the loss of value induced by an early exercise of the warrant by their beneficiary. • Illiquidity discount Compared to the securities of comparable companies in the volatility sample, the liquidity of the warrants is not total. This justifies the application by the Company of an illiquidity discount to the value of the warrants. Share-based payments are the subject of Note 7 "Share-based payments" in Note 4.7. 5.3.3.2. Fair value assessment of financial instruments granted to investors The Company determines the fair value of the warrants on the date of issue of the Shares with Equity Warrants (ABSA – Actions à Bons de Souscription d’Actions) using the Black-Scholes val- uation model. The Black-Scholes model requires consideration of different assumptions, including observed vol- atility, expected duration, risk-free interest rate, and dividend yield. • Observed volatility The volatility of a share can be calculated implicitly or on the basis of an observation of historical price changes. In the absence of listed derivatives that would allow a satisfactory measure of implied volatility, the volatility retained corresponds to the market volatility as calculated and published by A.Damo- daran (Stern NYU). • Expected duration In the context of the valuation of a share purchase warrant (BSA) it is customary to rely on the ex- ercise history of the beneficiaries in respect of similar instruments. In the absence of information, it is customary to retain the half-period of exercise (mid-maturity) namely the duration between the "grant date" and the date corresponding to the middle of the operating window of the instru- ments. In this case, the "grant date" corresponds to the date on which the two parties reached an agreement, i.e., in practice the date of the minutes of the general meeting of the 2017 ABSA B issue. • Risk-free interest rates The risk-free rate used corresponds to the 1-year average of the TEC 10 rate, calculated on 20/07/2017 (source: Banque de France). This rate reflects the actuarial return on a Treasury bond over a 10-year horizon, which is the benchmark for risk-free investing. 79 • Expected dividend yield The Company has never declared or paid cash dividends and does not currently plan to pay cash dividends for the foreseeable future. • Probability of exercise of warrants As the exercise of the warrants is subject to objectives, the Company has determined the likeli- hood that the conditions for the exercise of the warrants will be met. 5.3.3.3. Valuation of the fair value of hybrid debt and derivatives attached to convertible bonds and, where applicable, attached derivatives Convertible bond (OCA 2017) The fair value of the convertible bond conversion option (OCA 2017) is measured by the differ- ence from the present value of the estimated future coupons and principal repayment by using, for the discount, the market rate based on the financing of companies with a similar rating and for an equivalent maturity. The use of market rates requires the consideration of different assumptions, including the Com- pany's rating and the use of yield curves. • Company Rating In order to determine the market rate on the grant date of the Convertible Bonds (OCA), i.e., July 12, 2017, the Company simulated the financial rating that could be granted to it by a leading credit rating company. • Market rate On the basis of the bonds issued in euro on the grant date of the Bonds Convertible into Shares (OCA), i.e., July 12, 2017, with a maturity of 5 years, the Company has determined the market rate to be used for the discount. Bonds convertible into shares with equity warrants (OCABSA 2019) The fair value of derivatives attached to convertible bonds to share with equity warrant (OCABSA) is measured using a Black-Scholes model to which a probability of exercising the con- version option and an illiquidity discount are applied. The Black-Scholes model requires consideration of different assumptions, including observed vol- atility, expected duration, risk-free interest rate, and dividend yield. • Observed volatility The volatility of a share can be calculated implicitly or on the basis of an observation of historical price changes. In the absence of listed derivatives that would allow a satisfactory measure of implied volatility, the volatility retained corresponds to the market volatility as calculated and published by A.Damo- daran (Stern NYU). • Expected duration In the context of the evaluation of a conversion option, it is customary to rely on the exercise his- tory of beneficiaries under similar instruments In the absence of information it is customary to re- tain the half-exercise period (mid-maturity) i.e. the duration between the "grant date" and the date 80 corresponding to the middle of the operating window of the instruments. In this case, the "grant date" corresponds to the date on which the two parties reached an agreement, either in practice the date of subscription of the bond convertible into a share with equity warrant (OCABSA) or Au- gust 26, 2019. • Risk-free interest rates The risk-free rate used corresponds to the 1-year average of the TEC 10 rate, calculated on 26 August 2019 (source: Banque de France). This rate reflects the actuarial return on a Treasury bond over a 10-year horizon, which is the benchmark for risk-free investing. • Expected dividend yield The Company has never declared or paid cash dividends and does not currently plan to pay cash dividends for the foreseeable future. • Probability of conversion of the option As the exercise of the conversion option is subject to phased clinical validation objectives, the Company has determined the likelihood that the conditions for conversion of the option will be met over the life of the option. 5.3.3.4. Valuation of obligation for pension liabilities The Company's obligation related to statutory or contractual retirement benefits has been as- sessed at each closing. The calculation is based on the actuarial method of the projected cred-it units incorporating assumptions of changes in wages, age of departure, presence, mortality and at the balance date which are described in Note 4.8 "Contingent provisions and liabilities". 5.3.3.5. Term and incremental borrowing rate for leases (IFRS) In applying IFRS 16, the Company uses the following estimates and judgments: • determination of the term of a lease agreement: the lease term taken into consideration corresponds to the non-cancellable period of each contract, to which are added all the ex- tension options that the Company has the reasonable certainty of exercising, and all the termination options, which the Company has the reasonable certainty not to exercise; these estimates take into account the impact of the November 2019 IFRS-IC decision on the leases term; • determination of the discount rate: in cases where the implicit rate of the contract is not easily determinable, the discount rate used corresponds to the incremental borrowing rate on the date of commencement of the contract. This rate is determined from the Compa- ny's marginal borrowing rate. The rates used were determined to reflect the rate that would be obtained for a loan with a similar payment profile (i.e., a rate reflecting the dura- tion of the contract). 5.3.3.6. Market rate used for the application of IAS 20 on repayable advances The market rate used for the application of IAS 20 corresponds to the marginal borrowing rate at the start date of the contract. This rate is determined from the Company's marginal borrowing 81 rate. The rates used were determined to reflect the rate that would be obtained for a loan with a similar payment profile (i.e., a rate reflecting the duration of the contract). 5.3.3.7. Recognition of deferred tax assets Deferred tax assets are recognized only when their recovery is considered sufficiently likely as a result of future taxable profits or when carry-forward losses can be set off against taxable tem- poral differences. The deferred tax assets are limited, where applicable, to take into account the cap on the deficit attributable annually if that cap is imposed by the entity's tax legislation. 5.4. Foreign currency transactions 5.4.1. Conversion of financial statements denominated in foreign currencies As part of the preparation of the Company's financial statements, transactions denominated in a currency other than the entity's operating currency (foreign currency) are accounted for using the exchange rate in effect on the date of the transaction. At each balance date, monetary assets and liabilities denominated in foreign currency shall be converted using the rate in effect on that date. Non-monetary items recognized at fair value and denominated in foreign currency are translated using the exchange rates in effect on the date on which that fair value was determined. Non-mon- etary items that are valued at historical cost and denominated in foreign currency are not con- verted. Foreign exchange differences are recognized as net income in the period in which they occur, ex- cept in special cases not concerning the Company. 5.4.2. Hedge accounting At the time of inception of the hedging relationship, the Company prepares documentation de- scribing the relationship between the hedging instrument and the hedged item as well as its risk management objectives and strategy for entering into various hedging transactions. Furthermore, when creating the hedge and regularly thereafter, the Company indicates whether the hedging instrument is highly effective in offsetting variations in the cash flows of the hedged item attributable to the hedged risk, that is to say when the hedging relationship satisfies all of the following hedge effectiveness constraints: • • there is an economic link between the hedged item and the hedging instrument; credit risk does not have a dominant effect on the changes in value resulting from this economic link; • the hedge ratio of the hedging relationship is equal to the ratio between the quantity of the hedged item that is actually hedged by the Company and the quantity of the hedging in- strument that the Company actually uses to hedge this quantity of the covered item. In 2021, the Company chose to set up auto-hedging in dollars following the receipt of the $30 mil- lion for the license option contracted with Indivior PLC. Thus, these funds in dollars will be used to finance the future costs of the research program carried out in this currency (studies related to AEF0117 in the United States), constituting thereby a natural exchange rate hedge. 82 Thus, the revaluation at the closing rate of the cash account in USD resulted in: • for the part of the cash balance intended to cover future research and development oper- ations in foreign currencies, as established based on the Company's budget, the recogni- tion in Comprehensive Income of the part of the variation thus determined; this amount will be reported in the income statement when the research and development operations thus covered are settled; • for the balance in USD that does not hedge future transactions, an exchange rate varia- tion was recognized in the income statement. As of December 31, 2021, the Company thus revalued its cash in foreign currency (USD) and recognized, in comprehensive income, an income of €527,000. 5.5. Notes to the statement of financial position 5.5.1. Intangible assets Initially, separately acquired intangible assets are measured at cost. The Company's intangible assets mainly include royalties upon completion of technical mile- stones paid in accordance with the license agreements that bind Aelis Farma to the owners of the patents. In accordance with IAS 38, these amounts will be amortized as soon as they generate economic benefits. Establishment and research costs are directly recognized as expenses in the year in which they are incurred. Development expenses are recognized as intangible assets if the Company is able to demon- strate verification of all of the following criteria: • the technical feasibility necessary for the completion of the intangible asset with a view to its commissioning or sale; • • • • its intention to complete the intangible asset and to use or sell it; its ability to use or sell the intangible asset; how the intangible asset will likely generate future economic benefits; the availability of appropriate technical, financial and other resources to complete the de- velopment and use or sell the intangible asset and; • the ability to reliably estimate the expenses attributable to the intangible asset during its development. Otherwise, these costs constitute expenses. Currently, the Company does not record any devel- opment expenses as intangible assets. Indeed, due to the risks and uncertainties associated with regulatory approvals and the research and development process, the criteria set out in IAS 38 are not met, and in particular the criterion concerning technical feasibility. Thus, expenses incurred before meeting these criteria are recorded as expenses, on the line "Research and Development expenses". After their initial recognition, intangible assets will be recognized on a cost basis and amortized on a straight-line basis over their expected useful life. 83 Finally, it should be noted that the Company has not carried out, since its creation, any business combination within the meaning of IFRS 3 "Business Combinations". In each of the periods presented, the Company's intangible assets mainly include royalties upon completion of technical milestones paid in accordance with the license agreements that bind Aelis Farma to the owners of the patents. OTHER INTANGIBLE ASSETS: DECOMPOSITION AND CHANGES IN GROSS VALUES IN 2020 In thousands of euros 12/31/19 Acquisitions Disposals 12/31/20 Concessions, patents and software 31 30 - 61 Total intangible assets 31 30 - 61 OTHER INTANGIBLE ASSETS: DECOMPOSITION AND CHANGES IN GROSS VALUES IN 2021 In thousands of euros 12/31/20 Acquisitions Disposals 12/31/21 Concessions, patents and software 61 30 - 91 Total intangible assets 61 30 - 91 OTHER INTANGIBLE ASSETS: DECOMPOSITION AND CHANGES IN DEPRECIATION AND AMORTIZATION IN 2020 Depreciation, amortization In thousands of euros 12/31/19 Reversals 12/31/20 and impairment Concessions, patents and software 0 (0,5) - (0,5) Total intangible assets 0 (0,5) - (0,5) OTHER INTANGIBLE ASSETS: DECOMPOSITION AND CHANGES IN DEPRECIATION AND AMORTIZATION IN 2021 Depreciation, amortization In thousands of euros 12/31/20 Reversals 12/31/21 and impairment Concessions, patents and software (0,5) 0 - (0,5) Total intangible assets (0,5) 0 - (0,5) 5.5.2. Tangible assets and rights of use related to lease contracts 5.5.2.1. Tangible assets Separately acquired tangible assets are initially measured at cost, which includes all expenses directly related to the acquisition. Subsequent capital expenditures are recognized as expenses when incurred, except those incurred to extend the life of the asset. 84 Constructions, materials and tools, furniture and fittings are depreciated on a straight-line basis over their useful life. The useful lives used by category of capital assets are as follows: Other tangible assets: 2 to 5 years. 5.5.2.2. Leases Lease contracts that give the lessee control over the use of an identified asset for a given period of time in exchange for consideration fall within the scope of IFRS 16. The Company recognizes the assets on the balance sheet in the form of a right of use in counterpart of a lease liability for all leases with the exception of contracts with a term of less than twelve months and contracts for low-value assets in accordance with the exemptions offered by the standard. Lease liability is initially determined at the present value of unpaid lease payments at that date, discounted to the implied interest rate of the lease if such rate is readily available or, failing that, to the Company's incremental borrowing rate. Lease payments include fixed payments, variable payments based on an index or rate, and payments arising from reasonably certain options to be exercised. After the initial measurement, the lease liability is reduced by the payments made and increased by the interest expense. It is remeasured to reflect any change in future lease payments in the event of a new negotiation with the lessor, a change in an index or rate, or in the event of a re- estimation of options. When the lease liability is reassessed, the corresponding adjustment is re- flected in the right of use, or in profit or loss if the right of use is already reduced to zero in the case of a reduction in the rental perimeter. The originally determined right of use includes the initial lease liability, initial direct costs and any obligations to renovate the asset, less the benefits granted by the lessor. The rights of use are amortized over the term of the contract. In the income statement, deprecia- tion and amortization expenses are recognized in operating income and interest charges in finan- cial income. The tax impact of this restatement is taken into account through the recognition of deferred taxes. The lease term retained corresponds to the non-cancellable period, the periods covered by an extension option whose exercise is reasonably certain, as well as the periods covered by a termi- nation option whose non-exercise is reasonably certain. Finally, it should be noted that the Company does not intervene in lease contracts as a lessor. Property, plant and equipment mainly include: • • rights of use regarding real estate; laboratory equipment and tools used as part of the Company's “Discovery” activity. 85 TANGIBLE CAPITAL ASSETS: DECOMPOSITION AND CHANGE IN 2020 GROSS VALUES In thousands of euros 12/31/19 Acquisitions Disposals 12/31/20 Other tangible assets 33 33 5 5 - - - - - - 38 38 Sub-total tangible assets Rights-of-use - real estate Sub-total rights of use tangible assets Total tangible assets 103 103 136 103 103 141 - 5 TANGIBLE CAPITAL ASSETS: DECOMPOSITION AND CHANGE IN 2021 GROSS VALUES In thousands of euros 12/31/20 Acquisitions Disposals 12/31/21 Technical installations, equipment and tools Other tangible assets - 125 58 183 - - (7) (7) - 125 88 38 Sub-total tangible assets 38 214 103 103 316 Rights-of-use - real estate 103 103 141 Sub-total rights of use tangible assets Total tangible assets - - 183 (7) PROPERTY, PLANT AND EQUIPMENT: DECOMPOSITION AND CHANGE IN DEPRECIATION 2020 Depreciation, amortization In thousands of euros 12/31/19 Reversals 12/31/20 and impairment Technical installations, equipment and tools Other tangible assets - - - 4 4 - - (20) (20) (42) (42) (63) (12) (12) (21) (21) (34) (29) (35) (64) (64) (92) Sub-total tangible assets Rights-of-use - real estate Sub-total rights of use tangible assets Total tangible assets - 4 PROPERTY, PLANT AND EQUIPMENT: DECOMPOSITION AND CHANGE IN DEPRECIATION 2021 Depreciation, amortization In thousands of euros 12/31/20 Reversals 12/31/21 and impairment Technical installations, equipment and tools Other tangible assets - (4) - 7 7 - (4) (31) (35) (85) (85) (120) (29) (29) (64) (64) (92) (10) (14) (21) (21) (35) Sub-total tangible assets Rights-of-use - real estate Sub-total rights of use tangible assets Total tangible assets - 7 86 Amounts recognized as cash flows under lease contracts Cash outflows attributable to leases amounted to €26,500 at 31 December 2021 and €26,500 as at 31 December 2020. There are no amounts presented in operating expenses corresponding to leases benefiting from short-term or low-value exemptions of the underlying asset. 5.5.3. Impairment of non-financial assets IAS 36 "Impairment of assets" specifies that an asset is to be impaired when its carrying amount is greater than its recoverable amount. The recoverable amount of an asset or group of assets is the greater of its fair value less costs of disposals and its value in use. The impairment test consists of comparing the recoverable amount of a non-current asset to its carrying value. If applicable, the asset is impaired to its recoverable amount by recognizing the impairment loss. Assets with an indefinite useful life or which are not yet ready for commissioning, and which are therefore not yet depreciated are subject to an annual impairment test. Assets with a fixed useful life are depreciated and are subject to an impairment test only if there is an internal or external evidence of a loss of value. The Company did not identify any impairment losses as a result of the completion of the impair- ment tests for unamortized capital assets. The Company considers that there is no indication of impairment loss on other non-current assets between January 1, 2021, and December 31, 2021. 