Year-end Report 1 January – 31 December 2022

72% growth in customer base and 43% growth in gross order intake
510(k) clearance received for Episealer® Patellofemoral System, and timetable communicated for 510(k) application for Episealer MTP-System
Strengthening of commercial organization and preparation for US launch ongoing

"Today we are reporting on yet another quarter with clear steps in the right direction. The key metric of the number of surgeons using the Episealer grew by 72% in the quarter, and gross order intake was up by 43%. We clearly experienced positive developments in our commercial activities during the end of the year. Within product development, we concluded the year with a major milestone being achieved – namely, the 510(k) clearance for the Episealer® Patellofemoral System. In 2023, it is important that we take the next steps as a company, broadening the user base globally, including the marketing of our first commercially available product in the US," says Pål Ryfors, CEO Episurf Medical.

	2023	2024	2025	2026	Market Opportunity
Episealer® Knee Europe & RoW	Increased commercial focus based on available data				~USD 0.4bn
Episealer® Knee US	Patient recruitment		Patient follow-up	PMA process	~USD 0.6bn
Episealer® Talus Europe & RoW	Product launch and initial Episealer® Talus studies Commercialisation				~USD 60m
Episealer® Patellofemoral System US	Product launch				+USD 75m
Episealer® MTP System US	Concept development	510(k) filing mid 2023	Product launch		~USD 0.4bn

Fourth quarter 2022 compared to 2021, Group

» Gross order intake amounted to SEK 2.2m (1.6)
» Order book amounted to SEK 2.0m (1.3)
» Group net sales amounted to SEK 1.8m (1.5)
» Loss for the period amounted to SEK -23.7m (-18.9)
» Earnings per share amounted to SEK -0.09 (-0.08)

Twelve months 2022 compared to 2021, Group

» Gross order intake amounted to SEK 7.1m (6.5)
» Group net sales amounted to SEK 6.6m (6.5)
» Loss for the period amounted to SEK -77.3m (-69.3)
» Earnings per share amounted to SEK -0.29 (-0.31)

Significant events during the fourth quarter

» Episurf Medical received FDA 510(k) clearance for Episealer® Patellofemoral System
» Episealer® Knee technology and clinical results were presented at scientific congresses in the US and Poland
» Episurf Medical presented commercial focus areas at the company's Capital Markets Day

Dear fellow shareholders,

Today we are reporting on yet another quarter with clear steps in the right direction. The key metric of the number of surgeons using the Episealer grew by 75% in the quarter, and gross order intake was up by 43%. We clearly experienced positive developments in our commercial activities during the end of the year. Within product development, we concluded the year with a major milestone being achieved – namely, the 510(k)-clearance

for the Episealer® Patellofemoral System. In 2023, it is important that we take the next steps as a company, broadening the user base globally, including the marketing of our first commercially available product in the US. 

Commercialization

In 2022, we spent considerable resources on restructuring our commercial organization. We made changes in Germany, the UK, and the Nordics to optimize and strengthen our commercial organizations. Further, we have expanded our commercial organizations in Poland, Spain, and Portugal by hiring experienced business development managers. We are running a combined direct and indirect sales strategy, and we must ensure that both direct sales reps and distributors have the best possible prerequisites for success. We are now present in a large number of countries, but the majority of our gross order intake is still derived from the German market. If we succeed in taking the next commercial steps in our other regions while also ensuring continued growth in Germany, then we will be successful in our commercialization strategy. 

In 2023, we will also start talking about the US market when accounting for commercial activities. We are currently focusing on the last preparations for the actual delivery of products, and we are building a commercial organization. Initially, we will run an indirect sales organization in the US and are currently in an intense preparation phase. I can also confirm that the first distributor contract is signed.   

I am excited and optimistic about our commercial prospects for 2023 and onwards. We are in a better position than ever to capitalize on our groundbreaking technology, and it is clear that Episurf has now moved into a commercial phase.

Product development

At the end of the quarter, we received market clearance from the FDA for our patellofemoral implant system. The patellofemoral implant system replaces both sides of the patellofemoral joint of the knee. This means that our technology can now treat not only focal lesions in the cartilage but also overt osteoarthritis. Hence, we can now serve a broader range of indications and have access to the world's largest and most dynamic orthopaedic market. I am proud of the team that completed this development project, and we are grateful to the FDA for the interactive process that was concluded just before Christmas. 

