BioSenic SA — Annual Report 2018

Apr 25, 2019

1	GENERAL INFORMATION 4
1.1	LANGUAGE OF THIS ANNUAL REPORT 4
1.2	STATUTORY AUDITOR 4
1.3	FORWARD-LOOKING STATEMENTS 4
1.4	MARKET AND INDUSTRY INFORMATION 4
1.5	OTHER AVAILABLE INFORMATION 4
1.6	AVAILABILITY OF THE ANNUAL REPORT 5
2	ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE CONSOLIDATED FINANCIAL STATEMENTS OF BONE THERAPEUTICS SA FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2018 6
2.1.	FINANCIAL AND STRATEGIC HIGHLIGHTS OF 2018 6
2.2.	FINANCIAL REVIEW OF THE YEAR ENDING 31 DECEMBER 2018 8
2.3.	HEADCOUNT EVOLUTION 11
2.4.	RISKS 12
2.5.	GOING CONCERN 12
2.6.	EVENTS OCCURRED AFTER THE END OF THE FINANCIAL YEAR 12
3.	ORGANIZATIONAL STRUCTURE 13
3.1.	ORGANIGRAM 13
3.2.	INFORMATION ON HOLDINGS 13
4.	CORPORATE GOVERNANCE 15
4.1.	GENERAL 15
4.2.	COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE 15
4.3.	BOARD OF DIRECTORS 16
	Composition of the Board of Directors 16 4.3.1. 4.3.2.
	Activity Report 19 Performance Evaluation of the Board 20 4.3.3.
	Committees within the Board of Directors 21 4.3.4.
4.4.	EXECUTIVE COMMITTEE 26
	4.4.1. General 26
	4.4.2. Executive Committee 26
	4.4.3. Operation 28
4.5.	INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS 29
	Internal Mechanism 29 4.5.1.
	Risk Analysis 30 4.5.2.
	Financial Risk Management 33 4.5.3.
	Controls, Supervision and Correctives Actions 34 4.5.4.
4.6.	MARKET ABUSE REGULATIONS 35
4.7.	REMUNERATION REPORT 35
	Procedure 35 4.7.1.
	Remuneration Policy 36 4.7.2.
5.	RELATED PARTY TRANSACTIONS 43
5.1.	GENERAL 43
5.2.	CONFLICTS OF INTEREST OF DIRECTORS 43
	Board of Directors of 25 April 2018 43 5.2.1.
5.3.	EXISTING CONFLICTS OF INTEREST OF MEMBERS OF THE BOARD OF DIRECTORS AND OF THE EXECUTIVE
	COMMITTEE AND RELATED PARTY TRANSACTIONS 44
5.4.	RELATED PARTY TRANSACTIONS 44

Transactions with SISE 45 5.4.3. Transactions with the Walloon Region 45 5.4.4. 5.4.5. Transactions with the Executive Committee 45 5.5. TRANSACTIONS WITH AFFILIATES 45 6. SHARES AND SHAREHOLDERS46 6.1. HISTORY OF CAPITAL - CAPITAL INCREASE AND ISSUANCE OF SHARES 46 Securities Issued by the Company 46 6.1.1. 6.1.2. 6.2. 6.3. 6.3.1. 6.3.2. 6.4. 6.4.1. 6.4.2. 6.5. ELEMENTS WHICH BY THEIR NATURE WOULD HAVE CONSEQUENCES IN CASE OF A PUBLIC TAKE-OVER BID ON THE 6.6. 6.7. 6.8. 6.8.1. 6.8.2. 7. 7.1. 7.2. STATUTORY AUDITOR'S REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 7.3. 7.3.1. 7.3.2. 7.3.3. 7.3.4. 8. 8.1. 8.2. 8.3. 8.4. 8.5. 8.6. 8.7. 8.8. 8.9. 8.10. 9. 9.1. 9.2. ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE STATUTORY FINANCIAL STATEMENTS OF BONE	5.4.2.	Transactions with Bone Therapeutics USA Inc. 45
History of Capital 46 AUTHORIZED CAPITAL 50 CHANGES IN CAPITAL 51 Changes to the Share Capital by the Shareholders of the Company 51 Capital Increases by the Board of Directors of the Company 51 WARRANT PLANS 52 Warrant Plans Issued 52 Summary of the Outstanding Warrant Plans 53 COMPANY 54 TRANSPARENCY 55 SHAREHOLDERS 56 DIVIDENDS AND DIVIDEND POLICY 56 Entitlement to Dividends 56 Dividend Policy 57 CONSOLIDATED FINANCIAL STATEMENTS 58 RESPONSIBILITY STATEMENT 58 DECEMBER 2018 59 CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2018 AND 2017 UNDER IFRS 66 Consolidated Statement of Financial Position 66 Consolidated Statement of Comprehensive Income 67 Consolidated Statement of Cash Flow 68 Consolidated Statement of Changes in Equity 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 70 GENERAL INFORMATION 70 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 70 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS 83 OPERATING SEGMENT INFORMATION 87 NOTES RELATING TO THE STATEMENT OF FINANCIAL POSITION 87 NOTES RELATING TO THE STATEMENT OF COMPREHENSIVE INCOME 96 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT 101 RELATED-PARTY TRANSACTIONS 105 COMMITMENTS 106 EVENTS AFTER THE REPORTING PERIOD 107 STATUTORY ACCOUNTS 108 CONDENSED STATUTORY ANNUAL ACCOUNTS 108 THERAPEUTICS SA 109

1 GENERAL INFORMATION

1.1 Language of this Annual Report

The Company published its Annual Report English. The Company has also prepared a French translation of this Annual Report and is responsible for the consistency between the French and English version of this Annual Report.

1.2 Statutory Auditor

Deloitte Réviseurs d'Entreprises SCCRL, a civil company having the form of a co-operative company with limited liability organized and existing under the laws of Belgium, with registered office at Gateway building, Luchthaven Nationaal 1, boite J, 1930 Zaventem, Belgium, represented by Mrs Julie Delforge (member of the Belgian Institut des Réviseurs d'Entreprises/Instituut voor Bedrijfsrevisoren) is appointed statutory auditor of the Company, for a term of three years ending immediately following the adjournment of the annual general shareholders' meeting of the Company to be held in 2019, resolving upon the financial statements for the fiscal year ended on 31 December 2018.

1.3 Forward-looking Statements

Certain statements in this Annual Report are not historical facts and are forward-looking statements. Forwardlooking statements include statements concerning the Company's plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditure, research and development, financing needs, plans or intentions relating to partnership or acquisitions, competitive strengths and weaknesses, business strategy and the trends which the Company anticipates in the industries and the political, economic, financial, social and legal environment in which it operates and other information that is not historical information.

Words such as "believe", "anticipate", "estimate", "expect", "intend", "predict", "project", "could", "may", "will", "plan" and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. These risks, uncertainties and other factors include, amongst other things, those listed in the Section "Risk Factors".

1.4 Market and Industry Information

Information relating to markets and other industry data pertaining to the Company's business included in this Annual Report has been obtained from internal surveys, scientific publications, section association studies and government statistics. The Company accepts responsibility for having correctly reproduced information obtained from publications or public sources, and, in so far as the Company is aware and has been able to ascertain from information published by those industry publications or public sources, no facts have been omitted which would render the reproduced information inaccurate or misleading. However, the Company has not independently verified information obtained from industry and public sources. Certain other information in this Annual Report regarding the industry reflects the Company's best estimates based on information obtained from industry and public sources. Information from the Company's internal estimates and surveys has not been verified by any independent sources.

1.5 Other Available Information

The Company has filed its deed of incorporation and must file its restated articles of association and all other deeds and resolutions that are to be published in the Belgian Official Gazette (Moniteur Belge) with the clerk's office of the commercial court of Charleroi (Belgium), where such documents are available to the public. The

Company is registered with the register of legal entities of Charleroi under company number 0882.015.654. A copy of the most recent restated articles of association, the reports of the Board of Directors and the minutes of the shareholders' meeting are also available on the Company's website (www.bonetherapeutics.com) or can be provided upon request to Bone Therapeutics SA, Investor Relations, 37, rue Auguste Piccard, B-6041 Gosselies, Belgium (e-mail: investorrelations@bonetherapeutics.com and tel: +32 71 12 10 00, Fax: +32 71 12 10 01).

The Company prepares annual audited and consolidated financial statements. All financial statements, together with the reports of the Board of Directors and the statutory auditor are filed with the National Bank of Belgium, where they are available to the public. Furthermore, as a Company with shares listed and admitted to trading on Euronext Brussels and Paris, the Company publishes an annual financial report (included its financial statements and the reports of the Board of Directors and the statutory auditor) and an annual announcement prior to the publication of the annual financial report, as well as a half-yearly financial report on the first six months of its financial year. Copies of these documents will be made available on the Company's website (www.bonetherapeutics.com) and STORI, the Belgian central storage platform which is operated by the FSMA and can be accessed via its website (www.fsma.be).

The Company must also disclose price-sensitive information and certain other information relating to the public. In accordance with the Belgian Royal Decree of 14 November 2007 relating to the obligations of issuers of financial instruments admitted to trading on a Belgian regulated market (Arrêté royal relatif aux obligations des émetteurs d'instruments financiers admis à la négociation sur un marché réglementé), such information and documentation will be made available through the Company's website (www.bonetherapeutics.com), press releases and the communication channels of Euronext Brussels.

1.6 Availability of the Annual Report

The Annual Report is available in English and in French. The Annual Report will be made available, free of charge, for the public upon request to:

Bone Therapeutics SA To the attention of Investor Relations Rue Auguste Piccard 37 B-6041 Gosselies Belgium Tel: +32 71 12 10 00 Fax: +32 71 12 10 01 E-mail: investorrelations@bonetherapeutics.com

An electronic version of the Annual Report is also available on Bone Therapeutics' website (www.bonetherapeutics.com). The posting of this Annual Report on the internet does not constitute an offer to sell or a solicitation of an offer to buy any of the shares to any person in any jurisdiction in which it is unlawful to make such offer or solicitation to such person. The electronic version may not be copied, made available or printed for distribution. Other information on the website of the Company or on another website does not form part of the Annual Report.

2 ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE CONSOLIDATED FINANCIAL STATEMENTS OF BONE THERAPEUTICS SA FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2018

Dear Shareholders,

We are pleased to present you our annual report including the consolidated financial statements for the accounting year that ended 31 December 2018 prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union.

2.1. Financial and Strategic Highlights of 2018

Detailed Clinical and Operational Review

On 19 February 2018, Bone Therapeutics announced that it had completed recruitment of the Phase IIa ALLOB study in 32 patients undergoing a lumbar spinal fusion procedure. Following the 12-month follow-up period, topline efficacy and safety results are expected mid-2019. This Phase IIa study is designed to evaluate the safety and efficacy of ALLOB in addition to standard of care, which consists of the implantation of an interbody cage with bioceramic granules into the spine to achieve fusion of the lumbar vertebrae. The primary endpoints of the study include radiological assessments to evaluate lumbar fusion progression, clinical assessments to evaluate the improvement in physical condition, and safety. Positive interim safety and efficacy results for the first 15 patients were reported in September 2017.

On 14 September 2018, the Company announced positive final results from the Phase I/IIa study with ALLOB in 21 patients with delayed-union fractures, supporting the progression into the next phase of clinical development of ALLOB in this indication. The results from this study demonstrated that ALLOB met the primary endpoint as defined by an increase of at least two points on the radiological Tomographic Union Score (TUS) or an improvement of at least 25% of the clinical Global Disease Evaluation (GDE) score versus baseline. Radiological evaluation of fracture healing showed an improvement of 3.84 points on average on the TUS scale, almost twice the required minimum of 2.0 points. The Global Disease Evaluation (GDE) score to assess the general health condition of the patient, improved 48% on average and there was a statistically significant reduction in pain at the fracture site of 61% on average.

The Company also announced the development and implementation of an improved and optimized production process for ALLOB, to deliver consistency, scalability, cost-effectiveness and ease of use, all of which are critical factors for the development and commercialization of a successful cell therapy product. The optimized production process significantly increases the production yield, generating 100,000 doses of ALLOB per bone marrow donation. Additionally, the final ALLOB product will be cryopreserved, to allow ease of shipment and local storage in a hospital setting. The process will therefore substantially reduce overall production costs and simplify supply chain logistics, which improves patient accessibility and facilitates global commercialization. The Company plans to implement this optimized process for all future clinical development programs with ALLOB.

On 24 September 2018, Bone Therapeutics presented preclinical results for ALLOB in an oral presentation at the 26th Annual Meeting of the European Orthopedic Research Society (EORS), in Galway, Ireland. The in vitro and in vivo data demonstrated the potent osteogenic properties of its allogeneic bone-forming cell therapy platform to promote bone formation and improve fracture healing in relevant animal models.

On 17 October 2018, Bone Therapeutics announced positive results for the first efficacy study with JTA-004, an enhanced viscosupplement, in patients with moderate symptomatic knee osteoarthritis, supporting the progression to the next phase of clinical development. 164 patients were randomly assigned to receive either one of the 3 doses of JTA-004 or the reference product Hylan G-F20. At six months post administration, patients in the pooled JTA-004 group showed a 26.1 mm mean improvement in the WOMAC® VA 3.1 pain subscale score compared to 15.6 mm for the reference group, demonstrating a statistically significant superiority of the pooled JTA-004 groups compared to the leading viscosupplement currently on the market. In addition, JTA-004 was generally well tolerated across all administered doses.

On 6 November 2018, the Company announced the discontinuation of the Phase III study with the autologous cell therapy product, PREOB, in patients with hip osteonecrosis. At interim analysis, the Data and Safety Monitoring Board (DSMB) reported that PREOB was well tolerated but, based on the interim efficacy results, the primary objective of the study would not be achieved. The DSMB therefore recommended the discontinuation of the trial. Subsequent analysis of the unblinded interim data of the Phase III PREOB study in patients with hip osteonecrosis demonstrated that PREOB had a clinical effect, which was in line with the previous reported results from the Phase II study. However, this analysis also revealed that the control group, which consisted of core decompression alone, performed much better than what was originally anticipated from historical clinical studies. This could be related to substantial improvements of the core decompression techniques in recent years, and hence may have led to a reduced difference in responder rate between the control arm and PREOB group, leading to the discontinuation of the Phase III trial.

Corporate Developments

On 20 February 2018, Jean Stéphenne was appointed Chairman of the Board of Directors. Jean Stéphenne is a highly experienced life sciences executive, who has held multiple senior leadership roles in biotechnology and pharmaceutical companies, most recently as Chairman of TiGenix. Together with the Board of TiGenix, he oversaw the clinical development and European marketing authorization of TiGenix' most advanced allogeneic cell therapy product for the treatment of complex perianal fistulas in Crohn's disease, resulting in the acquisition of the company for €520 million by Takeda. Before joining TiGenix, Jean Stéphenne was a Member of the Corporate Executive Team of GlaxoSmithKline (GSK) and Chief Executive of GSK Biologicals (now GSK Vaccines). During his 40-year tenure at GSK Vaccines, he grew a company of 50 people into a fully integrated worldwide leader in vaccine development and commercialization, employing 12,000 people worldwide.

On 26 April 2018, the Company appointed Claudia D'Augusta as Independent Director to its Board of Directors. Claudia D'Augusta is a seasoned financial professional with more than 20 years of experience in corporate finance, the capital markets and M&A. She currently is Venture Partner at Ysios Capital and previously was the Chief Financial Officer at TiGenix. Prior to TiGenix, Claudia D'Augusta held various other senior financial positions across a number of international public and private companies.

Following his nomination at the Annual General Assembly held on 13 June 2018, Chief Financial Officer, Jean-Luc Vandebroek also joined the Board as an Executive Director.

On 29 October 2018, Linda Lebon was appointed Chief Regulatory Officer. Linda Lebon is a strategic regulatory expert with more than 25 years of experience in regulatory affairs. Linda has held positions in several large pharmaceutical companies as well as senior positions in regulatory CROs and advisory firms. As an independent consultant, she supported several fast-growing life sciences companies in their product development strategy in Europe, America and Japan. Linda will play a critical role in defining the regulatory pathway for the Company's clinical programs and will support the Company as it advances these programs towards commercialization.

Outlook 2019

The Company expects to report top line data in mid-2019 from the Phase IIa study with ALLOB in 32 patients undergoing a lumbar spinal fusion procedure.

In the second half of 2019, the Company plans to submit a clinical trial application (CTA) with the regulatory authorities in Europe and the United States to allow the start of a Phase IIb/III clinical trial with ALLOB in patients with delayed-union fractures, using its proprietary, optimized production process. The Company is currently generating the non-clinical data package as required.

Also, in the second half of 2019, the Company plans to submit a CTA with the regulatory authorities in Europe and the United States for the Phase III program with JTA-004 in patients with knee osteoarthritis.

Good cost and cash management will remain a key priority. The net cash burn for the full year 2019 is expected to be in the range of € 12-13 million. The Company anticipates having sufficient cash to carry out its business objectives until the end of 2019, taking into account the € 5.18 million to be received under the convertible bond program.

2.2. Financial Review of the Year Ending 31 December 2018

2.2.1. Analysis of the Consolidated Statement of Comprehensive Income

The following table includes information relating to the Company's audited statement of comprehensive income for the years ended 31 December 2018 and 31 December 2017.

(in thousands of euros)	2018	2017
Revenue	1,000	41
Other operating income	4,079	4,172
Total operating income	5,079	4,213
Research and development expenses	(12,884)	(13,122)
General and administrative expenses	(3,660)	(3,385)
Operating profit/(loss)	(11,466)	(12,294)
Interest income	66	197
Financial expenses	(2,609)	(489)
Exchange gains/(losses)	(18)	(12)
Share of profit/(loss) of associates	16	7
Result Profit/(loss) before taxes	(14,011)	(12,591)
Income taxes	(131)	(178)
PROFIT/(LOSS) FOR THE PERIOD	(14,142)	(12,769)
TOTAL COMPREHENSIVE INCOME OF THE PERIOD	(14,142)	(12,769)
Basic and diluted loss per share (in euros)	(1.86)	(1.86)
Profit/(loss) for the period attributable to the owners of the Company	(14,218)	(12,752)
Profit/(loss) for the period attributable to the non-controlling interests	77	(18)
Total comprehensive income for the period attributable to the owners of the Company	(14,218)	(12,752)
Total comprehensive income for the period attributable to the non-controlling interests	77	(18)

The total operating income for 2018 amounted to € 5.08 million compared to € 4.21 million in 2017. The Company recognized a success fee payment from licensee Asahi Kasei, after reaching a regulatory milestone following a successful consultation with the Japanese Regulatory Authority for PREOB for an amount of € 1.00 million in 2018. Other operating income is mainly as a result of grants from the Walloon Region ("Recoverable Cash Advances - RCAs") which in total amounted to € 2.52 million in 2018. In addition, the Company benefited from the special regime employing scientific staff through the recovery of company withholding tax for an amount of € 0.67 million, an investment tax credit for an amount of € 0.61 million and € 0.28 million in patent and other subsidies.

R&D expenses in 2018 were at € 12.88 million compared to € 13.12 million in 2017. The decrease was the result of lower R&D costs in ongoing clinical trials.

General and administrative expenses for the full year 2018 amounted to € 3.66 million compared to € 3.39 million over the same period last year. The increase is mainly the result of higher advisory costs related to the Company's strategic corporate activities.

The operating loss in 2018 was at € 11.47 million. Last year, the Company reported an operating loss of € 12.29 million.

The net financial loss amounted to € 2.55 million compared with € 0.30 million in 2017. The net financial expenses are mainly impacted by the recognition of the discount given on the committed capital from the private placement of the convertible bonds and related bond warrants (impact of € 1.69 million) and by the recognition of transaction costs of € 0.58 million related to the corresponding private placement.

The reported net loss in 2018 amounted to € 14.14 million or € 1.86 loss per share (on an undiluted basis). In 2017, the Company had a net loss of € 12.77 million, equivalent to a loss per share of € 1.86 (on an undiluted basis).

2.2.2. Analysis of the Consolidated Statement of Financial Position

The table below shows the audited consolidated balance sheet on 31 December 2018 and 2017.

ASSETS (in thousands of euros)	31/12/2018	31/12/2017
Non-current assets	10,754	10,558
Intangible assets	22	30
Property, plant and equipment	6,203	6,302
Investments in associates	326	297
Financial assets	323	317
Deferred tax assets	3,881	3,611
Current assets	15,000	14,615
Trade and other receivables	6,724	5,938
Other current assets	102	266
Cash and cash equivalents	8,174	8,411
TOTAL ASSETS	25,753	25,173

Total assets at the end of December 2018 amounted to € 25.75 million compared to € 25.17 million at the end of December 2017, mainly impacted by the current assets.

The current assets increased from € 14.62 million to € 15.00 million at the end of December 2018. The increase is mainly related to the variation of trade and other receivables which showed an increase of € 0.79 million compared to last year as a result of:

• The milestone payment from Asahi Kasei recognized in 2018 for an amount of € 0.90 million net of taxes (increase);
• New conventions of recoverable cash advances (RCAs) signed with the Walloon Region for an amount € 1.99 million;
• Amounts received during the course of 2018 for RCAs in progress (upfront amounts and amounts received following expense declarations in function of the progress of the works) for a total of € 2.26 million (decrease);
• The remaining increase of € 0.16 million in trade and other receivables is on account of the VAT receivable, patent grants receivable and tax credit to be received within one year.

The non-current assets increased from € 10.56 million to € 10.75 million at the end of December 2018. The increase is mostly related to deferred tax assets. Deferred tax assets totaling € 3.88 million represent a tax credit on investment in R&D reimbursable in the foreseeable future (spread over the next seven years), partly offset by the decrease of the property, plant and equipment. The Company invested an amount of € 0.45 million for the laboratory and production equipment related to the production facility. The Company recorded an amount of € 0.55 million as net depreciation.

EQUITY AND LIABILITIES (in thousands of euros)	31/12/2018	31/12/2017
Equity attributable to owners of the parent	4,491	2,383
Share capital	12,532	14,663
Share premium	53,478	42,665
Retained earnings	(62,136)	(55,501)
Other reserves	618	557
Non-controlling interests	0	0
Total equity	4,491	2,383
Non-current liabilities	11,925	12,192
Financial liabilities	10,247	10,551
Other non-current liabilities	1,678	1,641
Current liabilities	9,337	10,598
Financial liabilities	2,606	1,251
Trade and other payables	3,996	3,583
Current tax liabilities	11	0
Other current liabilities	2,725	5,764
Total liabilities	21,251	22,791
TOTAL EQUITY AND LIABILITIES	25,753	25,173

Equity increased from € 2.38 million at the end of December 2017 to € 4.50 million at the end of December 2018, as a result of the share capital and share premium's increase (amounting € 13.51 million), by the loss of 2018 for an amount of € 14.14 million, by the impact of IFRS15 linked to the recognition of the upfront payment received from Asahi Kasei for € 1.50 million and by the recognition of a specific reserve linked to the convertible bonds and warrants and other reserves for € 1.24 million.

Liabilities amounted to € 21.25 million in 2018 compared to € 22.79 million at the end of December 2017, representing a decrease of € 1.54 million.

Current liabilities decreased and amounted to € 9.33 million at 31 December 2018 (compared to € 10.60 million at the end of 2017). The Company observed a decrease in other current liabilities, in particular in deferred income related to the recoverable cash advances and patent subsidies and related to the recognition into the equity of the upfront payment from Asahi Kasei Corporation under the new IFRS15 rule. This decrease is partly offset by the increase of the financial liabilities including the recognition of the convertible bonds and their related warrants which are not yet exercised.

The non-current liabilities remained stable compared to last year and amounted to € 11.93 million the end of December 2018. The non-current liabilities are impacted by a reclassification of € 1.04 million in current liabilities for debt reaching maturity within the next 12 months. In counterparts, the Company recognized € 0.77 million of new debts related to new conventions of recoverable cash advances and leasing's contract.

2.2.3. Analysis of the Consolidated Cash Flow Statement

The following table sets forth the Company's consolidated cash flow statement for the years ended 31 December 2018 and 2017. This table is presented in further detail under the section "Consolidated statement of cash flows" of the Consolidated financial statements for the period ended 31 December 2018.

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of euros)	For the twelve-month period ended 31 December
	2018	2017
Operating profit/(loss)	(11,466)	(12,294)
Adjustments non-cash	(2,731)	(2,962)
Movements in working capital	(405)	151
Cash received from grants/licences	1,702	4,088
Net cash used in operating activities	(12,901)	(11,018)
Net cash used in investing activities	(295)	(415)
Proceeds from government loans	677	1,024
Repayment of loans and interests paid	(1,414)	(1,481)
Net Proceeds from equity instruments/convertible bonds	13,695	0
Net cash generated from financing activities	12,958	(456)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS at beginning of year	(237) 8,411	(11,889) 20,300
CASH AND CASH EQUIVALENTS at end of year	8,174	8,411

Cash used for operating activities amounted to € 12.90 million for the full year 2018 compared to € 11.02 million for the full year 2017.

Total operating loss for the period amounted to a loss of € 11.46 million compared to a loss of € 12.29 million over the same period in 2017. The decrease of the net loss in 2018 is mainly explained by the recognition of the milestone payment from Asahi Kasei.

Adjustments for non-cash items amounted to € 2.73 million compared to € 2.96 million during the previous year relating to depreciation, share based payments and recognition of grant income from RCA's, patent subsidies and tax credit. Actual cash received in 2018 for the grant related items amounted to € 1.83 million compared to € 2.60 million in 2017. Last year, the Company received € 1.67 million of upfront payment in relation of the licensing agreement with Asahi Kasei while the regulatory milestones of € 1.00 million has been received in January 2019.

Working capital was negatively impacted for the full year 2018 for an amount of € 0.42 million explained by an increase of trade and other receivables for an amount of € 0.81 million mainly with the recognition of the receivable related to the milestone payment and an increase of trade and payables of € 0.39 million. Cash flow from investing activities showed a net use of € 0.30 million for the full year 2018 compared to € 0.46 million in 2017. This mainly represents investments made in the laboratory equipment.

2.3. Headcount evolution

On 31 December 2018, the Company employs 90 employees in total. The table below shows the evolution of employment since 2016 and does not take into account the temporary workers and the management members.

	2016		2017		2018
As of 31 December	Bone Therapeutics	Skeletal Cell Therapy Support	Bone Therapeutics	Skeletal Cell Therapy Support	Bone Therapeutics	Skeletal Cell Therapy Support
R&D	57	35	53	31	51	30
Administration	4	5	6	4	5	4
Total	61	40	59	35	56	34
Total of Bone Therapeutics and SCTS	101		94		90

16% of employees have obtained a doctorate and 30% a master's degree. Scientific specialization domains include cellular and molecular biology, pharmaceutical sciences, veterinary medicine, physiology and life sciences.

2.4. Risks

We would like to refer to Section 4.7.2 "Risks Analysis".

2.5. Going Concern

As the Company has made significant progress in its clinical programs and manufacturing optimization process during previous year, the Board is of the opinion that it is appropriate to prepare the financial statements of the Company under the assumption of going concern, considering at group level:

• an annual projected cash burn between € 12.00 million and € 13.00 million (excluding capital raise linked to the bond program),
• the collection of € 5.18 million under the convertible bond program in 2019,
• an assumed continued support from the Walloon Region from which the Company expects to receive non-dilutive funds,
• the intention of the Company to raise new funds from the capital markets and/or to develop alternative funding strategies, while cost tracking and close cash management will remain a key priority.

Considering all these elements, the Board is of the opinion that the Company will have enough liquidity to support its activities in line with the group's strategic focus for at least 12 months.

2.6. Events Occurred after the End of the Financial Year

The annual consolidated financial statements on 31 December 2018 were authorized for issue by the Board of Directors of the Company on 24 April 2019. Accordingly, events after the reporting period are those events that occurred between 1 January 2018 and 24 April 2019.

From January till the date of this Annual Report, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 579,438 with issuance of 383,734 shares and amounts to € 13,110,950. The aggregate share premium for this transaction amounts to € 803,035.

3. ORGANIZATIONAL STRUCTURE

3.1. Organigram

At the date of this Annual Report, the Company has the following affiliates:

Belgium

• Skeletal Cell Therapy Support SA ("SCTS"), incorporated on 5 December 2011.
• Société d'Infrastructure, de Services et d'Énergies SA ("SISE"), incorporated on 12 December 2011.

United States of America

Bone Therapeutics USA Inc., incorporated on 26 March 2015.

3.2. Information on Holdings

The Company holds 49.9% of the shares issued by Skeletal Cell Therapy Support, a limited liability company (société anonyme) with registered office at rue Auguste Piccard 37, 6041 Gosselies, Belgium and with company number 0841.570.812 (RLE Charleroi).

The rest of the shares of SCTS are held, directly or indirectly, by certain regional investment bodies, being Sofipôle SA (23.48%) and Sambrinvest SA (12.72%) and seven other private investors.

Until 31 December 2019, the Company has the right to acquire the shares held by the other shareholders of SCTS, for a price generating an internal rate of return of 8% for these shareholders, taking into account the net dividends received (call option). As of 1 January 2020, the other shareholders have the right to sell to the Company their shares in SCTS, at net asset value, with a minimum of 90% of the subscription price (put option).

SCTS is part of the Walloon Cell Therapy Platform ("PWTC") comprising three service companies:

• SCTS;
• Hepatic Cell Therapy Support ("HCTS"), a limited liability company (société anonyme) with registered office at Rue Auguste Piccard 37, 6041 Gosselies, Belgium and with company number 0841.727.891 (RLE Charleroi); and
• Société d'Infrastructures, de Services et d'Energies, a limited liability company (société anonyme) with registered office at Rue Auguste Piccard 37, 6041 Gosselies, Belgium and with company number 0841.727.101 (RLE Charleroi).

SCTS holds 30.94% of the shares issued by SISE. The rest of the shares of SISE are held by HCTS, Sofipôle SA and Sambrinvest SA.

The Company also holds 100% of the shares issued by Bone Therapeutics USA Inc, an incorporation company with registered office at 10 Milk Street, Suite 1055, 02108 MA Boston and with identification number 001166538 ("BT USA").

4. CORPORATE GOVERNANCE

4.1. General

This section summarizes the rules and principles by which the corporate governance of the Company is organized. Those rules and principles are based on the Corporate Governance Charter of the Company which has been approved by the Board of Directors on 6 February 2015. This charter can be obtained free of charge at the registered office of the Company and is available on the Company's website (www.bonetherapeutics.com, under the section investors / governance).