5.5.4. Receivables and deferred expenses Trade receivables are initially recognized at their transaction price (as defined in IFRS 15). They are measured at amortized cost less expected losses over the life of the receivable according to the simplified approach provided for in IFRS 9; as they do not include a significant financing com- ponent given short settlement deadlines. The valuation of expected credit losses is carried out in particular by taking into account the history of credit losses and their age. Aelis Farma did not achieve significant turnover in the fiscal year 2020. In the fiscal year 2021, the revenue generated by the license option contract signed with Indivior PLC was collected in the month the contract was signed (June 2021). In this context, on each balance sheet presenta- tion date of these financial statements, Aelis Farma does not present any significant customer re- ceivables. Other current assets are mainly comprised of receivables related to Research Tax Credits, grant receivables, VAT and deferred expenses (see also Note 5.3 "Other ordinary income"). Prepaid expenses are determined in accordance with the principles of separation of fiscal years. They correspond in particular to research and development contracts with successive execution. When the effective date of the contract does not coincide with that of the financial year, the amount paid, corresponding to the fraction of the services which will only be performed during a subsequent financial year, is entered as a prepaid expense. As of December 31, 2021, the costs 87 incurred in the 2021 financial year, directly related to the capital increase during the IPO, amounted to €421,293. OTHER CURRENT ASSETS In thousands of euros 12/31/21 12/31/20 Employee and social charges receivables Tax receivables 0 368 - 0 108 - Group current account Prepaid expenses 1,607 891 352 81 57 Research tax credit Grant receivables 692 538 2 Other Total other current assets 3,298 1,397 5.5.5. Cash and cash equivalents Cash and cash equivalents include short-term cash and investments (maturity of up to 3 months), which are highly liquid and are easily convertible into a known amount of cash and are subject to a negligible risk of a change in value. On each balance sheet date, the item is only composed of cash. 5.5.6. Equity and earnings per share The Company's capital is composed of ordinary shares. Ordinary shares are shares conferring voting rights and financial rights in proportion to the share of capital they represent. • • • As at December 31, 2021, the Company's registered share capital consisted of 399,698 ordinary shares. As at December 31, 2020, the Company's registered share capital consisted of 399,480 ordinary shares. All shares have a nominal value of €0.01 and are fully paid-up. 5.5.6.1. Share capital and issue premium EVOLUTION OF SHARE CAPITAL AND ISSUE PREMIUM Number of In euros shares Share capital Share premiums As at December 31, 2019 Shares issued during the period Allocation of income 399,480 3,995 1,051,440 - - - - - (118,550) 2,069 Warrants subscription (BSA) As at December 31, 2020 Shares issued during the period Allocation of income - - 399,480 3,995 934,959 12,801 (934,959) 22,249 35,049 218 2 - - - Warrants subscription (BSA) At December 31, 2021 - 399,698 3,997 88 This number does not include warrants ("BSA") and founders warrants ("BSPCE") granted to cer- tain employees, strategic consultants/collaborators and members of the Board of Directors of the Company and not yet exercised – see Note 4.5 "Share-based payments" for details of these transactions. 5.5.6.2. Evolution of share capital The change in the share capital over the 2021 financial year is linked to the exercise of share subscription warrants (capital increase), as well as the allocation of share subscription warrants. 5.5.6.3. Allocation of profit and dividends Allocation of loss for financial year 2020 The Shareholders' Meeting of 25 June 2021 decided to allocate the loss for the 2020 financial year in the amount of €2,783,646 as deductions from the issue premium of - €934,958 and re- tained earnings of - €1,848,688. 5.5.6.4. Characteristics of Equity Warrants (BSAs) recognized as equity As part of the capital increase carried out by the Company in December 2017, 81,949 ABSA B Tranche 1 were issued. Each of its ABSA B Tranche 1 carried a BSA Tranche 2 and a BSA Tranche 3, i.e., 81,949 BSA Tranche 2 and 81,949 BSA Tranche 3 respectively. As parity is fixed for all BSAs, they were recognized as equity instruments at the date of issue. RECOGNIZED EQUITY BSAS Fair value of the Subs- cription price (€) instruments Maturity (pre- Illiqui- dity dis- Nb Instrument instru ments Share Price (€) Subs- cription Date Probabi- lity of success Fair value (€K) Date discount and count probability of success) BSA 81 949 Tranche 2 46,98 46,98 46,98 46,98 20/12/17 31/08/19 20/12/17 31/08/20 317 165 66 % 50 % 20 20 167 66 BSA 81 949 Tranche 3 During the additional capital increase authorized by the Extraordinary General Meeting of July 19, 2019, ABSAs were issued. To each ABSA is attached a warrant for a BSA R 2017 (ratchet). 5.5.6.5. Earnings per share Pursuant to IAS 33 "Earnings per share", basic earnings per share is calculated by dividing the earnings attributable to holders of Aelis Farma shares by the weighted average number of ordi- nary shares outstanding during the period. Diluted earnings per share are determined by adjust- ing the earnings attributable to the Company's shareholders and the weighted average number of ordinary shares outstanding for the effects of all potentially dilutive ordinary shares. 89 If the inclusion of instruments giving entitlement to capital on a deferred basis (BSA, BSPCE, convertible bonds, free shares, etc.) generates an anti-dilutive effect, these instruments are not taken into account. BASIC EARNINGS PER SHARE Calculation components 12/31/21 12/31/20 Net income (loss) 573,505 399,500 1,44 (2,086,282) 399,480 (5,22) Weighted average number of ordinary shares in issue Basic earnings (loss) per share (€) DILUTED EARNINGS PER SHARE Calculation components 12/31/21 Net income (loss) 573,505 399,500 109,409 508,909 3,87 Weighted average number of ordinary shares in issue Potential number of dilutive shares (1) Weighted average number of ordinary shares in issue (diluted) Diluted earnings (loss) per share (€) (1) Dilutive instruments consist of 40,441 convertible bonds, granted in 2017 and 2019, and for the balance of BSPCE and BSA, presented in Note 4.7 Share-based payments. 5.5.7. Share-based payments Aelis Farma has awarded to some of its employees and senior executives founders warrants (BSPCE) and equity warrants (BSA). These transactions are settled in equity instruments. In accordance with IFRS 2 "Share-Based Payment", these plans are recognized as expenses over the vesting period of the associated rights by reference to their fair value determined at the grant date. This expense is recorded as personnel costs in return for equity. The fair value of the BSA and BSPCE awarded is determined by applying the Black and Scholes model. 90 5.5.7.1. Details of the plans BSA PLANS (EQUITY WARRANTS) Name BSA 2017 BSA 2018 BSA 2019 BSA 2020 BSA 2021 Instruments Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares 1 500 (1 to 1) Number of in- struments 800 (1 to 1) 150 (1 to 1) 600 (1 to 1) 2,400 (1 to 1) Strategic Consultants/ Collaborators 06/27/2018 Strategic Consultants/ Collaborators 10/23/2020 Strategic Consultants/ Collaborators 04/29/2021 Independent Director Independent Director Beneficiaries Award date 12/18/2018 02/28/2019 Per monthly instalment according to the timetable indi- cated for each beneficiary Per monthly instalment until 12/20/21 Per monthly instalment until 02/27/23 Per monthly instalment until 04/29/2021 Vesting period Acquired immediately Condition of presence Yes 12/27/2027 €46.98 Yes 12/20/2027 €46.98 Yes 12/20/2027 €46.98 Yes 12/23/2030 €58.73 Yes 12/23/2030 €58.73 Exercise deadline Exercise price Issue price €4.50 €4.50 €4.50 €8.90 €8.90 BSPCE PLANS (FOUNDERS WARRANTS) BSPCE 2021 BSPCE 2017 BSPCE 2019 BSPCE 2020 BSPCE 2020 BSPCE 2020 Name BSPCE Ordinary shares 40 Ordinary shares Ordinary shares 9 400 Ordinary shares 1 000 Ordinary shares Ordinary shares 4 400 Ordinary shares 1 789 Instruments Number of 15 000 5 200 instruments (1 to 1) (1 to 1) Employees or corporate officers (1 to 1) (1 to 1) (1 to 1) (1 to 1) Employees or corporate officers (1 to 1) Chairman of the Board and employees Beneficiaries Employees Employee Employee Employee Date of award 06/16/2017 06/28/2018 02/28/2019 02/21/2020 02/21/2020 10/23/2020 04/29/2021 Per Per monthly instalment according to the timetable indicated for each monthly instalment according to the timetable indicated for each Per Per By monthly instalment until monthly instalment until Vested immedi- ately monthly instalment until Vesting period 30 months 02/21/2024 12/20/2021 12/20/2021 beneficiary beneficiary Condition of presence Exercise deadline Exercise price Yes Yes Yes Yes Yes Yes Yes 06/13/2023 12/20/2027 12/20/2027 12/20/2027 12/20/2027 12/23/2030 12/23/2030 €25.34 €46.98 €46.98 €58.73 €58.73 €58.73 €58.73 Issue price N/A N/A N/A N/A N/A N/A N/A 91 CHARACTERISTICS OF PLANS BENEFITING FROM THE IFRS 1 EXEMPTION Characteristics of IFRS 1-exempted plans Type Grant date Total number of Maximum awarded share sub- Maturity date scription warrants Exercise price acquisition period in year BSA 12/19/2013 355 12/31/2023 €400.00 immediately TOTAL 355 CHARACTERISTICS OF PLANS AND VALUATION HYPOTHESIS Characteristics of the plans Initial valua- tion of the plan in €K (1) Total number of granted warrants Underly- ing share value Grant date Maximum Type Maturity date Exercise price acquisition period in year Risk- free rate Volatility (euros) BSA 2017 BSA 2018 BSA 2019 BSA 2020 BSA 2021 06/27/2018 12/18/2018 03/19/2019 10/23/2020 04/29/2021 800 150 600 12/20/2027 12/20/2027 12/20/2027 €46.98 €46.98 €46.98 €58.73 4 years €46.98 73.16 % 0.74 % 2 immediate €46.98 73.16 % 0.74 % 1 4 years 4 years €56.66 61.80 % 0.71 % €58.73 62.07 % -0.10 % 10 35 2,400 10/23/2030 1,500 10/21/2030 €58.73 €25.34 €46.98 4 years 2.5 years 4 years €173.77 45.63 % -0.19 % €40.04 61.07 % 0.62 % €46.98 73.16 % 0.74 % 160 68 BSPCE * 06/13/2017 40 06/13/2023 BSPCE 2017 06/27/2018 15,000 12/20/2027 92 BSPCE 2019 03/04/2019 02/21/2020 10/21/2020 04/29/2021 9,400 12/20/2027 6,200 12/20/2027 4,400 12/20/2027 €46.98 €58.73 €58.73 €58.73 4 years 4 years 4 years 4 years €56.66 61.80 % 0.71 % €58.73 62.07 % 0.02 % €58.73 62.07 % -0.10 % €173.77 45.63 % -0.19 % 159 125 72 BSPCE 02.2020 BSPCE 10.2020 BSPCE 04.2021 1,789 10/21/2030 179 TOTAL 42,279 903 () amounts expressed after change in Capital Parity (1) Black & Scholes model 92 EVOLUTION OF THE NUMBER OF WARRANTS OUTSTANDING 2021 Maximum number of shares that can be sub- Number of outstanding warrants Type Grant date Exer- cised 12/31/2020 Granted Obsolete 12/31/2021 scribed for BSA 12/19/2013 06/27/2018 12/18/2018 03/19/2019 10/23/2020 04/29/2021 06/13/2017 06/27/2018 03/04/2019 02/21/2020 02/21/2020 04/29/2021 315 800 - - - - - - - - - - - - - - - - - 315 800 31,500 BSA 2017 BSA 2018 BSA 2019 BSA 2020 BSA 2021 BSPCE 800 150 150 150 600 600 600 2,400 - 2,400 1,282 20 2,400 1,282 2,000 15,000 3,917 6,200 4,400 1,789 70,038 1,500 218 20 - - BSPCE 2017 BSPCE 2019 BSPCE02.2020 BSPCE10.2020 BSPCE 2021 TOTAL 15,000 3,917 6,200 4,400 - - - 15,000 3,917 6,200 4,400 1,789 36,873 - - - - - - - - - - - 1,789 3,289 33,802 218 EVOLUTION OF THE NUMBER OF WARRANTS AND WEIGHTED AVERAGE EXERCICE PRICE 12/31/2021 12/31/2020 Warrants depending on the period Weighted Weighted average exercise price Number of options Number of options average exercise price Outstanding at opening Obsolete during the period Exercised during the period Granted during the period Outstanding at closing Exercisable at closing 3, 802 0 €54.78 €0 26,285 -5,483 0 €51.19 €46.98 €0 - 218 3,289 36,873 28,632 €58.73 €58.73 €55.11 €54.13 13,000 33,802 19,786 €58.73 €54.78 €54.51 The share-based payment expense recorded as personnel expenses is disclosed in Note 5.6 and represents the following amounts: 93 EXPENSE RELATED TO SHARE-BASED PAYMENTS In thousands of euros 2021 2020 BSA 2017 - - 1 - BSA 2018 BSA 2019 4 4 1 BSA 2020 31 140 - BSA 2021 BSPCE - BSPCE 2017 BSPCE 2019 BSPCE 02.2020 BSPCE 10.2020 BSPCE 2021 Share-based payments 6 18 54 61 34 - 59 36 168 443 172 Given the Company's anticipated IPO, the vesting period relating to the various share-based pay- ment instruments was reviewed, leading to the accelerated recognition of the remaining expense. 5.5.8. Provisions and contingent liabilities 5.5.8.1. Provisions A provision is recognized when there is a legal or constructive obligation resulting from past events, when it is likely or certain that it will result in an outflow of resources to third parties and when the amount can be estimated reliably. Provisions are broken down into current and non-current liabilities according to the expected ma- turity and assessed taking into account the most likely assumptions at the reporting date. To date, the Company does not recognize any provision other than its obligations relating to pen- sions. 5.5.8.2. Contingent liabilities A contingent liability is: • a possible obligation resulting from past events and whose existence will only be con- firmed by the occurrence (or not) of one or more uncertain future events that are not fully under the control of the Company. • a present obligation that is not recognized as it is not likely that an outflow of resources representative of economic benefits is necessary to extinguish the obligation or, in rare cases, as the amount of the obligation cannot be assessed with sufficient reliability. To date, the Company has not identified any contingent liabilities. 94 5.5.8.3. Pension commitments The Company's French employees receive pension benefits provided for by law in France. Post- employment benefits are subject to two different regimes: • payment of retirement pensions by social security institutions corresponding to defined contribution schemes. They are characterized by defined contributions paid to external bodies. Under these schemes, the Company will have no legal or constructive obligation to pay additional contributions if the organization does not have sufficient assets to pro- vide all benefits corresponding to the services rendered by employees during the relevant period and previous periods. These contributions are recognized as expenses in the year in which the services are rendered. • a retirement allowance, paid by the Company to employees upon their retirement corre- sponding to a defined benefit plan. These are schemes for which the Company is obliged to pay the agreed benefits to its active and former staff members. As the Company does not have plans assets, the entire commitment is recorded as a liability for its present value. Pension obligations and similar obligations are valued at the end of each financial year for the present value of the Company's future obligations using the projected credit unit method. The amounts of future payments are assessed on the basis of assumptions with respect to salary in- creases, age of retirement, mortality and turnover. They are then discounted to their present value using the interest rates on the long-term bonds of tier one private issuers and with a dura- tion corresponding to the estimated average duration of the assessed plan. The assumptions used for the periods presented are detailed below. Actuarial gains and losses resulting from changes to calculation assumptions and adjustments related to experience are recognized in other comprehensive income. The net expense for the financial year, corresponding to the current service cost, plus the possi- bly past service cost, is recognized in operating expenses. The interest cost on the net defined benefit liability (or asset) is included in net financial income (expense) and corresponds to the impact of unwinding the discount on the obligations RETIREMENT OBLIGATIONS AND SIMILAR LIABILITIES: ACTUARIAL HYPOTHESES Valuation assumptions 12/31/21 12/31/20 Pharmaceutical industry Pharmaceutical industry Labour agreement Discount rate (taux IBOXX Corporates AA) Wage increase rate 0.98 % 2.00 % 37 % 0.34 % 2.00 % 37 % Employer social expenses rate Staff turn-over Low Low Mortality table Insee 2019 Insee 2019 65-67 full pension 65-67 full pension Retirement age 95 CHANGE IN PENSION OBLIGATION Commitment variation (euros) 12/31/21 12/31/20 Commitment at opening Current service cost Interest expense 110,238 82,823 24,231 24,623 375 638 Staff entries effect Staff transfers effect Staff exits effect - - - - - - Allocation of the impact of the change in regulations at 31/31/20 on equity at 12/31/21 (33,590) Actuarial gains or losses Benefits paid (262) - 2,154 - Commitment at closing 100,992 110,238 Sensitivity of pension obligations to actuarial assumptions The discount rate assumption is the main actuarial assumption with a significant impact on the amount of the commitment. The table below shows the impact of a 0.5 point increase in the dis- count rate. Given the current context, a rate cut scenario is not considered plausible. SENSITIVITY OF PENSION OBLIGATIONS TO ACTUARIAL ASSUMPTIONS Rate Provision Var. Real (R) Date Real (R) (R) +0,5pt Real (R) (R) +0,5pt 12/31/20 12/31/21 0.34 % 0.98 % 0.84 % 1.48 % 110,238 100,992 99,661 85,340 (10,577) 15,632 Information on the maturity profile of the defined benefit obligation In view of its specific characteristics (low seniority, limited staff, age of beneficiaries relatively dis- tant from retirement), the Company is not in a position to develop a reliable estimate of the pay- ment schedule for defined benefit obligations. 5.5.9. Financing and financial instruments The Company recognizes a financial asset or liability when it becomes a party to the contractual provisions of the instrument in accordance with IFRS 9 "Financial Instruments". A financial asset (except a trade receivable with no significant financing component) or a financial liability is initially measured at fair value plus or minus, for an item that is not at fair value through profit of loss, transaction costs that are directly attributable to its acquisition or issuance. A trade receivable without a significant financing component is initially measured at its transaction price within the meaning of IFRS 15. 5.5.9.1. Financial assets At the time of initial recognition, a financial asset is categorized in one of three ways: • at amortized cost; 96 • • at fair value through other comprehensive income, distinguishing debt instruments and equity instruments, or; at fair value through profit or loss. This categorization depends on both: • • contractual cash flows of the instrument; the Company’s business model of ownership of the instrument. A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as being at fair value through profit or loss: • it is held under a business model whose objective is to hold assets in order to collect con- tractual cash flows; • its contractual terms give rise, on specified dates, to cash flows that are solely payment of principal and interest on the outstanding principal amount. To date, the Company doesn’t hold non-current financial assets. Receivables are presented as current assets because they have a maturity of less than 12 months at the reporting date. All of these financial assets are measured at amortized cost. To date, the Company does not hold financial assets at fair value through other comprehensive income or profit or loss (other than cash). Details of current financial assets are presented in Note 4.4 "Receivables and deferred ex- penses" 5.5.9.2. Financial liabilities Financial liabilities consist of bonds, bank loans, passive derivatives, repayable advances and certain current liabilities. In accordance with IFRS 9, financial liabilities are assessed at amortized cost or at fair value through profit or loss. The convertible bond “OCA 2017” issued by the Company includes, on the one hand, a debt in- strument and, on the other hand, an equity instrument. The financial debt component of converti- ble bonds is measured at fair value. The fair value of the conversion option was calculated by de- termining the difference between the issue value and the fair value of the debt component; and was recognized as equity. The convertible bond into shares with equity warrants “OCABSA 2019” issued by the Company includes, on the one hand, a debt instrument and, on the other hand, a derivative instrument. The financial debt component of the convertible bonds is measured at fair value. The conversion op- tion is considered a passive derivative incorporated into the contract and recognized at fair value through profit or loss. The fair value of the OCABSA conversion option was calculated using an optional model. Currently, all other financial liabilities are initially recognized at fair value net of transaction costs incurred and subsequently measured at amortized cost using the effective interest rate method. They are classified as current or non-current liabilities according to their maturity. The amount of interest recognized as financial expenses is determined by applying the effective interest rate to their carrying amount. 