During the fourth quarter, we also confirmed our intention of filing a 510(k)-submission to the US FDA in 2023 for the toe implant we are developing. We aim to receive market clearance to launch the product on the US market during 2024. The implant is intended to treat osteoarthritis (hallux rigidus) in the big toe, and more specifically of the so-called 1st MTP joint. Yet again, we are expanding upon our proprietary technology platform for the individualized design of implants and surgical instruments. This is highly exciting, and the market for osteoarthritis in the greater toe is a market of significant size.

We constantly review additional product development opportunities, as we believe the technology platform is strong and proven. Should we initiate a new project, we will likely target clinical indications for which we can develop products that have a relatively easy and fast road to market, both from technical and regulatory perspectives. 

Clinical development

Recently, we have been focusing on the various clinical trials on our ankle implant, Episealer Talus, which progressed during the quarter. The EPIC-knee trial had patients recruited in the US arm; however, the

recruitment rate still needs to be higher, and we are constantly looking out for alternatives that could speed things up. A significant milestone during the fourth quarter was the presentation of the Episealer® technology at the 6th ICRS Summit (International Cartilage Regeneration and Joint Preservation Society) in Miami, US, in November. The presentation, held by Associate Professor Tim Spalding, Cleveland Clinic, London, UK, was part of the scientific program within the session Evolving New Technologies Unloading Procedures & Focal Resurfacing. This was yet another testament to the interest in our technology, and we are now experiencing this in a larger global arena. 

Concluding remarks

In November, we arranged a Capital Markets Day during which we outlined our plans for the coming years. I encourage investors to look at the event presentations, which are available on our website and on Youtube. A critical component of our commercial plan presented at the event is to increase the user base globally. Recruiting additional orthopaedic surgeons to our customer base, who then increase their usage of our implant technology as experience grows, ensures increasing revenue generation. In 2023, we have positioned ourselves to deliver upon this commitment, and the organization is optimized accordingly. 

Expenses in the fourth quarter were higher than the previous year, driven mainly by costs related to the 510(k) clearance as this project went through a very intense phase. The positive commercial trend we experienced during the quarter continued in January, with January being our best month ever. It remains to be seen how Q1 2023 finishes, but overall I am confident that we are now on a path toward a commercial breakthrough. 

Stockholm, February 2023

Pål Ryfors, CEO

Business update and forward-looking statements

By the reporting date on February 17, 2023, Episurf Medical's implants had been used in 1,419 surgeries. Episurf Medical's patients are experiencing significant improvements in pain and mobility. Furthermore, they are also experiencing a short recovery time. Out of the total implant portfolio of 1,419 implants, we now have 419 patients who have had their implants for more than 4 years and 826 patients have now had their implants for more than 2 years since the surgery date. During the fourth quarter, 73 surgeries were performed with the Episealer® implant. 91 orders were approved for surgery during the fourth quarter.

Germany 1 098 1 368 1 419 Q4 2021 Q4 2022 By the reporting date Cumulative implants as of the reporting date

Implant surgeries in quarter

Approved orders in quarter

As of the reporting date, 1,419 surgeries have been performed with the Episealer® implant and 602 patients have had their implant for more than 3 years and 826 patients have had the implant for more than 2 years since surgery. 1 419

Year since surgery by reporting date

Financial information

Group

Net sales and operating profit/loss

Group net sales amounted to SEK 1.8m (1.5) in the quarter and SEK 6.6m (6.5) for the first twelve months. Loss before tax amounted to SEK -23.6m (-18.9) for the quarter and SEK -77.2m (-69.2) for the first twelve months. Other expenses, which for example includes expenses for clinical trials, marketing and product development, amounted to SEK -14.4m (-10.8) in the quarter and SEK -43.3m (-37.1) for the first twelve months. The company focused on product development during the quarter, which refers to SEK -14.4m (-10.8) of the other expenses, during the first twelve months of the year the corresponding cost was SEK -43.3m (-37.1). The cost for the EPIC-Knee study in US amounts to SEK 3.2m (-2.7) during the quarter.