4.2. Compliance with the Corporate Governance Code

Pursuant to the Belgian Act of 6 April 2010 on the reinforcement of the corporate governance of listed companies and autonomous government enterprises and the amendment of the rules on the exclusion of employment in the bank and financial sector (Loi visant à renforcer le gouvernement d'entreprise dans les sociétés cotées et les entreprises publiques autonomes et visant à modifier le régime des interdictions professionnelles dans le secteur bancaire et financier), as implemented by the Royal Decree of 6 June 2010 regarding the designation of the corporate governance code on listed companies (Arrêté Royal portant désignation du Code de gouvernement d'entreprise à respecter par les sociétés cotées), Belgian listed companies should comply with the Belgian Code for Corporate Governance issued on 12 March 2009 by the Belgian Corporate Governance Committee (the "Corporate Governance Code" or "CGC"), unless it discloses the justification why it has decided to deviate from the provisions of the Corporate Governance Code (the rule of comply or explain).

The Company's corporate governance charter (the "Corporate Governance Charter") was adopted in accordance with the recommendations included in the Corporate Governance Code.

The Board of Directors of the Company intends to comply with the Belgian Corporate Governance Code, except in relation to the following matters:

• Provision 2.9 of the Code: At the date of the Annual Report, no Company Secretary has been assigned by the Board. Since the IPO (6 February 2015) the Board had assigned Allen & Overy to provide services in this respect amongst others minuting of board meetings. Since ealy 2019, the Company has assigned this mission to Ostoborne Clarke. Given the limited size of the Company the Board is of the opinion there is no need to appoint a full-time Company Secretary.
• Provision 5.5 of the Code: At the date of this Document, the Nomination and Remuneration Committee is only composed of 2 members. The Board is of the opinion that the actual members have the appropriate knowledge and power to conduct the committee and to have a professional judgment on the decision to take to propose it to the Board of Directors.
• Provision 7.7 of the Code: Although at the date of this Annual Report, no options have been granted to non-executive directors, the Company has reserved the possibility to grant variable remuneration (upon advice of the Nomination and Remuneration Committee), such as long-term stock-related incentive plans, to non-executive directors, so that the Company, as a small-sized listed enterprise, could grant options or warrants to non-executive directors if it would be of the opinion that such grant is necessary to attract or retain (internationally) renowned experts with the most relevant skills, knowledge and expertise.

The Board of Directors will review the Corporate Governance Charter from time to time and adopt such amendments thereto as it deems necessary and appropriate. The Corporate Governance Charter and the Company's articles of association are available at the Company's website and at its registered office and can be obtained free of charge.

4.3. Board of Directors

4.3.1. Composition of the Board of Directors

The Board of Directors is the main decision-making body of the Company and has full power to perform all acts that are necessary or useful to accomplish the Company's corporate purpose, save for those acts for which only the shareholders' meeting of the Company has the required powers in accordance with applicable laws or the Company's articles of association. The responsibility for the management of the Company is entrusted to the Board of Directors as a collegial body.

The Board of Directors pursues the long-term success of the Company by providing entrepreneurial leadership, while assessing and managing the risks of the Company.

The Board of Directors is composed of at least three members as set out in the articles of association and the Corporate Governance Charter.

At least half of the members of the Board of Directors are Non-Executive Directors, and at least three members of the Board of Directors are Independent Directors, within the meaning of inter alia Article 526ter of the Belgian Companies Code.

The members of the Board of Directors are appointed by the shareholders' meeting of the Company for a renewable term of maximum four years. If a director mandate becomes vacant, the remaining members of the Board of Directors will have the right to temporarily appoint a new director to fill the vacancy. The shareholders' meeting can revoke the mandate of any director at any time.

In principle the Board of Directors meets at least four times a year, and also whenever a meeting is deemed necessary or advisable for its proper functioning. A meeting of the Board of Directors is validly constituted if there is a quorum, which requires that at least half of the members of the Board of Directors or present or represented during the board meeting. In any event, the Board of Directors can only validly deliberate if at least two Directors are present in person.

At the IPO, the board was composed of eleven, mostly local members. In 2017, the Board was adapted to include international experts in cell therapy, biotech and orthopedics. In 2018, the number of members has been reduced to nine members, 7 Independent and 2 Executive Directors.

Name	Position	Start or renewal of mandate	End of mandate	Nature of mandate	Professional address
Innoste SA, with as permanent representative Jean Stéphenne	Chairman	2018	2021	Independent	Avenue Alexandre 8, 1330 Rixensart, Belgium
Roland Baron	Director	2015	2019	Independent	Milford Street 33, Boston, MA 02118, the United States of America
Chris Buyse until 13 June 2018	Director	2017	2018	Independent	Baillet Latourlei 119A, 2930 Brasschaat, Belgium
Claudia D'Augusta	Director	2018	2020	Independent	Calle Estrelas 5, 28224 Pozuelo De Alarcon - Madrid – Spain

The table below provides an overview of the mandates held in 2018 and the current mandates at the date of the Annual Report:

Name	Position	Start or renewal of mandate	End of mandate	Nature of mandate	Professional address
Marc Alexander Initiative & Advisory GmbH with as permanent representative Dirk Dembski	Director	2017	2019	Independent	Schirnerstraβe 14 41515 Grevenbroich, Germany
Magenta Tree BVBA, with as permanent representative Thierry François until 13 June 2018	Director	2015	2018	Independent	Ophemstraat 133, 3050 Oud-Heverlee, Belgium
Wim Goemaere BVBA, with as permanent representative Wim Goemaere until 25 April 2018	Director	2016	2018	Non-Executive	Zakstraat 72, 9112 Sinaai, Belgium
Wagram Invest SA, with as permanent representative Michel Helbig de Balzac	Director	2016	2020	Independent	Avenue du Parc 61, 1310 La Hulpe, Belgium
Thomas Lienard SPRL, with as permanent representative Thomas Lienard	Managing Director	2016	2019	Executive	Avenue Coghen 262 bte 7, 1180 Uccle, Belgium
Paul Magrez until 13 June 2018	Director	2015	2018	Independent	Lindenhoekje 7, 1970 Wezembeek Oppem, Belgium
Castanea Management Limited with as permanent representative Damian Marron	Director	2017	2021	Independent	Tabernacle Streer 69-85, London EC2A 4RR, England
Jean-Paul Prieels	Director	2017	2019	Independent	Avenue Louise 32- 46, 1050 Brussels, Belgium
Swinson SNC Management & Consult, with as permanent representative Steven Swinson until 20 February 2018	Director	2017	2018	Independent	Chemin de la Dauphine 8, 1291 Commugny, Switzerland
Finsys Management SPRL with as permanent representative Jean-Luc Vandebroek	Managing Director	2018	2022	Executive	Rue Charles Plisnier 25, 1420 Braine l'Alleud, Belgium

A brief overview of the relevant experience of the Independent Directors in place is set out below.

• Mr. Jean Stéphenne (permanent representative of Innoste SA) is a highly experienced life sciences executive, who has served in senior leadership roles at a large number of biotechnology and pharmaceutical companies, most recently as Chairman of TiGenix. Together with the Board of TiGenix, he oversaw the clinical development and European marketing authorization of its most advanced allogeneic cell therapy product for the treatment of complex perianal fistulas in Crohn's disease. Jean Stéphenne was also previously a Member of the Corporate Executive Team of GlaxoSmithKline (GSK) and Chief Executive of GSK Biologicals (now GSK Vaccines). During his 40 year tenure, he grew a company of 50 people into a fully integrated worldwide leader in vaccine development, with 12,000 employees. Jean Stéphenne currently serves on the Board of various life sciences companies including Vaxxilon, OncoDNA, CureVac and Bepharbel. Previous board positions include Besix Group, BNP Paribas Fortis, GBL and IBA. For his contribution to the Belgian economy and global public health, he has received diverse business recognitions and was honored with various titles by the Belgian and British governments.
• Prof. Dr. Roland Baron is professor at the Harvard Medical School, Endocrine Unit, Massachusetts General Hospital, and Head of the Division of Bone and Mineral Research and Chair of Oral Medicine

at the Harvard School of Dental Medicine since January 2008. He received his DDS and PhD degrees from the Medical School at the University of Paris, France. From 1977 to 2007, Dr. Baron was a professor in the departments of Medicine, Orthopedics and Cell Biology at Yale University School of Medicine. From 1994 to 2002, he held the position of Vice President and Head of the Bone Diseases Group at Hoechst Marion Roussel and then Aventis. In 2002, he founded ProSkelia, a small pharmaceutical company devoted to the discovery and development of new drugs for bone and hormonal diseases. He has held the positions of President and Chief Scientific Officer of ProSkelia and then ProStrakan, until April 2006. He is the founder and past Editor-in-Chief of BONE, the Official Journal of the International Bone and Mineral Society until 2006. Dr. Baron has published over 330 scientific papers in the field of bone biology and bone diseases.

• Mrs. Claudia D'Augusta is a seasoned financial professional with more than 20 years' experience in corporate finance, capital markets and M&A. She is currently Chief Financial Officer at Therachon Group and is part of the Executive Committee at Therachon. Prior she was Chief Executive Officer at TiGenix which was recently acquired by Takeda for EUR 520 million. Claudia D'Augusta held various other senior financial positions across a number of international public and private companies. Claudia D'Augusta holds a degree in Economics and a Ph.D. in Business Administration from the University of Bocconi, Milan, Italy.
• Mr. Dirk Dembski (permanent representative of Marc Alexander Initiative & Advisory GmbH) has held a variety of roles in biotechnology, orthopedics and medical companies and has built and driven global sales and marketing operations and served in business development positions. He is currently CEO of SpineWelding AG and previously served as Managing Director of bricon GmbH, the German business unit of Naton Medical Group, one of China's largest Medtech companies, where he completed several acquisitions and drove the international business. He also worked as Vice President of Sales, Marketing and Business Development at Olympus Biotech for EMEA, Asia Pacific and Latin America, where he successfully marketed a portfolio of bone growth factors, cell technologies and innovative biomaterials. Dirk Dembski has also worked as director of sales and marketing for Small Bone Innovations, a bone medical technology company which was acquired by Stryker.

• Mr. Michel Helbig de Balzac (permanent representative of Wagram Invest SA) has a longstanding experience in venture capital as the founder and managing partner of BAMS Angels Fund I SCA (founded in 2005) and Nausicaa Ventures SCA (2009), both investing in early-stage and earlygrowth new technology companies and located in Louvain-la-Neuve (Belgium). He has particular knowledge in the fields of biotech, medical devices and energy, and represents the funds at the board of several of the investee companies such as Ovizio, Imaging Systems and Bio-Sourcing. He serves as the Chairman of the Board of Directors of Bone Therapeutics between June 2013 and June 2017. Previously, he was an acknowledged investor and entrepreneur with several high-growth companies. Complementary to venture capital, he has been very active in the development and financing of large-scale renewable energy development projects such as the North Sea offshore wind farm Northwester 2 consortium, comprised of Colruyt, TTR Energy (TPF Group), Incontrol, and his own company Wagram Invest, which was granted a 224 MW area concession in 2013. From 2002 to 2013 he was influential in helping to launch a range of wind farm projects in the Walloon Region. From 2009 to 2014, he was the Chairman of Edora, the Belgian Federation for Renewable Energy, of which he is currently Director, and more recently a board member of the Belgian Offshore Platform association. Mr. Helbig started his professional career in 1985 with McKinsey, where he was active in the steel and paper industries and the insurance and hospital sectors before taking on the responsibility of Administrative Director and General Secretary of their Brussels Office. He then joined Dewaay Bank in 1994 where he led the development of various private banking and corporate finance projects. Mr. Helbig has a broad academic background from UCL (Belgium) in philosophy, political sciences (with a focus on international relations), economic sciences, and European studies, and an MSc degree in Urban and Regional Planning.

• Damian Marron (permanent representative of Castanea Management Limited) is an experienced life sciences executive with a successful track record of value creation through public and venture capital financing, portfolio planning and turnaround, M&A, licensing agreements and research and marketing collaborations. He has particular competencies in cell therapy, immunooncology and orphan diseases. Damian served most recently as Chief Executive Officer of Agalimmune and has also served as Chief Executive Officer of TxCell, a France-based specialist in personalised T-cell immunotherapies, where he led the Company's IPO on Euronext Paris. As Chief Executive Officer of Trophos, France, he helped raise EUR 34 million in financing and positioned the company for a subsequent acquisition by Roche for EUR 700 million. Damian Marron also served as Executive Vice President, Corporate Development, for NiCox, where he supported the CEO in financing rounds raising over EUR 175 million.

• Dr. Jean-Paul Prieels, PhD holds a PhD in Biochemistry from Université libre de Bruxelles in Belgium. He started his industrial career at Petrofina in 1983 as Biotechnology Manager and joined GlaxoSmithKline Biologicals in 1987. His responsibilities gradually expanded to lead the vaccine preclinical R&D development activities as Senior Vice President of Research & Development at GlaxoSmithKline Biologicals in Rixensart, Belgium, in 2011. His career spans from basic research to applied research and product development. He was instrumental in the development of several commercially available vaccines, such as Rotarix, Cervarix and Synflorix. Today he is Director at Vaximm AG, NCardia, Themis, Leukocare, Nouscom, and DNAlytics. He is member of the Scientific Advisory Board of Singapore Bioprocessing Technology Institute, MolMed SPA and CureVac, and member of the European Vaccine Initiative Board of Stakeholders.

At the date of this Annual Report, none of the Directors and the members of the Executive Committee have at any time within at least the past five years:

• had any conviction in relation to fraudulent offences; or
• been adjudged bankrupt or entered into an individual voluntary arrangement; or
• been a director of any company at any time of, or within 12 months preceding, any receivership, compulsory liquidation, administration or partnership voluntary arrangement of such partnership; or
• had his assets from the subject of any receivership or has been a partner of a partnership at the time of, or within 12 months preceding, any assets thereof being the subject of a receivership; or
• been subject to any official public incrimination and/or sanctions by any statutory or regulatory authority; or
• ever been disqualified by a court from acting as a director of a company or from acting in the management or conduct of the affairs of any company.

4.3.2. Activity Report

In 2018, until the date of the Annual Report, the Board of Directors met 15 times discuss and decide on specific matters. Below is the detail of the attendance:

BOARD OF DIRECTORS	Number of attendances1
Innoste SA, represented by M. Jean Stéphenne	12/14
Prof. Roland Baron	11/15
M. Chris Buyse	8/8
Claudia D'Augusta	9/11
Marc Alexander Initiative & Advisory GmbH represented by M. Dirk Dembski	15/15
Magentra Tree BVBA, represented by M. Thierry François	7/8
Wim Goemaere BVBA, represented by M. Wim Goemaere	4/4
Wagram Invest SA, represented by M. Michel Helbig de Balzac, Chairman	15/15
Thomas Lienard SPRL, represented by M. Thomas Lienard	15/15
M. Paul Magrez	8/8
Castanea Management Limited, represented by M. Damian Marron	14/15
M. Jean-Paul Prieels	11/15
Finsys Management SPRL, represented by Jean-Luc Vandebroek	7/7
Swinson SNC Management & Consult represented by M. Steven Swinson	2/2

4.3.3. Performance Evaluation of the Board

Out of the activity report included above it is clear that the Board as a Company organ has been very active with a strong participation and contribution of all its members during the course of 2018.

After the IPO, the Board of Directors has continued to investigate how it could best to organize itself to address the challenges ahead and to align with the requirements for listed companies. The Board reflected on the composition of the Board (post IPO) in respect of the number of Board Members, on guaranteeing continuity and on extra skills. Several profiles were identified in areas where it would be opportune to strengthen the Board (industry specific scientific knowledge, corporate finance and business development). Based on these profiles a search was initiated. Amongst a long list of candidates in total 3 candidates where withheld which could qualify as independent Board Members and who could strengthen the board in the areas indicated above. These new members were appointed in the run-up to the IPO. In the same process 3 Non-Executive Directors decided to resign as board member.

It was decided that when board seats become available in the years to come, special efforts will be done to attract new board members of the other sex in accordance with Article 96 §2, 6° of the Belgian Companies Code (and with the law of 28 July 2011) to assure that by 01/01/2021 (for newly listed companies, the legal quota is applicable as from their sixth year on the stock market) the appropriate quorum will be reached. This quota applies to the board as a whole, comprising both executive and non-executive directors. In 2018, Claudia D'Augusta was hired and the Board of Directors is composed of one of the other sex at the date of the Annual Report.

As of 2015, the Board is responsible for a periodic assessment of its own effectiveness with a view to ensuring continuous improvement in the governance of the Company. In this respect, the Board assesses its size, composition, performance and interaction with the Executive Directors and Executive Committee at least every two to three years, if required with the assistance of a third party. Such an evaluation was initiated at the end of 2016 with the assistance of an external party. As a result of this exercise the composition of the Board had changed in the course of 2017 to better align that composition with the current needs of the Company. In 2018, the number of members was reduced to 9.

1 Number of attendances compared to maximum number of attendances considering time of appointment and conflicts of interest. All Directors who were not present, were excused.

Such periodic evaluation aims to:

• Assess the operation of the Board in general;
• Verify whether material issues are thoroughly prepared and discussed;
• Evaluate the actual contribution of each director to the operation of the Board, his attendance at the Board and Committee meetings and his constructive involvement in discussions and decision-making;
• Verify the Board's current composition against the Board's desired composition.

The contribution of each director is evaluated periodically in order to, taking into account changing circumstances, be able to adapt the composition of the Board. In order to facilitate such evaluation, the directors give their full assistance to the Nomination and Remuneration Committee and any other persons, whether internal or external to the Company, entrusted with the evaluation of the Directors.

Furthermore, the Board will assess the operation of the Committees at least every two to three years. For this assessment, the results of the individual evaluation of the Directors are taken into consideration. The Chairman of the Board and the performance of his role within the Board are also carefully evaluated. The Nomination and Remuneration Committee should, where appropriate and if necessary, in consultation with external experts, submit a report commenting on the strengths and weaknesses to the Board and make proposals to appoint new Directors or to not re-elect Directors. A director not having attended half the number of meetings of the Board will not be considered for re-election at the occasion of the renewal of his mandate.

In addition, the Non-Executive Directors should regularly (preferably once a year) assess their interaction with the Executive Directors and the Executive Committee. At different occasions the board together with the executive directors took the opportunity to reflect on how to streamline the interactions between both the non-executive directors and the executive directors including the implementation of a reporting on key performance indicators.

4.3.4. Committees within the Board of Directors

4.3.4.1. General

The Board of Directors has established a nomination and remuneration committee (the "Nomination and Remuneration Committee") and an Audit Committee (the "Audit Committee"). These committees (the "Committees") have a mere advisory role.

The Board of Directors has determined the terms of reference of each Committee with respect to its respective organization, procedures, policies and activities.

4.3.4.2. Audit Committee

4.3.4.2.1. Role

The Audit Committee supports the Board of Directors in fulfilling its monitoring responsibilities in respect of control in the broadest sense.

4.3.4.2.2. Duties

The Audit Committee is the main contact point of the external auditor. Without prejudice to the legal duties of the Board of Directors, the Audit Committee is entrusted with the development of a long-term audit program encompassing all of the Company's activities, and is in particular entrusted with:

• monitoring the financial reporting process;
• monitoring the effectiveness of the Company's internal control and risk management systems;
• monitoring the internal audit and its effectiveness, including advising the Board of Directors on its annual assessment of the need for an internal auditor;
• monitoring the statutory audit of the annual and consolidated accounts, including any follow up on any questions and recommendations made by the external auditor;
• reviewing and monitoring the independence of the external auditor, in particular regarding the provision of additional services the Company may require; and
• monitoring the compliance with the legislation and regulations that apply to the Company.

The final responsibility for reviewing and approving the Company's interim and annual financial statements, as presented to the shareholders, remains with the Board of Directors.

4.3.4.2.3. Composition

The Corporate Governance Charter of the Company states that the Audit Committee is composed out of at least three members, all its members being Non-Executive Directors. At least one of the members of the Audit Committee is an independent Director, who has accounting and auditing expertise. This expertise in accounting and auditing implies a degree of higher studies in economics or finance or relevant professional experience in those matters.

The Audit Committee is chaired by one of its members, who may not be the chairman of the Board of Directors.

The duration of the mandate of a member of the Audit Committee will not exceed the duration of his/her mandate as director of the Company.

The following Directors were members of the Audit Committee until they ended their mandates in June 2018. They both complied with the requirements regarding accounting and audit experience:

Name	Position	Professional address
Chris Buyse	Chairman – Independent Director	Baillet Latourlei 119A 2930 Brasschaat, Belgium
Magenta Tree BVBA, with as permanent representative Thierry François	Member – Independent Director	Ophemstraat 133 3050 Oud-Heverlee, Belgium

The new composition of the Audit Committee is as follows:

Name	Position	Professional address
Wagram Invest SA, with as permanent representative Michel Helbig de Balzac	Chairman – Independent Director	Avenue du Parc 61, 1310 La Hulpe, Belgium
Claudia D'Augusta	Member – Independent Director	Calle Estrelas 5, 28224 Pozuelo De Alarcon - Madrid – Spain
Marc Alexander Initiative & Advisory GmbH with as permanent representative Dirk Dembski	Member – Independent Director	Schirnerstraβe 14 41515 Grevenbroich, Germany

Currently the Audit Committee is counting 3 members. Claudia D'Augusta and Michel Helbig de Balzac qualify both in respect of having the necessary competences and qualifications in respect of accounting and audit matters as well as both of the members having an extensive experience in the management of biotech companies.

4.3.4.2.4. Operation

The Audit Committee will meet at least four times a year and whenever a meeting is deemed necessary or advisable for its proper functioning. Decisions are taken by a majority vote. The Chairman of the Board of Directors has a permanent invitation to attend the meetings of the Audit Committee. The Audit Committee may also invite other persons to attend its meetings.

The Audit Committee meets with the external auditor and the internal auditor (if any) at least twice a year, to discuss matters relating to its terms of reference, issues falling within the powers of the Audit Committee and any issues arising from the audit process and, in particular, any material weaknesses in the internal audit.

During 2018, the Audit Committee met four times.

4.3.4.3. Nomination and Remuneration Committee

4.3.4.3.1. Role

The Nomination and Remuneration Committee makes recommendations to the Board of Directors with respect to the appointment of Directors, the Executive Directors and other members of the Executive Committee. In addition, the Nomination and Remuneration Committee makes recommendations to the Board of Directors on the Company's remuneration policy, on any remuneration whatsoever granted to the Directors and members of the Executive Committee and on any agreements or provisions relating to the early termination of employment or collaboration with the Directors and members of the Executive Committee.

4.3.4.3.2. Duties

The Nomination and Remuneration Committee must ensure in general that the appointment and re-election process of the members of the Board of Directors, the Executive Directors and the members of the Executive Committee is organized objectively and professionally and, in particular and notwithstanding the legal powers of the Board of Directors, has the following duties:

• draft (re)appointment procedures for members of the Board of Directors and the members of the Executive Committee;
• nominate candidates for any vacant directorships, for approval by the Board of Directors;
• prepare proposals for reappointments;
• periodically assess the size and composition of the Board of Directors and, if applicable, making recommendations with regard to any changes;
• analyze aspects relating to the succession of Directors;
• advise on proposals (including, of the management or of the shareholders) for the appointment and removal of directors and of members of the Executive Committee;

• advise the Board of Directors on proposals made by the Executive Directors for the appointment and removal of Executive Directors and of members of the Executive Committee;

• prepare and assess proposals to the Board of Directors on the remuneration policy for members of the Board of Directors, and, where applicable, on the resulting proposals to be submitted by the Board of Directors to the shareholders;

• prepare and assess proposals for the Board of Directors on the remuneration policy for the members of the Executive Committee, and, where applicable, on the resulting proposals to be submitted by the Board of Directors to the shareholders, at least with regard to the:
• o main contractual terms, including the main characteristics of the pension schemes and termination arrangements;
• o key elements of the remuneration, including the:
• o relative importance of each component of the remuneration package;
• o performance criteria applicable to the variable elements (determination of milestones and their evaluation period); and
• o fringe benefits.
• prepare and assess proposals to the Board of Directors regarding the individual remuneration of members of the Board of Directors and the Executive Committee, including, depending on the situation, on variable remuneration and long-term incentives, whether or not stock-related, in the form of stock options or other financial instruments, and, where applicable, on the resulting proposals to be submitted by the Board of Directors to the shareholders;
• make proposals to the Board of Directors regarding arrangements on early termination and, where applicable, on the resulting proposals to be submitted by the Board of Directors to the shareholders;
• submit to the Board of Directors (a) a remuneration report which describes, amongst other things, the internal procedure for the development of a remuneration policy and the determination of the remuneration level for Non-Executive Directors and members of the Executive Committee and (b) a declaration regarding the remuneration policy applied with respect to the members of the Executive Committee, including a description of any material changes thereto since the previous financial year;
• advise the Board of Directors on agreements relating to the appointment of the Executive Directors and other members of the Executive Committee; and
• verify that the variable criteria for setting remuneration for an executive director or a member of the Executive Committee are expressly stated in the agreement, and that the payment of this variable remuneration only takes place if such criteria are met during the relevant period.

When performing its duties relating to the composition of the Board of Directors, the Nomination and Remuneration Committee takes into account the criteria for the composition of the Board of Directors, as stated in the terms of reference of the Board of Directors.

4.3.4.3.3. Composition

The Nomination and Remuneration Committee is composed of at least three Directors. All members of the Nomination and Remuneration Committee are Non-Executive Directors, with a majority being independent Directors. The majority of the members has the necessary expertise with regard to remuneration policies, i.e. has a degree in higher education and has at least three years' experience in personnel management matters or matters related to the remuneration of Directors and managers of companies. The Board of Directors

considers that all members of the Nomination and Remuneration Committee have sufficient experience in personnel management and matters related to remuneration.

The Nomination and Remuneration Committee is chaired by the chairman of the Board of Directors or by another non-executive member of the Nomination and Remuneration Committee. The chairman of the Board of Directors does not chair the Nomination and Remuneration Committee when dealing with the designation of his or her successor.

The duration of the term of a member of the Nomination and Remuneration Committee will not exceed the duration of his mandate as director of the Company.

The following members were members until the General Assembly Meeting held in June 2018:

Name	Position	Professional address
Paul Magrez	Chairman - Independent Director	Lindenhoekje 7, 1970 Wezembeek-Oppem, Belgium
Chris Buyse	Member - Independent Director	Baillet Latourlei 119A, 2930 Brasschaat, Belgium
Wagram Invest SA, with as permanent representative Michel Helbig de Balzac	Member- Independent Director	Rue de Rodeuhaie 1, 1348 Louvain-La-Neuve, Belgium

The following Directors are members of the Nomination and Remuneration Committee:

Name	Position	Professional address
Innoste SA, with as permanent representative	Chairman – Independent	Avenue Alexandre 8,
Jean Stéphenne	Director	1330 Rixensart, Belgium
Castanea Management Limited with as	Member – Independent	Tabernacle Streer 69-85,
permanent representative Damian Marron	Director	London EC2A 4RR, England

4.3.4.3.4. Operation

The Nomination and Remuneration Committee meets at least twice a year, and whenever a meeting is deemed necessary and advisable for its proper functioning. Decisions are taken by a majority vote. The chairman of the Board of Directors has a permanent invitation to attend the meetings of the Nomination and Remuneration Committee, except for meetings at which his own appointment, removal or remuneration is discussed. The Nomination and Remuneration Committee may invite other persons to attend its meetings (it being understood that a member of the Board of Directors may not attend the meeting of the Nomination and Remuneration Committee which handles his remuneration).

During 2018, the Nomination and Remuneration Committee met three times with particular emphasis on the:

• performance evaluation 2017 of the Executive Directors including bonus determination
• definition of the objectives 2018 of the Executive Directors
• discussion about a new stock option plan for Board members and employees
• discussion about nomination of Yves Geysels and Linda Lebon.

4.4. Executive Committee

4.4.1. General

The Board of Directors has established an Executive Committee (the "Executive Committee"), which advises the Board of Directors, and which therefore does not constitute a management committee (comité de direction) under article 524bis of the Belgian Companies Code. The terms of reference of the Executive Committee have been determined by the Board of Directors.

4.4.2. Executive Committee

4.4.2.1. Role

The Executive Committee assists the Executive Directors in the management of the Company. The Executive Committee reports to and is accountable to the Board of Directors for the discharge of its responsibilities.

4.4.2.2. Duties

The Executive Committee has the following tasks:

• proposing, developing, implementing and monitoring the Company's strategy, taking into account the values of the Company, its risk profile and key policies;
• supervising compliance with the legislation and regulations that apply to the Company;
• develop, manage and assess internal control systems to allow identification, assessment, management and monitoring of financial and other risks;
• organizing, coordinating and monitoring all functions of the Company;
• prepare complete, timely, reliable and accurate financial statements of the Company in accordance with the accounting standards and policies of the Company, and prepare the Company's required disclosure of the financial statements and other material financial and non-financial information;
• supporting the Executive Directors in the day-to-day management of the Company and with the performance of their other duties;
• investigate, draw up and develop policies proposals and strategic or structural projects to be presented to the Board of Directors for approval, report to the Board on their implementation, and provide information that is necessary to the Board to enable it to carry out its duties;
• develop, manage and assess internal control systems to allow identification, assessment, management and monitoring of financial and other risks.

The Executive Committee reports to and is accountable to the Board for the discharge of its responsibilities.

4.4.2.3. Composition

The Executive Directors (CEO and CFO) together with the senior managers (CMO, CSTO, CRO and CCRO) are members of the Executive Committee. The Executive Committee is chaired by the CEO of the Company and in his absence by the CFO. The members of the Executive Committee are appointed and may be dismissed by the Board of Directors at any time. The Board of Directors appoints them on the basis of the recommendations of the Nomination and Remuneration Committee, which also assists the Board of Directors on the remuneration policy for the members of the Executive Committee, as well as their individual remunerations

The remuneration, duration and the conditions of the resignation of the members of the Executive Committee are governed by the agreements entered into between the Company and each member of the Executive Committee in respect of their function within the Company.

Name	Title
Thomas Lienard SPRL, represented by Thomas Lienard	Chief Executive Officer and Executive Director
Finsys Management SPRL, represented by Jean-Luc Vandebroek	Chief Financial Officer and Executive Director
Olivier Godeaux SPRL, represented by Olivier Godeaux	Chief Medical Officer from 18 February 2019
Benoit Moreaux SPRL, represented by Benoit Moreaux	Chief Scientific and Technology Officer from 1 February 2019
Lebon Regulatory Science Strategy SPRL, represented by Linda Lebon	Chief Regulatory Officer from 1 October 2018
Guy Heynen	Chief Clinical and Regulatory Officer

The current members of the Executive Committee are listed in the table below:

At the date of this report, the CCRO works for the Company on a part-time basis (3 days a week).