97 Current financial liabilities mainly include the less than one-year part of bonds and bank loans, repayable advances as well as trade payables, tax and social security debts and the less than one-year share of loans. Non-current financial liabilities include the portion at more than one year of these liabilities. The Company derecognizes a financial liability when its contractual obligations are extinguished or cancelled or expire. The Company also derecognizes a financial liability when its terms are changed and the cash flows of the modified liability are materially different, in which case a new financial liability based on the amended terms is recognized at fair value. Repayable advances The Company benefits from a number of repayable advances or zero-interest loans. A repayable advance is treated as a government grant if there is reasonable assurance that the Company will meet the conditions for forgiveness of the loan. Otherwise, it is classified as a finan- cial liability and measured at amortized cost in accordance with IFRS 9. The benefit derived from a repayable advance obtained at a lower interest rate than the market rate is treated as a government grant, corresponding to the difference between the amounts re- ceived and the fair value of the loan according to the market interest rate then in force. The amount resulting from the benefit recognized as a government grant included in the "Other reve- nue" line of net income. The financial expense calculated at the market rate using the effective interest rate method is presented in the financial result. Gross financial debt Gross financial indebtedness includes loans and debts from credit institutions, lease liabilities as well as unmatured accrued interest, passive cash, and derivative instruments. Composition of gross financial debt Aelis Farma’s gross financial debt breaks down as follows: • Bank loans: BPI bank loan: in December 2018, the Company took out a remunerated bank loan with Bpifrance for €1,000,000 and a term of 8 years. An amount of €50,000 was withheld as a cash pledge and was included in the calculation of the effective interest rate. The loan will be repaid according to a schedule of 20 quarterly installments including the amortization of the capital and the payment of interest. The first deadline was March 31, 2022, and the last was December 31, 2026. In addition, during the deferred period of amortization of the capital, interest will be paid quarterly in a timely due term. In 2020, due to the Covid-19 crisis, the deadlines of March and June 2022 have been postponed. The schedule has been amended accordingly, with two additional quarterly deadlines, the last of which is June 30, 2027. State-guaranteed loans: in June 2020, the Company took out two State-Guaranteed Loans (PGE), one with Bpifrance and another with Crédit Agricole. The purpose of this financing is to strengthen cash flow following the Covid-19 crisis. Each loan is in the amount of €550,000 and has a duration of 1 year. These two financings benefit from a State Guarantee under the guarantee fund "FDG Etat Coronavirus" up to 90%. The loan with Crédit Agricole, with an interest rate of 0.55%, will be repaid according to a schedule of 48 monthly payments. The first maturity is set for August 22, 2022, and the last for July 22, 2026. The loan with Bpifrance, with an interest rate of 2.25%, will be repaid according to a schedule of 16 quarterly installments. The first deadline is set for October 31, 2022, and the last for July 31, 2026. 98 • Convertible bonds: 2017 convertible bond “OCA 2017”: a bond issue was set up during the year ended 31 December 2017 for a total amount of €700,002 with the Nouvelle-Aquitaine Region. Each convertible bond will be entitled, under the conversion conditions referred to in the Con- vertible Bond Issuance Agreement, to one ordinary share of the Company. Convertible bonds will not produce interest. The full repayment of convertible bonds on their due date, no later than June 29, 2022, will not be accompanied by any non-conversion premium. The contract contains various clauses involving the possibility of conversion or early re- payment depending on scientific or financial events. This bond loan is in particular con- vertible in the event of an initial public offering on a regulated market: as such, it was con- verted after the closing date following the initial public offering of the Company. OCA 2017 Name OCA2017 Number of bonds Exercise price 149 €4,698 Issue price €700,002 Parity 1 share for 1 convertible bond Interest rate 0 % Subscription date Repayment date Maturity 2017-07-12 2022-06-29 5 years Non-conversion premium Fair value of debt component Fair value of equity component 0 % €547,092 €152,910 2019 convertible bond into shares with equity warrants “OCABSA 2019”: a bond issue was set up during the year ended 31 December 2019 for a total amount of €1,500,023 with the Nouvelle-Aquitaine Region and Inserm Transfert Initiative. Each convertible bond will be entitled, under the conversion conditions referred to in the Convertible Bond Issu- ance Agreement, to one ordinary share of the Company, together with a Ratchet BSA (equity warrant). Convertible bonds will earn interest at an annual rate of 1% as of the day of subscription, September 25, 2019. The full repayment of convertible bonds on their due date, no later than June 19, 2024, will not be accompanied by any non-conversion pre- mium. The contract contains various clauses involving the possibility of conversion or early repayment depending on scientific or financial events. This bond loan is in particular convertible in the event of an initial public offering on a regulated market: as such, it was converted after the closing date following the initial public offering of the Company. OCABSA 2019 Name OCABSA 2019 Number of bonds Exercise price Issue price 25,543 €58.73 €1,500,140 Parity 1 ABSA for 1 convertible bond Interest rate Subscription date 1 % 2019-08-26 99 Repayment date 2024-07-19 5 years 0 % Maturity Non-conversion premium Fair value of debt component Fair value of equity component Fair value of BSA €1,254,099 €261,114 €0 • Repayable advances: the Company benefits from public funding from the Nouvelle Aqui- taine Region and Bpifrance. A repayable advance of €900,000 at a zero percent rate was awarded by the Nouvelle Aquitaine Region as part of the creation as an innovative Company during the 2014 finan- cial year. This repayable advance was due March 2019. An amendment signed in 2019 changed the repayment schedule, which now runs from 2019 to 2024. In 2020, due to the Covid-19 crisis, the June 2020 repayment was postponed by one year. The schedule has been amended accordingly, with an additional annual repayment on June 30, 2026. The benefit constituted by the difference between the amount of the advance received and that of the advance discounted at a market rate (4,06 %) is considered to be a gov- ernment grant. A repayable advance of €800,000 at a zero percent rate was awarded by Bpifrance as part of its support for the Company's Research and Development program during the 2014 financial year. This debt is repayable according to a schedule of 20 quarterly install- ments, the first maturity of which was set for March 31, 2020, and the last of which was December 31, 2024. In 2020, due to the Covid-19 crisis, the repayments of March and June 2020 were postponed. The schedule has been amended accordingly, with two addi- tional quarterly repayments, the last of which is June 30, 2025. The benefit constituted by the difference between the amount of the advance received and that of the advance discounted at a market rate (4,06 %) is considered to be a government grant. A repayable advance of €600,000 at a zero percent rate was awarded in 2019 by Bpifrance as part of its support for the Company's Research and Development program ("Deeptech"). This debt is repayable according to a schedule of 5 annuities, the first ma- turity of which is set at June 30, 2024, and the last at June 30, 2028. As of June 27, 2019, €420,000 have been paid. The balance of the advance, i.e., €179,000, has been paid on December, 22 2021. The benefit constituted by the difference between the amount of the advance received and that of the advance discounted at a market rate (4,06 %) is considered to be a sub- sidy. An innovation grant of €500,000 in the form of a zero-rate repayable advance was awarded in 2019 by the Nouvelle-Aquitaine Regional Council as part of the support for the Company's Research and Development program. The first installment of €250,000 was collected on January 2, 2020, and the balance of €250,000 was paid on July 9, 2021. The benefit constituted by the difference between the amount of the advance received and that of the advance discounted at a market rate (4,06 %) is considered to be a sub- sidy. Lease liability, determined in accordance with IFRS 16. 100 Change in gross financial debt During the 2020-2021 period, all of the Company's loans were denominated in euros and were at a fixed interest rate. GROSS FINANCIAL DEBT In thousands of euros 12/31/21 12/31/20 Non-current bonds loans Bank loans 1,403 1,858 - 1,991 2,050 21 Lease liabilities Repayable advances Passive derivatives 1,958 1,505 34 1,705 222 19 Accrued interests Sub-total other non-current financial liabilities Current bond loans 6,759 683 192 260 21 6,008 - Bank loans - Repayable advances Lease liabilities 240 25 Bank overdraft - 63 Accrued interests 2 0 Sub-total other current financial liabilities Gross financial debt 1,158 7,917 328 6,336 MATURITY OF LOANS TO CREDIT INSTITUTIONS AND LEASE LIABILITIES In thousands of euros 12/31/21 12/31/20 Less than 1 year Between 1 and 5 years More than 5 years Total 1,158 6,433 326 328 5,848 160 7,917 6,336 LEASE LIABILITIES In thousands of euros 12/31/21 12/31/20 Less than 1 year Between 1 and 5 years More than 5 years Total 21 - 25 21 - - 21 46 101 FINANCIAL DEBTS EXCLUDING LEASE LIABILITIES In thousands of euros 12/31/21 12/31/20 Less than 1 year Between 1 and 5 years More than 5 years Total 1,137 6,433 326 303 5,827 160 7,896 6,290 RECONCILIATION OF CHANGES IN GROSS FINANCIAL DEBT AND CASH FLOW FROM FINANCING ACTIV- ITIES THROUGH FINANCIAL DEBTS In thousands of euros 12/31/21 12/31/20 Balance at the beginning of the period Proceeds 6,336 429 (203) (25) (55) 146 152 - 4,912 1,413 (70) (24) (44) 1,275 137 Repayments Repayment of lease liabilities Gross financial interest paid Cash flow from financing activities through financial debts Cost of debt Increase of lease liabilities Changes in derivatives - 1,283 - 48 Other (36) 6,336 Balance at the end of the period 7,917 5.5.9.3. Net financial debt The Company's net financial debt corresponds to gross debt less cash and cash equivalents. NET FINANCIAL DEBT In thousands of euros 12/31/21 12/31/20 Gross financial debt Cash 7,917 6,336 (4,538) 1,798 (24,710) (16,793) Net financial debt Fair value of financial assets and liabilities Fair value is defined as the price that would be received for the sale of an asset or that would be paid for the transfer of a liability in an orderly transaction between market participants at the measurement date. Fair value is based on market data and commonly used valuation models and can be confirmed in the case of complex instruments by reference to prices supplied by independent financial insti- tutions. Fair value measurement techniques IFRS 13 "Fair Value Measurement" establishes a hierarchy of the different valuation techniques for financial instruments. 102 The categories are defined as follows: • • • level 1 input data: inputs directly based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; level 2 input data: inputs other than quoted prices included within Level 1 that are observ- able for the asset or liability, either directly or indirectly; level 3 input data: prices established using valuation techniques based on unobservable data. The fair value measurement of passive derivatives in connection with bond issues is carried out in accordance with the methodology described in Note 3.3 "Critical Accounting Judgments and Key Sources of Uncertainty in The Estimates". CARRYING AMOUNT AND FAIR VALUES BY LEVEL OF FINANCIAL ASSETS AND LIABILITIES 12/31/2021 12/31/20 Fair value through other com- prehensive income Financial instru- ments at amor- Fair value through P&L In euros Fair value level Carrying Fair amount Carrying amount value tised cost Other non-current financial assets Receivables and prepaid expenses Other current financial assets - - - - - - - - - 3,299 - - - - 3,299 - 1,346 - - - - Cash and cash equivalents Total financial assets Banks loans – non-current Passive derivatives Level 1 24,710 28,009 5,254 1,505 2,243 1,158 10,346 469 24,710 24,710 5,254 1,505 - 24,710 - - 4,538 5,935 5,787 222 927 328 0 - 24,710 0 - 3,299 5,253 - - - Level 3 1,505 - Trade payables and related items - - - - - - - 2,243 1,159 - Banks loans - current Deferred revenue Other debts 1,158 - - - - - - - - 469 9,124 335 7,599 Total financial liabilities 20,975 7,917 1,505 0 103 ADDITIONAL INFORMATION FOR LEVEL 3 VALUATION (OCABSA 2019) Valuation methods 12/31/21 12/31/20 Valuation used in the calculation for the underlying ordinary share Price of the last transactions observed on capital €58.73 €58.73 Other quantitative elements taken into account in the valuation of financial instruments (other inputs of the black & Scholes model) Estimated 5-year underlying asset volatility Risk-free rate 45.63 % -0.19 % 0 % 62.07 % -0.16 % 0 % Dividend rate 5.5.9.4. Financial Risk Management Risk Management Framework The purpose of the Company's management policy is to identify and analyze the risks the Com- pany is facing, to define the limits within which the risks must lie and the controls to be imple- mented to manage them. Liquidity risk • Description of the risk Liquidity risk is the risk of not being able to meet its repayment obligations related to financial lia- bilities. • Risk Management The Company's highly capital-intensive activity has led it to develop approaches based on the identification and anticipation of financial needs. The management of these risks is based on: a budget process subject to periodic updates, mainly oriented towards cash manage- ment, shared internally between the various stakeholders of the Company, and regularly supervised by the Governance of the Company (Board of Directors, Audit Committee); the search for non-dilutive financing by the management team, from national partners (Bpifrance, Conseil Régional Nouvelle Aquitaine, banking partners), European partners (ICOD and ERDF programs), and foreign partners (funding obtained from NIDA, National Institute on Drug Abuse, part of the American National Institute of Health, NIH); the search for dilutive financing, mainly conducted by the Company's Chief Executive Of- ficer, from specialized investors and funds that historically support the Company; the search for industrial partnerships conducted by the management team and by the Company's Chief Executive Officer, with pharmaceutical groups interested in the thera- peutic area in which the Company operates. When setting up major financing (fundraising, industrial partnerships), the funds made available are placed with the Company's banking partners, in risk-free instruments. Interest rate risk • Description of the risk Exposure to interest rate risk is linked to the existence of variable-rate debt, the medium-term cost of which may vary according to changes in interest rates. 104 • Risk Management The Company's debts are fixed-rate debts. Aelis Farma is not exposed to interest rate risk. Currency risk • Description of the risk Exposure to foreign exchange risk is related to the existence of expenses in a currency other than the Euro (mainly in US dollars), the Company's functional and presentation currency for the financial statements. • Risk Management In 2020, the Company did not implement a policy to hedge foreign exchange risk using a hedging instrument. In 2021, the Company chose to set up auto-hedging in dollars following the receipt of the $30 mil- lion for the license option agreed with Indivior PLC. Thus, these funds in dollars will be used to finance the future costs of the research program carried out in this currency (studies related to AEF0117 in the United States), constituting thereby a natural exchange rate hedge. Credit risk • Description of the risk Credit risk represents the risk that a client (or another counterparty to a financial asset) will not honor its contractual obligations. • Risk Management For the Company, this risk is considered low or even zero. 5.5.10. Other current and non-current liabilities OTHER CURRENT AND NON-CURRENT LIABILITIES In thousands of euros 12/31/21 12/31/20 Deferred revenue – non-current Subtotal non-current contrat liabilities Trade payables and related accounts Employee and social charges payables Tax payables 6,339 6,339 2,243 344 - - 927 254 50 125 Other - 32 Deferred revenue - current Subtotal other current liabilities Total other liabilities 10,346 13,058 19,397 - 1,263 1,263 105 TRADE PAYABLES In thousands of euros 12/31/21 12/31/20 Trade payables 2,243 927 Total trade payables 2,243 927 Trade payables have a maturity of less than one year at each closing. The increase in trade payables is mainly related to research and development contracts in pro- gress at the closing date, in particular for pre-clinical studies for AEF0117 and AEF0217 (ADME studies, toxicity studies and pharmacological studies of safety, production of clinical batches), and clinical studies (preparation of the phase 2b for AEF0117 and implementation of the phase 1 for AEF0217). CONTRACT LIABILITIES In thousands of euros 12/31/21 12/31/20 Deferred revenue – non-current Deferred revenue - current 6,339 10,346 16,685 0 0 0 Total other liabilities Current and non-current deferred revenue consist of: • • The share of Indivior PLC revenue corresponding to the performance obligation described in Note 5.2 - Revenue. It will be recognized over time following costs during the execution of the phase 2b of the AEF 0117 program, i.e., between the second half of 2021 and 2023. The ICOD grant received in advance in 2021 for which expenses were incurred from the first half of 2021 and will continue in 2022. 5.6. Notes to the Statement of Net Income 5.6.1. Segment information In accordance with IFRS 8, segment information is prepared on the basis of internal management data used for business performance analysis and resource allocation. An operating segment is a separate component of the entity that is engaged in the provision of separate products and services and is exposed to risks and profitability different from the risks and profitability of other operating sectors. The Company operates in only one operating segment corresponding to the research and devel- opment of treatments for neurological diseases. The assets, liabilities and operating loss pre- sented in the financial statements relate to the activities of the Company located in France. 