Cash flow and financial position

Group cash and cash equivalents at end of period amounted to SEK 155.3m (237.9). The reduced cash flow compared to the corresponding quarter last year is primarily due to a lower result and that the company carried out a new share issue last year. The equity ratio was 91.9% (93.4). Group investments in intangible assets amounted to SEK 3.1m (2.8) for the quarter of which SEK 2.8m (2.2) are related to capitalised development costs, and for the first twelve months investments in intangible assets amounted to SEK 11.3m (6.9), of which SEK 9.3m (4.4) are related to capitalised development costs remaining investments relates to patents. No significant investments have been made in tangible assets during the quarter of 2022 or 2021.

Human resources

Number of employees in the Group at end of the period was 33 (29).

Transactions with closely related parties

Shareholder and Board member Leif Ryd has received consulting fees for ongoing work as well as work for the Clinical Advisory Board during the period of SEK 0.6m (0.6).

Warrants and employee stock options

Warrants

In connection with a financing solution that Episurf had in 2018, 1,705,232 warrants were issued to shareholders. For a number of periods until 23 November 2023, shareholders have the opportunity to convert these warrants for an exercise price of SEK 1.40. As of this year-end report, the company has 1,042,207 warrants outstanding. See more information on the company's website.

Employee stock option and warrant program 2022

At the annual general meeting on April 4, 2022, it was resolved to adopt a stock option and warrant program. A total of 2,556,392 employee stock options were allowed to be issued, of which the CEO was allotted 785,499, and other management team members were allotted a total of 886,346. As of this year-end report, the company has 1,817,887 outstanding employee stock options. The employee stock options that have expired are due to terminated employments. The subscription price is 3.57, and the fair value per option is 0.43 per this year-end report. The company uses the Black-Scholes calculation model.

For more information about warrants and staff option programs, see Episurfs Annual Report 2021.

Sustainability-related risks

Episurf strives towards monitoring and continuous evaluation of sustainability-related risks and their impact on the Group's operations and earnings. Episurf's opinion is that this work will increase in importance, and the work could include, among other things, materiality analyses, monitoring of targets and commitments and by auditing various units within the company. The Group works towards having an established governance

structure that involves both company management and the Board, and aims at continuously improve the company's sustainability activities and minimizing associated risks.

Effects of the COVID-19 pandemic

During the first months of the year, the company's revenues and gross order intake were affected by Omicron. It can't be ruled out that new variants of COVID-19 may delay the company's development or affect delivery disruptions in the future. The company still assesses that the risk will begin to decrease.

The impact of the Ukraine crisis

The situation in Ukraine erupted at the end of February and entails risks of further impact on the world economy with increasing cost inflation and disruptions in supply chains. Episurf has no direct exposure to Ukraine or Russia and has assessed that the company is currently not affected.

Cyber security

Cyber security has become a significant threat in society and for Episurf, which is dependent on IT. The company has ongoing work to ensure that the company is well prepared to counter cyber-attacks and other types of intrusion.

Rounding

Due to rounding, the sum of numbers may differ.

Dividend

The Board of Directors proposes that Episurf Medical does not pay a dividend for the financial year 2022.

Share information

There are two types of shares in the Company. Each Class A-share carries three votes and entitles the holder to three votes at the General Meeting, and each class B-share carries one vote and entitles the holder to one vote at the General Meeting. Class B shares have traded on Nasdaq Stockholm's Small Cap segment since 11 June 2014 with the ticker EPIS B.

31 December 2022
A-shares	479,357
B-shares	266,432,563
Total number of shares	266,911,920
Total number of votes	267,870,634

The following table notes the ten largest shareholders based on information available as of Dec 31, 2022

	No. Of A	No. Of B	Share capital in	Voting rights,
Name	shares	shares	%	%
Health Runner AB (Ilija Batljan)	--	34,771,101	13.0	13.0
Rhenman Partners	--	12,668,248	4.7	4.7
Fjärde AP-Fonden	--	12,537,181	4.7	4.7
Sebastian Jahreskog	--	11,892,730	4.5	4.4
Tredje AP-Fonden	--	9,980,000	3.7	3.7
LMK Forward AB	--	6,000,000	2.2	2.2
Andra AP-Fonden	--	5,400,000	2.0	2.0
Strand Småbolagsfond	--	5,100,000	1.9	1.9
Niles Noblitt	--	5,080,627	1.9	1.9
Venture Holdings Sarl	--	4,427,043	1.7	1.7
Total, 10 largest shareholders	--	107,856,930	40.4	40.3
Summary, other	479,357	158,575,633	59.6	59.7
Total	479,357	266,432,563	100.0	100.0