• Thomas Lienard SPRL, represented by Mr. Thomas Lienard, (42) (CEO). Mr. Lienard has over 15 years of national and international sales and marketing experience in the pharmaceutical industry. Prior to joining Bone Therapeutics, Mr. Lienard worked at Lundbeck, where he acted as Managing Director for Belgium and Luxemburg and was vital to the launch of several products. He led a team of up to 80 employees, generating over EUR 50 million in sales. Before his position at Lundbeck, Mr. Lienard worked at Eli Lilly and Company, where he held various positions in sales and marketing in Europe and the US, including Sales Director Belgium in 2010. Mr. Lienard started his career in 1999 as consultant at McKinsey & Company. Mr. Lienard graduated from Solvay Brussels School of Economics and Management as Master in Business Engineering in 1999 and obtained a Master of Business Administration (MBA) from Harvard Business School in Boston in 2004. Mr. Lienard is the new CEO of the Company as of 10 October 2016.
• Finsys Management SPRL, represented by Mr. Jean-Luc Vandebroek, (47) (CFO). Jean-Luc Vandebroek is a seasoned finance executive with extensive international finance experience at major public and privately-owned companies. Jean-Luc has built a successful career spanning 15 years at the Belgian-US retailer, Delhaize Group (now Ahold Delhaize). During this period, he held various senior financial positions with increasing responsibility, including roles as Corporate Director Finance Europe and US and Vice President Finance BeLux. He later became Group Chief Financial Officer at Fluxys, a listed, pan-European gas infrastructure group, where he was responsible for the financing of large infrastructure investments using diverse forms of funding on capital markets. Prior to joining Bone Therapeutics, Jean-Luc served as Director and Chief Financial Officer of Moteo Two Wheels and Bihr Europe, the motorcycle division of Alcopa Group, a Belgian family holding with an annual revenue of around EUR 1.7 billion.
• Olivier Godeaux SPRL, represented by Mr. Olivier Godeaux, (56) (CMO). Dr. Olivier Godeaux is a seasoned biopharmaceutical industry executive with a proven track record in advancing drug candidates through all phases of development to regulatory approval and commercial launch. Dr. Godeaux held various senior positions in clinical development at fast-growing biotechnology companies, clinical research organizations and global pharmaceutical companies such as Johnson & Johnson, GSK and UCB, where he led several complex, large-scale Phase III clinical studies involving 1,000+ patients in Europe, US and Japan. Olivier Godeaux received both his Doctor of Medicine and his Master in Public Health degrees from the Université Catholique de Louvain (UCLouvain), Belgium. As Chief Medical Officer, Olivier Godeaux is responsible for the development and execution of the

Company's clinical development strategy, advancing its late-stage products through clinical development towards commercialization, while playing a crucial role in the interactions with regulatory authorities, clinical experts and key opinion leaders.

• Benoit Moreaux SPRL, represented by Mr. Benoit Moreaux, (46) (CSTO). Benoit Moreaux brings 20 years of industry expertise in strategic operations planning and execution, as well as global quality assurance. Most recently, Benoit Moreaux was Chief Scientific Officer and Managing Director of Nikkiso Belgium, where he oversaw the Company's scientific and technical operations, and drove business growth through innovation and product launch. Prior to Nikkiso, he held senior positions at Baxter and Johnson & Johnson, where he was responsible for drug and medical device development towards global product launch. Benoit is a Doctor of Veterinary Medicine and holds a PhD in Veterinary Sciences from the University of Liège, Belgium. As Chief Scientific and Technology Officer, Benoit Moreaux leads the preclinical activities as well as the clinical and commercial manufacturing operations.
• Lebon Regulatory Science Strategy SPRL, represented by Ms. Linda Lebon, (52) (CRO). Linda Lebon is a strategic regulatory expert with more than 25 years of experience in regulatory affairs. During her career, she has provided regulatory support to companies in strategic global drug development for both clinical and non-clinical projects. Until recently, she was Vice President Regulatory Affairs at Argenx, a clinical-stage biotechnology company focused on developing antibodies for autoimmune disease and cancer. Linda has held positions in several large pharmaceutical companies as well as senior positions in regulatory CROs and advisory firms, including Quintiles and Voisin Life Sciences. As an independent consultant, she has also supported several notable fast-growing life sciences companies including Celyad, Mithra and iTeos Therapeutics, in their product developments in Europe, America and Japan. In these roles she has been closely involved with the transitional process between R&D activities and the regulatory stage of development.
• Dr. Guy Heynen, (72) (CCRO). Dr. Heynen started his career at the Belgian National Foundation for Research and in research roles at University Hospital, Liege, Belgium where he received his degree in medicine. Dr. Heynen is a specialist in rheumatology and immunology, with extensive experience both in university medical practice and in the pharmaceutical industry. He has over 35 years' experience in medical affairs and regulatory functions at local, regional and international levels and has a particular focus on management, team building and leadership. The majority of his career has been with Pfizer Inc. where he held a number of senior roles including medical director for Pfizer Switzerland, European team leader for the Alzheimer's disease drug Aricept and Medical Team Leader for Pfizer's anti-inflammatory drug franchise based in New York, US. Dr. Heynen also served as medical affairs director at Anbics AG, Switzerland from 2003-2006 and remains a Regional Medical Monitor for Pfizer GmbH Berlin.

4.4.3. Operation

The Executive Committee meets regularly whenever it is required for its proper functioning.

The CEO and the CFO have been appointed as Executive Directors of the Company and can be removed by the Board of Directors of the Company. The CEO and the CFO are entrusted by the Board of Directors with the day-to-day management of the Company.

4.5. Internal Control and Risk Management Systems

4.5.1. Internal Mechanism

• The role of the Executive Directors & Executive Committee is to develop and maintain adequate control system to assure:
• o the realization of company objectives;
• o the reliability of financial information;
• o the adherence to applicable laws and regulations;
• o monitor the internal and external impact of the risks identified by its Committees, and the management of the risks identified.
• The Audit Committee has guiding, supervisory and monitoring role with respect to the Executive Directors & Executive Committee, as regards the development, maintenance and execution of internal controls and:
• o assists the Board of Directors in respect of control issues in general;
• o acts as the interface between the Board of Directors and the external auditors of the Company.
• No internal audit role has been assigned at this point in time as the size of the business does not justify a permanent role in this respect - typical internal audit activities will be outsourced from time to time whereby the Audit Committee will determine frequency of these audits and select topics to be addressed
• In 2015, the Company took measures to improve the controls and the efficiency of the payment process and implemented tools to allow for a more detailed budget follow-up.
• Based on observations made by the external auditors in respect of payroll process, the recoverable cash advances process, the expenditure process and the process for capitalization of the R&D costs, an action plan was established for implementation in the course of 2016.
• In 2017, a new budgeting process was implemented. Each department was asked to provide a separate budget which were subsequently integrated into a global company budget. The new budgeting procedure was designed to provide a stronger involvement to the departments of the Company providing a more accurate forecast of the spending on a more granular level. A monthly reporting of the actual spending was also installed such that each department could follow their spending compared to their budgets creating an additional level of cost-awareness.
• In 2018, the Company improved its ERP with the integration of the new ERP system for the formalization of the purchase orders and the approval of the orders and the invoices.

4.5.2. Risk Analysis

Key Risk Factors Related to the Company's Business

Investing in securities involves a high degree of risk. Any prospective investor should carefully consider the following risks and all other information contained in the Prospectus before making an investment decision regarding the Company's securities. The risks and uncertainties described below are significant risk factors, currently known and specific to the Company, which the Company believes are relevant for an investment in its securities. If any of these risks actually occurs, the business, financial condition or results of operations of the Company would likely be materially and/or adversely affected. In such case, the price of the securities could decline, and an investor could lose all or part of its investment. These risks and uncertainties include the following:

• The Company is at an early stage of its development and has not yet commercialized any of its products. Successful products require significant development and investment, including testing to demonstrate their safety, their efficacy and their cost-effectiveness prior to commercialization. Furthermore, problems encountered in connection with the development and utilization of new technologies and the competitive environment in which the Company operates might limit the Company's ability to develop commercially successful products. In addition, The Company does not anticipate generating revenue from sales of commercially successful products for the foreseeable future.
• The absence of similar cell therapy products on the market generates a number of unknown factors. The existing treatments (for which the Company aims to develop an alternative through cell technology-based product(s) candidates) are often old techniques, which are painful and invasive. Cell therapy, however, is an emerging medical technology, in which few products have yet been proven beneficial, safe and efficient and have obtained marketing authorization. In general, the early stage of the technology, and consequently the lack of established practices and benchmarks, create uncertainty about prospects and come with inherent risk of unanticipated problems in every stage of the product life, including development, regulations, approvals, reimbursement, market acceptance and operations.

Research programs and product candidates of the Company must undergo rigorous preclinical tests and clinical trials, of which the start, timing of completion, number and results are uncertain and could substantially delay or prevent the products from reaching the market. Clinical trials may be delayed for a variety of reasons, including, but not limited to, delays in obtaining regulatory approval to commence a trial, in reaching agreement on acceptable terms with prospective clinical research organizations, contract manufacturing organizations and clinical trial sites, in obtaining approval of the Competent Authority, in recruiting suitable patients to participate in a trial, in having patients complete a trial, in obtaining sufficient supplies of clinical trial materials or clinical sites dropping out of a trial and in the availability to the Company of appropriate clinical trial insurances. In particular, the clinical trials related to orthopedics require longer follow-up periods of up to 24 months.

• Uncertain outcome of clinical trials. The Company's cell products are highly innovative and are based on the ex vivo differentiation of human bone marrow cells with a view to producing boneforming cells. Although the Phase II clinical results for the use of these differentiated cells in the treatment of delayed-union fractures and in lumbar spinal procedures showed statistically and clinically relevant benefits and demonstrated satisfying safety and efficacy, success in subsequent studies cannot be guaranteed as demonstrated by the osteonecrosis Phase III study with PREOB and may not lead to successful therapy products. A similar statement can be made for the viscosupplement in development, JTA-004, as the promising results of the Phase IIB study for knee osteoarthritis do not warrant a positive outcome for the follow-up Phase III study.
• If serious adverse side effects are identified for any product candidate, the Company may need to abandon or limit its development of that product candidate, which may delay, limit or prevent marketing approval, or, if approval is received for the product candidate, require it to be taken off the market, require it to include safety warnings or otherwise limit its sales. Important unpredicted side effects from any of the Company's product candidates could arise either during clinical

development or, if approved by the Competent Authorities, after the approved product has been commercialized.

• The changing competitive landscape is a main issue facing the healthcare industry. The Company competes with other companies based on technology, product offering, therapeutic area, intellectual property, geographic area and time to market or other factors. The Company's success depends on, inter alia, the ability to establish a competitive position with respect to all of these factors. The Company believes that its main competitive advantages are its expertise and know-how in cell therapy in general and in cell therapy for bone diseases. However, the Company's competitors may have greater financial, human and other resources than the Company does. If the Company fails to comply with its obligations under the agreement pursuant to which it licenses intellectual property rights from third parties, or otherwise experiences disruptions to its business relationships with its licensors, the Company could lose the rights to intellectual property that is important to its business. The Company's activities are dependent - at least in part - on the use of intellectual property rights which are for some projects not owned by it, but have been granted to it pursuant to license agreements and which are important to the business.
• The future commercial success of the Company's product candidates will depend on the degree of market acceptance of its products among third party payers, doctors, patients and the medical community in general. To date, the Company has no product authorized for commercialization, the Company's products candidates are at different stages of development (in different phases of clinical trials) and the Company may never have a product that is commercially successful.
• The Company has obtained significant grants and subsidies. The terms of certain of these agreements may hamper the Company in its flexibility to choose a convenient location for its activities. The subsidies granted to the Company may prohibit the granting, by way of license, transfer or otherwise, any right to use the results, respectively the patents without the prior consent of the Walloon Region. In addition, under the patent subsidies the Company may lose all or part of its right to any further funding in the event that the Company ceases to qualify as a "small or medium-sized enterprise". Changes in regional financing and grant policies or a shift in regional investment priorities may reduce or jeopardize the Company's ability to obtain non-dilutive financing and grants. Also, future growth of the Company, whether or not including geographical expansion, could limit the Company's eligibility to obtain similar non-dilutive financing or grants.
• The Company is subject to competition for its skilled personnel and challenges in identifying and retaining key personnel could impair the Company's ability to conduct and grow its operations effectively. The services of the Company's executive committee are critical to the successful implementation of its business, research, product development and regulatory strategies. Members of the Company's executive committee may terminate their employment or services with the Company at any time with relatively short notice. In general, conflicts between key managers may result in the Company losing the services of a manager or otherwise affect the cohesion within the management team.

• The Company may not be able to protect and/or enforce its intellectual property rights in all key countries or territories. Competitors may use the Company's technologies in jurisdictions where the Company or its licensors have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where the Company has patent protection but where enforcement is not as well developed as in the European Union, the United States or Japan. These products may compete with the Company's products in jurisdictions where the Company or its licensors do not have any issued patents and the Company's patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing. Moreover, it cannot be excluded that the debate on the patentability of elements of the human body could lead to a situation whereby the technology developed by or licensed to the Company can no longer be protected by patents or that such patents cannot be enforced against third parties.

• The Company has a history of operating losses and an accumulated deficit and may never become profitable. The Company does not anticipate generating revenue from sales for the foreseeable future. It has incurred significant losses since its inception in 2006. There can be no assurance that the Company will earn revenues or achieve profitability, which could impair the Company's ability to sustain operations or obtain any required additional funding. Even if the Company achieves profitability in the future, it may not be able to sustain profitability in subsequent periods.

• The Company may need substantial additional funding which may not be available on acceptable terms when needed if at all. These future financing needs will depend on many factors, including the progress, costs and timing of its clinical trials, the costs and timing of obtaining regulatory approval, the costs of obtaining, maintaining and enforcing its patents and other intellectual property rights, the costs and timing of maintaining or obtaining manufacturing approval for its products and product candidates, the costs and timing of establishing sales and marketing capabilities. If the necessary funds are not available, the Company may need to seek funds through collaborations and licensing arrangements, which may require it to reduce or relinquish significant rights to its research programs and product candidates, to grant licences on its technologies to partners or third parties or enter into new collaboration agreements, the terms could be less favorable to the Company than those it might have obtained in a different context.

Other Risk Factors

Preclinical Programs

Failure to successfully identify, develop and commercialize additional products or product candidates could impair the Company's ability to grow.

Authorization and Certification

• Nearly all aspects of the Company's activities are subject to substantial regulation.
• The Company will be subject to market surveillance by the EMA, FDA and other Competent Authorities for compliance with regulations that prohibit the promotion of the Company's products for a purpose of indication other than those for which approval has been granted.
• If the Company obtains regulatory approval for a product candidate, the product will remain subject to ongoing regulatory obligations.
• Maintenance of high standards of manufacturing in accordance with Good Manufacturing Practices and other manufacturing regulations and scale-up of manufacturing.

Reimbursement, Commercialization and Market Risk Factors

• The price setting, the availability and level of adequate reimbursement by third parties, such as insurance companies, governmental and other healthcare payers is uncertain and may impede the Company's ability to generate sufficient operating margins to offset operating expenses.
• The Company has no experience in sales, marketing and distribution.
• The Company might not find suitable industrial partners to pursue the development, the commercialization or the distribution of its products candidates.

Operational Risk Factors

• The terms of certain grants and subsidies may hamper the Company in the organization of its activities and its efforts to partner part or all of its products.
• Manufacturing of the Company's products requires human or derived raw materials to be obtained from third parties.
• The Company may not have or be able to obtain adequate insurance cover in particular in connection with product liability risk.

• If any product liability claims are successfully brought against the Company or its collaborators, the Company may incur substantial liabilities and may be required to limit the commercialisation of it product candidates.

• The Company's employees, principal investigators, consultants and collaborative partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards.

• The Company's manufacturing and research and development activities may involve the use and disposal of potentially harmful biological materials, hazardous materials and chemicals which create the risk of contamination or injury from these materials, chemicals or agents.
• The Company has a strong collaborative relationship with its affiliate SCTS through a Group of Economic Interest (Groupement d'Interêt Economique), a service provider for cell product manufacturing.
• The manufacturing of the Company's products may be more costly than expected.
• Recently the composition of the Company's board of directors has changed considerably.

Intellectual Property

• The Company's patents and other intellectual property rights portfolio is relatively young and may not adequately protect its research programs and other product candidates, which may impede the Company's ability to compete effectively.
• The Company may infringe on the patents or intellectual property rights of others and may face patent litigation, which may be costly and time consuming and could result in the Company having to pay substantial damages or limit the Company's ability to commercialize its product candidates.
• Obtaining and maintaining patent protection depends on compliance with various procedural, documentary, fee payment and other similar requirements imposed by governmental patent agencies, and the Company's or its licensor's patent protection could be reduced or eliminated for non-compliance with these requirements.
• If the Company is not able to prevent disclosure of its trade secrets, know-how, or other proprietary information, the value of its technology and product candidates could be significantly diminished.

Financial Risk Factors

Fluctuation in interest rates could affect the Group's results and financial position.

Key Risk Factors Related to the Shares

• The market price of the shares may fluctuate widely in response to various factors.
• Future issuances of shares or warrants may affect the market price of the shares and could dilute the interests of existing shareholders.
• Holders of the shares outside Belgium and France may not be able to exercise pre-emption rights.
• The market price of the shares could be negatively impacted by sales of substantial numbers of shares in the public markets.
• The Company does not intend to pay dividends for the foreseeable future.

Certain significant shareholders of the Company after the Offering may have different interests from the Company and may be able to control the Company, including the outcome of shareholder votes.

4.5.3. Financial Risk Management

4.5.3.1. Liquidity Risk Management

The Company manages liquidity risk by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

The Company's main sources of cash inflows at current are obtained through capital increases, subsidies, government loans and where appropriate loans from commercial banks to finance long-term requirements (investment in infrastructure). A key objective of the Board together with the Executive Directors is to ensure that the Company remains adequately financed to meet its immediate and medium-term needs.

If necessary and appropriate the Company assures itself of short-term borrowing facilities to cover short-term cash requirements.

4.5.3.2. Interest Rate Risk Management

The Company has limited interest rate risk on long-term investments loans concluded through its subsidiary SCTS on 15 July 2014 which are currently financed at variable interest rates linked to EURIBOR 3M. This risk has been quantified by means of a sensitivity analysis mentioned under section 1.1.7.3. For these long-term loans the Company is permanently monitoring the short-term interest rates versus options to swap these rates with a long-term interest rate (IRS) in function of the remaining term of the loan.

Other longer-term loans granted by regional investment bodies but also including the turnover independent reimbursements (30%) related to RCA's concluded as of 2009 are carrying fixed interest rates. The group at current does not undertake any hedging.

4.5.3.3. Credit Risk

The Company believes that its credit risk, relating to receivables, is limited because currently almost all of its receivables are with public institutions. Cash and cash equivalent and short-term deposits are invested with highly reputable banks and financial institutions.

The maximum credit risk, to which the Group is theoretically exposed as at the balance sheet date, is the carrying amount of the financial assets. At the end of the reporting period no financial assets were past due, consequently no financial assets were subject to impairment.

4.5.3.4. Foreign Exchange Risk

The Company is currently not exposed to any significant foreign currency risk.

However, should the Company enter into long-term collaboration agreements with third parties for which revenues would be expressed in a foreign currency, the Company might in such case consider to enter into a hedging arrangement to cover such currency exposure (in case the related expenditure is planned in local currency). The Company will also monitor exposure in this respect following the establishment of its US subsidiary. At current, there is no significant exposure in USD.

4.5.4. Controls, Supervision and Correctives Actions

Within the Board of Directors, an annual strategy meeting is organized:

• The management presents strategic plans for the different aspects of the business;
• The Board of Directors reviews these plans and selects between strategic options when necessary;
• The Board reviews on a regular basis the validity of the strategic options chosen and redirect where necessary.

The Executive Directors develop a long-term financial plan (minimum 3 years looking forward) incorporating the strategy decided upon – this plan is updated on a regular basis to keep it in line with the strategy plans.

The Executive Directors develop an annual budget which is approved by the board and which is closely monitored during the year. Deviations are reported to the board and corrective action is taken when necessary.

The Company has implemented an ERP system in support of its financial and logistics management. This system will be evaluated at regular intervals in how far it meets the needs of the organization. Where and when necessary, the system will be further upgraded to address new needs or to strengthen controls.

In general supervision and monitoring of the operations of the Company is done on a permanent/daily basis at all levels within the Company. As a general policy deviations are reported at all times to the supervisory level.

4.6. Market Abuse Regulations

In its Governance Charter, the Company established several rules to prevent illegal use of inside information by Directors, shareholders, management members and employees, or the appearance of such use.

These prohibitive provisions and the monitoring of compliance with them are primarily intended to protect the market. Insider dealing attacks the very essence of the market. If insiders are given the opportunity to make profits on the basis of inside information (or even if the mere impression thereof is created), investors will turn their back on the market. A decreased interest may affect the liquidity of listed shares and prevents optimal company financing.

An insider can be given access to inside information within the scope of the normal performance of his duties. The insider has the strict obligation to treat this information confidentially and is not allowed to trade financial instruments of the Company to which this inside information relates.

The Company keeps a list of all persons (employees or persons otherwise working for the Company) having (had) access, on a regular or occasional basis, to inside information. The Company will regularly update this list and transmit it to the FSMA whenever the FSMA requests the Company to do so.

4.7. Remuneration Report

4.7.1. Procedure

The Nomination and Remuneration Committee (or Remco), set up by the Board, is responsible for outlining a remuneration policy for the executive and non-executive directors.

4.7.1.1. Directors

Board members are remunerated based on a benchmarking exercise done on a regular basis by the Remco with other peer companies to ensure that this remuneration is fair, reasonable and competitive and is sufficient to attract, retain and motivate the Directors of the Company. In this respect the Remco and the Board shared the view that all board members independent and non-independent, should be compensated equally with a fixed compensation. For the Chairman and the chairs of the committees the board proposed a supplementary compensation.

Without prejudice to the powers granted by law to the shareholders meeting, the Board of Directors may set and revise at regular intervals the rules and the level of compensation for its Directors.

4.7.1.2. Executive Directors and the Executive Committee

The remuneration of the Executive Directors and the remuneration of the members of the Executive Committee are determined by the Board of Directors on recommendations made by the Nomination and Remuneration Committee, further to recommendations made by the Executive Directors (except where their own remuneration is concerned). The Company strives to offer a competitive remuneration within the sector.

4.7.2. Remuneration Policy

4.7.2.1. Director's Remuneration

The remuneration of the Directors is determined by the shareholders' meeting upon proposal of the Board of Directors on the basis of the recommendations made by the Nomination and Remuneration Committee. The following remuneration policy is in place for the Non-Executive Directors' remuneration.

The Non-Executive Directors received a fixed remuneration in consideration for their membership of the Board of Directors and their membership of the Committees.

Upon advice of the Nomination and Remuneration Committee, the Board of Directors may propose to the shareholders' meeting to grant stock options or warrants in order to attract or retain Non-Executive Directors with the most relevant skills, knowledge and expertise. Insofar as this grant of stock options or warrants constitutes variable remuneration in accordance with Article 554 of the Belgian Companies Code, such a remuneration will be submitted for approval to the annual general shareholders meeting.

The Nomination and Remuneration Committee recommends the level of remuneration for Non-Executive Directors, subject to approval by the Board of Directors and, subsequently, by the shareholders' meeting. The Nomination and Remuneration Committee benchmarks Directors' compensation against peer companies to ensure that it is competitive. Remuneration is linked to the time committed to the Board of Directors and its various committees.

The remuneration package for the Non-Executive Directors was revised and approved by the shareholders' meeting of the Company held on 26 May 2016 and consists of a fixed annual fee of € 20,000 for the Non-Executive Directors and € 40,000 for the Chairman. Such fee is supplemented (i) with a fixed annual fee of € 5,000 for members of the Audit Committee to be increased by € 5,000 for the Chairman of the Committee and (ii) with a fixed annual fee of € 5,000 for members of the Nomination and Remuneration Committee, to be increased by € 5,000 for the Chairman of the Committee. Any changes to these fees will be submitted to the shareholders' meeting for approval. The Executive Directors will not receive any specific remuneration in consideration for their membership of the Board of Directors.

The total remuneration for the Independent Directors for 2018 amounts to € 227,500. The table below provides an overview of the remuneration per Independent Directors.

Non-Executive Directors	Remuneration (EUR)
Innoste SA	45,000
Wagram Invest SA with permanent representative Michel Helbig de Balzac	27,500
Marc Alexander Initiative & Advisory GmbH with permanent representative Dirk Dembski	22,500
Roland Baron	20,000
Jean-Paul Prieels	20,000
Castanea Management Limited with as permanent representative Damian Marron	20,000
Chris Buyse	17,500
Claudia D'Augusta	15,833
Paul Magrez	15,000
Magenta Tree BVBA with permanent representative Thierry François	12,500
Swinson SNC Management & Consult, with as permanent representative Steven Swinson	6,667
Wim Goemaere BVBA with as permanent representative Wim Goemaere	5,000

On an individual basis, a remuneration of € 24,000 was paid to Mr. Roland Baron for his role of Chief Scientific Officer consultant for the Company.

On an individual basis, a remuneration of € 34,000 was paid to Castanea Management limited for his role as strategic consultant for the Company.

All Directors will be entitled to a reimbursement of out-of-pocket expenses actually incurred as a result of participation in meetings of the Board of Directors.

There are no loans outstanding from the Company to the members of the Board of Directors. There are no employment or service agreements that provide for notice periods or indemnities between the Company and Non-Executive Directors.

Also, any agreement, entered into or extended on or after 3 May 2010, between the Company and a Non-Executive Director, which would provide for a variable remuneration, must be submitted for approval to the next annual shareholders' meeting.

The table below provides an overview of significant positions of shares held directly or indirectly at 31 December 2018 by the Non-Executive Members of the Board of Directors. The overview must be read together with the notes referred to below.

		Shares
Non-Executive Directors	Number	%*
Innoste SA	47,038	0.57%
Wagram Invest SA with as permanent representative Michel Helbig de Balzac2	178,158	2.14%
Roland Baron	1,750	0.02%
'* the denominator = 8,310,546 shares at 31 December 2018

None of the Independent and Non-Executive Directors hold warrants at 31 December 2018.

• 4.7.2.2. Remuneration of the CEO and the Other Executive Directors and the Executive Committee
• 4.7.2.2.1. Remuneration Policy

The remuneration package applicable in 2018 for the Executive Directors and the members of the Executive Committee is in line with the remuneration levels in comparable companies for these functions. The Company did not substantially change the policy in 2019.

The key components of this policy can be summarized as follows:

• The Company wants to offer a market competitive compensation to allow the recruitment, retention and motivation of expert and qualified professionals and considering the scope of their responsibilities.
• The remuneration will be structured to allow to link an appropriate part of the remuneration to individual performance and the performance of the Company and to align the interest of the individual as much as possible with the interest of the Company and its shareholders.

2 Shares hold by Naussica Ventures SCA, a company in which Michel Helbig de Balzac is a member of the management team and also shareholder

• For this purpose, key performance indicators (company and or individual) are agreed upon in advance. These indicators can be operational or financial in nature (progress in clinical and preclinical programs, financial management of key financial parameters, realization of collaborations or concluding new grants, investor relation activities, compliance matters and regulatory approvals and successful completion of audits). The valuation period is aligned with the fiscal year.
• The variable remuneration will be partly in cash and partly in shares, warrants or other instruments allowing to acquire shares through schemes to be approved by the annual shareholder meeting.
• The variable remuneration will only be paid when the key performance indicators agreed upon in advance are effectively met. The remuneration committee will evaluate the realization of the performance criteria and will make a proposal in respect of the variable remuneration to the board.
• The Company's articles of association explicitly allow to deviate from what has been defined under Article 520ter of the Belgian Companies Code (by decision of the General meeting date: 5 February 2015). Article 520ter stipulates that: "Unless provided otherwise in the articles of association or approved by the annual general shareholders' meeting, (a) variable remuneration for leaders must be based, at least for 25%, on performance criteria measured over a period of at least two years and for (another) 25% on performance criteria measured over a period of at least three years and (b) shares may only be definitively acquired by Directors and leaders and stock options or other rights to acquire shares may only be exercised by leaders at the earliest three years after they have been granted to them. The rules set out under (a) above, do not apply if the variable remuneration represents 25% or less of the total annual remuneration of the leader."
• In accordance with Article 554 of the Belgian Companies Code, which applies to agreements with leaders entered into or extended after 3 May 2010, any such agreement which includes a provision providing for a severance package exceeding 12 months' remuneration, or, on motivated advice of the Nomination and Remuneration Committee, exceeding 18 months, must be submitted for prior approval to the next annual shareholders' meeting. Any proposal to grant a higher severance package must be communicated to the works council (or to other designated bodies or persons representing the employees, if this council does not exist; i.e., the employee representatives in the committee for the prevention and protection in the workplace or, in the absence of this committee, to the trade union delegation) at least thirty days prior to the publication of the convening notice of the next annual general shareholders meeting, which may then give its advice to the annual general shareholders meeting, at the latest on the day of publication of the convening notice of the annual general shareholders meeting. This advice is published on the website of the Company.
• In accordance with Article 520bis of the Belgian Companies Code, the criteria for granting variable remuneration to leaders must, as of 1 January 2011, be included in the contractual or other provisions governing the relevant legal relationship. The variable remuneration can only be paid out if the milestones for the reference period have been met. If the aforementioned obligations are not complied with, the variable remuneration may not be taken into account for calculating the severance pay.
• The Company currently does not foresee in a specific pension plan neither for the CEO nor for the other members of the Executive Committee.

In accordance with Article 96, §3 of the Belgian Companies Code, this remuneration report includes the amount of the remuneration of, and any other benefits granted to, the Company's CEO, on a broken-down basis.

In the financial year 2018, Bone Therapeutics paid a total remuneration of € 355,000 to Thomas Lienard SPRL in his capacity of CEO. This includes:

A fixed remuneration of € 271,000;

• A variable component of € 68,000 in relation to the realisation of objectives for 2018
• Other of € 16,000 (car and group insurance)

The Executive Committee (excluding the CEO) in place during 2018 was as follows:

• Finsys Management SPRL, represented by Jean-Luc Vandebroek, CFO;
• B. Champluvier Management and Consulting Services (BCMCS) SPRL, represented by Benoit Champluvier, CTMO, until 5 February 2019;
• Guy Heynen, CCRO;
• Nora Meskini, Director of Clinical Operations, until 30 June 2018;
• Yves Geysels, Director of Clinical Operations, from 1 August 2018;
• Lebon Regulatory Science Strategy, represented by Linda Lebon, CRO, from 1 October 2018.

Currently, all members of the Executive Committee are engaged on the basis of a service agreement except for Yves Geysels, Director of Clinical Operations which is employed under a regular employee contract. The contracts with all members of the Executive Committee can be terminated at any time, subject to certain preagreed notice periods not exceeding 12 months, which may, at the discretion of the Company, be replaced by a corresponding compensatory payment.

The total fees paid to the members of the Executive Committee (excl. the CEO) amounted to € 963,000 in 2018 (full company costs but excluding VAT and stock-based compensation).