5.6.2. Revenue In June 2021, the Company entered into a license option contract forAEF0117 with the leading addiction treatment group, Indivior PLC, under which Aelis Farma granted an option for an exclu- sive license on the EP12194704.8 and EP18305177.0 patent families and associated know-how. This contract allows Indivior PLC to operate worldwide a pharmaceutical product including the 106 compound AEF0117 or certain other pregnenolone derivatives covered by these patent families, in cannabis use disorders, addictions and other compulsive behaviors. Aelis’ remuneration is as follows: • • • • at the signing of the contract, the Company received a lump sum payment of USD 30 mil- lion; if the option is exercised by Indivior PLC, the Company will receive a second lump sum payment of USD 100 million; conditional payments based on technical, regulatory and then commercial milestones, up to USD 340 million; royalties, between 12 to 20%, on sales of the drug containing AEF0117. The accounting principles applied to the revenue from these contracts are derived from IFRS 15. The detailed analysis of the contract allowed the identification of two performance obligations within this contract: • 1: The communication of data relating to the completion of the phase 2b clinical study of AEF0117 and a toxicity study, during the period of the option, for which Aelis Farma must make its best efforts, and whose additional data will allow Indivior PLC to exercise the op- tion. The revenue was allocated to this performance obligation by projecting the future costs relating to the realization of the phase 2b study, including the direct costs of sub- contracting, the direct costs of the teams assigned to carry out these studies and a share of the indirect costs of structure, as well as a margin. • 2: The license option granted to Indivior PLC with a right of return, implying the provision, on the date of signature of the contract, of the information relating to the Research and Development program developed since the beginning of the project. Under the residual method, the income related to this second component is measured as the difference be- tween the total amount received of USD 30 million and the income associated with the 1st performance obligation. It is recognized in revenue at the signing of the contract. Thus, the option income of 30 million USD, or €24,616,000, is recognized according to the follow- ing schedule: • • At signature of the contract: €7,921,000 And, for the balance, i.e., €16,695,000, as and when the costs related to the completion of the phase 2b study and the toxicity study are recognized, i.e., from the second half of 2021 for the preparatory phases, and until the results expected to be obtained in the first half of 2024. As such, an additional €1,154,000 was recognized in 2021, i.e., a total reve- nue of €9,075,000. REVENUE In thousands of euros 12/31/21 12/31/20 Revenue 9,075 - Total revenue 9,075 - 107 5.6.3. Other revenue The item "Other revenue" mainly includes the impact of government grants linked or not to as- sets, including the Research Tax Credit. Due to the nature of its research activities, Aelis Farma receives a number of grants from the Government, local authorities or other public organizations. The treatment of these resources is governed by IAS 20 "Accounting for government grants and disclosure of government assis- tance". Government grants Government grants are not accounted for until there is reasonable assurance that the Company will comply with the conditions attached to the grants and that the grants will be received. Government grants are recognized in net income on a systematic basis over the periods in which the Company recognizes as expenses the related costs that the grants are intended to offset. Specifically, government grants related to investments in non-current assets are initially recog- nized as deferred income and then progressively over the useful life of the non-current assets fi- nanced under the item "Other revenue". Government grants covering operational expenses are directly recognized as "Other revenue" during the period of recognition of the expenses they cover. The grants obtained by the Company are as follows: • • • • A grant from Bpifrance Financement for "Deeptech" financing of €600,000 was awarded in 2019 and €420,000 was received in the 2019 financial year and the balance, €180,000 in the 2021 financial year. This grant is recorded in the income statement on the basis of the progress of the work financed, i.e., €440,000 for the 2019 financial year, €158,000 for the 2020 financial year and the balance, €300.00 in the 2021 financial year. A grant from the European Union under the ERDF-ESF Aquitaine 2014-2020 Operational Programme of €500,000, was awarded in 2019 and €250,000 was received in the 2020 financial year. This grant is fully recorded in the income statement on the basis of the pro- gress of the work financed over the past financial years. The payment of the balance is expected in the 2022 financial year. A European grant under the ERDF-ESF Aquitaine 2014-2020 Operational Programme of €400,000, was awarded in 2020 and €200,000 of this was received in the 2021 financial year. This grant is recorded in the income statement on the basis of the progress of the work financed, i.e., €109,400 for the 2020 financial year and €193,000 for the 2021 finan- cial year. The funded program is expected to end in 2022. A European grant under the Horizon 2020 operational program, for a maximum amount of €5,989,800, was allocated in 2021 to the ICOD program aimed at financing the pre-clini- cal and clinical development program of AEF0217 in Down syndrome for the 2021 to 2025 financial years. This financing is granted to a consortium of which Aelis Farma is one of the main contributors: the financing granted directly to the Company, of €3,353,400, represents 55.99% of the total ICOD program budget. As such, the company received an advance of €1,463,500 in the 2021 financial year. This grant is recorded in the income statement on the basis of the progress of the work financed, i.e., for the 2021 financial year. The balance is recognized as short-term prepaid income on the liabilities side of the balance sheet. 108 The treatment of repayable advances is described in Note 4.9.2 “Financial liabilities”. Research tax credit Aelis Farma benefits from the research tax credit (CIR) under French tax legislation, granted by the State in order to promote scientific and technical research. The amount of the CIR: • may be deducted from income tax due in respect of the year in which it was granted, as well as for the following three financial years; or • in certain circumstances, the excess may also be reimbursed to the Company. The Company considers the CIR to be a government grant within the meaning of IAS 20, as the Company may benefit from it independently of its income tax payments. The Company recog- nizes this receivable in other current receivables, given the expected repayment period. Re- search tax credits are recorded under "Other revenue". OTHER REVENUE In thousands of euros 12/31/21 12/31/20 Research tax credit 1,089 518 80 692 385 60 Government grants IAS20 (government grants) Other - - Other revenue from ordinary activities 1,687 1,137 5.6.4. Research and Development Costs As noted above in Note 3.2 "Basis of Preparation", the Company has opted for a presentation of its expenses by function. The item "Research and Development expenses" includes expenses directly attributable to the Research and Development activities carried out by Aelis Farma. This item recovers the following costs: • • cost of raw materials used by the Company's laboratory; other purchases and external expenses corresponding mainly to subcontracting costs dedicated to Research and Development programs and purchases of raw materials and consumables necessary for testing; depreciation and amortization related to capitalized equipment and development costs; • • personnel costs corresponding to the salaries and related expenses of the teams dedi- cated to research; intellectual property corresponding to patent maintenance fees and filing costs and royal- ties on license revenues paid to patent holders. As of December 31, 2021, license fees correspond in particular to a payment of €1.7 million under the contract by which INSERM and the University of Bordeaux license to the Company the patent for AEF0117. This pay- ment is related to the collection of the fixed amount of 30 million USD of the license op- tion agreement with Indivior PLC described in Note 5.2. 109 RESEARCH AND DEVELOPMENT COSTS In thousands of euros 12/31/21 12/31/20 Cost of raw materials (79) - Other purchases and external expenses Employee costs (3,064) (1,808) (1,919) (6,870) (1,741) (1,351) (296) Intellectual property Research and Development costs (3,388) 5.6.5. General and administrative costs As noted above in Note 3.2 "Basis of Preparation", the Company has opted for a presentation of its expenses by function. This item collects all administrative and overhead expenses, including salaries and related ex- penses of dedicated teams as well as all other current operating expenses not allocated to Re- search and Development expenses. GENERAL AND ADMINISTRATIVE COSTS In thousands of euros 12/31/21 12/31/20 Employee costs (779) (562) (305) (353) (658) Other purchases and external expenses General and administrative costs (1,341) 5.6.6. Employee Benefits Employee benefits are considerations of all forms granted by the Company for the services ren- dered by the members of its personnel or for the termination of their employment. These benefits, assessed in accordance with IAS 19 "Employee benefits", fall into four catego- ries: • • short-term benefits (paid leave, sick leave, bonuses, etc.); post-employment benefits (retirement benefits, social security pension and supplemen- tary pensions); • • other long-term benefits (work medals, seniority-related paid leave), and; termination benefits. Short-term benefits are staff benefits that are expected to be paid in full within 12 months of the reporting date of the financial year in which the staff members rendered the corresponding ser- vices. They are recorded as current debts and recorded as an expense when the service is ren- dered by the employee. Personnel expenses, by nature, presented below, include personnel expenses relating to re- search and development, as well as general and administrative expenses. 110 EMPLOYEE BENEFITS In thousands of euros 12/31/21 12/31/20 Salaries 1,543 578 1,164 305 Social security expenses Share-based payments Post-employment benefits expenses Total employee benefits 443 172 25 25 2,588 1,665 COMPANY WORKFORCE Company Workforce 12/31/21 12/31/20 Executives 19 4 8 2 Employees Apprentices 1 1 Total workforce at year end 24 11 5.6.7. Depreciation and impairment DEPRECIATION AND IMPAIRMENT In thousands of euros 12/31/21 12/31/20 Amortization of intangible assets Rights-of-use depreciation 4 21 10 35 - 0 21 8 Depreciation of tangible assets Subtotal depreciation of property, plant and equipment and intangible assets Other provisions 30 - Subtotal net provisions - - Total allocations and reversals on depreciation, depreciation and amortiza- tion and provisions 35 30 5.6.8. Non-current operating income and expenses In order to facilitate the understanding of the income statement and the performance of the Com- pany, transactions which, due to their unusual or particularly significant nature, are likely to distort the understanding of the Company's economic performance, are assigned to the operating in- come line entitled "non-current operating income and expenses". These are income and expenses that are not usual in their frequency, nature or amount, such as income or expenses representative of significant and non-recurring disputes, penalties, impair- ments and/or disposals of fixed assets. 111 NON-CURRENT OPERATING INCOME AND EXPENSES In thousands of euros 12/31/21 12/31/20 Other operating income - - - 183 (113) 70 Other operating expenses Other operating income and expenses Non-current operating income and expenses recorded in 2020 correspond to compensation re- ceived following a breakdown in commercial talks and associated expenses (advisory fees). 5.6.9. Financial result The financial result consists of the cost of financial debt and other financial income and ex- penses. The cost of net financial debt is composed of interest expense on borrowing and lease liabilities as well as income on cash and cash equivalents. COST OF NET FINANCIAL DEBT In thousands of euros 12/31/21 12/31/20 Interest income 1 1 Interest expenses on loans Interest expenses on leases liabilities Total cost of net financial debt (137) (2) (135) (3) (137) (137) TOTAL FINANCIAL INCOME AND EXPENSES In thousands of euros 12/31/21 12/31/20 Foreign exchange gains (losses) 723 (1,380) (0) (17) (48) (1) Changes in fair value of financial instruments Interest costs on retirement benefits Total other financial income and expenses (657) (66) 5.6.10. Income taxes Income tax is equal to the total amount of current tax and deferred tax included in the determina- tion of the result for the period. It is recognized in profit or loss unless it relates to a business combination or to items that are recognized directly in equity or other comprehensive income. 5.6.10.1.Current income taxes Tax payable (current tax) is the amount of income tax payable (receivable) in respect of taxable profit (tax loss) in a financial year and should be recognized as a liability to the extent that it is not paid. If the amount already paid for the preceding and current period exceeds the amount due for those periods, the excess shall be recognized as an asset. Tax liabilities (assets) due for the preceding and current period are measured at the amount ex- pected to be paid or recovered from tax administrations using tax rates and regulations adopted or quasi-adopted on the balance date in each country where the Company operates. 112 According to the Company's analysis, the French value-added contribution (“CVAE”) meets the definition of an income tax as defined by IAS 12 "Income Taxes" and is therefore presented on the income taxes line in the statement of net income. DETAILS OF TAX RECOGNIZED IN NET INCOME In thousands of euros 12/31/21 12/31/20 Income tax (229) (956) - Deferred income tax Total income tax expense 956 956 (1,185) The standard corporate income tax rate applied to reported net income is 26.5% in 2021 (2020: 28%). RECONCILIATION BETWEEN THE EFFECTIVE TAX RATE AND THE APPLICABLE TAX RATE – TAX PROOF In thousands of euros 12/31/21 12/31/20 Profit (loss) before tax 1,759 26.5% (466) (117) 1 (3,042) 28.0 % 852 Income tax rate applicable to the Company Theoretical tax expense Income and expenses related to share-based payments Other temporary differences (48) 5 Research tax credit 289 193 Contribution Economique Territoriale (CET-"local economic contribution") Impact resulting from uncapitalized or impaired tax loss carryforwards Uncapitalized deferred tax assets (38) (464) (360) (20) (25) Tax rate difference Income tax expense Net income (loss) (29) (1,185) 574 956 (2,085) 5.6.10.2.Deferred taxes Deferred tax results from temporary differences between the carrying amounts of assets and lia- bilities and their tax bases. Deferred tax assets and liabilities are measured at the expected tax rates in the year in which the asset will be realized, or the liabilities extinguished and that have been adopted or quasi-adopted at the balance date. In the event of a change in the tax rate, deferred taxes are adjusted to the new prevailing rate and the adjustment is expensed unless it relates to an item recognized in eq- uity or other comprehensive income, including actuarial differences. Deferred taxes are reviewed at each closing to take into account possible changes in tax legisla- tion and the prospects for recovery of deductible temporary differences. A deferred tax asset is recognized only to the extent that it is likely that the Company will have deferred tax liabilities of the same maturity or future taxable profits against which that asset can be offset over a foreseea- ble horizon. The determination of the amount of deferred taxes that can be recognized requires management to make estimates both on the period of consumption of deficit carryforwards, and on the level of future taxable profits, with regard to tax management strategies. 113 Deferred tax assets and liabilities are not discounted. Deferred tax assets and liabilities are offset if the Company has a legally enforceable right to off- set assets and liabilities of tax due and if they are related to income taxes levied by the same tax authority and the Company intends to settle the net amount of its tax assets and liabilities due. Deferred tax assets and liabilities The following table presents the major deferred tax assets and liabilities recognized by the Com- pany and their evolution during the current and previous reporting periods. DEFERRED TAX ASSETS AND LIABILITIES Other In thousands of euros 12/31/19 Net income comprehen- sive income 12/31/20 Leases 10 83 3 - 2 - 13 110 Retirement benefit provisions Financial instruments Acquisition fees 25 (206) 60 67 (139) 70 10 - Tax losses carried forward Deferred tax basis Presented as: 13,591 13,537 3,481 3,586 - 17,072 17,124 2 Deferred tax basis 4,196 (4,196) - 598 357 956 1 (1) - 4,795 (3,839) 956 Deferred tax assets impairment Net deferred tax assets DEFERRED TAX LIABILITIES Other In thousands of euros 12/31/20 Net income comprehen- sive income 12/31/21 Leases 13 110 (3) - (35) (2) - 10 100 Retirement benefit provisions Financial instruments Acquisition fees 25 (139) 70 1,363 - 1,222 70 Tax losses carried forward Deferred tax basis Presented as: 17,072 17,124 (1,819) (434) - 15,253 16,655 (37) Deferred tax basis 4,795 (3,839) 956 (390)1 (566)2 (956) 9 (9) - 4,414 (4,414) - Deferred tax assets impairment Net deferred tax assets (1) Including € (256,000) of tax rate difference (2) Including € (489,000) relating to deferred taxes activated in 2020 but not used in 2021 As the conditions of IAS 12 are met by the Company with regard to the taxation of its profits, car- ried out in France only, an offset is made between deferred tax assets and liabilities. Tax assets: at the end of the 2021 financial year, the Company had unused tax losses of €15,323,000 (at the end of 2020: €17,142,000) which it can charge to future profits within the an- nual deductibility limits. 114 A deferred tax asset was recognized for €956,000 in 2020 and no deferred tax assets were rec- ognized in 2021. The tax planning prepared by the Company over three years shows a tax profit as at 31 Decem- ber 2021 that justifies this recognition. This deferred tax asset was used and therefore taken up as at 31 December 2021. As at 31 December 2021, no deferred tax assets have been recognized as it is not considered likely that future taxable profits will be available. 5.6.10.3.Uncertain tax positions related to income tax In accordance with IFRIC 23 interpretation "Uncertainties over Tax Income Treatments", a tax as- set or liability is recognized in the event of uncertainty about the treatment of income tax. As soon as it is likely that a tax administration will not accept an uncertain tax treatment, the Company recognizes a tax liability without taking into account the probability of non-detection by the tax au- thorities. Conversely, if the Company considers it likely that a tax authority will reimburse a tax paid, a tax claim is established. Assets and liabilities related to these uncertainties are estimated on a case-by-case basis based on the most likely amount. The Company has not identified any significant uncertain tax position with respect to income tax. 5.7. Note to the cash-flow statement The statement of cash flow is prepared in accordance with IAS 7 "Statement of cash flows". It thus distinguishes cash flows from operating activities from those of investing and financing activ- ities. Cash flows from operating activities are presented using the indirect method. Under this method, they are determined by adjusting net income to take into account the effects of changes during the period in inventories and operating receivables and liabilities (WCR) as well as non-cash items, mainly depreciation, provisions and deferred taxes. Cash flows from investing activities are mainly cash outflows from the acquisition of fixed assets and cash inflows from the disposal of fixed assets. Cash flows from financing activities mainly correspond to debt issuances and cash repayments of borrowed amounts. Cash flows from income taxes are presented separately and classified as cash operating flows, unless they can be specifically linked to financing and investing activities. 115 OPERATING CASH FLOWS 12/31/21 12 months 12 months 12/31/20 Amounts in thousands of euros Profit (loss) for the period 574 (2,086) Elimination of depreciation and amortization of intangible and tangible as- sets 36 30 Expenses related to share-based payments Expenses related to defined benefit plans 443 24 172 25 Neutralization of the impact of the restatement of government grants on net income (16) 19 Reclassification of interest income and expenses Income tax expense 740 103 1,185 (956) Net cash flow from operating activities before changes in working cap- ital requirements, financial interest and income taxes (2,985) (2,693) Variation of working capital requirement Research tax credit of the period 16,383 (1,089) 692 116 (692) 791 Cashed in research tax credit (N-1) Cash flows from operating activities 18,970 (2,478) The net cash consumption generated by the activity was €18,970,000 for the year ended 31 De- cember 2021, against a net cash burn of €2,478,000 for the year ended 31 December 2020. The generation of a net cash surplus over the 2021 financial year is mainly due to the receipt of $30 million from Indivior PLC for the license option agreement signed. This net cash consumption is mainly due to Research and Development expenses and fees, which amounted to €6,870,000 in 2021 and €3,388,000 in 2020, which are partially offset by Re- search Tax Credits receipts from the previous year. Thus, the Company obtained the reimburse- ment of the 2020 and 2019 CIRs respectively in July 2021 and August 2020 for €692,000 and €791,000. INVESTING CASH FLOWS 12/31/21 12 months 12 months 12/31/20 Amounts in thousands of euros Acquisitions of intangible and tangible assets Financial interest received on investments Cash flows from investing activities (213) 1 (35) 1 (212) (34) The main cash flows from investing activities in 2021 relate to the acquisition of property, plant and equipment for the creation of an in-house research laboratory; as in 2020, this item also in- cludes the payment of patent royalties in accordance with the license agreements from which the Company benefits. 