Other information

Significant risks and uncertainty factors

Episurf Medical's material business risks, for the Group as well as for the Parent Company, are to obtain regulatory approval and market acceptance, the outcome of clinical studies, the ability to protect intellectual property rights, the possibility to obtain the correct reimbursement for the Group's products and dependence on key personnel and partners. The Company does not see any new material risks for the upcoming three months. For a more detailed description of significant risks and uncertainties, refer to Episurf Medical's annual report.

The Board of Directors and the CEO hereby give their assurance that the year-end report gives a true and fair view of the business activities, financial position and results of operations for the Group and Parent Company, and describes significant risks and uncertainty factors to which the Parent Company and the companies included in the Group are exposed.

Stockholm, February 16, 2023

Board chairman Board member

Dennis Stripe Annette Brodin Rampe

Christian Krüeger Leif Ryd Board member Board member

Board member Board member

Laura Shunk Ulf Grunander

Pål Ryfors CEO

Consolidated income statement

		Oct-Dec	Oct-Dec	Jan-Dec	Jan-Dec
mSEK	Note	2022	2021	2022	2021
Operating income
Net sales	2	1.8	1.5	6.6	6.5
Other operating income		0.2	0.1	0.3	0.4
Total income		2.0	1.5	6.9	6.9

Operating expenses
Merchandise		-1.2	-0.8	-4.2	-4.8
Other expenses	3	-14.4	-10.8	-43.3	-37.1
Personnel costs		-11.9	-9.9	-40.3	-33.9
Capitalised development expenditure		3.1	2.8	11.3	6.9
Depreciation of equipment and non-current
assets		-1.3	-1.8	-7.4	-7.4
Total operating expenses		-25.7	-20.5	-83.9	-76.3

Operating loss		-23.6	-19.0	-77.0	-69.4

Financial items
Financial income, other		0.1	0.2	0.5	0.4
Financial expenses, other		-0.1	-0.1	-0.7	-0.2
Results from net financial items		0.0	0.1	-0.2	0.2

Loss before tax		-23.6	-18.9	-77.2	-69.2

Tax on income for the period		-0.0	-0.0	-0.1	-0.0
Loss for the period		-23.7	-18.9	-77.3	-69.3

Net loss attributable to:
Parent company shareholders		-23.7	-18.9	-77.3	-69.3

Earnings per share before and after dilution, SEK		-0.09	-0.08	-0.29	-0.31
Average number of shares			266,744,392 239,990,026 266,627,443 226,593,598
Average number of shares after dilution				267,786,599 241,032,233 267,669,650 227,635,805

Consolidated statement of comprehensive income

		Oct-Dec	Oct-Dec	Jan-Dec	Jan-Dec
mSEK	Note	2022	2021	2022	2021
Net profit (loss)		-23.7	-18.9	-77.3	-69.3

Other comprehensive income for the period:
Other comprehensive income that may be
reclassified subsequently to profit or loss for the
period, net of tax		-0.1	-0.0	0.1	-0,1
Total comprehensive income (loss) for the period		-23,7	-19.0	-77.2	-69.4

The period's loss and comprehensive income attributable to

Owners of the parent -23.7 -19.0 -77.2 -69.4

Condensed consolidated balance sheet

mSEK	Note	31 Dec 2022	31 Dec 2021
ASSETS
Non-current assets
Intangible fixed assets
Capitalised development costs		15.9	9.0
Patents		13.6	14.1
Total intangible fixed assets		29.5	23.0
Equipment and right-of use asset
Right-of-use assets	4	6.6	3.2
Equipment		0.1	0.1
Total equipment and right-of-use asset		6.7	3.2
Total non-current assets		36.2	26.3
Current assets
Inventories		1.9	1.9
Trade receivables		1.9	1.6
Other receivables		0.9	1.6
Deferred expenses and accrued income		1.1	1.3
Cash		155.3	237.9
Total current assets		161.0	244.4
TOTAL ASSETS		197.2	270.6
EQUITY AND LIABILITIES
Equity		177.7	252.8
Liabilities
Non-current liabilities
Non-current liabilities		1.0	2.8
Non-current lease liability	4	3.8	0.8
Total long-term liabilities		4.8	3.5
Current liabilities
Trade payables		4.4	5.9
Current lease liability	4	2.5	2.1
Other liabilities		1.8	1.4
Accrued liabilities and deferred income		6.0	4.9
Total current liabilities		14.7	14.2
Total liabilities		19.5	17.8
TOTAL EQUITY AND LIABILITIES		197.2	270.6
			10