This includes:

• A fixed remuneration of € 818,000
• A variable component of € 103,000 in relation to the realisation of objectives for 2018
• Other of € 42,000 (car and group insurance)

The table below provides an overview of the shares and warrants held by the members of the Executive Committee at 31 December 2018.

	Shares		Warrants
Managers	Number	%	Number	%*
Thomas Lienard SPRL	-	-	24,000	0.28%
Finsys Management SPRL	2,880	0.03%	-	-
B. Champluvier Management and Consulting Services (BCMCS)	-	-	16,000	0.19%
Guy Heynen	-	-	20,000	0.24%
* calculated as the percentage of all outstanding shares and warrants (8,477,846 which is 8,310,546 shares and 167,300 warrants) at 31 December 2018

All the warrants mentioned above have been accepted. They are all vested.

Guy Heynen, CCRO was granted 20,000 warrants out of Plan C. Thomas Lienard SPRL and B. Champluvier Management and Consulting Services (BCMCS) were granted 40,000 warrants in total out of Plan A. The vesting and other conditions of these warrant plans are explained under section 8.5.8 of this document.

4.7.2.3. Severance Provisions and Payments

Thomas Lienard

The management agreement between Thomas Lienard SPRL and the Company is tacitly renewed on a yearly basis for a maximum of five years. Both the Company and Thomas Lienard SPRL may terminate the management agreement by means of a six months' notice. Moreover, the Company may terminate the management agreement with immediate effect and without payment of any indemnity in the event Thomas Lienard SPRL commits a serious breach of its obligations under the management agreement. Thomas Lienard SPRL may terminate the management agreement with immediate effect in the event the Company commits a serious breach of its obligations under the management agreement, in which case he will receive an indemnity corresponding to six months' fees. In addition, in the event of a change of control of the Company, the Company must pay an indemnity corresponding to a year's fees to Thomas Lienard SPRL if the management agreement is terminated within the year of the change of control or during the 30 days preceding such an event, unless Thomas Lienard SPRL commits a serious breach of its obligations under the management agreement. This change of control indemnity will also be due in the event the services to be procured by Thomas Lienard SPRL under the management agreement are unilaterally and materially reduced within two years of the change of control and if Thomas Lienard SPRL terminates the management agreement because of this reduction.

The management agreement also provides for a non-compete clause preventing Thomas Lienard SPRL and Thomas Lienard in person from engaging in any activities in the European Union or in the United States that are similar to those being pursued by the Company or SCTS during the term of the management agreement or for a period of three years after termination of the management agreement.

Jean-Luc Vandebroek

The management agreement between Finsys Management SPRL and the Company is tacitly renewed on a yearly basis for a maximum of five years. Both the Company and Finsys Management SPRL may terminate the management agreement by means of a six months' notice. Moreover, the Company may terminate the management agreement with immediate effect and without payment of any indemnity in the event Finsys Management SPRL commits a serious breach of its obligations under the management agreement. Finsys Management SPRL may terminate the management agreement with immediate effect in the event the Company commits a serious breach of its obligations under the management agreement, in which case he will receive an indemnity corresponding to six months' fees. In addition, in the event of a change of control of the Company, the Company must pay an indemnity corresponding to a year's fees to Finsys Management SPRL if the management agreement is terminated within the year of the change of control, unless Finsys Management SPRL commits a serious breach of its obligations under the management agreement. This change of control indemnity will also be due in the event the services to be procured by Finsys Management SPRL under the management agreement are unilaterally and materially reduced within two years of the change of control and if Finsys Management SPRL terminates the management agreement because of this reduction.

The management agreement also provides for a non-compete clause preventing Finsys Management SPRL and Jean-Luc Vandebroek in person from engaging in any activities in the European Union or in the United States that are similar to those being pursued by the Company or SCTS during the term of the management agreement or for a period of three years after termination of the management agreement.

Benoit Champluvier

The management agreement between B. Champluvier Management and Consulting Services SPRL (BCMCS SPRL) and the Company is tacitly renewed on a yearly basis for a maximum of five years. Both the Company and BCMCS SPRL may terminate the management agreement currently respecting a six months' notice period. Moreover, the Company may terminate the management agreement with immediate effect and without payment of any indemnity in the event BCMCS SPRL commits a serious breach of its obligations under the

management agreement. BCMCS SPRL may terminate the management agreement with immediate effect in the event the Company commits a serious breach of its obligations under the management agreement, in which case he will receive an indemnity corresponding to six months' fees.

The management agreement also provides for a non-compete clause preventing BCMS SPRL and Benoit Champluvier in person from engaging in any activities in the European Union or in the United States that are similar to those being pursued by the Company or SCTS during the term of the management agreement or for a period of three years after termination of the management agreement.

Guy Heynen

No specific rules applied to the contract of Guy Heynen except a period of 30 days written notice will be applied in terms of termination.

Benoit Moreaux

The management agreement between Benoit Moreaux SPRL and the Company is tacitly renewed on a yearly basis for a maximum of five years. Both the Company and Benoit Moreaux SPRL may terminate the management agreement by means of a three months' notice. Moreover, the Company may terminate the management agreement with immediate effect and without payment of any indemnity in the event Benoit Moreaux SPRL commits a serious breach of its obligations under the management agreement. Benoit Moreaux SPRL may terminate the management agreement with immediate effect in the event the Company commits a serious breach of its obligations under the management agreement, in which case she will receive an indemnity corresponding to six months' fees.

The management agreement also provides for a non-compete clause preventing Benoit Moreaux SPRL and Benoit Moreaux in person from engaging in any activities in the European Union or in the United States that are similar to those being pursued by the Company or SCTS during the term of the management agreement or for a period of three years after termination of the management agreement.

Olivier Godeaux

The management agreement between Olivier Godeaux SPRL and the Company is tacitly renewed on a yearly basis for a maximum of five years. Both the Company and Olivier Godeaux SPRL may terminate the management agreement by means of a three months' notice. Moreover, the Company may terminate the management agreement with immediate effect and without payment of any indemnity in the event Olivier Godeaux SPRL commits a serious breach of its obligations under the management agreement. Olivier Godeaux SPRL may terminate the management agreement with immediate effect in the event the Company commits a serious breach of its obligations under the management agreement, in which case she will receive an indemnity corresponding to six months' fees.

The management agreement also provides for a non-compete clause preventing Olivier Godeaux SPRL and Olivier Godeaux in person from engaging in any activities in the European Union or in the United States that are similar to those being pursued by the Company or SCTS during the term of the management agreement or for a period of three years after termination of the management agreement.

Linda Lebon

The management agreement between Lebon Regulatory Science Strategy SPRL and the Company is tacitly renewed on a yearly basis for a maximum of five years. Both the Company and Lebon Regulatory Science Strategy SPRL may terminate the management agreement by means of a three months' notice. Moreover, the Company may terminate the management agreement with immediate effect and without payment of any indemnity in the event Lebon Regulatory Science Strategy SPRL commits a serious breach of its obligations under the management agreement. Lebon Regulatory Science Strategy SPRL may terminate the management

agreement with immediate effect in the event the Company commits a serious breach of its obligations under the management agreement, in which case she will receive an indemnity corresponding to six months' fees.

The management agreement also provides for a non-compete clause preventing Lebon Regulatory Science Strategy SPRL and Linda Lebon in person from engaging in any activities in the European Union or in the United States that are similar to those being pursued by the Company or SCTS during the term of the management agreement or for a period of three years after termination of the management agreement.

Yves Geysels

Yves Geysels has an employment contract with the Company. In the event of termination of the employment contract, the legal provisions of Belgian law apply.

4.7.2.4. Claw Back Provisions

There are no provisions allowing the Company to reclaim any variable remuneration paid to the CEO or the other- members of the Executive Committee.

5. RELATED PARTY TRANSACTIONS

5.1. General

Each member of the Executive Committee and each Director needs to focus to arrange his or her personal business to avoid direct and indirect conflicts of interest with the Company. The Company's corporate governance charter contains specific procedures when potential conflicts could appear.

5.2. Conflicts of Interest of Directors

There is a conflict of interest when the administrator has a direct or indirect financial interest adverse to that of the Company. In accordance with Article 523 of the Companies Code, a director of a limited company which "has, directly or indirectly, an interest of an economic nature in a decision or an operation under the Board of Directors" is held to follow a particular procedure. If members of the Board, or of the Executive Committee or their permanent representatives are confronted with possible conflicting interests arising from a decision or transaction of the Company, they must inform the Chairman of the Board thereof as soon as possible. Conflicting interests include conflicting proprietary interests, functional or political interests or interests involving family members (up to the second degree).

If Article 523 of the Belgian Companies Code is applicable, the Board member involved must abstain from participating in the deliberations and in the voting regarding the agenda items affected by such conflict of interest. Below is an overview of the meetings of the Board of Directors in which the conflict of interest procedure has been applied.

5.2.1. Board of Directors of 25 April 2018

Before the start of the deliberation, Thomas Lienard SPRL (with as permanent representative Thomas Lienard) declares having a potential conflict of interest, as defined in Article 523 of the Company Code.

This conflict of interest arises from the fact that Thomas Lienard SPRL is the CEO of the Company and the beneficiary of a bonus for which the Board must determine the objectives to be achieved.

Justification of the Decision to be Taken:

The Board believes that variable compensation is an important element of a human resources policy that is both incentive and motivating for management and that the choice of appropriate and ambitious objectives in line with the Company's strategic choices is essential to align the interests of management with the interests of the Company.

Financial Consequences for the Corporation:

The Board does not decide on the maximum amount of the annual bonus, which was agreed before with the beneficiaries, but only on the objectives to be achieved in order to obtain the 2017 bonus. The decision has therefore no additional financial impact for the Company but will only determine the conditions for granting the annual bonus.

Social Interest:

Considering the above arguments, the Board is of the view that the decisions are taken and fit within the context of the Company's corporate interest.

The executive director does not participate in the deliberations or the vote on these items on the agenda. In compliance with the Article 523 of the Company Code, the Company's statutory auditor will be informed of these conflicts of interest.

Deliberations and Decisions

Assessment of 2017 objectives and 2018 objectives

The Chairman of the Nomination and Remuneration Committee reminded the other non-executive directors of the 2017 objectives of the CEO and presented the Nomination and Remuneration Committee's recommendations concerning (i) the achievement of the objectives for 2017 and (ii) the common and personal objectives for 2018, as sent to the non-executive directors before the meeting. The Board approved the recommendations of the Nomination and Compensation Committee.

5.3. Existing Conflicts of Interest of Members of the Board of Directors and of the Executive Committee and Related Party Transactions

Currently, as far as the Company is aware, none of the other members of the Board of Directors have a conflict of interest within the meaning of Article 523 of the Belgian Companies Code that has not been disclosed to the Board of Directors. Other than potential conflicts arising in respect of compensation-related matters, the Company does not foresee any other potential conflicts of interest in the near future.

5.4. Related Party Transactions

At the date of this Annual Report, the Company has the following affiliates:

5.4.1. Transactions with SCTS

The Company has granted SCTS three personal, non-transferable royalty-free licenses to use, perform, research, develop and manufacture products in name of the Company. A first license is granted by the Company to SCTS over the technology claimed by the ULB-028 patent family, in the framework of the PROFAB and EXCIP agreements entered into by the Company and SCTS (i.e. a research and development agreement between the Company, SCTS and the Region). A second license is granted by the Company to SCTS over the

technology claimed by the BPBONE-001 and 002 patent families in the framework of the JTA PROD agreement (i.e. also a research and development agreement between the Company, SCTS and the Region). A third license is granted by the Company to SCTS over the technology claimed by the BONE-001 patent family; in the framework of the MO SELECT, CRYOFIN and PROSTERIL agreements (i.e. also a research and development agreement between the Company, SCTS and the Region).

As the Company and SCTS operate together closely whereby both companies are occupying the same building (owned by SCTS) and staff employed by SCTS is operating under a consultancy arrangement on administrative and research projects for account of Bone Therapeutics, agreements have been put in place to govern this relation and a VAT grouping was established between the two companies (effective as of 1 January 2016).

5.4.2. Transactions with Bone Therapeutics USA Inc.

In course of 2018, expenses related to all activities executed through Bone Therapeutics USA Inc. have been re-invoiced to the Company at 31 December 2018.

5.4.3. Transactions with SISE

SISE leases a land to SCTS in the context of a long lease right (99 years) and performs certain infrastructure and maintenance services for the Company and SCTS.

5.4.4. Transactions with the Walloon Region

As a result of the relationship of the Walloon Region with some shareholders of the Company and the extent of financing received, the Company judges that the government is a related party. The Company (and SCTS) have obtained a number of loan facilities through re-gional investment offices, such as Sambrinvest SA, Fond de Capital à Risque SA, Novallia SA and Sofipôle SA. Also, since its incorporation and until 31 December 2018, the Company has been awarded non-dilutive financial support from the Walloon Region, amounting to in aggregate € 33.15 million, in the form of both recoverable cash advances and subsidies.

5.4.5. Transactions with the Executive Committee

There is no transactions with the Executive Committee.

For information on the Executive Committee remuneration, see Section 4.7.2.2 "Remuneration of the CEO and the other Executive Directors and the Executive Committee".

5.5. Transactions with Affiliates

Article 524 of the Belgian Companies Code provides for a special procedure which must be followed for transactions with Bone Therapeutics' affiliated companies or subsidiaries. Such a procedure does not apply to decisions or transactions that are entered into the ordinary course of business at usual market conditions or for decisions and transactions whose value does not exceed one percent of the Companies' consolidated net assets.

6. SHARES AND SHAREHOLDERS

6.1. History of Capital - Capital Increase and Issuance of Shares

6.1.1. Securities Issued by the Company

At the date of 31 December 2018, the Company's capital amounts to € € 12,531,511.76, represented by 8,310,546 ordinary shares without nominal value.

The Company has issued 524,760 warrants which give right to subscribe to an equal number of shares. On the date of this Annual Report, 167,300 warrants are outstanding.

On 7 March 2018, the Company has issued 389 CBs and 7,391 associated Bond Warrants in a private placement. On 31 December 2018, 305 CBs and 2,070 associated Bond Warrants were outstanding.

6.1.2. History of Capital

At the occasion of the incorporation of the Company (at the time, a private limited liability company (société privée à responsabilité limitée) on 16 June 2006, the share capital amounted to € 18,550.00, represented by 1,855 shares with a nominal value of € 10, of which one third was paid-up in cash.

On 5 September 2006, the share capital was increased by a contribution in cash in the amount of € 356,450.00 with issuance of 35,645 shares without nominal value, of which two thirds was paid-up in cash. Following the capital increase, the share capital of the Company amounted to € 375,000 and was represented by 37,500 shares.

On 7 March 2007, the Company was converted into a limited liability company (société anonyme) and the share capital was increased by a contribution in cash in the amount of € 525,000.00 with issuance of 52,500 shares without nominal value, of which two thirds was paid up in cash. At the occasion of the capital increase, two classes of shares were created, whereby the shares existing prior to the aforementioned capital increase were allocated to class A, and the shares issued pursuant to the aforementioned capital increase were allocated to class B. The nominal value of the class A shares was canceled, and all class A shares were paid-up in cash for two thirds. Following the capital increase, the share capital of the Company amounted to € 900,000.00 and was represented by 90,000 shares (of which 37,500 shares were class A shares and 52,500 shares were class B shares).

On 12 November 2008, the existing classes of shares were abolished, and the share capital was increased by a contribution in kind in the amount of € 84,800.00 with issuance of 8,480 shares. The new shares were issued at a price of € 73.11 per share (of which € 10 in capital and € 63.11 in issuance premium). The aggregate issuance premium amounted to € 535.000 and was subsequently incorporated in the share capital by another capital increase without issuance of new shares. Following both capital increases, the share capital of the Company amounted to € 1,520,000.00 and was represented by 98,480 shares.

On the same day, the share capital of the Company was again increased by a contribution in cash of € 650,197.96 with issuance of 42,126 shares. The new shares were issued at a price of € 91.39 per share (of which € 15.43 in capital and € 75.96 in issuance premium). The aggregate issuance premium amounted to € 3,199,802.04 and was subsequently incorporated in the share capital of the Company by another capital increase without issuance of new shares. Following both capital increases, the share capital of the Company amounted to € 5,370,000.00 and was represented by 140,606 shares.

On 13 January 2011, the share capital was increased by a contribution in cash in the amount of € 992,825.00 with issuance of 25,997 shares. The new shares were issued at a price of € 160 per share (of which € 38.19 in capital and € 121.81 in issuance premium). The aggregate issuance premium amounted to € 3,166,695.00.

Following the capital increase, the share capital of the Company amounted to € 6,362,825.00 and was represented by 166,603 shares.

On 24 November 2011, the share capital was increased by a contribution in cash in the amount of € 580,258.86 with issuance of 15,194 shares. The new shares were issued at a price of € 160 per share (of which € 38.19 in capital and € 121.81 in issuance premium). The aggregate issuance premium amounted to € 1,850,781.14. Following the capital increase, the share capital of the Company amounted to € 6,943,083.86 and was represented by 181,797 shares. On the same day, the Company approved a stock option plan, with issue of a pool of 12,000 warrants to the benefit of the key personnel of the Company.

On 27 November 2012, the share capital was increased by a contribution in cash in the amount of € 1,473,790.29 with issuance of 38,591 shares. The new shares were issued at a price of € 65.79 per share (of which € 38.19 in capital and € 27.60 in issuance premium). The aggregate issuance premium amounted to € 1,065,111.60. Following the capital increase, the share capital of the Company amounted to € 8,416,874.47 and was represented by 220,388 shares. On the same day, the Company issued two anti-dilution warrants to 32 shareholders following an agreement between the existing shareholders, the first of which was exercised on the same day and the share capital was increased following such exercise in the amount of 32 eurocents with issuance of 71,772 shares and the second of which was subsequently canceled (see below). Following the capital increase, the share capital of the Company amounted to € 8,416,874.47 and was represented by 292,160 shares.

On 10 June 2013, the share capital was increased by a contribution in cash in the amount of € 870,732.00 with issuance of 22,800 shares. The new shares were issued at a price of € 65.79 per share (of which € 38.19 in capital and € 27.60 in issuance premium). The aggregate issuance premium amounted to € 629,280.00. Following the capital increase, the share capital of the Company amounted to € 9,287,606.47 and was represented by 314,960 shares.

On 24 February 2014, the shareholders of the Company resolved upon a share split, dividing the 314,960 shares, without nominal value, each representing 1/314,960th of the share capital of the Company by 10, creating 3,149,000 shares, without nominal value, each representing 1/3,149,600th of the share capital of the Company. On the same day, the share capital was increased by a contribution in cash in the amount of € 580,488.00 with issuance of 152,000 shares. The new shares were issued at a price of € 6.579 per share (of which € 3.819 in capital and € 2.760 in issuance premium). The aggregate issuance premium amounted to € 419,520.00. Following the capital increase, the share capital of the Company amounted to € 9,868,094.47 and was represented by 3,301,600 shares.

On 10 July 2014, the share capital was increased by a contribution in cash in the amount of € 598,208.16 with issuance of 156,640 shares. The new shares were issued at a price of € 6.579 per share (of which € 3.819 in capital and € 2.760 in issuance premium). The aggregate issuance premium amounted to € 432,326.40. Following the capital increase, the share capital of the Company amounted to € 10,466,302.63 and was represented by 3,458,240 shares.

On 18 December 2014, the extraordinary general shareholders' meeting of the Company resolved to abolish the second anti-dilution warrants issued on 27 November 2012, further to a waiver by the holders thereof.

On 8 January 2015, the extraordinary general shareholders' meeting of the Company resolved to cancel the stock option plan (and the outstanding pool of 12,000 warrants) issued on 24 November 2011.

On 5 February 2015, though an IPO of 2,013,000 new shares, the Company was able to raise a total amount of € 32.2 million. The share capital was increased by a contribution in cash in the amount of € 6,078,000 with issuance of 2,013,000 shares. The aggregate share premium for this transaction amounted to € 26,122,000.

On the same day, the share capital was also increased by the conversion of the 10,350 Convertible Bonds (with a value of € 1,000 each) issued by the General Meetings of Shareholders of 18 December 2014 and of

8 January 2015. The share capital was increased by a contribution in cash in the amount of € 3,253,000 through issuance of 1,077,000 shares. The aggregate share premium for this transaction amounted to € 7,097,000.

On 11 February 2015, the share capital was increased by a contribution in cash in the amount of € 911,663 with issuance of 301,875 shares (exercise of the over-allotment option post IPO). The aggregate share premium for this transaction amounted to € 3,918,000.

On 30 October 2017, the share capital was decreased by an incorporation of losses of an amount of € 6,045,571.41 without any reduction of shares.

On 7 March 2018, a total amount of EUR 19.45 million in committed capital has been subscribed during the Offering. Part of the investors have decided to immediately exercise warrants resulting in an immediate gross proceed of about € 6.58 million and 565,773 new shares to be created, increasing the total outstanding shares from 6,849,654 to 7,415,427 ordinary shares. The remaining warrants will be exercised providing an additional proceed of € 12.87 million over a maximum period of 19 months.

On 9 March 2018, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 1,210,754 with issuance of 565,773 shares. The aggregate share premium for this transaction amounts to € 4,791,588.

On 11 April 2018, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 94,873 with issuance of 44,333 shares. The aggregate share premium for this transaction amounts to € 297,617.

On 9 May 2018, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 97,661 with issuance of 45,636 shares. The aggregate share premium for this transaction amounts to € 302,330.

On 6 June 2018, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 271,682 with issuance of 126,954 shares. The aggregate share premium for this transaction amounts to € 813,304.

On 9 July 2018, the share capital was decreased by an incorporation of losses of an amount of € 4,830,335.13 without any reduction of shares.

On 11 July 2018, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 152,353 with issuance of 100,896 shares. The aggregate share premium for this transaction amounts to € 887,625.

On 22 August 2018, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 153,572 with issuance of 101,703 shares. The aggregate share premium for this transaction amounts to € 828,873.

On 12 September 2018, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 125.771 with issuance of 83,292 shares. The aggregate share premium for this transaction amounts to € 606,706.

On 10 October 2018, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 177,413 with issuance of 117,492 shares. The aggregate share premium for this transaction amounts to € 817,557.

On 14 November 2018, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 317,588 with issuance of 210,323 shares. The aggregate share premium for this transaction amounts to € 1,187,377.

On 12 December 2018, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 97,380 with issuance of 64,490 shares. The aggregate share premium for this transaction amounts to € 280,120.

On 9 January 2019, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 47,725 with issuance of 31,606 shares. The aggregate share premium for this transaction amounts to € 82,275.

On 13 February 2019, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 202,388 with issuance of 134,032 shares. The aggregate share premium for this transaction amounts to € 347 599.

On 13 March 2019, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 280,973 with issuance of 186,075 shares. The aggregate share premium for this transaction amounts to € 309,021.

On 17 April 2019, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 48,352 with issuance of 32,021 shares. The aggregate share premium for this transaction amounts to € 64,140.

Date	Transaction	Number and class of shares issued	Issue price per share (€) including issuance premium	Capital movement (€)	Share capital after transaction (€)	Aggregate number of shares after capital increase
16/06/2006	Incorporation	1,855	10	18,550	18,550.00	1,855
05/09/2006	Capital increase	35,645	10	356,450	375,000	37,500
07/03/2007	Capital increase	52,500 B	10	525,000	900,000	37,500 A 52,500 B
12/11/2008	Capital increase	8,480	73.11	84,800	984,800	98,480
12/11/2008	Incorporation issuance premium	None	Not applicable	535,200	1,520,000	98,480
12/11/2008	Capital increase	42,126	91.38	650,197.96	2,170,197.96	140,606
12/11/2008	Incorporation issuance premium	None	Not applicable	3,199,802.04	5,370,000.00	140,606
13/01/2011	Capital increase	25,997	160	992,825	6,362,825	166,603
24/11/2011	Capital increase	15,194	160	580,258.86	6,943,083.86	181,797
27/11/2012	Capital increase	38,591	65.79	1,473,790.29	8,416,874.15	220,388
27/11/2012	Capital increase	71,772	0.01	0.32	8,416,874.47	292,160
10/06/2013	Capital increase	22,800	65.79	870,732.00	9,287,606.47	314,960
24/02/2014	Share split	None	Not applicable	Not applicable	Not applicable	3,149,600
24/02/2014	Capital increase	152,000	6.579	580,488	9,868,094.47	3,301,600

Please find the summary in the table below:

10/07/2014	Capital increase	156,640	6.579	598,206	10,466,302.63	3,458,240
05/02/2015	Capital increase	2,012,500	16.00	6,077,750.00	16,544,052.63	5,470,740
05/02/2015	Conversion convertible bonds	1,077,039	9.51	3,252,657.78	19,796,710.41	6,547,779
11/02/2015	Exercise of the over allotment option	301,875	16.00	911,662.50	20,708,372.90	6,849,654
30/10/2017	Incorporation of losses	None	Not applicable	6,045,571.41	14,662,801.49	6,849,654
09/03/2018	Capital increase / conversion convertible bonds	565,773	10.61	1,210,754.22	15,873,555.71	7,415,427
11/04/2018	Capital increase / conversion convertible bonds	44,333	8.85 (average issue price)	94,872.62	15,968,428.33	7,459,760
09/05/2018	Capital increase / conversion convertible bonds	45,636	8.76 (average issue price)	97,661.04	16,066,089.37	7,505,396
06/06/2018	Capital increase / conversion convertible bonds	126,954	8.55 (average issue price)	271,681.56	16,337,770.93	7,632,350
09/07/2018	Incorporation of losses	None	Not applicable	4,830,335.13	11,507,435.80	7,632,350
11/07/2018	Capital increase / conversion convertible bonds	100,896	10.31 (average issue price)	152,352.96	11,659,788.76	7,733,246
22/08/2018	Capital increase / conversion convertible bonds	101,703	9.66 (average issue price)	153,571.53	11,813,360.29	7,834,949
12/09/2018	Capital increase / conversion convertible bonds	83,292	8.79 (average issue price)	152,770.92	11,939,131.21	7,918,241
10/10/2018	Capital increase / conversion convertible bonds	117,492	8.47 (average issue price)	177,412.92	12,116,544.13	8,035,733
14/11/2018	Capital increase / conversion convertible bonds	210,323	7.16 (average issue price)	317,587.73	12,434,131.86	8,246,056
12/12/2018	Capital increase / conversion convertible bonds	64,490	5.85 (average issue price)	97,379.90	12,531,511.76	8,310,546
09/01/2019	Capital increase / conversion convertible bonds	31,606	4.11 (average issue price)	47,725.06	12,579,236.82	8,342,152
13/02/2019	Capital increase / conversion convertible bonds	134,032	4.10 (average issue price)	202,388.32	12,781,625.14	8,476,184
13/03/2019	Capital increase / conversion convertible bonds	186,075	3.17(average issue price)	280,973.25	13,062,598.39	8,662,259
17/04/2019	Capital increase / conversion convertible bonds	32,021	3.51(average issue price)	48,351.71	13,110,950.10	8,694,280

6.2. Authorized Capital

In accordance with the articles of association, the extraordinary general shareholders' meeting of the Company authorized the Board of Directors to increase the share capital of the Company, in one or several times, and under certain conditions set forth in extenso in the articles of association.

On 9 July 2018, the general meeting decided, in accordance with articles 604 juncto 607, para. 2, 2° of the Belgian Company Code to renew, for a period of five years, the authorization of the board of directors to increase the capital of the Company with a global maximum amount of 11,043,220.58 € on the same terms as currently provided for in article 7 of the articles of association, including in case of reception by the Company of a communication by the Financial Services and Markets Authority (FSMA) stating that the FSMA has been informed of a public takeover bid regarding the Company. The general meeting decided to amend article 7 of the articles of association in order to reflect the renewal of said authorization.

6.3. Changes in Capital

6.3.1. Changes to the Share Capital by the Shareholders of the Company

At any given time, the shareholders' meeting can resolve to increase or decrease the share capital of the Company. Such resolution must satisfy the quorum and majority requirements that apply to an amendment of the articles of association.

6.3.2. Capital Increases by the Board of Directors of the Company

Subject to the same quorum and majority requirements that apply to an amendment of the articles of association, the shareholders' meeting can authorize the Board of Directors, within certain limits, to increase the Company's share capital without any further approval of the shareholders. This authorization needs to be limited in time (i.e. it can only be granted for a renewable period of maximum five years) and in scope (i.e. the authorized share capital may not exceed the amount of the share capital at the time of the authorization).

On 9 July 2018, the extraordinary shareholders' meeting of the Company granted the authorization to the Board of Directors to increase the Company's share capital, in one or several times, with a maximum amount of € 11,043,220.58 (excluding issuance premiums, if any).

If the Company's share capital is increased within the limits of the authorized share capital, the Board of Directors is authorized to request payment of an issuance premium. This issuance premium will be booked on a non-available reserve account, which may only be decreased or disposed of by a resolution of the shareholders' meeting subject to the same quorum and majority requirements that apply to an amendment of the articles of association.

The Board of Directors can make use of the authorized share capital for capital increases subscribed for in cash or in kind, or effected by incorporation of reserves, issuance premiums or revaluation surpluses, with or without issue of new shares. The Board of Directors is authorized to issue convertible bonds, bonds cum warrants or warrants within the limits of the authorized share capital and with or without preferential subscription rights for the existing shareholders.

The Board of Directors is authorized, within the limits of the authorized share capital, to limit or cancel the preferential subscription rights granted by law to the existing shareholders in accordance with article 596 and following of the Belgian Companies Code. The Board of Directors is also authorized to limit or cancel the preferential subscription rights of the existing shareholders in favor of one or more specified persons, even if such persons are not members of the personnel of the Company or its subsidiaries.

This authorization was granted for a term of five years commencing from the date of the publication of the resolution in the Annexes to the Belgian Official Gazette (Moniteur belge; 26 July 2018), and can be renewed.

In principle, from the date of the FSMA's notification to the Company of a public takeover bid on the financial instruments of the Company, the authorization of the Board of Directors to increase the Company's share capital in cash or in kind, while limiting or canceling the preferential subscription right, is suspended. However, the Company's extraordinary shareholders' meeting held on 9 July 2018 expressly granted the Board of Directors the authority to increase the Company's share capital, in one or several times, from the date of the

FSMA's notification to the Company of a public takeover bid on the financial instruments of the Company and subject to the limitations imposed by the Belgian Companies Code. This authorization is granted until 9 July 2021.