116 FINANCING CASH FLOWS 12/31/21 12 months 12 months 12/31/20 Amounts in thousands of euros Capital increase - - - - Costs relating to the capital increase Issuance of bond loans net of fees Subscription of warrants - - 35 2 Issuance of bank loans - 63 Receipt of advances and loans for innovation, net of costs Repayment of advances and loans for innovation Repayment of debt on lease obligations Repayment of bank overdraft 447 (140) (25) (63) (74) 180 1 350 (70) (24) - Gross financial interest paid (44) 1,277 Cash flows from financing activities Net cash flows from financing activities for the year ended 31 December 2021 and 31 December 2020 amounted to €180,000 and €1,277,000 respectively. These cash flows related to financing are mainly generated by transactions related to the financ- ing of innovation and operating activities: • • repayable advances awarded by Bpifrance (Deeptech program whose final payment of €180,000 was collected in 2021), by the Nouvelle Aquitaine Region (innovation aid the initial payment of €250,000 was received in 2020 and the balance of €250,000 was re- ceived in 2021); two State-guaranteed loans, taken out in equal amounts from Bpifrance and Crédit Agricole, for a total of €1,100,000, paid in July 2020 as part of the support measures for companies in the context of the Covid-19 pandemic. As at 31 December 2021, cash and cash equivalent amounted to €24,710,000, an increase of €20,172,000 compared to the 2020 financial year. 5.8. Events after the reporting period After December 31, 2021, the Company listed on Euronext’s compartment B regulated market on February 18, 2022. Transformation into a public limited Company with a Board of Directors The General Meeting of January 11, 2022 approved the transformation of the Company into a public limited Company with a Board of Directors, the said transformation taking effect on the same day. Modification of the nominal unit value of the Company’s shares The General Meeting of January 11, 2022 decided to divide the par value of the shares by 24. It was thus reduced from €0.096 to €0.004, thus increasing the number of Company shares from 399,698 to 9,592,752. 117 IPO and capital increase On February 15, 2022, the Company announced the success of its IPO on compartment B of the regulated market of Euronext Paris, carried out by way of an open price offer (the "OPO") and a global placement (the “Global Placement”, together with the OPO, the “Offer”). The Offer price was set at €14.02 per new ordinary share. 1,822,794 ordinary shares were allo- cated under the Offer, representing an amount of €25.55 million. The capital increase of an initial amount of €25 million, i.e. 1,783,167 new shares, has been increased to approximately €25.3 mil- lion after partial exercise of the over-allotment option by issuing 20,691 additional new shares. This last capital increase was carried out on March 17, 2022, by decision of the Chief Executive Officer acting within the framework of the sub-delegation, granted by the Board of Directors by its decision dated February 15, 2022, within the framework of the delegation made to it by the Com- bined General Meeting of January 11, 2022. The start of listing on the Euronext market took place on February 18, 2022, after finalization of the capital increase and implementation of settlement-delivery on February 17, 2022. This IPO, also involved: • the conversion into ordinary shares of ABSA B resulting in the cancellation of the BSA Ratchet 2017 and 2019; the issue, on the date of completion of the initial public offering, of new ordinary shares, because of: the conversion of the Convertible Bonds previously issued (OC2017 and OC2019), for respective amounts of €700,002 and €1,500,022.93 in ordinary shares of the Company. It was therefore considered that this conversion had no impact on the maturity of the CBs at the end of the financial year: the 2017 CBs are presented with a maturity of less than one year and the 2019 CBs are presented with a maturity.of one to five years; the exercise of 600 BSA2019, 2,682 BSA2020, 20 BSPCE2017-1 and 300 BSPCEOCT2020 ; allocation to the issue premium of the costs related to this fundraising, for a total amount estimated at approximately €2.8 million. In this respect, as at December 31, 2021, the costs incurred in the 2021 financial year in direct connection with the capital increase dur- ing the IPO, i.e., €421,293.42, were recognized as prepaid expenses. and will be de- ducted from the issue premium for the 2022 financial year. Situation in Ukraine The conflict initiated in February 2022 between Russia and Ukraine has no direct significant im- pact on the Company's operational activity, as it has no service provider or ongoing operation in these two countries. 5.9. Off-balance-sheet commitments 5.9.1. Commitments received Commitments received directly by the Company: none. 5.9.2. Commitments given The Company has signed several exclusive patent license agreements with public institutions. These contracts include clauses for the payment of milestones based on stages of development, and royalties based on future sales. They charge Aelis Farma with the responsibility for and fi- nancing of the costs of filing, maintaining and defending these patents. 118 5.10. Related Party Transactions According to IAS 24, Related Party Disclosure, a related party is a person or entity that is related to the reporting entity. These may include: • • • • a person or Company that exercises control over the Company; an associated Company of the group; a joint venture; a key member of the Company’s management team (or a member of his/her family). A transaction with a related party involves a transfer of goods, services or obligations between the Company and that related party. EXECUTIVE COMPENSATION Remuneration of Pier Vincenzo Piazza 12/31/21 12/31/20 Euros Short-term employee benefits Post-employment benefits Share-based payments * Termination benefits 501,137 346,643 - 3,314 - - 10,534 - Total remuneration of the Chairman of the SAS 504,451 357,423 () In accordance with IFRS 2 OTHER TRANSACTIONS WITH RELATED PARTIES Other transactions with related parties Amounts in thousands of euros Note 12/31/21 12/31/20 Consulting service Thomas Conseil SPRL a. b. 20 0 15 35 50 Consulting service Gerselconsult ApS Total services purchased from related parties 20 a. The Board of Directors, at its meeting of April 26, 2019, authorized the Company to enter into a consulting con- tract with Thomas Conseil SPRL. Mr. François Thomas, President of Thomas Conseil SPRL, is a member of the Company's Board of Directors. The purpose of the contract is to provide assistance to Aelis Farma in the search for financing, and assistance in the negotiation of financing. This contract was concluded for the year 2019, without tacit renewal. A new similar contract was formed between the parties on 13 January 2020 for the period running until 31 De- cember 2020, then renewed in 2021, with a revision of the amount of fees due for the year. b. The Board of Directors of the Company entered into another consulting contract with the Danish Company Gerselconsult Aps on 18 February 2020. Mr. Anders Gersel, Chairman of the Board of Directors of Aelis Farma, is also a director of Gerselconsult Aps. The purpose of the contract is to provide assistance to the Company in clinical studies, regulatory procedures, search for industrial partners. This contract had no effect in 2021. 119 5.11. Auditors’ fee AUDITORS’ FEES Euros 12/31/21 12/31/20 Financial statements certification Other services 26,002, 7,025, 33,027 12,576 7,115 Total fees 19,691 The fees invoiced during the 2021 financial year and relating to the capital increase transactions carried out during the IPO in February 2022 are not presented in this table, being attached to the 2022 financial year. As of December 31, 2021, these fees amounted to €150,000 and were recognized as prepaid ex- penses in order to be charged later to the issue premium. 5.12. Transition to IFRS 5.12.1. Transition approach The Company has prepared financial statements under IFRS for the first time for the financial years ended December 31, 2020, 2019 and 2018 as part of the planned initial offering of shares on the French regulated market. They had been established specifically for the purpose of the Registration Document subject to AMF approval (Autorité des Marchés Financiers). The financial statements for the year to December 31, 2020, were the first that the Company had prepared in accordance with IFRS standards in effect as of December 31, 2020, and IFRS 1 "First Adoption of International Financial Reporting Standards" has been applied to all periods presented from the transition date to January 1, 2018. The financial statements under IFRS established for the financial year ended December 31, 2021 are therefore the first established as part of the annual closing of a Company listed on a regu- lated market. 5.12.2. Mandatory exceptions and optional exemptions applied Since IFRS 1 was applied to the first set of accounts established for the period from January 1, 2018 to December 31, 2020, the principles adopted are detailed below. IFRS 1 allows early adopters exemptions from the retrospective application of certain require- ments under IFRS. The Company has applied the mandatory exceptions regarding: • • • the classification and valuation of financial instruments; depreciation of financial assets; public loans. The other mandatory exceptions are not applicable to the Company. The optional exemptions ap- plied by the Company relate to IFRS 16 "Leases" and IFRS2. 120 IFRS 16: Leases The Company has adopted IFRS 16 as of January 1, 2018. The Company has evaluated all existing contracts as of January 1, 2018 to determine whether a contract constitutes a lease within the meaning of IFRS 16. An entity that applies IFRS for the first time and is a lessee is permitted to apply the following ap- proach to all of its leases on the transition date: • the lease liabilities were assessed at the present value of the remaining lease payments, discounted on the basis of the lessee’s incremental borrowing rate at the transition date of January 1, 2018; • right-of-use assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the statement of financial position immediately before 1 January 2018. IFRS 2: Share-Based Payments The Company did not apply IFRS 2 to a plan settled prior to the transition date. 121 5.12.3. Reconciliation of the Statement of Financial Position STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020 FR IAS 32- IAS 19 IAS IFRS IFRS 2 IAS 20 IFRS Gaap IFRS 9 12 16 Retire- ment benefit ment De- In thousands of euros Financial Share- 12/31/20 instru- based Govern- ferred in- Leases 12/31/20 ments payment provi- sions grants come tax Intangible assets 60 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 39 - 60 48 Property, plant and equipment Other non-current financial assets 9 - - - - Deferred tax assets - 956 - 956 1,064 1,396 - Total non-current assets 70 956 39 - Receivables and prepaid expenses 1,396 - - Current financial assets Cash and cash equivalents Total current assets Total assets - - 4,538 5,935 6,004 - - - 4,538 5,935 6,999 - 956 39 Shareholders’ equity (1,841) - (12) - - - (110) 110 - 304 - 956 (7) - (709) 110 Employee commitments - - - Non-current financial debts (1) 6,279 (209) (304) 21 5,787 Provisions – other non-current debts - - - - - - 0 - - - - - - - - - - - - - - 222 - Passive derivatives 222 - - - Deferred tax liabilities - - 13 - - - - - Total non-current liabilities 6,279 303 - 110 (304) - 21 25 - 6,119 328 - Current financial liabilities Current provisions - - - - - - - - - - - - - - - - - - - Trade payables and related items 927 304 - - - - 927 304 - Fiscal and social debts Deferred revenue - - - - - - Other current debts 32 - - - - 32 Total current liabilities Total equity and liabilities 1,565 6,003 - 25 39 1,590 6,999 1 956 (1) In accordance with IAS 1, the holdback amount of €50,000 on the Bpifrance loan of €1 million has been offset with the corresponding liability, and is translated into the column "FR Gaap" for simplification. 122 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2021 FR Gaap IAS 32- IFRS 9 IAS 19 IAS IFRS IFRS 2 IAS 20 IFRS 12 16 Retire- ment benefit ment provi- grants sions De- In thousands of euros Share- based pay- Financial 12/31/21 instru- ments Govern- ferred in- come tax Leases 12/31/21 ment Intangible assets 90 179 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 18 - 90 196 Property, plant and equipment Other non-current financial assets - - - - - - - - - Deferred tax assets Total non-current assets Inventory - - - - - - - 269 17 - - - - 18 - 287 - - - - 17 Receivables and prepaid expenses 3,299 - - - - - - 3,299 - Current financial assets Cash and cash equivalents Total current assets Total assets - - - - - 24,710 28,027 28,296 2,074 - - - - - - 24,710 28,027 28,313 899 - - - - - - - - - 18 (4) - Shareholders’ equity Employee commitments (1,391) - (101) 320 - - 101 - 101 Non-current financial debts (1) Provisions – other non current debts 5,582 6,339 - (97) - - (231) - 5,253 6,339 1,505 - - - - - - Passive derivatives 1,505 - - - - Deferred tax liabilities - - - - - - Total non-current liabilities 11,921 1,244 - 1,408 0 101 (231) - 13,198 1,158 - Current financial liabilities Current provisions (16,8) - - - - - - - - - (90) 21 - - - - - Trade payables and related items 2,243 469 10,346 - - - - 2,243 469 Fiscal and social debts Deferred revenue - - - - - - - - 10,346 - Other current debts - - (17) - - (90) - - Total current liabilities Total equity and liabilities 14,301 28,296 - 21 18 14,215 28,313 -, (1) In accordance with IAS 1, the holdback amount of €50,000 on the Bpifrance loan of €1 million has been offset with the corresponding liability, and is translated into the column "FR Gaap" for simplification. 123 5.12.4. Reconciliation of statement of net income RECONCILIATION OF STATEMENT OF NET INCOME AS AT 31 DECEMBER 2020 FR Gaap IAS 32- IFRS 9 IAS 19 IAS IFRS IFRS 2 IAS 20 IFRS 12 16 Retire- ment Govern- ferred benefit ment De- In thousands of euros Financial 12/31/20 instru- ments Share- based in- come tax Leases 12/31/20 payment provi- grants sions Revenue - - - - - - - - - - - - - Other operating income 1,077 60 1,137 Revenue from ordinary activities Research and Development costs General and administrative costs Recurring operating profit (loss) 1,077 (3,249) (606) (2,778) 70 - - - - - - - 60 - - - - - - - - 1,137 (3,388) (658) (2,910) 70 (121) (51) (172) - (18) (6) (25) - - 5 5 - 60 - Other operating income and expenses Operating profit (loss) Financial income (loss) Profit (loss) before tax Income tax expense Net income (loss) (2,708) (72) - (172) - (25) (1) 60 (79) (19) - - - 5 (3) 3 (2,840) (202) (48) (48) - (2,780) - (172) - (25) - - (3,042) 956 956 956 - (2,780) (48) (172) (25) (19) 3 (2,086) RECONCILIATION OF STATEMENT OF NET INCOME AS AT 31 DECEMBER 2021 FR Gaap IAS 32- IFRS 9 IAS 19 IAS IFRS IFRS 2 IAS 20 IFRS 12 16 Retire- ment Govern- ferred benefit ment De- In thousands of euros Financial 12/31/21 instru- ments Share- based in- come tax Leases 12/31/21 payment provi- grants sions Revenue 9,075 1,607 - - - - - - - - - - - 9,075 1,687 Other operating income 80 Revenue from ordinary activities Research and Development costs General and administrative costs Recurring operating profit (loss) 10,683 (6,486) (1,264) 2,934 - - - - - - - - 80 - - - - - - - - 10,762 (6,870) (1,340) 2,552 - (370) (73) (443) - (15) (9) (24) - - 5 5 - 80 - Other operating income and expenses Operating profit (loss) Financial income (loss) Profit (loss) before tax Income tax expense Net income (loss) 2,934 652 - (443) - (24) - 80 (64) 16 - - 5 (2) 3 2,552 (794) 1,759 (1,185) 574 (1,379) (1,379) - - 3,586 (229) 3,357 (443) - (25) - - (956) (956) - (1,379) (443) (25) 16 3 124 5.12.5. Description of the main impacts of the IFRS transition IAS 32 – IFRS 9: Financial Instruments The application of these standards has led to the recognition of the following impacts: • for the OCA 2017 issued by the Company: the fair value of the OCA's conversion option, which was calculated by determining the difference between the issue value and the fair value of the debt component, is recognized as equity. • • for OCABSA 2019 issued by the Company: the conversion option is considered a deriva- tive incorporated into the contract and recognized at fair value through profit or loss. for Tranche 2 and Tranche 3 BSAs: fair value has been recognized in equity. IFRS 2: Share-Based Payments The Company has restated all outstanding plans not yet settled at the transition date in accord- ance with IFRS 2 and applied the optional exemption for the single plan settled on the transition date. The accounting rules and policies applied are described in Note 4.7 – Share-based pay- ments. Restatement of share-based payments results in an additional operating expense in re- turn for equity. The cumulative expense on the plans in progress at the transition date resulted in an intra-equity reclassification with no net impact on presentation. IAS 19: Employee Benefits The application of the standard leads to the recognition of the commitment under the defined benefit plan as a liability. Actuarial gains and losses resulting from changes to calculation as- sumptions and adjustments related to experience are recognized in other comprehensive income. The net expense for the financial year, corresponding to the current service cost, plus whereby appropriate the past service cost, is recognized in operating expenses. Commitments were not recognized under the previous standard. IAS 20: Government grants The application of the standard leads to the recognition of the benefit derived from a repayable advance obtained at an interest rate lower than that of the market as a public subsidy, corre- sponding to the difference between the amounts received and the fair value of the loan according to the market interest rate then in force. The amount resulting from the benefit recognized as a government grant is presented in the "Other revenue" line of net income. The financial expense calculated at the market rate using the effective interest rate method is presented in the financial result. IAS 12: Deferred Taxes The amounts presented on these lines correspond to the tax effect of restatements between the previous benchmark and IFRS standards included in net income and equity as well as the recog- nition of deferred tax assets. IFRS 16: Leases The application of the standard leading to the recognition of a right of use and a lease liability on the balance sheet also leads to the recognition of a depreciation expense and financial interests instead of a lease expense as an operating expense over the term of the contract. The rights of use and lease liabilities recognized at opening are presented respectively in Tangible fixed assets and Gross financial debt. 125 The difference between the previously recorded lease expense and the depreciation and amorti- zation expense is the impact on operating income. The difference between the total expense (depreciation and amortization and financial expenses) for IFRS leases and the previously recognized lease expense is the impact on net income. While operating lease payments were presented in cash flows from operating activities, these rent payments are now divided into cash outflows relating to the interest expense on the lease liabilities and the repayment of that debt. The Company presents the repayment of the principal of the lease obligation and the interest paid in the cash flows related to financing activities. 126 Section 6 - Individual financial statements prepared in accordance with French Gaap as of December 31, 2021 ASSETS Amortization and depreciation 12/31/21 Gross 12/31/21 12/31/20 In euros Net Net Intangible assets Concessions, patents and similar rights Total Intangible assets 90,671 503 90,167 60,181 90,671 503 90,167 60,181 Property plant and equipment Plant machinery, equip. and tooling Other tangible fixed assets Advances and down-payments Total property plant and equipment Financial fixed assets 125,296 77,065 11,355 213,716 3,948 31,005 - 121,348 46,060 11,355 178,763 - 9,381 - 34,953 9,381 Other financial assets 50,000, 50,000 - 50,000, 50,000, 318,930 50,000 50,000 119,562 Total financial fixed assets TOTAL NON-CURRENT ASSETS Inventory and work in progress Raw materials, supplies - 354,387 35,457 17,450 - 17,450 - Advances and down-payments made on orders Receivables 56,552 - 56,552 906 Other receivables 1,635,520 24,710,551 1,606,695 28,026,769 1,000 - 1,635,520 1,339,093 Cash and cash equivalents Prepaid expenses - 24,710,551 4,538,141 1,606,695 56,526 28,026,769 5,934,666 1,000, - TOTAL CURRENT ASSETS Translation adjustment on assets TOTAL ASSETS - - - 28,382,156 35,457 28,346,699 6,054,228 127 LIABILITIES In euros 12/31/21 12/31/20 Share capital 3,997 35,051 3,995 934,958 - Additional paid-in capital Retained earnings (accumulated losses) Net profit (loss) for the period Investment grants (1,848,688) 3,356,001 1,142,791 2,689,153 1,039,147 1,000 (2,783,646) - TOTAL SHAREHOLDERS’ EQUITY Conditional advances (1,844,693) 1,000,000 Provisions for liabilities Financial Liabilities Convertible bond loans Bank borrowings 2,234,217 2,102,296 1,500,067 5,836,580 2,219,025 2,162,808 1,250,067 5,631,900 Other loans and borrowings Total financial liabilities Operating liabilities Trade payables and related accounts Tax and social security liabilities Total operating liabilities Other liabilities 2,243,093 468,685 927,506 303,724 1,231,230 31,500 2,711,778 526,983 Deferred income 15,541,000 24,616,341 1,058 - TOTAL LIABILITIES 6,894,630 4,291 Translation adjustment on liabilities TOTAL LIABILITIES 28,346,699 6,054,228 128 INCOME STATEMENT In euros 12/31/21 12/31/20 Products sold (services and works) Net Revenue 9,075,395 9,075,395 4,000 - - Operatinggrants - Reversals of provisions and impairment losses, expense transfers Otherincome 34,374 70,340 49 604,271 9,718,039 96,908 Total operating income 70,339 2,653 - Purchases of materials and other supplies Change in inventory (17,450) 3,799,525 63,323 Other external purchases and expenses Taxes and similar duties 2,402,856 18,015 1,163,595 304,820 Wages and salaries 1,518,698 571,085 Personnel social security costs Depreciation and Amortization - Depreciation and amortization of fixed assets - Allocations to provisions 13,615 1,000 8,456 - Other expenses 1,771,176 7,817,880 1,900,158 1,336 26,266 3,926,661 (3,856,272) 1,459 Total operating expenses OPERATING PROFIT Other interest income and similar income Positive translation adjustment Total financial income 118,569 119,905 72,523 - 1,225 2,685 Interest expenses and similar expenses Negative translation adjustment Total financial expenses 56,301 22,546 78,846 (76,162) (3,932,434) 72,523 47,382 1,947,540 FINANCIAL INCOME (EXPENSE) PRE-TAX PROFIT (LOSS) ON ORDINARY ACTIVITIES Exceptional income - From revenue transactions - From capital transactions Exceptional expenses 3,565 184,758 384,837 514,110 - From revenue transactions - From capital transactions EXCEPTIONAL PROFIT (LOSS) Income tax - 112,463 47 - 517,675 (890,786) 10,355,619 6,999,617 3,356,001 457,085 (691,703) 642,668 3,426,314 (2,783,646) Total Income Total Expenses NET PROFIT (LOSS) FOR THE PERIOD 129 6.1. Significant events during the period The balance sheet for the period totaled €28,346,699. The income statement presented in the form of a list shows total income of €10,355,619 and total expenses of €6,999,617, resulting in a net profit of €3,356,001. The period under review begins on 01/01/2021 and ends on 12/31/2021. It runs for 12 months. In June 2021, the Company entered into an industrial partnership in the form of an exclusive li- cense option agreement of the industrial property for AEF0117 in the field of cannabis-related dis- orders, with Indivior PLC. This agreement provides: • initially, an exclusive license option granted to Indivior PLC, until the end of the phase 2b study of AEF0117. At the end of this study, Indivior PLC may or may not exercise the op- tion. During this period, Aelis Farma undertakes to make its best efforts to carry out the phase 2b study and to communicate the results to Indivior PLC. This option was remuner- ated by a payment at the signing of the contract of an amount of USD 30 million, non-re- fundable and without retrocession to Indivior PLC. • if Indivior PLC exercises this option at the end of the phase 2b study, it will benefit from an exclusive license allowing it to complete the development phase of the project, then to produce and market the drug. Aelis Farma would then license in particular the two pa- tents protecting AEF0117, research results, knowledge, and know-how acquired since the start of the project. Indivior PLC will then pay an amount of USD 100 million on the sign- ing of the license agreement then various sums upon the achievement of technical, regu- latory and commercial milestones, up to USD 340 million as well as royalties on sales ranging between 12 and 20%. At the same time, the Company paid the royalties due to the owners of the patents covering AEF0117, following the receipt of license income relating to the license option signed with Indivior PLC, for an amount of €1,683,000. This agreement enables the Company to generate significant revenue during the period. The ac- counting treatment of this contract is specified below in the Section Accounting rules and meth- ods. 6.2. Events after the closing date After December 31, 2021, the Company was listed on the regulated market of Euronext compart- ment B, on February 18, 2022. Transformation into a limited company with Board of Directors The General Meeting of January 11, 2022, approved the transformation of the Company into a limited Company with a Board of Directors, taking effect on the same day. Change in the nominal unit value of the Company's shares The General Meeting of January 11, 2022, decided to split the value of the shares by 24. It was thus reduced from €0.096 to €0.004, thereby increasing the number of Company shares from 399,698 to 9,592,752. 130 IPO and capital increase On February 15, 2022, the Company announced the success of its initial public offering on com- partment B of the regulated market of Euronext Paris, carried out by way of an open price offer (the "OPO") and a global placement (the “Global Placement”, together with the OPO, the “Offer”). The Offer price was set at €14.02 per new ordinary share. 1,822,794 ordinary shares were allo- cated under the Offer, representing an amount of €25,55 million. The capital increase of an initial amount of €25 million, i.e., 1,783,167 new shares, has been increased to approximately €25.3 million after partial exercise of the over-allotment option by issuing 20,691 additional new shares. This last capital increase was carried out on March 17, 2022, by decision of the Chief Executive Officer acting within the framework of the sub-delegation, granted by the Board of Directors by its decision dated February 15, 2022, within the framework of the delegation made to it by the Com- bined General Meeting of January 11, 2022. The start of trading on the Euronext market took place on February 18, 2022, after completion of the capital increase and implementation of the settlement-delivery on February 17, 2022. The legal and accounting impacts of this IPO, apart from the capital increase described above, are as follows: • conversion into ordinary shares of ABSA B resulting in the cancellation of the BSA Ratchet 2017 and 2019. • conversion, on the date of introduction: of convertible Bonds previously issued (CBs2017 and CBs2019), for respective amounts of €700,002 and €1,500,022.93 in ordinary shares of the Company. It was therefore con- sidered that this conversion had no impact on the maturity of the CBs at the end of the financial year: CBs2017 are presented with a maturity of less than one year and CBs2019 are presented with a maturity of one to five years; of 600 BSA2019, 2682 BSA2020, 20 BSPCE2017-1 and 300 BSPCEOCT2020 . • allocation to the issue premium of the costs related to this fundraising, for a total amount estimated at approximately €2.8 million. As such, as of December 31, 2021, the costs in- curred in the 2021 financial year directly related to the capital increase during the IPO, i.e., €421,293.42, were recognized as prepaid expenses and will be deducted from the issue premium for the 2022 financial year. Situation in Ukraine The conflict initiated in February 2022 between Russia and Ukraine has no direct significant im- pact on the Company's operational activity, as it has no service provider or ongoing operation in these two countries. 6.3. Accounting rules and principles The annual financial statements for the period have been drawn up in accordance with all the regulations which have amended the General Chart of Accounts adopted by ANC regulation n°2014-03 of June 5, 2014 and presented in accordance with the general rules applicable in this area and in line with the principle of prudence. The accounting conventions have been applied in compliance with the principle of prudence and according to the following basic principles: 131 • • • going concern; consistency of accounting methods; independence of financial years. The basic method used for the valuation of items recorded in the accounts is the historical cost method. No change in the methods of valuation and in the methods of presentation has been made. The main methods used are: 6.3.1. Intangible assets Initially, separately acquired intangible assets are measured at cost. The Company's intangible fixed assets mainly include royalties when technical milestones are reached, paid in accordance with the license agreements that bind Aelis Farma to the owners of the patents. These amounts will be amortized as soon as they generate economic benefits. Start-up costs and research costs are directly recognized as expenses in the year in which they are incurred. Development expenditure is recognized as an intangible asset if the Company is able to demon- strate verification of all of the following criteria: • the technical feasibility necessary to complete the intangible asset with a view to its com- missioning or sale; • • • • its intention to complete the intangible asset and use or sell it; its ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of appropriate technical, financial and other resources to complete the de- velopment and use or sell the intangible asset, and; • the ability to measure reliably the expenditure attributable to the intangible asset during its development. Failing this, this expenditure constitutes expenses. Currently, the Company does not recognize any development costs as intangible assets. Indeed, due to the risks and uncertainties related to regulatory authorizations and the research and development process, the above criteria are not met, in particular the criterion concerning technical feasibility. Thus, expenditure incurred before these criteria are met are accounted for as expenses. 6.3.2. Tangible fixed assets Tangible fixed assets are valued at their acquisition cost (purchase price and incidental costs, ex- cluding fixed asset acquisition costs) or at their production cost. Depreciation is calculated according to the linear or decreasing method according to the normal duration of use of the goods. 132 Non-depreciable parts of fixed assets are recorded at their gross value consisting of the purchase cost excluding incidental costs. When the inventory value is lower than the net book value, depreciation accounts for the differ- ence. 6.3.3. Financial fixed assets Financial fixed assets are valued at their entry cost. They are made up solely of sums retained as cash collateral for the bank loan granted by Bpifrance. 6.3.4. Receivables and debts Receivables and debts have been valued at their nominal value. Receivables are, where applicable, depreciated by means of a provision to take into account the collection difficulties to which they are likely to give rise. 6.3.5. Prepaid expenses and deferred income Prepaid expenses are determined in accordance with the principles of separation of financial years. They correspond in particular to research and development contracts with successive exe- cution. When the effective date of the contract does not coincide with that of the financial year, the amount paid, corresponding to the fraction of the services which will only be performed during a subsequent financial year, is recorded in prepaid expenses. Deferred income corresponds to the accounting treatment of the Indivior PLC contract as de- scribed below in the note relating to revenue. As of December 31, 2021, it includes the share of Indivior PLC revenue corresponding to the future performance obligation, recognized over time by costs during the execution of the phase 2b study of AEF0117 program. As of December 31, 2021, the portion estimated at more than one year is €6,338,000. 6.3.6. Inventory On the date of entry into the Company's assets, inventories and work in progress are recorded at their acquisition cost. Inventories are valued using the first-in, first-out method. Depreciation is recognized where applicable. 6.3.7. Foreign currency transactions (debts and receivables in foreign currencies) Receivables and debts in foreign currencies are converted and accounted for in national currency based on the last exchange rate. When the application of the conversion rate on the closing date of the accounts has the effect of modifying the amounts in national currency previously accounted for, the conversion differences are recorded in the transitional accounts "translation differences". Asset translation differences corresponding to unrealized losses are subject to a "provision for foreign exchange loss" with the exception of differences related to supplier debts in USD included in the self-hedging operations described in the following paragraph. 133 Unrealized gains related to exchange adjustments do not affect financial income. 6.3.8. Cash available The cash available at the bank or in cash has been valued at its nominal value. Liquid assets in foreign currencies are converted and accounted for in national currency based on the last exchange rate. When the application of the conversion rate on the closing date of the accounts has the effect of modifying the amounts in national currency previously accounted for, the translation differences are recorded in the income statement as exchange losses or gains. In the specific case of transactions in USD, the Company has chosen to operate a self-hedging approach by keeping cash in foreign currencies on its balance sheet (received from the Indivior contract), in order to cover the costs of research and development in North America provided for in its budget, services which will be invoiced by the subcontractors or clinical centers in this cur- rency. Thus, in accordance with regulation no. 2015-05 of July 2, 2015 relating to forward finan- cial instruments and hedging transactions, the revaluation at the closing rate of the cash account in USD had the following effects: • for the part of the cash balance intended to cover future research and development oper- ations in foreign currencies, as established based on the Company's budget, the recogni- tion in “other debts” of the share of the variation thus determined; this amount will be re- ported in the income statement when the research and development operations covered by this, are settled; • for the balance in USD that does not hedge future transactions, an exchange rate varia- tion was recognized in the income statement. 6.3.9. Capital increase costs The capital increase costs are deducted from the issue premiums (preferential method). No capital increase costs were charged to issue premiums for the financial year ended December 31, 2021. 6.3.10. Repayable advances and financial debts The Company benefits from public funding from the Nouvelle-Aquitaine Region and Bpifrance: • a repayable advance of €900,000 at a zero rate was allocated by the Nouvelle-Aquitaine Region as part of the creation of an innovative Company during the 2014 financial year. This repayable advance is classified as financial debt and was due in March 2019. An amendment signed in 2019 modified the repayment schedule, which now runs from 2019 to 2024. Due to the Covid-19 crisis, the June 2020 repayment which had initially been suspended in 2020 was postponed again by one year to 2021. The schedule has been modified accordingly, it includes an additional annual deadline scheduled for June 30, 2026. • a refundable advance of €800,000 at a zero rate was granted by Bpifrance as part of the support for the Company's research and development program during the 2014 financial year. This advance is classified as financial debt. It is repayable in 20 quarterly 134 installments, the first installment of which was set for March 31, 2020. In 2020, due to the Covid-19 crisis, the March and June 2020 installments were postponed. The schedule has been modified accordingly, it includes two additional quarterly deadlines, the last deadline of which is scheduled for June 30, 2025. • a refundable advance of €600,000 at zero rate was granted in 2019 by Bpifrance as part of support for the Company's research and development program (“Deeptech”). The mini- mum amount reimbursable even in the event of technical failure, of an amount of €150,000, has been recognized in miscellaneous financial debts. The balance of €450,000 was recognized as conditional advances (other equity). This debt is repayable according to a schedule of 5 annual installments, the first due date of which is set for June 30, 2024, and the last for June 30, 2028. The balance of this advance, of €179,000, was collected on December 22, 2021. • • innovation support of €500,000 in the form of a zero-rate repayable advance was awarded in 2019 by the Regional Council of Nouvelle-Aquitaine as part of support for the Company's research and development program. The first installment of €250,000 was collected on January 2, 2020, and the balance of €250,000 was paid on July 9, 2021. This financing, recognized in various financial debts, comes in addition to the ERDF fi- nancing allocated in 2019 described below. in December 2018, the Company contracted an interest-bearing bank loan from Bpifrance for an amount of €1,000,000 and a duration of 8 years. An amount of €50,000 was re- tained as a cash pledge and is recognized as an asset on the balance sheet. The loan is repaid according to a schedule of 20 quarterly installments including the amortization of the capital and the payment of interest. The first installment was set for March 31, 2022, and the last for December 31, 2026. During the deferred capital amortization period, inter- est is paid quarterly in arrears. In 2020, due to the Covid-19 crisis, the March and June 2022 deadlines were ultimately postponed: the schedule was modified accordingly and includes two additional quarterly deadlines, the last of which is scheduled for June 30, 2027. • in June 2020, the Company contracted two State Guaranteed Loans (PGE), one with Bpifrance and one with Crédit Agricole. The purpose of this financing is to strengthen cash flow to deal with the consequences of the Covid-19 crisis. Each loan is for an amount of €550,000. These two financings benefit from a State Guarantee under the "FDG State Coronavirus" guarantee fund up to 90%. The loan with Crédit Agricole, with an interest rate of 0.55% will be repaid according to a schedule of 48 monthly payments. The first maturity is set for August 22, 2022, and the last for July 22, 2026. The loan with Bpifrance, with an interest rate of 2.25%, will be repaid according to a schedule of 16 quarterly installments. The first deadline is set for October 31, 2022, and the last for July 31, 2026. 