6.4. Warrant Plans

6.4.1. Warrant Plans Issued

The Company has issued four warrant plans:

• On 24 February 2014, two warrant plans were created and approved by the extraordinary general shareholders' meeting of the Company:
• o a plan which consisted in the issue of 113,760 warrants for employees, consultants and Directors (plan A). At the date of the Annual Report, 87,999 warrants have been granted and accepted, the remaining 25,761 warrants can still be offered;
• o a plan which consisted in the issue of 46,000 warrants for the CEO and the CFO (plan B). At the date of this Annual Report, 14,800 warrants have been granted and 31,200 warrants have been canceled by the Board of Directors on 8 January 2015. Out of the remaining 14,800 warrants, as the conditions were not respected anymore, they have been canceled.
• On 18 December 2014, the extraordinary general shareholders' meeting of the Company approved a third plan for the issue of the 145,000 warrants for the CEO, CFO and CCRO (Plan C). At the date of this Annual Report, 145,000 warrants have been granted and accepted but as the conditions were not respected anymore, 22,500 warrants have been canceled.

On 9 July 2018, the extraordinary shareholders' meeting of the Company approved a new plan (the Warrants Plan 2018) and the issue of the 220,000 warrants for any natural or legal person performing professional services, of which the majority (approximately 120,000 warrants) will be for the benefit of the employees of the Company or its subsidiaries. The remaining amount of warrants would be allocated as follows: 20,000 warrants for the Chairman, 20,000 warrants for other directors and 60,000 warrants for the members of the Executive Committee (only the CEO, CFO and CTMO).

On the date of the publication of this report, the following warrants are outstanding in accordance with the above-mentioned plans:

Plan	Plan A	Plan B	Plan C	Plan 2018	Total
CEO	36,000	-	-	-	36,000
CFO	24,000	-	-	-	24,000
CCRO	-	-	20,000	-	20,000
Consultant	4,000	-	-	-	4,000
Board members	7,999	-	-	-	7,999
Former CTMO	16,000	-	-	-	16,000
Former CFO	-	-	35,000	-	35,000
Former CEO	-	-	67,500	-	67,500
Total	87,999	0	122,500	0	210,499

Compared to the last version published, there are no more warrants in Plan B as the conditions were not met anymore

6.4.2. Summary of the Outstanding Warrant Plans

The relevant terms and conditions of the Company's existing warrant plans are set out below:

6.4.2.1. Plan A

• Vesting: 1/3 on the first anniversary of the grant of the warrants, 1/3 on the second anniversary of the grant and 1/3 on the third anniversary of the grant, under the conditions that the beneficiary is working for the Company. Warrants will vest immediately in case of a change of control, an initial public offering or a public takeover bid.
• Exercise period: when vested, the warrants are exercisable at any time outside the closed period (as determined in Company's Dealing Code), but not later than 10 years following the creation of these warrants.
• Exercise price: the exercise price will be determined by the Board of Directors of the Company, in accordance with the rules applicable to listed companies.
• o at the closing price of the share of the day preceding the day of the offer; or
• o the 30-day average price of the share of the 30 calendar days preceding the date of the offer.
• Term: ten years. All warrants that have not been exercised within the ten-year period as of their creation become null and void.

6.4.2.2. Plan B

• Vesting: the warrants subject to a service vesting period starting on the grant date and ending at the earliest of (i) the date of the initial public offering of the Company and (ii) the first anniversary of the grant.
• Exercise period: the warrants are exercisable as from the vesting date until February 2019. After having become exercisable, the warrants can be exercised during 2 specific defined periods during each year or during additional periods to be determined by the Board of Directors of the Company, but not later than 5 years following the creation of these warrants.
• Exercise price: € 11.00 (this price was determined on the date of the grant of the warrants, i.e. 18 December 2014).
• Term: five years. All warrants that have not been exercised within the five-year period as of their creation become null and void.

6.4.2.3. Plan C

• Vesting: 25% on the date of the initial public offering of the Company (or 1 January 2016 in the event no initial public offering takes place), 25% on 1 January 2016, 25% on 1 July 2016 and 25% on 1 January 2017.
• Exercise period: the warrants are exercisable as from the vesting date until December 2019.
• Exercise price: € 11.00 (this price was determined on the date of the grant of the warrants, i.e. 18 December 2014).

Term: five years. All warrants that have not been exercised within the five year period as of their creation become null and void.

6.4.2.4. New Warrants Plan 2018

• Offer: The warrants would be offered to the selected participants gradually and with a maximum of 55,000 warrants for the first calendar year as of the date of issuance, 80,000 warrants for the second calendar year as of the date of issuance and 85,000 warrants for the third calendar year as of the date of issuance.
• Exercise period: the warrants are exercisable as from the vesting date until the end of their *term (see below).
• Exercise price: the exercise price is equal to the lower of (a) the average closing price of the Company's shares on the stock exchange over a period of thirty calendar days prior to the date of the offer or (b) the closing price of the Company's shares on the last business day prior to the date of the offer, without the exercise price for the warrants allocated to determined persons who are not employees of the Company or its subsidiaries in accordance with article 598, clause 2 of the Belgian Companies Code, being lower than the average closing price over a period of thirty calendar days prior to the date of issuance. Also, the exercise price of the warrants cannot be below EUR 2,14, i.e. the par value of the Company's shares at the time of the issue of the warrants.
• Term: The life of the Warrants shall be seven years from the date of the offer to the relevant selected participant, without the term of the warrants being longer than ten years following the date of issuance.

6.5. Elements which by their Nature would have Consequences in Case of a Public Take-over Bid on the Company

• At 31 December 2018, the share capital of the Company amounts to € 12,531,511.76 and is fully paid-up. It is represented by 8,310,546 shares, each representing a fractional value of € 1.51 or one 8,310,546th of the share capital. The Company's shares do not have a nominal value.
• Other than the applicable Belgian legislation on the disclosure of significant shareholdings and the Company's articles of association, there are no restrictions on the transfer of shares.
• There are no agreements between shareholders which are known by the Company and may result in restrictions on the transfer of securities and/or the exercise of voting rights.
• There are no holders of any shares with special voting rights.
• There is no external control over the employee incentive plans; warrants are granted directly to the beneficiary.
• Each shareholder of Bone Therapeutics is entitled to one vote per share. Voting rights may be suspended as provided in the Company's articles of association and the applicable laws and articles.

• The rules governing the appointment and replacement of board members and amendment to articles of association are set out in the Company's articles of association and in the Company's corporate governance charter.

• The powers of the board of directors, more specifically with regard to the power to issue or redeem shares are set out in the Company's articles of association. The board of directors was not granted the authorization to purchase its own shares "to avoid imminent and serious danger to the Company" (i.e., to defend against public takeover bids). The Company's articles of association do not provide for any other specific protective mechanisms against public takeover bids.

• The Company is a party to the following significant agreements which, upon a change of control of the Company or following a takeover bid can enter into force or, subject to certain conditions, as the case may be, can be amended, be terminated by the other parties thereto or give the other parties thereto (or beneficial holders with respect to bonds) a right to an accelerated repayment of outstanding debt obligations of the Company under such agreements:
• o Investments credit of € 1,625,000 of 31 May 2013 between ING Belgique SA and Skeletal Cell Therapy Support SA – Specification clauses and special conditions for investment loans (Edition 2005):
• o ING Belgique SA General regulation for credits (Edition 2012);
• o BNP Paribas Fortis SA Terms of New Facilities for Companies (4 March 2014);
• o BNP Paribas Fortis SA Terms of New Facilities for Companies (20 December 2001);
• o Convention for the grant of a subordinated loan of 27 March 2013 between Fonds de Capital à Risque SA (the Lending Company) and Skeletal Cell Therapy Support SA (the Borrowing Company);
• o Convention for the grant of a subordinated loan of 24 February 2011 between Sambrinvest SA (the Lending Company) and Bone Therapeutics SA (the Borrowing Company);
• o Convention for a subordinated loan of 25 May 2012 between Novallia SA (the Lender) and Bone Therapeutics SA (the Borrower);
• o Convention for a subordinated loan of 2 May 2016 between Novallia SA (the Lender) and Bone Therapeutics SA (the Borrower);
• o Convention for a subordinated loan of 21 June 2013 between Novallia SA (the Lender) and Skeletal Cell Therapy Support SA (the Borrower);
• o Convention for a subordinated loan of 10 April 2013 between Sofipôle SA (the Lender) and Skeletal Cell Therapy Support SA (the Borrower);
• The Acting Chief Executive Officer and the Chief Financial officer are currently entitled to a 12-month salary payment in case their employment is terminated upon a change of control of the Company.

No takeover bid has been instigated by third parties in respect of the Company's equity during the previous financial year and the current financial year.

6.6. Transparency

The articles of the association of the Company do not impose any additional notification obligations other than the notification obligations required in accordance with Belgian law. The voting rights of the major shareholders of the Company differ in no way from the rights of other shareholders of the Company.

6.7. Shareholders

At 31 December 2018, there are 8,310,546 shares representing a total share capital of the Company of € 12,531,511.76. There are only ordinary shares, and there are no special rights attached to any of the ordinary shares, nor special shareholder rights for any of the shareholders of the Company. The total number of issued warrants is 524,760 and 167,300 warrants are outstanding.

The graph³ below provides an overview of the shareholders that have notified the Company of their ownership of securities of the Company. This overview is based on the most recent transparency declaration submitted to the Company.

6.8. Dividends and Dividend Policy

6.8.1. Entitlement to Dividends

Dividends can only be distributed if, following the declaration and payment of the dividends, the amount of the Company's net assets on the date of the closing of the last financial year as follows from the statutory financial statements prepared in accordance with Belgian GAAP (i.e., the amount of the assets as shown in the balance sheet, decreased with provisions and liabilities), decreased with the non-amortised activated costs of incorporation and extension and the non-amortised activated costs for research and development, does not fall below the amount of the paid-up capital (or, if higher, the called capital), increased with the amount of non-distributable reserves. In addition, pursuant to the Belgian Company Code and the articles of association, the Company must allocate at least 5% of its annual net profits under its statutory non-consolidated accounts to a legal reserve until the reserve equals 10% of the Company's share capital.

In accordance with Belgian law, the right to collect dividends declared on ordinary shares expires five years after the date the Board of Directors has declared the dividend payable, whereupon the Company is no longer under an obligation to pay such dividends.

3 Denominator for S.R.I.W. & Sofipole = 7,415,427 shares, denominator for Mr. J. Reymann = 6,547,779 shares and denominator for SFPI = 6,549,779 shares.

6.8.2. Dividend Policy

The Company has never declared or paid any dividends on its shares.

The Company's dividend policy will be determined by, and may change from time to time by determination of, the Company's Board of Directors. Any declaration of dividends will be based upon the Company's earnings, financial condition, capital requirements and other factors considered important by the Board of Directors. The calculation of amounts available to be distributed as dividends or otherwise distributed to shareholders must be made on the basis of the Belgian statutory financial statements, taking into account the limits set out in the Belgian Company Code.

Belgian law and the Company's articles of association do not require the Company to declare dividends. The Board of Directors expects to retain all earnings, if any, generated by the Company's operations for the development and growth of its business and does not anticipate paying any dividends to the shareholders in the near future.

7. CONSOLIDATED FINANCIAL STATEMENTS

7.1. Responsibility Statement

The Board of Directors, represented by all its members, declares that, to the best of its knowledge, the consolidated financial statements for the twelve-month period ended 31 December 2018, which have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Company and the undertakings included in the consolidation as a whole, and that the management report includes a fair review of the important events that have occurred during the twelve months of the financial year and of the major transactions with the related parties, and their impact on the consolidated financial statements, together with a description of the principal risks and uncertainties that the Company can face.

On behalf of the Board of Directors,

Thomas Lienard SPRL, Finsys Management SPRL,

represented by Thomas Liénard represented by Jean-Luc Vandebroek

7.2. Statutory Auditor's Report on the Consolidated Financial Statements for the Year ended 31 December 2018

Key audit matters	How our audit addressed the key audit matters
Going Concern
• The consolidated statement of financial position shows a loss for the year then ended of 14 142 (000) EUR and losses carried forward of 62 136 (000) EUR. As part of the preparation of the consolidated financial statements, the Board of Directors is responsible for assessing the group's liquidity risk and related ability to continue as a going concern. • The assessment of the liquidity risk has been identified as a key audit matter as it requires significant judgment estimating the level of cash required for the coming twelve months that will lead to the ability of the group to continue its activity. Reference to disclosures We refer to the Consolidated Financial Statements, including notes to the Consolidated Financial Statements: note 9.2.10	• We have assessed the governance, processes and internal controls put in place at group level to conclude over the use of the going concern assumption. We tested the design and implementation of these internal controls. • We have spent audit effort to review and challenge the assumptions used by the management. We evaluated and tested the assumptions, methodologies and data used by the group in respect of projected future cash flows from operating, financing and investing activities. We assessed the reliability of the forecasted cash flows by comparing with the historical performance, analyzing the current cost structure, the commitments and the potential cash-in linked to grants and partnerships. • We have assessed the historical accuracy of management's estimates. • We have specifically focused on the sensitivity of the projected future cash flow to assess the liquidity risk of the group for the next 12 months. • We have deeply inquired over any material uncertainty to disclose in the financial statement.
	• Finally, we have evaluated the disclosure about liquidity risk and the related going concern assumption.
Repayable Cash Advances received from Walloon Region
• The group received some important repayable cash advances (RCA) from the Walloon Region to support specific R&D programs. • These RCA become refundable under certain conditions, including the fact that the group decides to exploit the R&D results of the project. In such case, the fixed part of the RCA (30%) becomes refundable based upon an agreed repayment schedule, whereas the variable part (from 70% up to 170%) becomes refundable to the extent revenue is generated within a timeframe of 25 years. The refunding of the variable part is fixed as a percentage of the revenue generated during the timeframe.	• We have assessed the group's management process and internal control with respect to the RCA for determining the valuation of the financial liability. We tested the design and implementation of these internal controls. • We have challenged the management assumptions taking into account the industry best practices and the current environment of the group. • We have assessed and evaluated the appropriateness of the different scenario and percentage of success linked to each scenario

7.3. Consolidated Financial Statements as of 31 December 2018 and 2017 under IFRS

7.3.1. Consolidated Statement of Financial Position

Consolidated Assets IFRS per: (in thousands of euros)	Note	31/12/18	31/12/17
Non-current assets		10,754	10,558
Intangible assets	8.2.5.1	22	30
Property, plant and equipment	8.2.5.2	6,203	6,302
Investments in associates	8.2.5.3	326	297
Financial assets	8.2.5.6	323	317
Deferred tax assets	8.2.5.4	3,881	3,611
Current assets		15,000	14,615
Trade and other receivables	8.2.5.5	6,724	5,938
Other current assets		102	266
Cash and cash equivalents	8.2.5.8	8,174	8,411
TOTAL ASSETS		25,753	25,173
Consolidated Liabilities IFRS per: (in thousands of euros)	Note	31/12/18	31/12/17
Equity attributable to owners of the parent		4,491	2,383
Share capital		12,532	14,663
Share premium		53,478	42,665
Retained earnings		(62,136)	(55,501)
Other reserves		618	557
Non-controlling interests		0	0
Total Equity	8.2.5.8	4,491	2,383
Non-current liabilities		11,925	12,192
Financial liabilities	8.2.5.9	10,247	10,551
Other non-current liabilities	8.2.5.10	1,678	1,641
Current liabilities		9,327	10,598
Financial liabilities	8.2.5.9	2,606	1,251
Trade and other payables	8.2.5.11	3,996	3,583
Current tax liabilities		11	0
Other current liabilities	8.2.5.11	2,725	5,764
Total liabilities		21,251	22,791
TOTAL EQUITY AND LIABILITIES		25,753	25,173

7.3.2. Consolidated Statement of Comprehensive Income

(in thousands of euros)	Note		For the year ended 31 December
		2018	2017
Revenues	8.2.6.1	1,000	41
Other operating income	8.2.6.2	4,079	4,172
Total revenues and operating income		5,079	4,213
Research and development expenses	8.2.6.3	(12,884)	(13,122)
General and administrative expenses	8.2.6.4	(3,660)	(3,385)
Operating profit/(loss)		(11,466)	(12,294)
Interest income Financial expenses Exchange gains/(losses) Share of profit/(loss) of associates Result Profit/(loss) before taxes	8.2.6.6 8.2.6.6 8.2.6.6 8.2.6.6	66 (2,609) (18) 16 (14,011)	197 (489) (12) 7 (12,591)
Income taxes	8.2.6.8	(131)	(178)
TOTAL COMPREHENSIVE INCOME OF THE PERIOD		(14,142)	(12,769)
Basic and diluted loss per share (in euros)	8.2.6.8	(1.86)	(1.86)
Profit/(loss) for the period attributable to the owners of the Company Profit/(loss) for the period attributable to the non-controlling interests		(14,218) 77	(12,752) (18)
Total comprehensive income for the period attributable to the owners of the Company Total comprehensive income for the period attributable to the non controlling interests		(14,218) 77	(12,752) (18)

7.3.3. Consolidated Statement of Cash Flow

Consolidated Statements of Cash Flows (in thousands of euros)	For the twelve-month period ended 31 December
	2018	2017
CASH FLOW FROM OPERATING ACTIVITIES
Operating profit/(loss) Adjustments for :	(11,466)	(12,294)
Depreciation, Amortization and Impairments Share-based compensation Grants income related to recoverable cash advances Grants income related to patents Grants income related to tax credit Other	580 52 (2,523) (229) (612) 1	524 (89) (2,459) (201) (754) 16
Movements in working capital : Trade and other receivables (excluding government grants) Trade and other Payables Other current liabilities (excluding government grants)	(810) 405 0	(309) 463 (3)
Cash generated from operations	(14,613)	(15,105)
Cash received from licensing agreement Cash received from grants related to recoverable cash advances Cash received from grants related to patents Cash received from grants related to tax credit Income taxes paid	0 1,580 20 232 (131)	1,670 2,390 88 117 (178)
Net cash used in operating activities	(12,901)	(11,018)
CASH FLOW FROM INVESTING ACTIVITIES
Interests received Purchases of property, plant and equipment Purchases of intangible assets	1 (277) (19)	0 (406) (9)
Net cash used in investing activities	(295)	(415)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from government loans Repayment of government loans Dividend paid Reimbursements of financial lease liabilities Reimbursements of other financial loans Interests paid Transaction costs Proceeds from issue of equity instruments of the Company Proceeds received from convertible loan	677 (573) 0 (366) (250) (225) (580) 13,512 763	1,024 (510) (60) (434) (250) (227) 0 0 0
Net cash generated from financing activities	12,958	(456)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(237)	(11,889)
CASH AND CASH EQUIVALENTS at beginning of year CASH AND CASH EQUIVALENTS at end of year	8,411 8,174	20,300 8,411

7.3.4.		Consolidated Statement of Changes in Equity
--------	--	---------------------------------------------	--	--

		Attributable to owners of the parent
(in thousands of euros)	Share capital	Share premium	Retained earnings	Total equity attributable to owners of the parent	Non controlling interests	TOTAL EQUITY
Balance at 1 January 2017	20,708	42,670	(48,108)	15,270	0	15,270
Total comprehensive income of the period Issue of share capital Decrease of share capital Transaction costs for equity issue Allocation to the legal reserve Share-based payment Movement non-controlling	0 0 (6,046) 0 0 0	0 0 0 (6) 0 0	(12,752) 0 6,046 0 3 (89)	(12,752) 0 0 (6) 3 (89)	(18) 0 0 0 0 0	(12,769) 0 0 (6) 3 (89)
interests	0	0	(18)	(18)	18	0
Other Balance at 31 December 2017	0 14,662	0 42,664	(27) (54,944)	(27) 2,382	0 0	(27) 2,382
Impact of restatement based on IFRS 15 – note 8.2.2 Balance at 1 January 2018	0 14,662	0 42,664	1,501 (53,443)	1,501 3,883	0 0	1,501 3,883
Total comprehensive income of the period Issue of share capital Decrease of share capital Specific reserve for convertible	0 2,699 (4,829)	0 10,813 0	(14,218) 0 4,829	(14,218) 13,512 0	77 0 0	(14,142) 13,512 0
bonds Allocation to the legal reserve	0 0	0 0	1,175 5	1,175 5	0 0	1,175 5
Share-based payment Movement non-controlling	0	0	52	52	0	52
interests	0	0	77	77	(77)	0
Other	0	0	6	6	0	6
Balance at 31 December 2018	12,532	53,478	(61,518)	4,491	0	4,491

The movement linked to the specific reserve for convertible bonds and related warrants relates partly to the amount transferred from financial liability to equity. The carrying amount of 2.500 EUR per share is recorded under Share capital and Share premium, while the difference is recorded under that specific reserve.

8. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8.1. General Information

Bone Therapeutics SA (the "Company") is a limited liability company governed by Belgian law. The address of its registered office is Rue Auguste Piccard 37, 6041 Gosselies, Belgium. The shares of the Company are publicly listed on NYSE Euronext Brussels and Paris since 6 February 2015.

The Company and its affiliates Skeletal Cell Therapy Support SA "SCTS" and Bone Therapeutics USA Inc "BT US" (together with the Company referred as the "Group") are active in regenerative therapy specializing for addressing unmet medical needs in the field of bone diseases and orthopedics. The Company combines indepth knowledge of bone diseases and stem cell science, a strong expertise in both cell manufacturing for human use and cell therapy clinical trials and regulatory affairs, which have allowed to establish a leadership position in the field of cell therapy for orthopedics and bone diseases.

The consolidated financial statements of Bone Therapeutics SA for the twelve months ended 31 December 2018 include Bone Therapeutics SA and its affiliates. These were authorized for issue by the Board of Directors on 24 April 2019.

8.2. Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of the consolidated financial statements are set out below.

8.2.1. Statement of Compliance

The Group's consolidated financial statements for the year ended 31 December 2018 have been prepared in accordance with International Financial Reporting Standards as endorsed by the European Union ("IFRS").

8.2.2. Applicable IFRS Standards and Interpretation

In the current year, the Group has applied for a number of new and revised IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2018.

• Amendments to IAS 40 Transfers of Investment Property
• Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions
• Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
• Annual improvements to IFRS Standards 2014-2016 Cycle: Amendments to IFRS 1, IFRS 12 and IAS 28
• IFRIC 22 Foreign Currency Transactions and Advance Consideration
• IFRS 9 Financial Instruments and subsequent amendments
• IFRS 15 Revenue from Contracts with Customers

The following IFRS standards, interpretations and amendments that have been issued but that are not yet effective, have not been applied to the IFRS financial statements closed on 31 December 2018:

• Amendments to IAS 1 and IAS 8 Definition of Material (applicable for annual periods beginning on or after 1 January 2020, but not yet endorsed in the EU)

• Amendments to IAS 19 Plan Amendment, Curtailment or Settlement (applicable for annual periods beginning on or after 1 January 2019, but not yet endorsed in the EU)

• Amendments to IAS 28 Long-term interests in Associates and Joint Ventures (applicable for annual periods beginning on or after 1 January 2019)

• Amendments to IFRS 3 Business Combinations (applicable for annual periods beginning on or after 1 January 2020, but not yet endorsed in the EU)
• Amendments to IFRS 9 Prepayment Features with Negative Compensation (applicable for annual periods beginning on or after 1 January 2019)
• Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (the effective date has been deferred indefinitely, and therefore the endorsement in the EU has been postponed)
• Amendments to references to the Conceptual Framework in IFRS standards (applicable for annual periods beginning on or after 1 January 2020, but not yet endorsed in the EU)
• Annual improvements to IFRS Standards 2015-2017 Cycle (applicable for annual periods beginning on or after 1 January 2019, but not yet endorsed in the EU)
• IFRIC 23 Uncertainty over Income Tax Treatments (applicable for annual periods beginning on or after 1 January 2019)
• IFRS 14 Regulatory Deferral Accounts (applicable for annual periods beginning on or after 1 January 2016, but not yet endorsed in the EU)
• IFRS 16 Leases (applicable for annual periods beginning on or after 1 January 2019)
• IFRS 17 Insurance Contracts (applicable for annual periods beginning on or after 1 January 2021, but not yet endorsed in the EU)

It is not expected that the initial application of the above mentioned IFRS standards, interpretations and amendments will have a significant impact on the consolidated financial statements, except for the IFRS 16 (but less than € 0.50 million).

The nature and the effect of the changes related to IFRS15 and IFRS9 were taken into consideration, and the above amendments affected the consolidated financial statements as follows:

Change in Accounting Policies - IFRS 15 Revenue from Contracts with Customers

In May 2014, the IASB (International Accounting Standards Board) issued IFRS 15 - Revenue from Contracts with Customers. The IASB issued then a clarification to IFRS 15 in April 2016 as part of a joint project with the FASB to develop a comprehensive standard on revenue recognition. The standard is to be applied for reporting periods beginning on 1 January 2018 or later. The standard replaces the current standards IAS 18 Revenue and IAS 11 Construction Contracts as well as their interpretations.

In respect of the transition to IFRS 15, entities have the choice to either apply a full retrospective application or to apply a modified retrospective application. The Group decided to adopt the new standard on the required effective date using the modified retrospective method, whereby only the opening equity of 2018 is restated.

The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard establishes a five-step approach to revenue recognition:

• Step 1: Identifying contract(s) with a customer;
• Step 2: Identify the performance obligations in the contract;
• Step 3: Determine the transaction price;
• Step 4: Allocate the transaction price to the performance obligations in the contract;
• Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

Up to 2016, the Group was not generating revenue from contracts with customers. In September 2017, the Group entered into a patent and know-how license agreement with Asahi Kasei Cooperation ("AKC") in which an upfront non-refundable payment was received of € 1.67 million. In addition, this contract incorporates multiple development milestone payments, sales-based milestone payments and royalty payments.

Under IAS 18 the upfront non-refundable payment was deferred as the upfront-fee could not be regarded as related to a separate transaction (it was negotiated in conjunction with the pricing of other elements), and apart from providing a license on some of Bone Therapeutics' IP, there is a continuing involvement of the Company to provide technical assistance (reflected by a maximum number of FTE hours on a yearly basis) to AKC as foreseen in the contract. As a result, the upfront non-refundable payment was recognised on a linear basis over the expected period of involvement as to the provision of technical assistance to AKC.

Under IFRS 15, two distinct performance obligations could be identified (step 2 of the model), the provision of a license on some of the Company's IP and the provision of technical assistance. The license is considered as a right to use under IFRS 15. Revenue in respect of a distinct license that is a right to use shall be recognised at a point in time under IFRS 15 when the license is granted to AKC (this is made possible by the fact that the license is mature and by the fact that the Company has not planned to carry out additional work). The license is granted in 2017, therefore, that portion of the transaction price that is allocated to the license (step 4 of the model) will be recognised in 2017. The portion of the transaction price to be recognised in 2017 with respect to the license will be higher compared to the portion of the deferred revenue under IAS 18 (the upfront non-refundable payment) that was recognised in 2017. The Management of the Company determined that the allocation to the provision of the technical assistance would lead to an immaterial amount. The stand-alone selling price of the license will be then fully recognised at 2017. The impact recognized into the equity statement amounted to € 1.50 million.

In determining the transaction price, the transaction price is initially limited to the upfront non-refundable payment. The development milestones under the contract that qualify as variable consideration are initially not considered because of the related constraint principles under IFRS 15.

Consolidated Assets IFRS per: (in thousands of euros)	31/12/17	Impact of IFRS 15	31/12/2017 restated
Non-current assets	10,558	0	10,558
Intangible assets	30	0	30
Property, plant and equipment	6,302	0	6,302
Investments in associates	297	0	297
Financial assets	317	0	317
Deferred tax assets	3,611	0	3,611
Current assets	14,615	(128)	14,487
Trade and other receivables	5,938	0	5,938
Other current assets	266	(128)	138
Cash and cash equivalents	8,411	0	8,411
TOTAL ASSETS	25,173	(128)	25,045

In the tables below, you will find the different impacts on the consolidated balance sheet which has been restated under IFRS 15.

Consolidated Liabilities IFRS per: (in thousands of euros)	31/12/17	Impact of IFRS 15	31/12/2017 restated
Total Equity	2,383	1,501	3,884
Non-current liabilities	12,192	0	12,192
Financial liabilities	10,551	0	10,551
Other non-current liabilities	1,641	0	1,641
Current liabilities	10,598	(1,629)	8,969
Financial liabilities	1,251	0	1,251
Trade and other payables	3,583	0	3,583
Other current liabilities	5,764	(1,629)	4,135
Total liabilities	22,791	(1,629)	21,162
TOTAL EQUITY AND LIABILITIES	25,174	(128)	25,046

Change in Accounting Policies - IFRS 9 Financial Instruments

In the current year, the Group has applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRSs. IFRS 9 introduces new requirements for 1) the classification and measurement of financial assets and financial liabilities; 2) impairment for financial assets and 3) general hedge accounting. Details of these new requirements as well as their impact on the Group's consolidated financial statements are described below.

The Group has applied IFRS 9 in accordance with the transition provisions set out in IFRS 9.

The date of initial application (i. e. the date on which the Group has assessed its existing financial assets and financial liabilities in terms of the requirements of IFRS 9) is 1 January 2018. Accordingly, the Group has applied the requirements of IFRS 9 to instruments that have not been derecognised as at 1 January 2018 and has not applied the requirements of IFRS 9 to instruments that have already been derecognised as at 1 January 2018. Comparative amounts in relation to instruments that have not been derecognized as at 1 January 2018 have not been restated.

The management of the Group reviewed and assessed the Group's existing financial assets and liabilities as at 1 January 2018 based on the facts and circumstances that existed at that date and concluded that the initial application of IFRS 9 has the following impact on the Group's financial assets as regards their classification and measurement:

The financial assets classified in the category "Loans and receivables" under IAS 39 such as noncurrent receivables, trade receivables, cash and cash equivalents are classified and measured at amortised cost under IFRS 9.

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. The scope of financial instruments subject to impairment was changed by IFRS 9 – in particular, the Group assesses impairment on guarantees issued in accordance with expected credit loss model (instead of "most likely outcome" under IAS 37). The impact of expected credit losses was immaterial.

Classification and measurement of financial liabilities of the Group has not been modified by the requirements of IFRS 9. The Management of the Company determined that the translations between IAS39 and IFRS9 were immaterial. We refer to the 8.7.1 for the overview of financial instruments.

8.2.3. Basis of Preparation

The consolidated financial statements are presented in thousands of euros, unless otherwise stated. Euro is also the functional currency of both the Company and SCTS. The USD is the functional currency for Bone Therapeutics USA Inc. The functional currency is the currency of the economic environment in which an entity operates. The consolidated financial statements have been prepared on a historical basis, unless otherwise stated.

8.2.4. Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities directly or indirectly controlled by the Company.

Control is achieved when the Company:

• has power over the investee;
• is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company's voting rights in an investee are sufficient to give it power, including:

• the size of the Company's holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
• potential voting rights held by the Company, other vote holders or other parties;
• rights arising from other contractual arrangements; and
• any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests.

All intragroup assets and liabilities, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

8.2.5. Investments in Associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint arrangement. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

In its consolidated financial statements, the Group uses the equity method of accounting for investments in associates and joint ventures. Under the equity method, the investment is initially recognised at cost in the consolidated statement of financial position and adjusted thereafter to recognize the Group's share of the profit or loss and other comprehensive income of the associate or joint venture.