6.3.11. Grants • a Bpifrance grant for "Deeptech" financing of €600,000 was awarded in 2019, with an ini- tial payment of €420,000 in the 2019 financial year and the payment of the balance of €179,000 in the 2021 financial year. This grant is reported in the income statement on the basis of the progress of the works financed, i.e., €440,000 for the 2019 financial year, and €158,000 for the 2020 financial year and €300 for the 2021 financial year. • a European grant under the 2014-2020 ERDF-ESF Aquitaine operational program, of €500,000 was awarded in 2019 and €250,000 was received during the 2020 financial 135 year. This grant was fully recorded in the profit and loss account based on the progress of work financed in previous years. The payment of the balance is expected in the 2022 fi- nancial year. • • a European grant under the 2014-2020 FEDER-ESF Aquitaine operational program of €400,000 was allocated in 2020, of which €200,000 was received during the 2021 finan- cial year. This grant is recorded in the income statement based on the progress of the fi- nanced works, i.e., €109,400 for the 2020 financial year and €193,000 for the 2021 finan- cial year. The financed program is expected to end in 2022. a European grant under the Horizon 2020 operational program, for a maximum amount of €5,989,800, was awarded in 2021 to the ICOD program aimed at financing the pre-clinical and clinical development program of AEF0217 in the Down syndrome during the 2021 to 2025 financial years. This financing is granted to a consortium of which Aelis Farma is one of the main contributors: the financing granted directly to the Company, for a total amount of €3,353,400, represents 55.99% of the total budget of the ICOD program. As such, the Company received an advance of €1,463,500 for the 2021 financial year. This grant is recorded in the income statement on the basis of the progress of the works fi- nanced, i.e., €320,700 for the 2021 financial year. 6.3.12. Convertible bonds • a bond issue was set up during the financial year ended December 31, 2017, for a total amount of €700,002 with the Nouvelle-Aquitaine Region. each convertible bond (CB) potentially gives the right, according to the conversion condi- tions set out in the CB Issuance Agreement, to one ordinary share of the Company, with an exercise value of €43.98. The CBs do not bear interest. The full amortization of the CBs on their maturity date, no later than June 29, 2022, is not accompanied by any non- conversion premium. the contract includes various clauses involving the possibility of conversion or early re- demption depending on scientific or financial events. This loan is in particular convertible in the event of an initial public offering on a regulated market: in this respect, it was con- verted after the closing following the initial public offering of the Company. • a bond loan was set up during the financial year ended December 31, 2019, for a total amount of €1,500,023 with the Nouvelle Aquitaine Region and Inserm Transfert Initiative. each CB gives the right, according to the conversion conditions set out in the CB Issu- ance Agreement, to one ordinary share of the Company, with an exercise value of €58.73, with a BSA Ratchet. The CBs bear interest at the annual rate of 1% from the day of their subscription, i.e., September 25, 2019. The full amortization of the CBs on their maturity date, no later than June 19, 2024, will not be subject to any non-conversion bo- nus. the contract includes various clauses involving the possibility of conversion or early re- demption depending on scientific or financial events. This loan is in particular convertible in the event of an initial public offering on a regulated market: in this respect, it was con- verted after the closing following the initial public offering of the Company. • It is specified that the Company's loan agreements do not include any covenant-type clause 6.3.13. Revenue In June 2021, the Company entered into a license option contract for AEF0117 with the leading addiction treatment group, Indivior PLC, under which Aelis Farma granted an option for an 136 exclusive license on the EP12194704.8 and EP18305177.0 patent families and associated know- how. This contract allows Indivior PLC to operate worldwide a pharmaceutical product including the compound AEF0117 or certain other pregnenolone derivatives covered by these patent fami- lies, in cannabis use disorders, addictions and other compulsive behaviors. Aelis’ remuneration is as follows: • • • • at the signing of the contract, the Company received a lump sum payment of USD 30 mil- lion; if the option is exercised by Indivior PLC, the Company will receive a second lump sum payment of USD 100 million; conditional payments based on technical, regulatory and then commercial milestones, up to USD 340 million; royalties, between 12 to 20%, on sales of the drug containing AEF0117. The accounting principles applied to the revenue from these contracts are derived from IFRS 15. The detailed analysis of the contract allowed the identification of two parts within this contract: • 1) the communication of data relating to the completion of the phase 2b clinical study of AEF0117 and a toxicity study, during the period of the option, for which Aelis Farma must make its best efforts, and the additional data which will enable Indivior PLC to exercise the option. The income has been allocated to this part by projecting the future costs relat- ing to the performance of these studies, including the direct costs of subcontracting, the direct costs of the teams assigned to the performance of these studies and a share of the indirect structural costs, as well as a margin; • 2) the results of previous studies as available on the date of signature of the contract: the licence granted to Indivior PLC with right of return, implies the provision, on the date of signature of the contract, of information relating to the Research and Development pro- gram drawn up from the start of the project. Revenue related to this part is measured as the difference between the total amount received of 30 million USD and the revenue as- sociated with part 1. It is recognized as revenue at the signing of the contract. Thus, the option revenue of 30 million USD, i.e., €24,616,000, is recognized according to the fol- lowing schedule: • • upon signature of the contract: €7,921,000; and, for the balance, i.e., €16,695,000, as the costs relating to the completion of the phase 2b study and of the toxicity study are accounted, i.e., from the second half of 2021 for the preparatory phases, and until the results expected in the first half of 2024. As such, an additional €1,154,000 was recognized in 2021, i.e., total revenue of €9,075,000. 6.3.14. Purchases Incidental purchase costs paid to third parties have not been incorporated into the purchase ac- counts but have been accounted for in the various expense accounts corresponding to their na- ture. 6.3.15. Executive compensation The compensation of the Company's manager for the 2021 financial year amounted to: €501,137. 137 The manager also benefits from an indemnity equal to 6 months of gross compensation (based on the annual compensation which includes fixed, variable and, if applicable, exceptional com- pensation) in the event of termination of his duties as Chairman/ Chief Executive Officer resulting from a decision of the Board of Directors. 6.3.16. Research and development expenses In accordance with the practices in force in the biotechnology sector and in view of the difficulties in assessing the probabilities of technical success of the research carried out by the Company, research and development costs are recorded as expenses for the financial year and have not been capitalized. 6.3.17. Income tax The Company's activity makes it eligible for the tax mechanism of the research tax credit. As such, the costs eligible under this mechanism, and the funding obtained under R&D are identified according to the principles specific to this mechanism, allowing the recognition of income to be received from the Treasury, after allocation, and where applicable, on income tax. The tax rate applicable to the Company is the rate in force in France, i.e., 26.5%. 6.3.18. Retirement commitments They correspond to end-of-career indemnities for staff, paid to employees when they retire, the calculation of which is determined in accordance with the collective agreement for the pharma- ceutical industry. These commitments are not provisioned in the corporate accounts and are pre- sented as off-balance sheet commitments. The corresponding expense is recognized in the fiscal year in which the employee actually leaves. As of December 31, 2021, the actuarial assumptions used are as follows: • • • • • discount rate (IBOXX Corporates AA): 0.98% salary increase: 2% turnover: low INSEE mortality table 2019 retirement age: 65-67 years of age Retirement commitments are calculated in accordance with ANC recommendation 2013-02 (method 2: rights are recognized over the period of accumulation of seniority at the end of the ca- reer). The commitments thus amount to €101,000, taking into account the impact of the change in regulations of -€33,500. The value of these commitments was €110,000 as at December 31, 2020. 138 6.3.19. Earnings per share (diluted basis) EFFECT OF DILUTION ON EARNINGS PER SHARE In euros 12/31/21 Net income (1) 3,371,193 399,500 109,409 508,909 6.62 Weighted average number of shared issued Potentially dilutive shares Weighted average number of diluted shares Diluted earnings per share (euros/share) (1) Net income adjusted for accrued interest on convertible bonds 6.3.20. Transactions with related parties A related party transaction involves a transfer of goods, services or obligations between the Com- pany and that of a related party. TRANSACTIONS WITH RELATED PARTIES Transactions with related parties (In thousand euros) Note 12/31/21 12/31/20 Consulting service Thomas Conseil SPRL Consulting service Gerselconsult ApS a. b. 20 - 15 35 50 Total purchases of services from related parties 20 a. The Board of Directors, during its meeting of April 26, 2019, authorized the Company to enter into a consulting contract with Thomas Conseil SPRL. Mr. François Thomas, Chairman of Thomas Conseil SPRL, is a member of the Company's Board of Directors. The purpose of the contract is to provide assistance to Aelis Farma in the search for financing, and assistance in the negotiation of financing. This contract was concluded for the year 2019, without tacit renewal. A new similar contract was formed between the parties on 13 January 2020 for the period running until 31 De- cember 2020, then renewed in 2021, with a revision of the amount of fees due for the year. b. The Board of Directors of the Company entered into another consulting contract with the Danish company Gerselconsult Aps dated February 18, 2020. Mr. Anders Gersel, Chairman of the Board of Directors of Aelis Farma, is also an executive of Gerselconsult Aps. The purpose of the contract is to provide assistance to the Company in terms of clinical studies, regulatory proce- dures and the search for industrial partners. This contract had no impact in 2021. 6.3.21. Company workforce The average workforce for the 2021 financial year was 14 employees, compared to 10 for 2020. COMPANY'S WORKFORCE AT THE END OF THE YEAR Category of workforce 12/31/21 12/31/20 Executives 19 4 7 1 1 9 Employees Apprentices 1 Workforce at end of period 24 139 6.4. Notes to the balance sheet 6.4.1. Fixed assets 6.4.1.1. Intangible assets OTHER INTANGIBLE ASSETS: DECOMPOSITION AND CHANGES IN GROSS VALUES IN 2021 In euros 12/31/20 Acquisitions Disposals 12/31/21 Concessions, patents and software 60,671 30,000 - 90,671 Total intangible assets 60,671 30,000 - 90,671 OTHER INTANGIBLE ASSETS: DECOMPOSITION AND CHANGES IN DEPRECIATION AND AMORTIZATION IN 2021 Depreciation, amortization In euros 12/31/20 Reversals 12/31/21 and impairment Concessions, patents and software 489 14 - 503 Total intangible assets 489 14 - 503 6.4.1.2. Property plant and equipment PROPERTY, PLANT AND EQUIPMENT: DECOMPOSITION AND CHANGE IN 2021 GROSS VALUES In euros 12/31/20 Acquisitions Disposals 12/31/21 Plant machinery, equipment and tooling Plant, sundry fixtures and fittings - 125,296 2,517 - - 125,296 3,910 1,394 Office and computer equipment and furniture 36,721 43,816 (7,382) 73,155 Advances and down-payments - 11,355 - 11,355 Total property plant and equipment 38,115 182,984 (7,382) 213,716 PROPERTY, PLANT AND EQUIPMENT: DECOMPOSITION AND CHANGE IN DEPRECIATION 2021 Depreciation, amortization In euros 12/31/20 Reversals 12/31/21 and impairment Plant machinery, equipment and tooling Plant, sundry fixtures and fittings Other tangible assets - (3,498) (1,275) (8,378) (13,601) - (3,498) (1,303) (29) - (28,705) (28,734) 7,382 7,382 (29,702) (34,953) Total property plant and equipment 140 6.4.1.3. Financial fixed assets FINANCIAL FIXED ASSETS: DECOMPOSITION AND CHANGE IN 2021 GROSS VALUES In euros 12/31/20 Acquisitions Disposals 12/31/21 50,000 - - 50,000 Loans and other financial assets Total financial fixed assets 50,000 - - 50,000 6.4.2. Receivables and payables DETAILS OF RECEIVABLES More than 1 year In euros 12/31/21 Up to 1 year Other financial fixed assets Amounts due from staff Income tax 50,000 8 - 50,000 8 - 890,786 367,581 364 890,786 367,581 364 - Value added tax - Other taxes, duties and similar payments Other - 352,414 24,368 1,606,695 3,292,216 352,414 24,368 1,606,695 3,242,216 - Sundry debtors - Prepaid expenses Total receivables - 50,000 DETAILS OF PAYABLES More Up to 1 year 1 to 5 years In euros 12/31/21 than 5 years - Convertible bond loans 2,234,217 171 700,002 171 1,534,215 Bank loans and borrowings 1-year max. at outset Bank loans and borrowings >1 year at outset Other loans and borrowings - - 2,102,124 1,500,000 2,243,093 78,464 193,229 200,000 2,243,093 78,464 265,640 124,581 67 1,808,895 100,000 1,300,000 - Trade payables and related accounts Amounts due to staff - - - - Amounts due to social security, other social bodies Other taxes and duties 265,640 124,581 67 - - - - Amounts due to Group companies and shareholders Other payables - - 526,983 526,983 - - Deferred income 15,541,000 9,203,490 6,337,510 - Total payables 24,616,341 13,535,720 10,980,620 100,000 141 6.5. Notes to the statement of net income 6.5.1. Accrued receivables and payables ACCRUED RECEIVABLES In euros 12/31/21 Discount to be obtained 20,768 352,414 373,182 Accrued government grants receivable Total accrued receivables ACCRUED PAYABLES In euros 12/31/21 Convertible bond loans - Amounts due on convertible bond loans Loans and borrowings - Payables 34,192 34,192 2,191 2,124 - Accrued interest payable Trade payables and related accounts - Suppliers 67 288,160 288,160 162,441 78,101 32,850 9,954 Tax and employee related payables - Provisions for accrued leave - Social charges on paid leave - Other expenses to pay - Ongoing training 10,454 961 - Tax charges on paid leave expenses to be paid to the state - Provisions for accrued leave 30,122 526,983 526,983 1,013,967 Other payables - Valuation difference of derivative financial instruments Total accrued payables 6.5.2. Deferred revenues and expenses DEFERRED REVENUES In euros 12/31/21 Deferred revenues - Operating - Deferred revenue Indivior PLC (1 year and +) - Deferred revenue Indivior PLC (long-term) Deferred revenues – Financial 15,541,000 9,203,490 6,337,510 - Deferred revenues - Exceptional Total deferred revenues - 15,541,000 142 DEFERRED EXPENSES In euros 12/31/21 Deferred expenses - Operating - Sundry 1,606,695 1,175,983 425,520 5,193 - Professional fees - Insurance Deferred expenses - Financial Deferred expenses - Exceptional Total deferred expenses - - 1,606,695 6.5.3. Exceptional income and expenses DETAILS OF EXCEPTIONAL INCOME AND EXPENSES In euros 12/31/21 Exceptional income from revenue transactions - Other exceptional income from transactions Exceptional income from capital transactions - Share of grant transferred to profit/loss – Deeptech - Share of grant transferred to profit/loss – FEDER - Share of grant transferred to profit/loss – ICOD TOTAL EXCEPTIONAL INCOME 3,565 3,565 514,110 344 193,031 320,735 517,675 - Exceptional expenses from revenue transactions TOTAL EXCEPTIONAL EXPENSES - EXCEPTIONAL PROFIT (LOSS) 517,675 6.5.4. Income tax BREAKDOWN OF INCOME TAX Earnings before tax Profit after tax In euros – 12/31/2021 Taxes (1) Current Result 1,947,540 517,675 157,530 41,149 1,790,010 476,526 Exceptional Result Accounting Result 2,465,215 198,679 2,266,536 (1) After tax restatements The deficits remaining to be carried forward to 12/31/2021 amount to €15,322,728. 143 6.6. Financial commitments FINANCIAL COMMITMENTS MADE AND RECEIVED Financial commitments Financial commitments received - In euros – 12/31/2021 made Discounted bills not yet due - Endorsements, surety bonds and guarantees Lease commitments - - - - - - - Pension, retirement and similar commitments Other commitments 100,992 - Total financial commitments 100,992 Commitments made The Company has signed three exclusive patent license agreements with public institutions. These contracts include “milestone” payment clauses based on development stages, and royalties based on future sales. They make Aelis Farma responsible for, and financing the costs of, filing, maintain- ing and defending these patents. 6.7. Change in Shareholders’ Equity CHANGE IN SHAREHOLDERS’ EQUITY Appropriation of N- 1 net profit (loss) - Changes over the year In euros 12/31/20 12/31/21 Share capital 3,995 2 3,997 Additional paid-in capital Legal reserve 934,958 - (899,907) 35,051 - - - - Other reserves - - - - Retained earnings (accumulated losses) Net profit (loss) for the period Investment grants - (2,783,646) 934,958 3,356,002 1,142,791 - (1,848,688) 3,356,002 1,142,791 - (2,783,646) 2,783,646 - - - - Regulatory provisions Total Shareholders’ Equity - (1,844,693) 4,533,846 2,689,153 Allocation of the loss for the 2020 financial year The general meeting of June 25, 2021, decided to allocate the loss for the 2020 financial year of (€2,783,646) to the "Retained earnings” account, the balance of which will become negative by (€2,783,646). Clearance of part of the losses The general meeting of June 25, 2021, decided to allocate part of the balance of the “Retained earnings” account, namely an amount of €934,958, to the “Issue premium” account, which is thus reduced from €934,958 at to €0. It noted that after these allocations, the balance of the “Retained earnings” account was a negative balance of (€1,848,688). Exercise of BSAs On December 6, 2021, the Chairman noted that Mrs. Helle Mengel had exercised the 218 BSAoct - 2020 which had become exercisable, subscribed in cash to 218 new ordinary shares of the 144 Company, with a nominal value of €0.01 each, together with an issue premium of €58.72 each and paid up the amount of its subscription. Correspondingly, it noted the increase in the share capital of the Company by a nominal amount of €2.18 and an increase in the issue premium of €12,800.96. 6.8. Separate note 6.8.1. Share warrants (BSA) MAIN FEATURES OF THE SHARE WARRANTS ISSUED AS AT 12/31/2021 Nb. of warrants warrants exercised allocated or canceled Nb. of Exercise conditions met (number of shares) Unit value of shares to be Nb. of potential shares as at Unit value of warrants Exercise deadline In euros issued 12/31/2021 BSA - EGM 11/19/2013 et EGM 10/24/2020 355 -40 31,500 15.00 € 4.00 € 0.01 € 31,500 12/31/2023 12/20/2022 According to BSA R2017 - EGM 12/20/2017 () 81,949 0 formula, maximum of 164,916 According to formula, maximum of 88,544 - 0 BSA R2017 - EGM 07/19/2019 () 22,136 0 - 0.01 € 0 12/20/2022 BSA 2017 - EGM 12/20/2017 800 150 0 0 800 150 4.50 € 4.50 € 4.50 € 8.90 € 8.90 € 46.98 € 46.98 € 46.98 € 58.73 € 58.73 € 800 150 425 701 32 12/20/2027 12/20/2027 12/20/2027 10/21/2030 10/21/2030 BSA 2018 - EGM 12/18/2018 BSA 2019 - EGM 12/20/2019 () 600 0 600 BSA 2020 - EGM 10/24/2020 () 2,400 1,500 0 2,400 1,282 BSA 2021 - EGM 10/24/2020 () -218 (): 3 282 BSAs were exercised post-closing (): Ratchet BSAs were canceled post-closing 145 6.8.2. Founders’ share warrants (BSPCE) MAIN FEATURES OF THE FOUNDERS’ SHARE WARRANTS ISSUED AS AT 12/31/2021 Nb. of warrants warrants exercised shares as allocated or canceled Nb. of potential Unit value Exercise Nb. of Unit value of warrants of shares to be conditions met (number deadline of warrants) Exercise In euros at issued 12/31/2021 BSPCE – EGM 06/13/2017 () 40 -20 2,000 15,000 3,917 6,200 4,400 1,789 - € - € - € - € - € - € 25.34 € 46.98 € 46.98 € 58.73 € 58.73 € 58.73 € 20 06/13/2023 12/20/2027 12/20/2027 12/20/2027 10/23/2030 10/21/2030 BSPCE 2018 – EGM 12/20/2017 15,000 9,400 6,200 4,400 1,789 0 15,000 3,917 3,383 2,900 989 BSPCE 2019 – EGM 12/20/2017 -5,483 BSPCE 2020 – EGM 02/18/2020 0 0 0 BSPCE 2020 – EGM 10/24/2020 () BSPCE 2021 – EGM 10/24/2020 () 320 BSPCE were exercised post-closing 6.8.3. Convertibles bonds (OC) MAIN FEATURES OF THE CONVERTIBLE BONDS ISSUED AS AT 12/31/2021 Nb. of Unit value of shares to be Exercise conditions Exercise met (no. bonds) Nb. of bonds allocated exercised Nb. of bonds potential shares as at Unit value of bonds In euros deadline issued 12/31/2021 OC - EGM 06/29/2017 () OC - AGE 07/19/2019 () 149 0 0 14,900 25,541 46.98 € 58.73 € 46.98 € 58.73 € 0 0 06/29/2022 07/19/2024 25,541 () all of the OCs were converted into ordinary shares post-closing 146 Section 7 - Auditor's reports 7.1. Statutory auditor's report on the annual financial statements Aelis Farma Year ended December 31, 2021 Statutory auditor's report on the annual financial statements To the Shareholders, In our capacity as statutory auditor of Aelis Farma, we hereby report to you on the audit of the ac- companying annual financial statements of Aelis Farma, for the year ended December 31, 2021. Due to the global crisis related to the Covid-19 pandemic, the annual financial statements of this period have been prepared and audited under specific conditions. Indeed, this crisis and the ex- ceptional measures taken in the context of the state of sanitary emergency have had numerous consequences for companies, particularly on their operations and their financing, and have led to greater uncertainties on their future prospects. Those measures, such as travel restrictions and remote working, have also had an impact on the companies' internal organization and the perfor- mance of the audits. The preparation of these annual financial statements is the responsibility of your Board of Direc- tors. Our role is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with professional standards applicable in France and the professional guidance issued by the French Institute of statutory auditors (Compagnie nationale des commissaires aux comptes) relating to this engagement. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the annual financial statements are free from material misstatement. An audit involves performing procedures, by au- dit sampling and other means of testing, to obtain audit evidence about the amounts and disclo- sures in the annual financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as the overall presentation of the annual financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. In our opinion, the annual financial statements present fairly, in all material respects, the assets, liabilities and financial position of the company as at December 31, 2021 and the results of its op- erations for the year then ended, in accordance with the IFRS as adopted by the European Un- ion. 147 This report is governed by French law. The courts of France shall have exclusive jurisdiction over any claim or difference resulting from the engagement letter or the present report or any related matters. Each party irrevocably waives its right to oppose any action being brought before French courts, to claim that the action is being brought before an illegitimate court or that the courts have no jurisdiction. Bordeaux, April 15, 2022 The Statutory Auditor ERNST & YOUNG Audit Laurent Chapoulaud 148 7.2. Statutory auditor’s report on the financial statements Aelis Farma Year ended December 31, 2021 Statutory auditor’s report on the financial statements To the Annual General Meeting of Aelis Farma Opinion In compliance with the engagement entrusted to us by your Annual General Meeting, we have au- dited the accompanying financial statements of Aelis Farma for the year ended December 31, 2021. In our opinion, the financial statements give a true and fair view of the assets and liabilities and of the financial position of the Company as at December 31, 2021 and of the results of its operations for the year then ended in accordance with French accounting principles. The audit opinion expressed above is consistent with our report to the Audit Committee. Basis for Opinion • Audit Framework We conducted our audit in accordance with professional standards applicable in France. We be- lieve that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Statutory Auditor’s Re- sponsibilities for the Audit of the Financial Statements section of our report. • Independence We conducted our audit engagement in compliance with the independence requirements of the French Commercial Code (Code de commerce) and the French Code of Ethics for Statutory Audi- tors (Code de déontologie de la profession de commissaire aux comptes) for the period from January 1, 2021 to the date of our report, and specifically we did not provide any prohibited non- audit services referred to in Article 5(1) of Regulation (EU) No. 537/2014. Justification of Assessments – Key Audit Matters Due to the global crisis related to the Covid-19 pandemic, the financial statements for this period have been prepared and audited under special circumstances. Indeed, this crisis and the excep- tional measures taken in the context of the health emergency have had numerous consequences for companies, particularly on their operations and their financing, and have led to greater uncer- tainties regarding their future prospects. Some of these measures, such as travel restrictions and remote working, have also had an impact on companies' internal organization and on the perfor- mance of audits. It is in this complex, evolving context that, in accordance with the requirements of Articles L. 823- 9 and R. 823-7 of the French Commercial Code (Code de commerce) relating to the justification of our assessments, we inform you of the key audit matters relating to risks of material 149 misstatement that, in our professional judgment, were of most significance in our audit of the fi- nancial statements of the current period, as well as how we addressed those risks. These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on specific items of the financial statements. • Recognition of revenue from the exclusive license option contract with Indivior PLC Risk identified Our response In June 2021, your Company entered into an in- As part of our audit, our work consisted par- dustrial partnership in the form of an option con- ticularly in: tract regarding the exclusive license of the in- reading the option contract entered into dustrial property of AEF0117 related to canna- bis- related disorders with Indivior PLC and re- ceived as such a payment of $ K 30,000, i.e. € K 24,616. with Indivior P.L.C.; reading the letter signed by Indivior P.L.C. confirming that the exclusive li- cense option revenue is non-refundable, not subject to any condition precedent and has been paid to secure the exclu- sive license option in part considering the provision of the results of the studies car- ried out prior to the contract execution date; Recognized revenue for the fiscal year under this contract amounts to €K 9,075. The accounting principles applied to the recog- nition of this revenue are described in the “Rev- enue” paragraph of the “Accounting rules and methods” Note to the financial statements. Two parts are distinguished in the contract: reviewing the analysis prepared by Man- agement documenting the identified par- ties. Concerning the revenue recognized under previous studies as available on the contract execution date, we: The first part concerns the results of the work to come on phase 2b and the toxicity studies still to be carried out. Revenue has been allocated to this part by projecting fu- ture costs relating to the completion of phase 2b, including direct costs of subcon- tracting, the direct costs of the employees assigned to these studies and a share of the indirect structural costs, as well as a margin. The relevant revenue is recognized as and when the costs relating to the performance of these studies are recognized. As such, €K 1,154 were recognized in 2021. reviewed the budgetary process; evaluated the assumptions used by your Company to determine the share of reve- nue to be allocated to the completion of phase 2b; verified the arithmetical accuracy of the calculations and in particular the differ- ence between the total revenue and the revenue allocated to the completion of phase 2b, which enabled the revenue im- mediately recognized for previous studies to be determined. The second part concerns the results of pre- vious studies as available on the date of sig- nature of the contract: the license granted to Indivior PLC with right of return implies the provision, on the date of signature of the contract, of the information relating to the Research and Development program drawn up since the origin of the project. The reve- nue related to this part is valued as the dif- ference between the total amount received and the revenue associated with the first Regarding the revenue recognized for the phase 2b studies carried out between the contract execution date and the end of the fi- nancial year, we: evaluated the assumptions used by your Company to determine the share of 150 part of the contract. It has been fully recog- nized at the signature of the contract, i.e. €K 7,921 over 2021. revenue to be allocated to the completion of phase 2b; compared the budgeted costs with the costs actually incurred for the phase 2b studies carried out during the 2021 finan- cial year; The remaining €K 15,541 was recognized as deferred income for future work on phase 2b. We considered the recognition of revenue from the license option contract with Indivior PLC to be a key audit matter given the complexity and judgments required to analyze the nature of the contractual obligations and determine the appro- priate accounting treatment for each part of the contract. performed tests (invoice reconciliation, accounting reconciliation, timesheet rec- onciliation, etc.), by sampling, on the costs allocated to the completion of phase 2b over the 2021financial year; checked the arithmetic accuracy of the calculations. We assessed the appropriateness of the in- formation provided in the accompanying Notes to the financial statements. Specific Verifications We have also performed, in accordance with professional standards applicable in France, the spe- cific verifications required by laws and regulations. • Information given in the management report and in the other documents with respect to the financial position and the financial statements provided to the shareholders We have no matters to report as to the fair presentation and the consistency with the financial statements of the information given in the Board of Directors’ management report and in the other documents with respect to the financial position and the financial statements provided to the shareholders. We attest the fair presentation and the consistency with the financial statements of the infor- mation relating to payment deadlines mentioned in Article D. 441-6 of the French Commercial Code (Code de commerce). • Report on Corporate Governance We attest that the Board of Directors’ Report on Corporate Governance sets out the information re- quired by Articles L. 225-37-4, L. 22-10-10 and L. 22-10-9 of the French Commercial Code (Code de commerce). Concerning the information given in accordance with the requirements of Article L. 22-10-9 of the French Commercial Code (Code de commerce) relating to the remuneration and benefits received by, or allocated to the directors and any other commitments made in their favor, we have verified its consistency with the financial statements, or with the underlying information used to prepare these financial statements and, where applicable, with the information obtained by your Company from companies controlled thereby, included in the consolidation scope. Based on these proce- dures, we attest the accuracy and fair presentation of this information. 151 • Other information In accordance with French law, we have verified that the required information concerning the identity of the shareholders and holders of voting rights has been properly disclosed in the man- agement report. • Format of preparation of the financial statements intended to be included in the annual financial report We have also verified, in accordance with the professional standard applicable in France relating to the procedures performed by statutory auditor regarding the annual and consolidated financial statements prepared in the European single electronic format, that the preparation of the financial statements intended to be included in the annual financial report mentioned in Article L. 451-1-2, I of the French Monetary and Financial Code (Code monétaire et financier), prepared under the Chairman of the Board of Directors’ responsibility, complies with the single electronic format de- fined in Commission Delegated Regulation (EU) No. 2019/815 of 17 December 2018. On the basis of our work, we conclude that the preparation of the financial statements intended to be included in the annual financial report complies, in all material respects, with the European single electronic format. We have no responsibility to verify that the financial statements that will ultimately be included by your Company in the annual financial report filed with the AMF (Autorité des marchés financiers) agree with those on which we have performed our work. • Appointment of the Statutory Auditor We were appointed as statutory auditor of Aelis Farma by your Articles of Association of October 3, 2013. As at December 31, 2021, we were in the eighth year of total uninterrupted engagement, includ- ing one year since the securities of the Company were admitted to trading on a regulated market. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with French accounting principles and for such internal control as Management deter- mines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, Management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless it is expected to liquidate the Company or to cease operations. The Audit Committee is responsible for monitoring the financial reporting process and the effec- tiveness of internal control and risk management systems and where applicable, its internal audit, regarding the accounting and financial reporting procedures. The financial statements were approved by the Board of Directors. 152 Statutory Auditor’s Responsibilities for the Audit of the Financial Statements • Objectives and audit approach Our role is to issue a report on the financial statements. Our objective is to obtain reasonable as- surance about whether the financial statements as a whole are free from material misstatement. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit con- ducted in accordance with professional standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users made on the basis of these financial statements. As specified in Article L. 823-10-1 of the French Commercial Code (Code de commerce), our statutory audit does not include assurance on the viability of the Company or the quality of man- agement of the affairs of the Company. As part of an audit conducted in accordance with professional standards applicable in France, the statutory auditor exercises professional judgment throughout the audit and furthermore: Identifies and assesses the risks of material misstatement of the financial statements, whether due to fraud or error, designs and performs audit procedures responsive to those risks, and obtains audit evidence considered to be sufficient and appropriate to provide a basis for his opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtains an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of express- ing an opinion on the effectiveness of the internal control. Evaluates the appropriateness of accounting policies used and the reasonableness of ac- counting estimates and related disclosures made by Management in the financial state- ments. Assesses the appropriateness of Management’s use of the going concern basis of ac- counting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. This assessment is based on the audit evidence obtained up to the date of his audit report. However, future events or conditions may cause the Company to cease to continue as a going concern. If the statutory auditor concludes that a material uncertainty exists, there is a requirement to draw attention in the audit report to the related disclosures in the financial statements or, if such disclosures are not provided or inadequate, to modify the opinion expressed therein. Evaluates the overall presentation of the financial statements and assesses whether these statements represent the underlying transactions and events in a manner that achieves fair presentation. • Report to the Audit Committee We submit to the Audit Committee a report which includes in particular a description of the scope of the audit and the audit program implemented, as well as the results of our audit. We also re- port significant deficiencies, if any, in internal control regarding the accounting and financial re- porting procedures that we have identified. 153 Our report to the Audit Committee includes the risks of material misstatement that, in our profes- sional judgment, were of most significance in the audit of the financial statements of the current period and which are therefore the key audit matters that we are required to describe in this re- port. We also provide the Audit Committee with the declaration provided for in Article 6 of Regulation (EU) No. 537/2014, confirming our independence within the meaning of the rules applicable in France as set out in particular in Articles L. 822-10 to L. 822-14 of the French Commercial Code (Code de commerce) and in the French Code of Ethics for Statutory Auditors (Code de déontolo- gie de la profession de commissaire aux comptes). Where appropriate, we discuss with the Audit Committee the risks that may reasonably be thought to bear on our independence, and the re- lated safeguards. Bordeaux, April 15, 2022 The Statutory Auditor ERNST & YOUNG Audit French original signed by Laurent Chapoulaud 154 7.3. Statutory auditor’s report on related party agreements Aelis Farma Annual General Meeting held to approve the financial statements for the year ended December 31, 2021 Statutory auditor’s report on related party agreements To the Annual General Meeting of Aelis Farma, In our capacity as statutory auditor of your Company, we hereby present to you our report on re- lated party agreements. We are required to inform you, on the basis of the information provided to us, of the terms and conditions of those agreements indicated to us, or that we may have identified in the performance of our engagement, as well as the reasons justifying why they benefit the Company. We are not required to give our opinion as to whether they are beneficial or appropriate or to ascertain the existence of other agreements. It is your responsibility, in accordance with Article R. 225-31 of the French Commercial Code (Code de commerce), to assess the relevance of these agreements prior to their approval. We are also required, where applicable, to inform you in accordance with Article R. 225-31 of the French Commercial Code (Code de commerce) of the continuation of the implementation, during the year ended as at December 31, 2021, of the agreements previously approved by the Annual General Meeting. We performed those procedures which we deemed necessary in compliance with professional guidance issued by the French Institute of Statutory Auditors (Compagnie nationale des com- missaires aux comptes) relating to this type of engagement. These procedures consisted in veri- fying the consistency of the information provided to us with the relevant source documents. Agreements submitted for approval to the Annual General Meeting In accordance with Article L. 225-40 of the French Commercial Code (Code de commerce) , we have been notified of the following related party agreements which received prior authorization from your Board of Directors. • With Thomas Conseil SPRL, presided by Mr François Thomas, member of your Com- pany’s Board of Directors Consulting services Nature and purpose The purpose of the contract is to provide assistance to your Company in the search for dilutive and non-dilutive financing and negotiation assistance. Conditions The Board of Directors, at its meeting of February 24, 2021, authorized your Company to renew the consultancy contract entered into with Thomas Conseil SPRL. 155 The contract runs from January 1 to December 31, 2021, without tacit renewal. Thomas Conseil SPRL’s compensation, initially set at € 15,000 excluding tax, was revised on July 19, 2021 and was set at € 20,000 excluding tax for the 2021 financial year. Under this contract, the expense for the year thus amounted to € 20,000. Reasons justifying why the Company benefits from this agreement Your Board of Directors gave the following reason: this service agreement allows your Company to benefit from the resources and means necessary to seek any additional fi- nancing. Agreements previously approved by the Annual General Meeting We hereby inform you that we have not been notified of any agreements previously approved by the Annual General Meeting, whose implementation continued during the year ended December 31, 2021. Bordeaux, April 15, 2022 The Statutory Auditor ERNST & YOUNG Audit French original signed by Laurent Chapoulaud 156 Aelis Farma Neurocentre Magendie 146, rue Léo Saignat 33 077 Bordeaux, France Office : + 33 5 57 57 37 70 [email protected] 157

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