An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate or joint venture. On acquisition of the investment, any excess of the cost of the investment over the Group's share of the net fair value of the identifiable assets and liabilities of the investee

is recognised as goodwill, which is included in the carrying amount of the investment. Any excess of the Group's share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.

The Group discontinues the use of the equity method from the date when the investment ceases to be an associate or a joint venture or when the investment is classified as held for sale.

8.2.6. Intangible Assets

Intangible Assets Acquired Separately or in the Context of a Business Combination

Intangible assets are recognised if and only if it is probable that future economic benefits associated with the asset will flow to the Group and the cost of that asset can be measured reliably. Intangible assets with finite useful lives that are acquired separately are measured at cost less accumulated amortization and accumulated impairment losses. The cost of a separately acquired intangible asset comprises its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates. Any directly attributable cost of preparing the asset for its intended use is also included in the cost of the intangible asset. Amortization is recognised on a straight-line basis over the estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. Recognition of costs in the carrying amount of an intangible asset ceases when the asset is in the condition necessary for it to be capable of operating in the manner intended by the Group.

Intangible assets acquired in a business combination are measured at fair value at the date of acquisition. Subsequent to initial recognition, intangible assets acquired in a business combination are subject to amortization and impairment test, on the same basis as intangible assets that are acquired separately.

Intangible assets	Estimated useful life
Software	3 years

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognized.

Internally-generated intangible assets

Consistently with industry practices, management concluded that development costs incurred by the Group do not meet the recognition conditions before Phase III of the related development project is finalised.

8.2.7. Property, Plant and Equipment

Property, plant and equipment are recognised as assets at acquisition or production cost if and only if it is probable that future economic benefits associated with the asset will flow to the Group and the cost of the asset can be measured reliably. The cost of an item of property, plant and equipment comprises its purchase or production price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, together with the initial estimation of the costs of dismantling and removing the asset and restoring the site on which it is located, if applicable.

After initial recognition at historical cost, property, plant and equipment owned by the Group are depreciated using the straight-line method and are carried on the balance sheet at cost less accumulated depreciation and impairment. Depreciation begins when the asset is capable of operating in the manner intended by management and is charged to profit or loss, unless it is included in the carrying amount of another asset. The components of an item of property, plant and equipment with a significant cost and different useful lives are recognised separately. Lands are not depreciated. The residual value and the useful life of property, plant and equipment are reviewed at least at the end of each reporting period. The depreciation method is also reviewed annually.

Property, plant and equipment	Estimated useful life
Buildings	20 years
Office furniture	4 years
Lab equipment	3 to 5 years
IT equipment	3 years

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

8.2.8. Leases

The Group classifies leases as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Classification is made at the inception of the lease.

Finance Leases

Assets held under finance leases by the Group are recognised as assets at their fair value or, if lower, at the present value of the minimum lease payments. The corresponding liability is included in the consolidated statement of financial position as a finance lease obligation. Assets held under finance leases are depreciated over their estimated useful live on a systematic basis consistent with the depreciation policy for depreciable assets that are owned by the Group or, if shorter, over the lease term. Lease payments are apportioned between finance expenses and the reduction of the lease obligation.

Assets owned by the Group and leased to third parties under finance leases are derecognised and a receivable is recognised as an asset in the consolidated statement of financial position for an amount equal to the net investment in the lease contract. The recognition of financial income is made based on pattern reflecting a constant periodic rate of return on the lessor's net investment in the finance lease.

Operating Leases

Assets held by the Group under operating leases are not recognised in the statement of financial position. Operating lease payments are recognised as expenses in the period in which they are incurred on a straightline basis over the lease term.

Assets owned by the Group and leased to third parties under operating leases are not derecognised from the statement of financial position. Rental income from operating lease is recognised as income on a straight-line basis over the lease term. The depreciation method used for the assets leased under operating leases is consistent with the method used for similar assets that are not subject to a lease agreement.

8.2.9. Impairment of Tangible and Intangible Assets

At the end of each reporting period, the Group assess whether there is any indications that an asset may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Recoverable amounts of intangible assets with an indefinite useful life and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of an asset's fair value less costs of disposal and its value in use. The value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

An impairment loss is recognised whenever recoverable amount is below carrying amount. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. An impairment loss on goodwill can never be reversed.

8.2.10.Financial Instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

8.2.11.Financial Assets

The financial assets include the investments in equity instruments designated at fair value through other comprehensive income, receivables including trade receivables and other receivables, derivative financial instruments, financial assets at fair value through profit or loss, cash and cash equivalents.

The acquisitions and sales of financial assets are recognised at the transaction date.

There are no financial assets which are equity instruments.

Financial Assets – Debt Instruments

All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.

Debt instruments that meet the following conditions are subsequently measured at amortised cost:

• The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Debt instruments include:

• Receivables that are measured at amortised cost, including government grants
• Trade receivables measured at amortised cost
• Cash & cash equivalents. Cash and cash equivalents include cash on hand and in banks, as well as short-term deposits with a maturity of three months or less.

Receivables related to government grants, including recoverable cash advances ("avances récupérables"), are recognised when there is reasonable assurance that the Group will comply with the conditions attaching to them and the grant will be received, which generally corresponds to the date at which the Group obtains a confirmation letter from the authorities (see "government grants" below).

Impairment of Financial Assets

In relation to the impairment of financial assets an expected credit loss model is applied. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets.

Specifically, the following assets are included in the scope for impairment assessment for the Group: 1) trade receivables; 2) non-current receivables 3) cash and cash equivalents.

IFRS 9 provides a simplified approach for measuring the loss allowance at an amount equal to lifetime expected credit losses for trade receivables without a significant financing component (short-term trade receivables). The Group determines the expected credit losses on these items by using a provision matrix, estimated based on historical credit loss experience based on the past due status of the debtors, adjusted as appropriate to reflect current conditions and estimates of future economic conditions. Accordingly, the credit risk profile of these assets is presented based on their past due status in terms of the provision matrix.

IFRS 9 requires the Group to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. On the other hand, if the credit risk on a financial instrument has not increased significantly since initial recognition, the Group is required to measure the loss allowance for that financial instrument at an amount equal to 12 month expected credit losses. For long-term receivables IFRS 9 provides a choice to measure expected credit losses applying lifetime or 12 month expected credit losses model. The Group selected the lifetime expected credit losses.

All bank balances are assessed for expected credit losses as well. They may have low credit risk at the reporting date if they are held with reputable international banking institutions.

8.2.12.Amortised Cost and Effective Interest Method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.

The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition.

The amortised cost of a financial instrument is the amount at which the financial asset or liability is measured at initial recognition minus the principal repayments, plus the cumulative amortization using the effective

interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance on the financial asset. On the other hand, the gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.

8.2.13.Financial Liabilities and Equity

Classification as Debt or Equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity Instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.

Compound Instruments

Convertible bonds which include warrants are considered as a single financial instrument measured at fair value through profit and loss (see note 8.3.3).

8.2.14.Financial Liabilities

Except for the put options held by non-controlling interests in a subsidiary (see note 8.3.2) and convertible bonds including warrants (see note 8.3.3), which are measured at fair value through profit and loss, all financial liabilities of the Group are subsequently measured at amortised cost using the effective interest method.

Financial liabilities at amortised cost include:

• Trade payables at amortised cost
• Borrowings
• Government loans: the portion of recoverable cash advances ("avances récupérables") that is expected to be reimbursed. They are initially measured at their fair value less transaction costs, which corresponds to the present value of amounts expected to be reimbursed for recoverable cash advances recognised as financial liabilities to the extent no interest is charged on these loans. See below.

The Group derecognizes financial liabilities when, and only when, the Group's obligations are discharged, canceled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.

Government Grants

Government grants are assistance by government, government agencies and similar bodies, whether local, national or international, in the form of transfers of resources to the Group in return for past or future compliance with certain conditions.

The Group recognizes a government grant only when there is a reasonable assurance that the Group will comply with the conditions attached to the grant and the grant will be received. As such, a receivable is recognised in the statement of financial position and measured in accordance with the accounting policy mentioned above (see financial assets).

With respect to Recoverable Cash Advances or RCA's ("Avances Récupérables") whereby in case of successful project completion and a positive decision by the Company to exploit the results of the project, 30% of the amount will be reimbursed through a fixed reimbursement schedule and up to 170% under the form of royalties, the amount recognized as a grant is the difference between the fair value of the expected reimbursement and the actual amount received by the Company as a RCA. The Group recognizes the portion of the RCA that is expected to be reimbursed as a liability. This liability is initially measured at fair value and subsequently at amortised cost, where the carrying amount of a liability is determined by using the effective interest rate. Furthermore, the discount rate is not adjusted every year.

On 10 May 2016, the IFRS Interpretation Committee ("IFRS IC") published the final agenda decision IAS 20 – Accounting for repayable cash receipts. In this context, the IFRS IC clarified that an RCA gives rise to a financial liability in the scope of IFRS 9. This financial liability is initially measured at fair value and any difference with the cash to be received from the Walloon Region is treated as a government grant in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. Subsequent to the initial recognition, the financial liability is measured at amortised cost using the effective interest method on the basis of the estimated contractual cash flows with changes in value due to a change in estimated cash flows recognised in profit or loss.

In addition, the benefit of a government loan without interest or at a below market rate of interest is treated as a government grant and measured as the difference between the initial discounted value of the loan and the proceeds received or to be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs which the grants are intended to compensate. As a result, grants relating to costs that are recognised as intangible assets or property, plant and equipment (grants related to assets or investment grants) are deducted from the carrying amount of the related assets and recognised in the profit or loss statement consistently with the amortization or depreciation expense of the related assets. Grants that intend to compensate costs that are expensed as incurred are released as income when the subsidized costs are incurred, which is the case for grants relating to research and development costs as incurred.

Government grants that become receivable as compensation for expenses or losses already incurred are recognised in profit or loss of the period in which they become receivable.

The portion of grants not yet released as income is presented as deferred income in the statement of financial position. In the statement of comprehensive income, government grants are presented as other operating income or financial income depending on the nature of the costs that are compensated.

8.2.15.Derivative Financial Instruments

Derivatives are recognised initially at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. There are currently no hedging instruments.

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. Derivatives are not offset in the financial statements unless the Group has both legal right and intention to offset. A derivative is presented as a non‑current asset or a non‑current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

The options granted and held on the the 50.1% non-controlling interests in the subsidiary SCTS (see 8.3.2), and the warrants included in the convertible bonds issued in 2018 (see 8.3.3) are the only derivatives outstanding.

8.2.16. Income Tax

The tax currently payable is based on taxable profit for the year, which differs from profit as reported in the consolidated statement of profit and loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. Income tax for the current and prior periods is recognised as a liability to the extent that it has not yet been settled, and as an asset to the extent that the amounts already paid, exceeds the amount due. The Group's current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred taxes are recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.

Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences and tax losses carried-forward to the extent that it is probable that taxable profits will be available against which those deductible temporary differences and tax losses carriedforward can be utilized. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates/laws that have been enacted or substantively enacted by the end of the reporting period. The measurement reflects the Group's expectations, at the end of the reporting period, as to the manner in which the carrying amount of its assets and liabilities will be recovered or settled.

8.2.17.Revenue Recognition

The Group is currently not generating revenue from contracts with customers other than from licensing agreements. Most income recognised by the Group is resulting from government grants.

Licensing Revenues

Licence agreements usually include non-refundable upfront fees, milestones payments (the receipt of which is dependent upon the achievement of certain development or commercial milestones), and tiered royalties based on annual net sales. The revenue recognition can be summarized as follows:

Upfront Payment

Non-refundable upfront payments received in connection with research and development collaboration agreements and for which there are subsequent deliverables are initially reported as deferred income and are recognized as revenue when earned over the period of the development collaboration.

Milestone Payments

Research milestone payments are recognized as revenues when achieved. In addition, the payments have to be acquired irrevocably and the milestone payment amount needs to be substantive and commensurate with the magnitude of the related achievement. Milestones payments that are not substantive, not commensurate or that are not irrevocable are recorded as deferred income revenue. Revenue from these activities can vary significantly from period due to the timing of milestones.

Royalty Revenue

Royalty revenues arise from our contractual entitlement to receive a pourcentage of product sales achieved by co-contracting parties. As the Company has not yet obtained the approval for commercialization, the Company did not yet receive any royalty revenue at the date of the Annual Report. Royalty revenues, if earned, will be recognized on an accrual basis in accordance with the terms of the collaboration agreement when sales can be determined reliably and there is a reasonable assurance that the receivables from outstanding royalties will be collected.

8.2.18.Share-based Payments

A share-based payment is a transaction in which the Group receives goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the Group's shares or other equity instruments of the Group. The accounting for share-based payment transactions depends on how the transaction will be settled, that is, by the issuance of equity, cash, or both equity or cash.

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, if any, based on the Group's estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equitysettled employee benefits reserve.

For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At the end of each reporting period until the liability is settled, and at the date of settlement, the fair value of the liability is re-measured, with any changes in fair value recognised in profit or loss for the year.

8.2.19.Employee Benefits

The Company offers post-employment, death, disability and healthcare benefit schemes to certain categories of employees.

Disability, death and healthcare benefits granted to employees of the Company are covered by an external insurance company, where premiums are paid annually and expensed as they were incurred.

As a consequence of the law of 18 December 2015, the minimum guaranteed rates of return were modified as follows:

• for the contributions paid as from 1 January 2016, a new variable minimum return based on OLO rates, with a minimum of 1.75% and a maximum of 3.75% (1.75% for 2016);
• for the contributions paid until end December 2015, the previously applicable minimum rate of return (i.e 3.25%) continues to apply until the date of leaving of the participants (in case of insured plans).

In view of the minimum returns guarantees, those plans qualify as Defined Benefit plans.

Due to the fact that the Belgian law prescribes that the employer would guarantee a minimum rate of return on the contributions, such plans are classified as defined benefit plans under IFRS.

The cost of providing benefits is determined using the projected unit credit (PUC) method, with actuarial valuations being carried out at the end of each annual reporting period.

8.2.20.Events after the Reporting Period

Events after the reporting period which provide additional information about the Group's position at the closing date (adjusting events) are reflected in the financial statements. Events after the reporting period which are not adjusting events are disclosed in the notes if material.

8.3. Critical Accounting Estimates and Judgments

In the application of the Group's accounting policies, which are described above, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The followings are areas where key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial years:

8.3.1. Investment in SCTS

Despite a holding of 49.9% in SCTS, management concluded that the Company controls SCTS considering the combination of the following elements:

• The purpose and design of SCTS are specific to the Company's needs with respect to R&D and production activities, including the construction of a building specific to the production needs of the Company;
• The Company reached the majority on all general assemblies of SCTS since its incorporation; and
• The Company has the option to buy (call option) the SCTS shares held by other shareholders as from 1 January 2014.

Summarized financial information in respect of each of the Group's subsidiaries that has material noncontrolling interests is set out below. The summarized financial information below represents amounts before intragroup eliminations.

(in thousands of euros)	31/12/18	31/12/17
Current assets	3,569	3,723
Non-current assets	7,195	6,782
TOTAL ASSETS	10,765	10,505
Current liabilities	3,496	3,391
Non-current liabilities	4,871	4,881
Equity	2,398	2,233
TOTAL EQUITY & LIABILITIES	10,765	10,505
(in thousands of euros)	2018	2017
Revenue	4,542	4,066
Expenses	(4,389)	(4,113)
Profit (loss) of the year	152	(48)

8.3.2. Put and Call on Non-Controlling Interests in SCTS

The Company has granted to the 50.1% non-controlling interests in SCTS an option to sell (put option) their SCTS shares to the Company. This put option is exercisable as from 1 January 2020 at a strike price amounting to the net assets of SCTS multiplied by the percentage held, with a minimum price floored at 90% of the share subscription value. This put option on non-controlling interests (own equity instrument) gives rise to a gross liability that is initially recognised against equity and measured at the present value of the redemption amount (strike price). This gross liability is subsequently measured at fair value with changes in fair value recognized in profit or loss.

In this context, management made estimations in measuring the expected net assets of SCTS on 1 January 2020 taking into account that the SCTS shareholders' agreement prescribes in substance that a minimum return of 6.5% shall be reached on the investment as from the fourth year of SCTS incorporation. The expected net assets value has been discounted to the reporting date using a rate of 1.1%. In the statement of financial position on 31 December 2018, the fair value of the gross liability for the put option on non-controlling interests in SCTS amounts to € 1,678,000 (€ 1,641,000 in 2017).

In addition, the Company holds an option to buy (call option) the 50.1% non-controlling interests in SCTS. This call option is exercisable from 1 January 2014 until 31 December 2019 at such a strike price that noncontrolling interests realize an internal rate of return reaching 8% on capital contributed to SCTS. This call option is a derivative financial asset of the Company. Considering however that the strike price is based on a return of 8% whereas the minimum agreed return is limited to 6.5% as from the fourth year of SCTS incorporation, management concluded that this call option will always be out of the money. As a result, the fair value of this derivative financial asset is negligible.

8.3.3. Convertible Bonds and Related Warrants

On 7 March 2018, the Company has successfully placed senior, unsecured Convertible Bonds (the "CBs") including warrants with a total commitment of EUR 19.45 million via a private placement.

The Convertible Bonds and related warrants were offered through an accelerated bookbuilding offering, open to institutional investors and such other investors as permitted under applicable private placement exceptions only. Bryan, Garnier & Co. acted as Sole Bookrunner for the Offering.

The CBs are in registered form, denominated EUR 2,500 each. The CBs do not bear any coupon and have a maturity date of twelve months after issuance. The CBs are convertible in ordinary shares at CB holders' convenience before maturity or are automatically converted at maturity date at the Conversion Price. The Conversion Price will be equal to 92% of the Volume-Weighted-Averaged-Price of the Company's shares as provided by Bloomberg LP of the day immediately preceding CB holder's request of conversion or maturity date, but not lower than the par value (EUR 2.14) of the Company's share. Upon conversion of the CBs, the new shares issued shall immediately bear the same right of all other existing shares and could be traded on the Euronext stock exchanges in Brussels and in Paris. The Company has also the right to redeem the CB at a price of EUR 2,577.31 instead of issuing new shares.

Each subscribed CB is accompanied by 19 bond warrants (the "Bond Warrants") in registered form with a warrant term of 19 months. Each Bond Warrant entitles its holder to subscribe to one CB and can be exercised at an exercise price of EUR 2,500 per CB at the request of the warrant holder at any time during the warrant term. All bond warrants have to be exercised during the warrant term and the warrant holders could be obliged to exercise at least one of the 19 Bond Warrants every 30 calendar days.

A total amount of € 19.45 million in committed capital has been subscribed during the Offering. In March 2018, part of the investors has decided to immediately exercise warrants resulting in immediate gross proceeds of about € 6.58 million and 565,773 new shares to be created, increasing the total outstanding shares from 6,849,654 to 7,415,427 ordinary shares. In the ensuing 9 months, 3,077 bond warrants have been exercised

which resulted in additional proceeds of € 7.69 million. During the same period, 3,004 bonds have been converted into shares resulting in a total of 8,310,546 ordinary shares. The remaining warrants will be exercised providing additional proceeds of EUR 5.18 million over a maximum period of 10 months.

The bonds and its warrants are financial liabilities and are designated as at Fair Value through Profit and Losses (FVTPL).

Based on several assumptions described here below, management has estimated the fair value of the financial liabilities using the issue price of the convertible bonds of 2,500 € and the implied discount of 8% on the share price at the time of conversion of the bonds to obtain the total amount of € 1.28 million at 31 December 2018.

In the context of measuring and presenting the fair value of the convertible bonds, management has made several assumptions:

• The Bond and its warrants cannot be transferred separately from each other. As a consequence, the bonds and related warrants have been considered as a single financial instrument.
• The company considers that the warrants and the conversion options in the Convertible Bonds are immediately exercisable. Therefore, no discounting applies. It has also been considered that the liquidity of the Company stock on the market allows to absorb the shares that would be issued as a result of bonds and warrants that have not been converted or exercised yet in a short period. Therefore, no timing/discount effect has been taken into account in the valuation. If this assumption would be incorrect, the fair value of the financial liability would be somewhat lower, due to the effect of discounting the same expected contractual cash flows over a relatively short period of time.
• The bond holders have no financial interest not to exercise their warrants immediately or not to convert their bond directly, as the bonds do not bear interest and the conversion options in the bonds are currently far "in the money"
• Given the business model and the liquidity requirements, the Company does not intend to repay the bond in cash. If this possibility would have been retained, the impact on the fair value would have been lower compared to the retained fair value as the [redemption] premium due in that case would be lower than the value of the discount offered to the investor.
• The Company has no reason to believe, based on available information, that over the remaining life of the instrument (maximum 9 months as from January 2019 onwards), the stock price would decrease below EUR 2,14 (par value). In such a scenario, the financial liability would then be significantly lower than the current valuation considered due to the effect of the floor on the conversion rate at the par value of the shares (EUR 2.14).

The cost associated with the offered discount on the share price at the time of conversion of the bonds has been recognised under financial expenses for an amount of € 1.69 million. This cost corresponds to the difference between the fair value of the CBs (issue price divided by 92%) and the issue price (2,500 €) for each bond and this for the total number of convertible bonds (7,780) included the outstanding warrants.

Summary of the situation at the beginning of the transaction and at 31 December 2018:

Initial financing round (7 March 2018)		Transactions until 31 December 2018		Situation on 31 December 2018
# CBs purchased:	389	# CB converted:	5,405	# CBs outstanding:	305
# warrants attached: Total # CBs	7,391	# warrants exercised:	5,321	# warrants outstanding: Total # CBs	2,070
(Issued or to be issued):	7,780			remaining (Issued or to be issued):	2,375
Total proceeds committed: # shares	19,450,000 €	Proceeds obtained:	14,275,500 €	Proceeds remaining:	5,175,000 €
outstanding (before private placement):	6,849,654	# shares issued:	1,460,892	# shares outstanding:	8,310,546

At each capital increase registered by the notary linked to an exercised conversion of a bond, the carrying amount (fair value) of the corresponding liability is transferred to equity for the par amount and the issue premium of the new shares created, the remainder corresponding to the discount is recorded under a specific reserve under equity.

8.3.4. Recognition of Deferred Tax Assets

Deferred tax assets are recognised only if management assesses that these tax assets can be offset against taxable income within a foreseeable future.

This judgment is made on an ongoing basis and is based on budgets and business plans for the coming years, including planned commercial initiatives.

Since inception, the Company has reported losses, and as a consequence, the Company has unused tax losses. Therefore, management has concluded that deferred tax assets should not be recognised as of 31 December 2018, except for the deferred tax asset related to the R&D tax credit as this is independent from future taxable profit.

The Company has applied for an income tax credit -that corresponds to a percentage of qualifying R&D costs to which the income tax rate (29.58%) is applied. In case of insufficient current tax payable against which to set off the tax credit, the latter is carried-forward to the following four years. At the end of this period, the balance of the unused tax credit is paid by the tax authorities. Considering that R&D tax credits are ultimately paid by the authorities, the related benefit is treated as a government grant and released as other operating income when the R&D costs compensated by the grant are expensed.

8.3.5. Measurement of Share-based Payments

Management determined the fair value of equity-settled share-based payments (warrants plans) at grant date using the Black-Scholes pricing model. Significant inputs of this model, as the expected life of the warrant and volatility, are detailed in note 8.5.8.2

8.3.6. Going Concern

The 2018 consolidated results of the Company show a loss of € 14.14 million, and the consolidated statement of financial position includes a loss carried forward of € 62.14 million. As the Company has made significant progress in its clinical programs and manufacturing optimization process during previous year, the Board is of the opinion that it is appropriate to prepare the financial statements of the Company under the assumption of going concern considering at group level:

• an annual projected cash burn between € 12.00 million and € 13.00 million (excluding capital raise linked to the bond program),
• the collection of € 5.18 million under the convertible bond program in 2019,
• an assumed continued support from the Walloon Region from which the Company expects to receive non-dilutive funds,
• the intention of the Company to raise new funds from the capital markets and/or to develop alternative funding strategies, while costs tracking and close cash management will remain a key priority.

Considering all these elements, the Board is of the opinion that the Group will have enough liquidity to support its activities in line with the group's strategic focus for at least 12 months.

8.4. Operating Segment Information

The Group does not make the distinction between different operating segments, neither on a business or geographical basis in accordance with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is the Board of Directors of the Company.

All non-current assets are located in Belgium.

8.5. Notes Relating to the Statement of Financial Position

8.5.1. Intangible Assets

The intangible assets consist only of purchased software.

(in thousands of euros)	31/12/2018	31/12/2017
Acquisition cost	227	208
Accumulated amortization and impairment	(205)	(178)
Intangible assets	22	30

Cost (in thousands of euros)	Software	Clinical developments	Total
Balance at 1 January 2017	199	0	199
Additions	9		9
Balance at 31 December 2017	208	0	208
Additions	19		19
Balance at 31 December 2018	227	0	227

Accumulated amortization and
impairment (in thousands of euros)	Software	Clinical developments	Total
Balance at 1 January 2017	(143)	0	(143)
Amortization expense	(35)		(35)
Balance at 31 December 2017	(178)	0	(178)
Amortization expense	(28)		(28)
Balance at 31 December 2018	(205)	0	(205)

8.5.2. Property, Plant and Equipment

Property, plant and equipment consist mainly of buildings, laboratory equipment and a property under construction:

(in thousands of euros)	31/12/2018	31/12/2017
Acquisition cost	9,747	9,295
Accumulated depreciation and impairment	(3,544)	(2,993)
Property, plant and equipment	6,203	6,302

Property, plant and equipment (PPE) at the end of December 2018 amount to € 6.20 million with a decrease of € 0.10 million compared to the end of 2017.

Cost (in thousands of euros)	Laboratory equipment	IT material	Office furniture Land		Building	Properties under construction	Total
Balance at 1 January 2017	2,474	160	102	233	4,154	1,768	8,891
Additions	86	7	1	0	0	310	403
Transfer	0	0	0	0	2,068	(2,068)	0
Balance at 31 December 2017	2,560	167	102	233	6,222	10	9,295
Additions	258	10	2	0	136	47	452
Balance at 31 December 2018	2,818	176	104	233	6,359	56	9,747

Total investment at acquisition cost at the end of 2018 amounts to € 9.75 million. This amount contains € 12.28 million of actual investments reduced with € 2.53 million of investment grants. There is no committed expenditure on 31 December 2018 related to the building investments.

The Company invested an additional amount of € 0.18 million for the completion of the production facility in Gosselies and € 0.26 million for the laboratory and production equipment to be installed in there.

The balance of € 6.36 million under "building" represents the net investment (net of investment grants) in the facilities currently in use at Gosselies.

The table below shows the changes in the accumulated depreciation and impairment of property, plant and equipment at the end of 2018.

Accumulated depreciation and impairment (in thousands of euros)	Laboratory equipment	IT material	Office furniture Land Building			Properties under construction	Total
Balance at 1 January 2017	(1,957)	(119)	(86)	(9)	(335)	0	(2,507)
Depreciation expense	(206)	(21)	(7)	(2)	(360)	0	(597)
Government grant recognition	0	0	0	0	110	0	110
Balance at 31 December 2017 (2,164)		(140)	(93)	(11)	(585)	0	(2,993)
Depreciation expense	(208)	(19)	(7)	(2)	(441)	0	(677)
Government grant recognition	0	0	0	0	127	0	127
Balance at 31 December 2018 (2,372)		(159)	(100)	(14)	(899)	0	(3,544)

Carrying amount (in thousands of euros)	Laboratory equipment	IT material	Office furniture Land Building			Properties under construction	Total
Balance at 31 December 2017	397	26	10	222	5,638	10	6,302
Balance at 31 December 2018	446	17	4	220	5,460	56	6,203

Furthermore, SCTS obtained on 30 June 2013 -a long-term financing instrument through BNP Paribas Fortis SA/NV and ING Belgique SA/NV to finance part of the construction of the new facilities. Each one of the banks foresees an amount of € 1,625,000 euro (see section 5.9 for more details).

These instruments have a term of 15 years and was called upon in function of the progress of the completion of the project.

BNP Paribas Fortis SA/NV has, amongst other things, requested a number of securities in respect of the above loans/facilities to be granted in parity with the security granted to ING Belgique SA/NV. Amongst others this concerns the following:

• a first ranking mortgage granted by SCTS on the assets built with the funds provided for an amount of € 27,500 (€ 25,000 for ING Belgique SA/NV);
• a mandate to a first ranking mortgage granted by SCTS on the assets built with the funds provided for an amount of € 1,760,000 (€ 1,600,000 for ING Belgique SA/NV).
• 8.5.3. Investments in associates

The investment in associates relates to the investment in "Société d'Infrastructures, de Services et d'Énergies" ('SISE') for an amount of € 0.31 million and in "SA Invest Mons-Borinage-Centre" for an amount of € 0.01 million. The Group holds 30.94% in SISE and has significant influence over this entity since its incorporation. SISE is responsible for rendering infrastructure and maintenance services. The associate is accounted for using the equity method in the consolidated financial statements.

The investment in associates recognised in the consolidated statement of financial position can be reconciled as follows:

(in thousands of euros)	31/12/2018	31/12/2017
Balance at 1 January	297	291
Acquisition of investment	0	0
Capital increase/decrease	0	0
Net income from associates	16	14
Dividend paid to other associates	0	(7)
Other	0	(1)
Balance at 31 December	313	297

Summarized financial information in respect of the Group's associate is set out below. The summarized financial information below represents amounts shown in the associate's financial statements prepared in accordance with IFRSs adjusted by the Group for equity accounting purposes.

(in thousands of euros)	31/12/2018	31/12/2017
Profit (loss) before interest and taxation	40	36
Finance costs and other finance expenses	12	8
Taxation		0
Profit (loss) for the year	51	44
Profit (loss) attributable to owners of the company	16	14

(in thousands of euros)	31/12/2018	31/12/2017
Non-current assets	2,391	2,490
Current Assets	339	346
Total Assets	2,729	2,836
Current liabilities	816	857
Non-current liabilities	906	1,024
Total Liabilities	1,722	1,880
Net assets	1,007	956
Group's share of net assets	312	296

The Group granted no loans to associates.

8.5.4. Deferred Tax

The following tables detail the amounts recognised in the consolidated statement of financial position with respect to deferred taxes.

Deferred Taxes by Source of Temporary Differences

(in thousands of euros)		Assets	Liabilities
	31/12/2018	31/12/2017	31/12/2018	31/12/2017
Property, plant and equipment	0	0	64	86
Intangible assets	461	1,187	0	0
Trade and other receivables	0	0	361	843
Financial liabilities	1,119	1,021	0	0
Other non-current liabilities	558	558	0	0
Other current liabilities	242	242	0	0
Total temporary differences	2.379	3.008	426	929

Tax Credits and Tax Losses carried forward and Temporary Differences

(in thousands of euros)	31/12/2018	31/12/2017
Tax credits	3,676	3,844
Tax credits related to notional interest deduction	69	104
Tax losses	17,000	11,052
Total	20,744	15,000

Deferred Tax Assets and Liabilities Recognized

	Assets		Liabilities
(in thousands of euros)	31/12/2018	31/12/2017	31/12/2018	31/12/2017
Deferred tax assets/(liabilities)	23,124	17,962	426	929
Unrecognized deferred tax assets	(19.022)	(13,190)	0	0
Offsetting	(426)	(929)	(426)	(929)
Total recognised deferred taxes	3,676	3,844	0	0

The following table presents an overview of the deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax asset has been recognized:

(in thousands of euros)	31/12/2018	31/12/2017
Tax credits	(0)	(0)
Tax credits related to notional interest deduction	202	305
Tax losses	50,015	32,517
Temporary differences	5,748	6,117
Total	55,964	38,939

The unrecognized tax credits related to notional interest deduction expire in 2020. There is no expiry date on the other sources of deferred tax assets.

Furthermore, the deferred tax asset on the tax credit has been treated as a government grant and presented as other operating income in the consolidated statement of comprehensive income (see note 8.6.2).

At closing 2018, there are no unrecognized deferred tax liabilities related to temporary differences associated with investments in subsidiaries and associates.

8.5.5. Trade Receivables and Other Receivables

The trade and other receivables can be detailed as follows:

Trade and other receivables	Total
(in thousands of euros)	31/12/2018	31/12/2017
Trade receivables
Trade receivables	939	59
Write-downs on trade receivables	0	0
Total trade receivables	939	59
Other receivables
Receivable related to taxes	359	422
Receivable related to tax credit	343	232
Receivable related to recoverable cash advances	4,704	5,001
Receivable related to patent grants	379	225
Total other receivables	5,785	5,880
Total trade and other receivables	6,724	5,938

Trade and other receivables amount to € 6.72 million showing an increase of € 0.79 million compared to the end of December 2017. The increase of the receivables related the recognition of the new milestone from Ashi Kasei for an amount of € 0.90 million net of taxes. The other receivables slightly decrease and are mainly impacted by the recoverable cash advances (-€ 0.30 million - further reconciled under note 8.6.2) and partially offset by the increase of the amount of tax credit to be received in 2019 and by the receivables related to the patent grants.

The expected credit losses at 31 December 2018 are immaterial.

8.5.6. Financial Assets

Non-current financial assets amounting to € 0.32 million relate to restricted amounts mainly representing warranty in respect of the Galactic's building lease commitments.

8.5.7. Cash and Cash Equivalents

Cash and cash equivalents include following components:

(in thousands of euros)	31/12/2018	31/12/2017
Cash at bank and in hand	4,669	5,507
Short-term bank deposits	3,505	2,904
Total	8,174	8,411

The cash position at the end of December 2018 amounted to € 8.17 million compared to € 8.41 million at the end of December 2017. In March 2018, the Company secured a total amount of € 19.45 million in committed capital via a private placement of convertible bonds. Until 31 December 2018, the Company has collected a proceed of € 14.28 million (before € 0.58 million of transaction costs). In counterparts, the Company has used € 14.51 million in operation, investing, and financing activities.

The short-term bank deposits have an original maturity date not exceeding 3 months.

There is no expected credit loss at 31 December 2018.

8.5.8. Equity

The Company's equity after the restatement based on IFRS 15 (of € 1.50 million) increased from € 3.88 million at the end of December 2017 to € 4.49 million (an increase of € 0.61 million) at 31 December 2018. The variation is mainly explained by an increase of € 13.51 million in share capital and share premium and an increase of € 1.18 million of the reserve for the Convertible Bonds. This operation is offset by the result of the Company (€ 14.14 million).

(in thousands of euros)	31/12/2018	31/12/2017
Share capital	12,532	14,663
Share premium	53,478	42,665
Retained earnings	(62,136)	(55,501)
Total outside reserves	3,874	1,827
Reserves	618	557
Total Equity	4,492	2,384

On 7 March 2018, the Company successfully raised € 19.45 million of Commitment in Convertible Bond Placement. As a result of the immediate conversion of the convertible bonds placed via the private placement on 7 March 2018, the share capital was increase by € 1.21 million with issuance of 565,773 shares on 9 March 2018. The aggregate share premium for this transaction amounts to € 4.79 million. Following the capital increase, the share capital of the Company amounted to € 15.87 million and was represented by 7,415,427 shares.

From April to December 2018, as a result of the subsequent conversion of the convertible bonds placed via the private placement on 7 March 2018, the share capital was increased by € 1.49 million with issuance of 895,119 new shares. The aggregate share premium for this transaction amounts to € 6.02 million.

Following the capital increases and the incorporation of the losses following the AGM decision of July 2018 and representing an amount of € 4.83 million, the share capital of the Company amounted to € 12.53 million and was represented by 8,310,546 shares. The share premium account amounts to € 53.48 million.

8.5.8.1. Non-Controlling Interests

The gross liability relating to the put option on non-controlling interest in SCTS (see note 8.3.2) has been recognised against equity, as a reduction of non-controlling interests. Considering, however, that this gross liability exceeds the amount of non-controlling interests, the balance has been recognised as deduction of group equity (retained earnings) and the amount reported as non-controlling interest is nil.

8.5.8.2. Share-based Payments Scheme

The Company has put in place 3 different warrant plans in the course of 2014. An extra Plan was implemented by the AGM in July 2018, but no warrants have been granted yet at 31 December 2018.

In accordance with the terms of these plans, as approved by shareholders at the extraordinary general meetings held on 24 February 2014 and 18 December 2014, the beneficiaries may be granted warrants which on exercise can each be used to subscribe to one ordinary share of the Company (equity-settled share-based payments). No amounts are paid or payable by the beneficiary on grant of the warrant. The warrants carry neither rights to dividends nor voting rights.

Plan	Beneficiaries	Number of warrants issued	Number of warrants granted	Exercise price of warrants granted	Expiry
Warrant Plan A	Employees, consultants or Directors	113,760	40,000	€ 7.72 and € 8.77	February 2024
Warrant Plan B	CEO, CFO	46,000	4,800	€ 11	February 2019
Warrant Plan C	CEO, CFO, CCRO	145,000	122,500	€ 11	December 2019
TOTAL		304,760	167,300

The following plans were established during the year 2014:

For relevant terms and conditions of the Company's existing warrant plans, please refer to section 6.4.2.

The main terms and the fair value at grant date of warrants granted out of Plan A, Plan B and C are as follows:

Options series	Number	Grant Date	Expiry date	Exercise price	Fair Value at grant date
(1) Warrant Plan B	4,800	22-12-14	01-02-19	11	3.76
(2) Warrant Plan C	122,500	22-12-14	18-12-19	11	4.11
(3) Warrant Plan A	24,000	19-12-16	23-02-23	7.72	3.10
(4) Warrant Plan A	16,000	31-08-17	23-02-23	8.77	3.18

The fair value of the warrants has been determined at grant date based on the Black-Scholes formula. The variables, used in this model, are:

	Plan A - TL	Plan A - BC	Plan B	Plan C
Number of warrants granted	24,000	16,000	14,800	145,000
Exercise price (in €)	7.72	8.77	11	11
Fair value of the share at grant date	7.72	8.77	11	11
Expected dividend yield	0	0	0	0
Expected volatility	35.80%	35.80%	43.52%	43.52%
Risk-free interest rate	0.00%	0.00%	0.05%	0.05%
Duration in years	6.15	5.15	4.11	4.99
Fair value (in €)	3.1	3.18	3.76	4.11

There was no warrant exercised in 2018. At closing 2018, all the warrants of Plan B and Plan C are vested. The expenses relating to these plans are disclosed in point 8.8.3.

8.5.9. Financial Liabilities

	Non-current		Current		Total
(in thousands of euros)				31/12/2018 31/12/2017 31/12/2018 31/12/2017 31/12/2018 31/12/2017
Finance lease liabilities	151	82	106	121	257	203
Government loans	6,688	6,583	742	627	7,430	7,211
Loans from related parties	1,283	1,511	228	253	1,511	1,765
Bank debt	2,125	2,375	250	250	2,375	2,625
Convertible Bonds	0	0	1,279	0	1,279	0
Total financial liabilities	10,247	10,551	2,606	1,251	12,853	11,803

Financial liabilities are detailed as follows:

Finance Lease Liabilities

The finance lease liabilities relate to the leases of laboratory equipment (lease term of 3 or 5 years) for an amount of € 223,000 and the long lease right on the land (lease term of 99 years) on which the new facilities at Gosselies are constructed, for an amount of € 35,000. The increase is mainly related to the new contracts signed for different equipments for the laboratory and for the production facility in Gosselies.

The Group has options to purchase the equipment for a fixed amount at the end of the lease term. The Group's obligations under finance leases are secured by the lessors' title to the leased assets. Interest rates underlying the obligations under finance leases related to laboratory and production equipment are fixed at respective contract dates ranging from 2.2% to 5% per annum.

The future minimum lease payments related to these finance leases can be reconciled as follows to the liabilities recognised in the consolidated statement of financial position:

Future minimum lease payments (in thousands of euros)	31/12/2018	31/12/2017
Not later than 1 year	115	126
Later than 1 year and not later than 5 years	74	63
Later than 5 years	332	273
Less: future finance charges	(265)	(259)
Present value of minimum lease payments	257	203
Present value of minimum lease payments (in thousands of euros)	31/12/2018	31/12/2017
Not later than 1 year	109	121
Later than 1 year and not later than 5 years	131	57
Later than 5 years	17	25
Present value of minimum lease payments	257	203

Government Loans

The government loans relate to the repayable part of recoverable cash advances (not linked to turnover) and are detailed in note 8.2.12. Interest is charged to this repayable part at a rate based on Euribor 1 year + 100 basis point or IBOR 1 year + 100 basis point if higher.

Bank Debt

In respect of non-current debts, the Company has taken up two long-term investment credit facilities from BNP Paribas Fortis SA/NV and ING Belgique SA/NV to finance the Infrastructure project for a total amount of € 2.66 million. Those 2 loans have a term of 15 years and the applicable interest rate amounts to EURIBOR 3M (the reference rate) increased with a margin of 2.5%. SCTS SA has the option to negotiate fixed interest rates for pleriods up to the end of the contracts.

Convertible Bonds

We refer to note 8.3.3 where the valuation of the corresponding financial liability has been described.

In relation with IAS 7, the Company has recognised a total financial liability of € 12.86 million in 2018.

(in thousands of euros)	31/12/17	Cash flows	New contracts	Non-cash changes Change in estimated cash flows	31/12/18
Finance lease liabilities	203	(118)	172	0	257
Government loans	7,211	(573)	598	194	7,430
Loans from related parties	1,765	(254)	0	0	1,511
Bank debt	2,625	(250)	0	0	2,375
Convertible Bonds	0	525	238	516	1,279
Total liabilities from financing activities	11,804	(670)	1,008	710	12,852

8.5.10.Other Non-Current Liabilities

According to the SCTS shareholders' agreement, the Company has granted to the 50.1% non-controlling interests in SCTS an option to sell (put option) their SCTS shares to the Company (see note 8.3.2 for more details).

8.5.11.Trade and Other Payables

Trade and other payables are detailed as follows:

(in thousands of euros)	31/12/2018	31/12/2017
Trade payables	3,242	2,808
Other payables	754	775
Total trade and other payables	3,996	3,583

Trade payables (composed of supplier's invoices and accruals for supplier's invoices to receive at reporting date) are non-interest bearing and are in general settled 30 days from the date of invoice.

The increase of € 0.41 million is mainly related to larger number of invoices received at year-end 2018 compared to 2017. Other payables include solely short-term employee benefits liabilities and remain stable compared to last year.

8.5.12.Other current liabilities

Other current liabilities consist of the deferred income related to the government grants as detailed in the following table:

(in thousands of euros)	31/12/2018	31/12/2017
Deferred income on grants related to recoverable cash advances	2,675	4,029
Deferred income on licensing agreement	0	1,629
Deferred income on grants related to patents	50	106
Total	2,725	5,764

The deferred income related to the grants on the recoverable cash advances is detailed in note 8.6.2.

The main variation is related to the fact that in 2017, the Company deferred the upfront payment received from AK over a period of 10 years based on the IAS18. Please find more detail in note 8.6.1.

8.6. Notes Relating to the Statement of Comprehensive Income

8.6.1. Revenues

In 2018, the Company recognized a success fee payment from licensee Asashi Kasei, after reaching a regulatory milestone following a successful consultation with the Japanese Regulatory Authority for PREOB for an amount of € 1.00 million. Last year, the Company received an amount of € 1.67 million from Asahi Kasei for the signature of the licensing agreement. Based on IAS18's recognition, the Company has decided to recognize the amount of the duration of the performance obligation (10 years). In 2017, the Company has recognized an amount of € 0.04 million. Following the application of the new IFRS15 rule, the difference has been recognized into the equity for an amount of € 1.63 million.

(in thousands of euros)	31/12/18	31/12/17
Licence	1,000	41
Other	0	0
Total	1,000	41

8.6.2. Other Operating Income

The other operating income relate to the different grants received by the Group:

(in thousands of euros)	31/12/2018	31/12/2017
Grants income related to recoverable cash advances	2,523	2,459
Grants income related to exemption on withholding taxes	668	732
Grants income related to tax credit	610	741
Grants income related to patents	229	201
Other grants income	48	30
Total	4,079	4,163

Recoverable Cash Advances

The recoverable cash advances ("Avances récupérables") are granted to support specific research and development programs. After the approval of these loans by the government (i.e. Walloon Region), a receivable is recognised for the loan to be received and presented as other receivables (see note 8.5.5). These loans become refundable under certain conditions, including the fact that the Group decides to exploit the R&D results of the project. In such case, part of the loan (30%) becomes refundable based upon an agreed repayment schedule, whereas the remaining part (70% and up to 170%) only becomes refundable to the extent revenue is generated within 10 or 25 years after the date at which exploitation has been decided. Accordingly, if no revenue is generated within that period of 10 or 25 years, any non-refunded part of the loan will ultimately not be repaid.

RCA's are partially recognized as a financial liability at the time of signing the agreement as explained in section 8.3.3 above and corresponding to the present value of the expected reimbursements discounted at a rate ranging between 1.08% and 17.1 %. The difference between the actual amount received and the amount recognized as financial liability is considered as a government grant and is presented under the caption "deferred income". The deferred income is released as "other operating income" as the R&D costs compensated by the grant are incurred. The part of the grant representing the discount effect on the minimum refundable amount is released as interest income over the period of the interest free loan.

The receivable related to the recoverable cash advances is reconciled as follows:

(in thousands of euros)	31/12/18	31/12/17
Opening balance	5,001	7,322
New grants	1,395	829
New loans	598	355
Cancelled grants	(31)	(90)
Cash received	(2,258)	(3,415)
Closing balance	4,705	5,001

The movements related to the debt of the government loans are detailed in the following table:

(in thousands of euros)	31/12/18	31/12/17
Opening balance	7,210	7,139
New loans	598	355
Repayment	(573)	(510)
Impact of interests	128	30
Unwind of discount	65	196
Closing balance	7,430	7,210

The deferred income related to the recoverable cash advances recognised in the consolidated statement of financial position can be reconciled as follows:

(in thousands of euros)	31/12/18	31/12/17
Opening balance	4,029	5,976
Released as operating income	(2,523)	(2,459)
Unwind of discount	(65)	(196)
Cancelled grants	(31)	(90)
Impact of interests	(128)	(30)
Increase on new grants	1,395	829
Closing balance	2,675	4,029

Grants Related to Tax Credit

For more detail on this section, see note 8.3.5.

Grants Related to the Exemption of Withholding Taxes for Researchers

Companies that employ scientific researchers and qualify as "R&D center" benefit from a partial exemption from payment of withholding tax on the salaries of scientific staff. They must transfer to the tax authorities only 20% of the withholding tax due on the salary of these researchers while the remaining amount is considered to be a government grant. These grants are recognised in the consolidated statement of comprehensive income at the same moment the related personnel expenses are incurred.

Grants Related to Patents

The Group receives government grants related to patents. On average, the grants received cover 70% of the fees incurred in the process of obtaining patents.

Considering that patent costs are expensed as incurred, related patent grants are immediately recognised as other operating income when the patent fees are incurred.

8.6.3. Research and Development Expenses

(in thousands of euros)	31/12/2018	31/12/2017
Lab fees and other operating expenses	5,746	6,093
Employee benefits expenses	6,212	6,173
Depreciations, amortisations and impairment losses	509	444
Patents costs	417	412
Total	12,884	13,122

Research and development expenses amounted to € 12.88 million for the full year 2018, showing a decrease of € 0.24 million (-1.8%) compared to 2017. The decrease has been the result of lower R&D costs in ongoing clinical trials.

8.6.4. General and Administration Expenses

(in thousands of euros)	31/12/2018	31/12/2017
Employee benefits expenses	1,868	1,796
Depreciation and amortization expense	71	78
Other expenses	1,721	1,511
Total	3,660	3,385

General and administrative expenses for the full year 2018 amounted to € 3.66 million compared to € 3.39 million over the same period last year. The increase is mainly the result of higher advisory costs related to the Company's strategic corporate activities.

8.6.5. Employee Benefit Expenses

Employee benefits expenses can be detailed as follows:

(in thousands of euros)	31/12/2018	31/12/2017
Short term benefits	6,770	6,660
Social security cost	1,038	1,180
Post-employment benefits and other benefits	219	218
Share-based compensation	52	(89)
Other expenses	0	0
Total	8,080	7,970

8.6.5.1. Post-Employment Benefit Plan

The Group has a group insurance plan based on defined contributions for some employees, for which the insurance company guarantees an interest rate until retirement (type 'branche 21 / tak21'). The contributions are a flat percentage of the salary depending on the category of personnel, entirely paid by the employer. By law, the employer has to guarantee a minimum rate of return on the contributions.

Based on an analysis of the plans and the limited difference between the legally guaranteed minimum returns and the interest guaranteed by the insurance company, the Group has concluded that the application of the PUC method would not have a material impact. The accumulated reserve (individualized reserves accumulated with the insurer) amounts to € 0.07 million and the accumulated contribution paid amounts to € 0.09 million.

8.6.5.2. Average Number of Employees in Full Time Equivalents during the Year

Number of employees	31/12/2018	31/12/2017
Research and development	80	85
General and administrative	7	8
Total	87	94

8.6.6. Financial Result

Financial result	31/12/2018	31/12/2017
Interest income on bank deposits	(1)	(2)
Interest income on government loans	(65)	(196)
Total financial income	(66)	(197)
Interest on borrowings	211	192
Interest on government loans	65	196
Interest on obligations under finance leases	25	35
Transaction costs on convertible bonds	580	0
Recognition of the discount on CBs	1,691	0
Share in result of associate	(16)	(7)
Fair value gain or losses	37	(66)
Other	0	0
Total financial expenses	2,593	350
Exchange gains/(losses)	18	12
Total financial result	2,545	165

Financial income amounts to € 0.07 million and is composed of interest income on bank deposits and income recognition on government loans in particular the minimum refundable amount of the recoverable cash advances referred to in note 8.2.6 which come at a below market rate interest.

Financial expenses amount to € 2.59 million in 2018 and are mainly impacted by the recognition of the discount given on the committed capital from the private placement of the convertible bonds and related warrants (for an amount of € 1.69 million) and by the recognition of the transaction costs of € 0.58 million related to the corresponding private placement (see note 8.3.4).

8.6.7. Income Taxes

For the fiscal year 2018, the Company recorded an amount in taxes of € 0.10 million related to the withholding tax related to the milestone from Asahi Kasei. The Company also recorded an amount of € 0.03 million for its affiliate SCTS.

Current tax	31/12/2018	31/12/2017
in respect of the current year	131	178
in respect of prior years	0	0
Total income taxes	131	178

The Group has recognized an income tax of € 30,000 in 2018 related to the 2018 fiscal year.

(in thousands of euros)	Bone Therapeutics	SCTS
Profit (loss) before tax - BEGAAP	(14,173)	160
Losses carried forward	0	0
Other		(60)
Total profit (losses) carried forward	(14,173)	100
Belgian statutory income tax rate	29.58%	29.58%
Income taxes	0	30

8.6.8. Earnings per Share

The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:

(in thousands of euros)	31/12/2018	31/12/2017
Profit/loss for the period attributable to the owners of the Company	(14,142)	(12,769)
Weighted average number of ordinary shares for basic loss per share (in number of shares)	7,610,755	6,849,654
Basic/diluted loss per share (in euros)	(1.86)	(1.86)

Due to the loss of the period, no dilutive instruments are considered for the diluted earnings per share 2018 and 2017 as the inclusion of these instruments would have an adverse effect, i.e. reducing the loss per share. The impact of the dilutive instruments on the weighted average on ordinary shares would be as follows:

(in thousands of euros)	31/12/2018	31/12/2017
Impact on weighted average number of ordinary shares outstanding
Share-based payment plan - warrants	167,300	167,300
Convertible bonds ans the attributed warrants	1,047,825	0

8.7. Financial Instruments and Financial Risk Management

8.7.1. Overview of Financial Instruments

The following table provides the category in which financial assets and financial liabilities are classified in accordance with IFRS9 – Financial Instruments.

(in thousands of euros)	IFRS9 Category	31/12/18	31/12/17
Other non-current financial assets
Non-current receivables	financial assets at amortized cost	323	317
Trade and other receivables	financial assets at amortized cost	5,083	5,226
Cash and cash equivalents	financial assets at amortized cost	8,174	8,411
Total financial assets		13,580	13,953
Non-current financial liabilities
Finance lease liabilities	At amortised cost	151	82
Government loans (RCA)	At amortised cost	6,688	6,583
Loans from related parties	At amortised cost	1,283	1,511
Bank debt	At amortised cost	2,125	2,375
Other non-current liabilities
Put on non-controlling interests	At fair value through profit and loss	1,678	1,641
Current financial liabilities
Finance lease liabilities	At amortised cost	106	121
Government loans (RCA)	At amortised cost	742	627
Loans from related parties	At amortised cost	228	253
Convertible bonds	At fair value through profit and loss	1,279	0
Bank debt	At amortised cost	250	250
Trade and other payables
Trade payables	At amortised cost	3,043	2,808
Total financial liabilities		17,573	16,252

The fair value of financial instruments can be classified into three levels (1 to 3) based on the degree to which the inputs to the fair value measurements are observable:

• Fair value measurements of level 1 are based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Fair value measurements of level 2 are based on inputs, other than quoted prices included within level 1, that are observable for the asset or liability, either directly (through prices) or indirectly (through input derived from prices);
• Fair value measurements of level 3 are based on valuation techniques comprising inputs which are unobservable for the asset or liability.

The fair value of financial instruments has been determined using the following methods:

• For short-term financial instruments, such as trade receivables and payables, the fair value is considered not to be significantly different from the carrying amount measured at amortized cost;
• For floating rate liabilities, the fair value is considered not to be significantly different from the carrying amount measured at amortized cost;
• For the other derivative instruments, the fair value is determined by discounting future estimated cash flows;

For fixed rate liabilities, the fair value is determined by discounted cash flows, based on the market interest rates at reporting date.

The carrying amounts of financial assets recognised in the consolidated financial statements at amortised cost approximate their fair values. The same situation is applicable for financial liabilities, except as detailed in the following tables:

		31/12/18
(in thousands of euros)	Carrying amount	Fair value	Fair value level
Other non-current financial assets
Non-current receivables	323	323	Level 2
Trade and other receivables	5,083	5,083	Level 2
Cash and cash equivalents	8,174	8,174	Level 2
Total financial assets	13,580	13,580
Non-current financial liabilities
Finance lease liabilities	151	151	Level 2
Government loans	6,688	8,667	Level 3
Loans from related parties	1,283	1,535	Level 2
Bank debt	2,125	2,357	Level 2
Other non-current liabilities
Put on non-controlling interests	1,678	1,678	Level 3
Current financial liabilities
Finance lease liabilities	106	106	Level 2
Government loans (RCA)	742	742	Level 2
Loans from related parties	228	228	Level 2
Convertible bonds	1,279	1,279	Level 2
Bank debt	250	250	Level 2
Trade and other payables
Trade payables	3,043	3,043	Level 2
Total financial liabilities	17,573	20,036

		31/12/17
(in thousands of euros)	Carrying amount	Fair value	Fair value level
Other non-current financial assets
Non-current receivables	317	317	Level 2
Trade and other receivables	5,226	5,226	Level 2
Cash and cash equivalents	8,411	8,411	Level 2
Total financial assets	13,953	13,953
Non-current financial liabilities
Finance lease liabilities	82	82	Level 2
Government loans	6,583	8,148	Level 3
Loans from related parties	1,511	1,799	Level 2
Bank debt	2,375	2,664	Level 2
Other non-current liabilities
Put on non-controlling interests	1,641	1,641	Level 3
Current financial liabilities
Finance lease liabilities	121	121	Level 2
Government loans (RCA)	627	627	Level 2
Loans from related parties	253	253	Level 2
Bank debt	250	250	Level 2
Trade and other payables
Trade payables	2,808	2,808	Level 2
Total financial liabilities	16,252	18,393

The financial liabilities subsequently measured at fair value on Level 3 fair value measurement are the put option granted by the Group to non-controlling interests in SCTS, which has been fully consolidated, and the convertible bonds and related warrants.

The government loans related to the recoverable cash advances are measured at amortised costs (fair value is disclosed above and is also a Level 3 measurement).

Put Option Granted by the Group to Non-Controlling Interests in SCTS:

These commitments to purchase equity instruments have been recognized under other non-current liabilities and concern 50.1% of SCTS.

The table below shows the reconciliation of the level 3 fair value measurement:

Reconciliation (in thousands of euros)	31/12/18	31/12/17
Opening balance	1,641	1,635
Impact of the dividend paid	0	(60)
Total gains or losses in profit or loss	37	66
Decrease of capital	0	0
Closing balance	1,678	1,641

The put option has been measured using a discounted cash flow analysis based on significant unobservable inputs, such as expected rate of return (6.5%) and discount rate (1.1%). See also note 8.3.2 of these consolidated financial statements on significant judgments.

If the above unobservable input linked to the expected rate of return was 10% higher/lower while all the other variables were held constant, the carrying amount of the put option would increase/decrease by € 58,000 (2017: increase/decrease by € 62,000).

Convertible Bonds and Related Warrants:

We refer to note 8.3.3 where the valuation of the corresponding financial liability has been described.

Reconciliation in thousands of euros	31/12/2018
Opening balance	0
Change in fair value	13,408
Total gains or losses in profit or loss	(1,691)
Transfer to equity	(12,996)
Closing balance	1,279

The liability linked to the convertible bonds and related warrants can only be lower if the assumptions linked to the judgments of management (described under note 8.3.3) would be different.

Government loans related to the recoverable cash advances:

The fair value has been calculated as the weighted average of a best case, base case and worst case scenario for each project. The weight given to each scenario is as follows:

Best case given the weight of the probability of success (PoS) determined by the Management based on the analysts' reports (ranging from 20% to 40%) to each project whereby the project is successfully commercialized and a maximum of the commitments vis-à-vis the Walloon Region are honored.

• Worst case: the Company stops all activity in 2020 and will only honor its fixed commitments up to that date. Probability for this scenario has been set at 10% for all projects
• Base case: the Company honors only the fixed commitments (non-turnover related reimbursements) for each of the projects. The probability for this scenario has been set between 50% and 70%.

Based on those scenarios, the fair value, after discounting fixed commitments at rates between 1.08% and 2,91% and the turnover dependent reimbursements at a rate of 17.10% (average rate used by the analysts following the Company) amounts to € 9.41 million.

When applying a sensitivity analysis on the above varying the ponderations between the best and base case scenario (decreasing/increasing the PoS of the projects) and varying the discount rate used for discounting the turnover dependent reimbursements (using a discount rate for a more mature biotech company) we obtain the following results:

in thousands €	Impact of PoS*
	-40%	-20%	0	+20%	+40%
DCF with discount rate of 17,10% used for turnover dependent reimbursement	8,717	9,005	9,409	9,893	10,887
DCF with discount rate used for turnover dependent reimbursement reduced to 12,5%**	9,359	9,750	10,298	10,955	12,203

* decrease/increase of best case versus increase/decrease of base case with the worst case scenario remaining at the same level

** DCF used for turnover dependent reimbursements

8.7.2. Credit risk

The Company believes that its credit risk, relating to receivables, is limited because currently almost all of its receivables are with public institutions. Cash and cash equivalent and short-term deposits are invested with highly reputable banks and financial institutions.

The maximum credit risk, to which the Group is theoretically exposed as at the balance sheet date, is the carrying amount of the financial assets. At the end of the reporting period no financial assets were past due, consequently no financial assets were subject to impairment.

8.7.3. Liquidity risk

The Company manages liquidity risk by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

The Company's main sources of cash inflows are obtained through capital increases, subsidies, government loans and where appropriate loans from commercial banks to finance long-term requirements (investment in infrastructure). A key objective of the Board together with the Executive Directors is to ensure that the Company remains adequately financed to meet its immediate and medium-term needs.

If necessary and appropriate the Company assures itself of short-term borrowing facilities to cover short-term requirements.

The following table details the Group's remaining contractual maturity of its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The tables include both interest and principal cash flows. The contractual maturity is based on the earliest date on which the Group may be required to pay.

31/12/2018 in thousands of euros	Financial lease liabilities	Government loans	Loans from related parties	Convertible Bonds	Bank debt	Total
Within one year	115	808	296	1,279	307	2,806
>1 and <5 years	74	3,143	849	0	1,166	5,232
>5 and <10 years	77	1,899	817	0	1,192	3,985
>10 and <15 years	15	1,059	5	0	0	1,079
>15 years	240	1,688	0	0	0	1,928
31/12/2017 in thousands of euros	Financial lease liabilities	Government loans	Loans from related parties	Convertible Bonds	Bank debt	Total
Within one year	126	662	329	0	313	1,429
>1 and <5 years	63	3,802	1,026	0	1,191	6,082
>5 and <10 years	15	1,726	397	0	1,091	3,228
>10 and <15 years	15	940	543	0	383	1,881
>15 years	243	1,320	0	0	0	1,563

8.7.4. Interest Rate Risk

The Company has limited interest rate risk on long-term investments loans (related to bank debts) concluded through its subsidiary SCTS on 15 July 2014 which are currently financed at variable interest rates linked to EURIBOR 3M. For these long-term loans the Company is permanently monitoring the short-term interest rates versus options to swap these rates with a long-term interest rate (IRS) in function of the remaining term of the loan.

Other longer term loans granted by regional investment bodies but also including the turnover independent reimbursements (30%) related to RCA's (related to government loans) concluded as of 2009 are carrying fixed interest rates. The Group at current does not undertake any hedging.

8.7.5. Foreign Exchange Risk

The company is currently not exposed to any significant foreign currency risk.

However should the Company enter into long-term collaboration agreements with third parties for which revenues would be expressed in a foreign currency, the Company might in such case consider to enter into a hedging arrangement to cover such currency exposure (in case the related expenditure is planned in local currency). The Company will also monitor exposure in this respect following the establishment of its US subsidiary.

8.8. Related-Party Transactions

The structure of the group has been described in Chapter 3.

For more detail about the related-party transactions, please refer to Chapter 5.

Balances and transactions between the Company and its subsidiary, which is a related party of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.

8.8.1. Transactions with SISE

SISE, which is an associate of the Group, performed certain services for the Company, for which an amount of € 463,000 (2017: € 482,000) was charged, being an appropriate allocation of costs incurred by the associate.

Furthermore, a liability is recognised in the consolidated statement of financial position for an amount of € 208,000, consisting of trade payables (€ 173,000) and a finance lease liability for the long lease right on the land (€ 35,000, of which € 32,000 as a non-current liability).

8.8.2. Transactions with the Walloon Region

As a result of the relationship of the government (i.e. Walloon Region) with some shareholders of the Company and the extent of financing received, the Company judges that the government is a related party. However, the principal amounts recognised in the financial statements relate to government grants for a total of € 33.27 million. Next to the government grants, government agencies granted loans to the Group for a total amount of € 2.42 million.

8.8.3. Remuneration of Key Management and Transactions with the Non-Executive Directors

The remuneration of key management personnel has been described as follow:

	Period ended 31 December
(in thousands of euros)	2018	2017
Number of management members	5	5
Short-term benefits	1,367	1,653
Share-based payments	52	(89)
Total	1,419	1,564
Cumulative number of warrants granted (in units)	60,000	60,000
Shares owned (in units)	2,880	0

Transactions with the non-executive directors can be summarized as follows:

	Period ended 31 December
(in thousands of euros)	2018	2017
Share-based payments	0	0
Management fees	228	223
Total	228	223
Number of warrants granted (in units)	0	39,800
Shares owned (in units)	226,946	660,934

8.9. Commitments

Operating leases relate to leases of offices (lease term of 3 years) and company cars (lease term of 4 years). The Group does not have an option to purchase the leased assets at the expiry of the lease periods. For the period ended 31 December 2018 minimum lease payments for a total amount of € 576,000 have been recorded in the consolidated statement of comprehensive income (2017: € 560,000).

The following table presents the future non-cancellable operating lease commitments:

(in thousands of euros)	31/12/2018	31/12/2017
Not later than 1 year	355	557
Later than 1 year and not later than 5 years	494	545
Later than 5 years	0	0
Total	849	1,102

8.10.Events after the Reporting Period

The annual consolidated financial statements on 31 December 2018 were authorized for issue by the Board of Directors of the Company on 24 April 2019. Accordingly, events after the reporting period are those events that occurred between 1 January 2018 and 24 April 2019.

From January till the date of this Annual Report, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 579,438 with issuance of 383,734 shares and amounts to € 13,110,950. The aggregate share premium for this transaction amounts to € 803,035.

9. STATUTORY ACCOUNTS

9.1. Condensed Statutory Annual Accounts

In accordance with Art. 105 of the Belgian Companies' Code, the condensed statutory financial statements of Bone Therapeutics SA are presented here. These condensed statements have been drawn up using the same accounting principles for preparing the full set of statutory financial statements of Bone Therapeutics SA for the financial year ending 31 December 2018. These financial statements were as such prepared in accordance with the applicable accounting framework in Belgium and with the legal and regulatory requirements applicable to the financial statements in Belgium.

The management report, the statutory financial statements of Bone Therapeutics SA and the report of the statutory auditor will be filed with the appropriate authorities and are available at the Company's registered offices. The statutory auditor has issued an unqualified report on the statutory financial statements of Bone Therapeutics SA. The full set of the statutory financial statements is also available on the Company's website www.bonetherapeutics.com.

9.1.1. Balance Sheet

ASSETS (in thousands of euros)	31/12/18	31/12/17
Non-current assets	3,015	5,206
Formation expenses	1,202	1,351
Intangible assets	171	2,165
Property plant and equipment	113	174
Financial fixed assets	1,528	1,515
Current assets	16,945	14,674
Amounts receivable for more than one year	3,856	3,598
Trade and other receivables	5,236	3,555
Investments	3,449	2,849
Cash and cash equivalents	4,337	4,542
Deferred charges and accrued income	68	130
TOTAL ASSETS	19,960	19,879
EQUITY AND LIABILITIES
(in thousands of euros)	31/12/18	31/12/17
Equity	7,809	8,570
Share capital	12,532	14,663
Share premium	6,022	0
Accumulated profits (losses)	(10,744)	(6,093)
Non-current liabilities	4,240	4,067
Current liabilities	7,910	7,242
Current portion of amounts payable after one year	1,643	834
Trade debts	3,507	3,269
Taxes remuneration and social security	753	533
Other amounts payable	1,730	2,052
Accrued charges and deferred income	278	555
Total liabilities	12,151	11,309
TOTAL EQUITY AND LIABILITIES	19,960	19,879

9.1.2. Statutory Income Statement

(in thousands of euros)	For the 12-months period ended
	31/12/18	31/12/17
Operating income	15,069	17,508
Turnover	1,000	1,670
Own construction capitalized	10,112	10,638
Other operating income	3,957	5,200
Operating charges	(29,143)	(32,225)
Services and other goods	(11,312)	(11,551)
Remuneration, social security, pensions	(3,889)	(3,898)
Depreciation and amounts written off fixed assets	(12,944)	(15,975)
Other operating charge	(999)	(801)
Operating profit/(loss)	(14,074)	(14,717)
Financial income	4	3
Financial expenses	(103)	(80)
Result Profit/(loss) before taxes	(14,173)	(14,794)
Income taxes	(100)	(167)
TOTAL COMPREHENSIVE INCOME OF THE PERIOD	(14,273)	(14,961)

9.2. Annual report of the Board of Directors on the Statutory Financial Statements of Bone Therapeutics SA

Dear Shareholders,

We are pleased to present to you the statutory financial statements for the fiscal year ended 31 December 2018

9.2.1. Operational and Corporate Highlights of 2018

Detailed Clinical and Operational Review

On 19 February 2018, Bone Therapeutics announced that it had completed recruitment of the Phase IIa ALLOB study in 32 patients undergoing a lumbar spinal fusion procedure. Following the 12-month follow-up period, topline efficacy and safety results are expected mid-2019. This Phase IIa study is designed to evaluate the safety and efficacy of ALLOB in addition to standard of care, which consists of the implantation of an interbody cage with bioceramic granules into the spine to achieve fusion of the lumbar vertebrae. The primary endpoints of the study include radiological assessments to evaluate lumbar fusion progression, clinical assessments to evaluate the improvement in physical condition, and safety. Positive interim safety and efficacy results for the first 15 patients were reported in September 2017.

On 14 September 2018, the Company announced positive final results from the Phase I/IIa study with ALLOB in 21 patients with delayed-union fractures, supporting the progression into the next phase of clinical development of ALLOB in this indication. The results from this study demonstrated that ALLOB met the primary endpoint as defined by an increase of at least two points on the radiological Tomographic Union Score (TUS) or an improvement of at least 25% of the clinical Global Disease Evaluation (GDE) score versus baseline. Radiological evaluation of fracture healing showed an improvement of 3.84 points on average on the TUS scale, almost twice the required minimum of 2.0 points. The Global Disease Evaluation (GDE) score to assess the general health condition of the patient, improved 48% on average and there was a statistically significant reduction in pain at the fracture site of 61% on average.

The Company also announced the development and implementation of an improved and optimized production process for ALLOB, to deliver consistency, scalability, cost-effectiveness and ease of use, all of

which are critical factors for the development and commercialization of a successful cell therapy product. The optimized production process significantly increases the production yield, generating 100,000 doses of ALLOB per bone marrow donation. Additionally, the final ALLOB product will be cryopreserved, to allow ease of shipment and local storage in a hospital setting. The process will therefore substantially reduce overall production costs and simplify supply chain logistics, which improves patient accessibility and facilitates global commercialization. The Company plans to implement this optimized process for all future clinical development programs with ALLOB.

On 24 September 2018, Bone Therapeutics presented preclinical results for ALLOB in an oral presentation at the 26th Annual Meeting of the European Orthopedic Research Society (EORS), in Galway, Ireland. The in vitro and in vivo data demonstrated the potent osteogenic properties of its allogeneic bone-forming cell therapy platform to promote bone formation and improve fracture healing in relevant animal models.

On 17 October 2018, Bone Therapeutics announced positive results for the first efficacy study with JTA-004, an enhanced viscosupplement, in patients with moderate symptomatic knee osteoarthritis, supporting the progression to the next phase of clinical development. 164 patients were randomly assigned to receive either one of the 3 doses of JTA-004 or the reference product Hylan G-F20. At six months post administration, patients in the pooled JTA-004 group showed a 26.1 mm mean improvement in the WOMAC® VA 3.1 pain subscale score compared to 15.6 mm for the reference group, demonstrating a statistically significant superiority of the pooled JTA-004 groups compared to the leading viscosupplement currently on the market. In addition, JTA-004 was generally well tolerated across all administered doses.

On 6 November 2018, the Company announced the discontinuation of the Phase III study with the autologous cell therapy product, PREOB, in patients with hip osteonecrosis. At interim analysis, the Data and Safety Monitoring Board (DSMB) reported that PREOB was well-tolerated but, based on the interim efficacy results, the primary objective of the study would not be achieved. The DSMB therefore recommended the discontinuation of the trial. Subsequent analysis of the unblinded interim data of the Phase III PREOB study in patients with hip osteonecrosis demonstrated that PREOB had a clinical effect, which was in line with the previous reported results from the Phase II study. However, this analysis also revealed that the control group, which consisted of core decompression alone, performed much better than what was originally anticipated from historical clinical studies. This could be related to substantial improvements of the core decompression techniques in recent years, and hence may have led to a reduced difference in responder rate between the control arm and PREOB group, leading to the discontinuation of the Phase III trial.

Corporate Developments

On 20 February 2018, Jean Stéphenne was appointed Chairman of the Board of Directors. Jean Stéphenne is a highly-experienced life sciences executive, who has held multiple senior leadership roles in biotechnology and pharmaceutical companies, most recently as Chairman of TiGenix. Together with the Board of TiGenix, he oversaw the clinical development and European marketing authorisation of TiGenix' most advanced allogeneic cell therapy product for the treatment of complex perianal fistulas in Crohn's disease, resulting in the acquisition of the company for €520 million by Takeda. Before joining TiGenix, Jean Stéphenne was a Member of the Corporate Executive Team of GlaxoSmithKline (GSK) and Chief Executive of GSK Biologicals (now GSK Vaccines). During his 40-year tenure at GSK Vaccines, he grew a company of 50 people into a fully integrated worldwide leader in vaccine development and commercialisation, employing 12,000 people worldwide.

On 26 April 2018, the Company appointed Claudia D'Augusta as Independent Director to its Board of Directors. Claudia D'Augusta is a seasoned financial professional with more than 20 years of experience in corporate finance, the capital markets and M&A. She currently is Venture Partner at Ysios Capital and previously was the Chief Financial Officer at TiGenix. Prior to TiGenix, Claudia D'Augusta held various other senior financial positions across a number of international public and private companies.

Following his nomination at the Annual General Assembly held on 13 June 2018, Chief Financial Officer, Jean-Luc Vandebroek also joined the Board as an Executive Director.

On 29 October 2018, Linda Lebon was appointed Chief Regulatory Officer. Linda Lebon is a strategic regulatory expert with more than 25 years of experience in regulatory affairs. Linda has held positions in several large pharmaceutical companies as well as senior positions in regulatory CROs and advisory firms. As an independent consultant, she supported several fast-growing life sciences companies in their product development strategy in Europe, America and Japan. Linda will play a critical role in defining the regulatory pathway for the Company's clinical programmes and will support the Company as it advances these programmes towards commercialisation.

9.2.2. Outlook 2019

The Company expects to report top line data in mid-2019 from the Phase IIa study with ALLOB in 32 patients undergoing a lumbar spinal fusion procedure.

In the second half of 2019, the Company plans to submit a clinical trial application (CTA) with the regulatory authorities in Europe and the United States to allow the start of a Phase IIb/III clinical trial with ALLOB in patients with delayed-union fractures, using its proprietary, optimised production process. The Company is currently generating the non-clinical data package as required.

Also, in the second half of 2019, the Company plans to submit a CTA with the regulatory authorities in Europe and the United States for the Phase III programme with JTA-004 in patients with knee osteoarthritis.

Good cost and cash management will remain a key priority. The net cash burn for the full year 2019 is expected to be in the range of € 12-13 million. The Company anticipates having sufficient cash to carry out its business objectives until the end of 2019, taking into account the € 5.18 million to be received under the convertible bond programme.

9.2.3. Financial review

The statutory accounts are drawn up in accordance with BEGAAP and have been approved by the Board of Directors on 24 April 2019.

		Year ended 31 December
(in thousands of euros)	2018	2017
Operating income	15,069	17,508
Turnover	1,000	1,670
Own construction capitalized	10,112	10,638
Other operating income	3,957	5,200
Operating charges	(29,143)	(32,225)
Services and other goods	(11,312)	(11,551)
Remuneration, social security, pensions	(3,889)	(3,898)
Depreciation and amounts written off fixed assets	(12,944)	(15,975)
Other operating charge	(999)	(801)
Operating profit/(loss)	(14,074)	(14,717)
Financial income	4	3
Financial expenses	(103)	(80)
Result Profit/(loss) before taxes	(14,173)	(14,794)
Income taxes	(100)	(167)
PROFIT/(LOSS) FOR THE PERIOD	(14,273)	(14,961)

9.2.3.1. Income statement

In 2018, the revenue and operating income highly decreased compared to last year. The Company recognized a success fee payment from licensee Asahi Kasei, after reaching a regulatory milestone following a successful

consultation with the Japanese Regulatory Authority for PREOB for an amount of € 1.00 million in 2018. Last year, the Company recognized an amount of € 1.67 million of upfront payment in relation with the same Licensing Agreement with Asahi Kasei Corporation. Other operating income decreased by € 1.24 million. The revenue recognized on recoverable cash advances ("avances récupérables) and on tax credit decreased by € 1.34 million which is explained by the change of accounting principles applied from 2016. Other operating income also represents revenue recognized patent subsidies, recovery of withholding taxes which remain unchanged.

Total operating charges excluding depreciation charges (services and other goods, remuneration, social security charges and pension charges and other operating charges) amounted to € 16.20 million compared to € 16.25 million for 2017. Operating charges were mainly impacted by a slight increase of the other operating charges (+ € 0.20 million). The increase is resulting from the recognition in 2018 of the fixed debt for projects supported by the Walloon Region for which the Company decided that the results of these projects would be further exploited. In 2018 this was the case for 3 importants projects (4 projects in 2017). Services and other goods caption slightly decreased compared to 2017. For the payroll caption, its remained stable (53.9 FTE during 2018 for 56.5 FTE during 2017)

Depreciation amounted to € 12.94 million compared € 15.98 million over the same last year with the decrease entirely due to the full impact of the change in valuation principles in 2016.

The operating loss amounts to € 14.07 million in 2018 compared to € 14.72 million in 2017. The reported net loss in 2018 is at € 14.27 million compared to € 14.96 million in 2017. The Company recognized a tax of € 0.10 million on the milestone payment from the licensing agreement.

(in thousands of euros)	31/12/18	30-12-17
Non-current assets	3,015	5,206
Current Assets	16,945	14,674
of which cash :	7,786	7,391
Total Assets	19,960	19,879
Current liabilities	7,910	7,242
Non-current liabilities	4,240	4,067
Total Liabilities	12,151	11,309
Net assets	7,809	8,570

9.2.3.2. Balance sheet

The total assets as per 31 December 2018 amount to € 19.96 million, compared to € 19.88 million at the end of the December 2017.

Non-current assets were reduced with € 2.19 million. This decrease is mainly on account of the intangible fixed assets and more in particular capitalized R&D expenses due to the implementation of new valuation rules in 2016 and whereby newly capitalized amounts in 2018 were amortized in full in the same year and not over a period of 3 years as we the case in 2016 and in the previous years. The investments made before 1 January 2016 continue to be amortized over a 3-year period. The non-current assets are composed as follows:

Non-current assets (in thousands of euros)	31/12/18	31/12/17	Movement
Formation expenses	1,202	1,351	(149)
Intangible assets	171	2,165	(1,994)
Property plant and equipment	113	174	(61)
Financial fixed assets	1,528	1,515	13
Total	3,015	5,206	(2,191)

The participations made by the Company in Bone Therapeutics USA INC and in Skeletal Cell Therapy Support SA reported under financial fixed assets is valued at acquisition cost and remain unchanged. As per 31 December 2018, the Board of Directors is confident that there are no factors indicating the need for an impairment on these participations.

Current assets have increased by € 2.27 million amounting to € 16.95 million at the end of December 2018. Current assets are composed as follows:

Current assets (in thousands of euros)	31/12/18	31/12/17	Movement
Amounts receivable for more than one year	3,856	3,598	258
Amounts receivable within one year	5,236	3,555	1,681
Investments	3,449	2,849	600
Cash and cash equivalents	4,337	4,542	(205)
Deferred charges and accrued income	68	130	(63)
Total	16,945	14,674	2,272

Amounts receivable for more than one-year amount to € 3.86 million and correspond to the long-term part of the tax credit to be received. Trade and other receivables amount to € 5.24 million, of which € 0.90 million is related to the receivable related to the success fee payment from licensee Asahi Kasei, after reaching a regulatory milestone following a successful consultation with the Japanese Regulatory Authority for PREOB, receivables related to SCTS for € 0.97 million and € 3.37 million related to other amounts receivable. Other amounts receivables are composed as follows: € 2.60 million relates to receivables related to recoverable cash advances ("avances récupérables") and patent subsidies and € 0.34 million relates to the tax credit. The remaining amount is mainly related to receivables of VAT and to the National Social Security Office. Investments and cash and cash equivalents amount to € 7.79 million at 31 December 2018, compared to € 7.39 million at the end of the previous year.

The equity is composed as follows:

Equity (in thousands of euros)	31/12/18	31/12/17	Movement
Share capital	12,532	14,663	(2,131)
Share premium	6,022	0	6,022
Accumulated profits (losses)	(10,744)	(6,093)	(4,651)
Total	7,809	8,570	(761)

Per 31 December 2018, the net equity amounts to € 7.81 million compared to € 8.57 million in the previous year. As a result of the conversion bonds placed via a private placement on 7 March 2018, the share capital was increased by € 2.73 million with the issuance of 1,460,892 shares. The aggregate share premium for this transaction amounts to € 10.81 million. The share capital and the share premium were also reduced by the incorporation of the accumulated losses at 9 July 2018 (for a total of € 9.62 million). The accumulated losses of € 10.74 million correspond to the loss from April 2018 to December 2018. The total loss of the year 2018 amounts to € 14.27 million.

The liabilities are composed as follows:

Liabilities (in thousands of euros)	31/12/18	31/12/17	Movement
Non-current liabilities	4,240	4,067	174
Current liabilities	7,910	7,242	668
Current portion of amounts payable after one year	1,643	834	809
Trade debts	3,507	3,269	238
Taxes remuneration and social security	753	533	221
Other amounts payable	1,730	2,052	(322)
Accrued charges and deferred income	278	555	(278)
Total	12,151	11,309	842

Total liabilities amount to € 12.15 million on 31 December 2018, compared to € 11.31 million at the end of previous year.

Non-current liabilities relate to the amount reimbursable by means of fixed installments (30%) for recoverable cash advances received from the Walloon Region. These are recognized as a debt at the time the Company is deciding on the exploitation of the results obtained out of the research project co-financed with this nondilutive funding. During 2018 new debt was recognized for four projects (€ 1.00 million of which € 0.04 million was recognized in short term). The amount was offset by a reclassification in short term for the fixed debt related to the exploited Walloon Region projects to be reimbursed in 2019. In addition, an amount of € 0.30 million is reported under non-current liabilities for loans granted by Sambrinvest and Novallia (€ 0.44 million in 2017).

Current liabilities amount to € 7.91 million and show an increase of € 0.67 million compared to the end of 2017. The increase is mainly related to the current portion of amounts payable after one year which includes the recognition of the convertible bonds and their related warrants which are not yet exercised for an amount of € 0.76 million. The increase in trade debts and taxes, remunerations and social security is offset by the decrease in other amounts payables and accrued charges and deferred income.

9.2.3.3. Appropriation of the Result

The Company ended the year with a loss of € 14.27 million. Carried forward losses at the end of 2017 amounted to € 6.09 million. The Board of Directors proposes to appropriate the loss for 2018 to losses carried forward. Losses carried forward after appropriation therefore amounts to € 10.74 million.

(in thousands of euros)	31/12/18
Loss carried forward for the year at 31.12.2017	(6,093)
Loss for the period	(14,273)
Incorporation to share capital and share premium	9,622
Total loss carried forward	(10,744)

9.2.4. Capital Increases

On 7 March 2018, the Company successfully raised € 19.45 million of Commitment in Convertible Bond Placement. As a result of the immediate conversion of the convertible bonds placed via the private placement on 7 March 2018, the share capital was increase by € 1.21 million with issuance of 565,773 shares on 9 March

1. The aggregate share premium for this transaction amounts to € 4.79 million. Following the capital increase, the share capital of the Company amounted to € 15.87 million and was represented by 7,415,427 shares.

From April to December 2018, as a result of the subsequent conversion of the convertible bonds placed via the private placement on 7 March 2018, the share capital was increased by € 1.49 million with issuance of 895,119 new shares. The aggregate share premium for this transaction amounts to € 6.02 million.

Following the capital increases and the incorporation of the losses following the AGM decision of July 2018 and representing an amount of € 4.83 million, the share capital of the Company amounted to € 12.43 million and was represented by 8,310,546 shares.

9.2.5. Corporate Governance Statement

9.2.5.1. Corporate Governance Code

This section summarizes the rules and principles by which the corporate governance of the Company is organized. Those rules and principles are based on the corporate governance charter of the Company which has been approved by the Board of Directors of 6 February 2015. This charter can be obtained free of charge at the registered office of the Company and is available on the Company's website (www.bonetherapeutics.com, under the section investors / governance).

9.2.5.2. Compliance with the Corporate Governance Code

Bone Therapeutics' Corporate Governance Charter is based on the provisions of the Belgian Corporate Governance Code (2009 edition). It supplements the corporate governance guidelines contained in the Belgian Companies Code and in the articles of association of the Company.

However, the Board is of the opinion that the Company is justified in not adhering to certain principles of the Belgian Corporate Governance Code, considering the specific nature, size and organization of the Company. Any deviation from the Corporate Governance Code will be indicated, and the reason for such deviation ("comply or explain") either in this Corporate Governance Charter, or in the annual Statement on Corporate Governance included in the Annual Report.

These deviations include:

• Provision 2.9 of the Code: At the date of the Annual Report, no Company Secretary has been assigned by the Board. Since the IPO (6 February 2015) the Board had assigned A&O to provide services in this respect amongst others minuting of board meetings. Since ealy 2019, the Company has assigned this mission to Ostoborne Clarke. Given the limited size of the Company the Board is of the opinion there is no need to appoint a full-time Company Secretary.
• Provision 5.5 of the Code: At the date of this Document, the Nomination and Remuneration Committee is only composed of 2 members. The Board is of the opinion that the actual members have the appropriate knowledge and power to conduct the committee and to have a professional judgment on the decision to take to propose it to the Board of Directors.
• Provision 7.7 of the Code: Although at the date of this Annual Report, no options have been granted to non-executive directors, the Company has reserved the possibility to grant variable remuneration (upon advice of the Nomination and Remuneration Committee), such as long-term stock-related incentive plans, to non-executive directors, so that the Company, as a small-sized listed enterprise, could grant options or warrants to non-executive directors if it would be of the opinion that such grant is necessary to attract or retain (internationally) renowned experts with the most relevant skills, knowledge and expertise.

9.2.5.3. Control Environment

We would like to refer to Chapter 4 ("CORPORATE GOVERNANCE").

9.2.5.4. Shareholders' Structure at Balance Sheet Date

At 31 December 2018, there are 8,310,546 shares representing a total share capital of the Company of € 12,531,511.76. There are only ordinary shares, and there are no special rights attached to any of the ordinary shares, nor special shareholder rights for any of the shareholders of the Company. The total number of issued warrants is 524,760 and 167,300 warrants are outstanding.

The graph⁴ below provides an overview of the shareholders that have notified the Company of their ownership of securities of the Company. This overview is based on the most recent transparency declaration submitted to the Company.

9.2.5.5. Composition of the Board of Directors and its Committees

We would like to refer to Chapter 4 ("CORPORATE GOVERNANCE").

9.2.5.6. Remuneration Report

We would like to refer to Chapter 4, section 4.7 ("Remuneration Report").

9.2.5.7. Risk

We would like to refer to Chapter 4, section 4.7.2 ("Risk Analysis").

9.2.6. Listing of Elements which by their Nature would have Consequences in case of a Public Take-over Bid on the Company

We would like to refer to Chapter 6 ("Shares and Shareholders").

9.2.7. Research and Development

The Company entire efforts on date are going to R&D activities. Pre-clinical research are aimed at further broadening the pipeline and supporting the ongoing clinical developments. Production support the clinical trial programs and within production continuous efforts are made to further optimize the production process. All

4 Denominator for S.R.I.W. & Sofipole = 7,415,427 shares, denominator for Mr. J. Reymann = 6,547,779 shares and denominator for SFPI = 6,549,779 shares.

this happens within a strictly regulated environment. As such almost the entire costs of the Company are linked to R&D as well as during 2018 as in the years to come. In 2018 this represented an amount of € 10.11 million compared to € 10.64 million in 2017.

9.2.8. Use of Authorized Capital

In accordance with the articles of association, the extraordinary general shareholders' meeting of the Company authorized the Board of Directors to increase the share capital of the Company, in one or several times, and under certain conditions set forth in extenso in the articles of association.

On 9 July 2018, the general meeting decided, in accordance with articles 604 juncto 607, para. 2, 2° of the Belgian Company Code to renew, for a period of five years, the authorisation of the board of directors to increase the capital of the Company with a global maximum amount of 11,043,220.58 € on the same terms as currently provided for in article 7 of the articles of association, including in case of reception by the Company of a communication by the Financial Services and Markets Authority (FSMA) stating that the FSMA has been informed of a public takeover bid regarding the Company.

The general meeting decided to amend article 7 of the articles of association in order to reflect the renewal of said authorisation.

9.2.9. Conflict of Interest According Article 523 of the Company Code

We refer to Chapter 5 ("Related Party Transactions").

9.2.10.Going Concern Assessment

The 2018 statutory results of the Company show a loss of € 14.273,000, and the statutory statement of financial position includes a loss carried forward of € 10,744,000 after incorporation of losses into the share capital and the share premium. Nevertheless, the Board is of the opinion that it is appropriate to prepare the financial statements of the Company under the assumption of going concern considering that a group level:

• an annual projected cash burn between € 12.00 million and € 13.00 million (excluding capital raise linked to the bond program);
• the collection of € 5.18 million under the convertible bond programme;
• an assumed continued support from the Walloon Region from which the Company expects to receive non-dilutive funds;
• the intention of the Company to raise new funds from the capital markets and/or to develop alternative funding strategies, while costs tracking and close cash management will remain a key priority.

Considering all these elements, the Board is of the opinion that the Group will have enough liquidity to support its activities in line with the group's strategic focus for at least 12 months.

9.2.11.Subsequent Events

The annual consolidated financial statements on 31 December 2018 were authorized for issue by the Board of Directors of the Company on 24 April 2019. Accordingly, events after the reporting period are those events that occurred between 1 January 2017 and 24 April 2019.

From January till the date of this Annual Report, as a result of the conversion of the convertible bonds placed via a private placement on 7 March 2018, the share capital was increased by € 579,438 with issuance of

383,734 shares and amounts to € 13,110,950. The aggregate share premium for this transaction amounts to € 803,035.

9.2.12.Discharge of the Board of Directors and the Statutory Auditor

We ask you to approve the annual accounts as drawn up by the Board of Directors and audited by the statutory auditor. We ask you to grant the Directors and the statutory auditor who were in office during the fiscal year ended on 31 December 2018 the discharge of liability for the exercise of their respective mandates during the said fiscal year.

9.2.13.Summary of Valuation Rules

9.2.13.1. Principles

The valuation rules have been prepared by the Board of Directors in accordance with the requirements of the Royal Decree of 30 January 2001.

9.2.13.2. Specific Rules

Company Formation Expenses

Formation expenses are recorded as intangible fixed assets at their nominal value and depreciated over a period of 5 years. The debt issuance costs are directly recognized into the profit and loss.

Intangible Assets

R&D costs excluding administrative and financial costs are recognized as assets in an intangible asset account and amortized pro rata basis over the year for the R&D costs capitalized as from 1 January 2016. For R&D costs capitalized before this change in accounting rules, amortization continues to be applied over a threeyear period.

Receivables from Third Parties

Receivables are valued at their face value. Non-interest bearing long term Receivables will be actualized using an appropriate discount rate.

Advance Cash Payment

Upon signing agreements with the Walloon Region, advance cash payment will be recorded (when received) and will be debited in line with the part of the expenses reported and claimed which, granting body considers as being paid through the advances.

Recoverable Cash Advances (RCA's or Avances récupérables)

Revenue recognition of Recoverable cash advances is linked to R&D expenses which according to the new valuation principle applicable as of 1 January 2016, are amortized at 100% in the year of capitalization. For RCA's linked to R&D expenses, which were capitalized before the fiscal year 2016, and which are amortized over a three-year period, revenue recognition of RCA's will be kept in line with the amortizing over this threeyear period.

When the decision is made to exploit the results of the work financed through the recoverable cash advances, the recoverable advances are recognized in debt in full during the year the decision was taken. At the same time, the recoverable cash advance is recognized at 100% in other operating charges. The amount of the debt corresponds to plan set out in an agreement with the Walloon Region.

In case the project is abandoned, the remaining part of the capitalized R&D will be depreciated in an accelerated way and the revenues that are related will also be recognized in an accelerated way.

9.2.14.Fees Paid to Auditors for Audit and Other Activities

Detail of audit and non-audit fees paid during 2018 in €	Amount
Statutory and IFRS audit fees Bone Therapeutics	28,700
Supplementary audit fees	8,000
Statutory audit fees SCTS	9,700
Statutory audit fees GIE BOCEGO	1,500
Total audit fees Deloitte for FY18	47,900
Report art.596 Company Code	7,131
Report for conversion of warrants and shares	15,000
Warrants' report	2,126
Total non-audit fees Deloitte and related parties	24,257
TOTAL	72,157