Consolidated statement of changes in equity

Attributable to equity holders of the

		Other		Accumulated
	Share	contributed		deficit incl. loss	Total
mSEK	capital	capital	Reserves	for the year	equity
Opening equity January 1, 2021	66.7	546.2	-0.2	-443.2	169.5
Total comprehensive income for the period				-69.3	-69.3
Other comprehensive income			-0.1		-0.1
Total comprehensive income			-0.1	-69.3	-69.4
Transactions with shareholders
Expenses directed share issue, 2020*		-0.1			-0.1
Directed share issue, net after issue expenses,
2021**	13.3	137.3			150.7
Conversion warrants, net after issue
expenses***	0.0	0.1			0.1
Warrants issued to staff		0.9		1.2	2.1
Total transactions with shareholders	13.4	138.2		1.2	152.8
Closing equity December 31, 2021	80.0	684.4	-0.3	-511.3	252.8
Opening equity January 1, 2022	80.0	684.4	-0.3	-511.3	252.8

Total comprehensive income for the period				-77.3	-77.3
Other comprehensive income			0.1		0.1
Total comprehensive income			0.1	-77.3	-77.2
Transactions with shareholders
Conversion warrants, net after issue
expenses****	0.1	0.4			0.5
Expired warrants to staff				-0.2	-0.2
Warrants issued to staff				1.8	1.8
Total transactions with shareholders	0.1	0.4		1.6	2.1
Closing equity December 31, 2022	80.1	684.8	-0.2	-587.0	177.7

*Issue expenses amounts to SEK 4.4m.

** Issue expenses amounts to SEK 8.8m.

*** Expenses amounts to SEK 0.0m.

**** Expenses amounts to SEK 0.0m.

Consolidated cash flow statement

mSEK	Oct-Dec 2022	Oct-Dec 2021	Jan-Dec 2022	Jan-Dec 2021
Operating activities
Operating loss	-23.6	-19.0	-77.0	-69.4
Adjustments for items not included in cash flow
Depreciation	1.3	1.8	7.4	7.4
Employee stock option expenses	0.7	1.5	-0.2	3.3
Interest received	0.0	0.0	0.1	0.1
Interest paid	-0.0	-0.0	-0.6	-0.2
Cash flow from current operations before change
in working capital	-21.7	-15.7	-70.4	-58.8

Change in working capital
Decrease/increase in inventory	-0.1	0.0	0.1	0.0
Decrease/increase in trade receivables	-0.8	-0.1	-0.3	-1.0
Decrease/increase in current receivables	0.9	-0.6	1.5	-0.6
Decrease/increase in current liabilities	1.6	2.8	-0.4	0.8
Change in working capital	1.5	2.1	0.9	-0.9

Cash flow from operating activities	-20.1	-13.6	-69.5	-59.7

Investing activities
Investments of intangible fixed assets	-3.1	-2.8	-11.3	-6.9
Investments of tangible fixed assets	0.0	0.0	0.0	-0.1
Decrease/increase in non-current financial assets	-	0.5	-	0.5
Cash flow from investing activities	-3.1	-2.3	-11.2	-6.5

Financing activities
Issuance of share options	-	-	-	0.9
Amortisation of lease debt	-0.0	-0.6	-2.4	-2.4
Conversion warrants	0.3	-0.0	0.5	0.1
New share issue	-	150.7	-	150.6
Cash flow from financing activities	0.3	150.0	-1.9	149.2
Cash flow for the period	-22.9	134.1	-82.6	83.0
Cash and cash equivalents at beginning of period	178,2	103.8	237.9	155.0
Cash and cash equivalents at end of period	155.3	237.9	155.3	237.9

Income statement, Parent Company

mSEK	Oct-Dec 2022	Oct-Dec 2021	Jan-Dec 2022	Jan-Dec 2021

Operating income
Net sales	0.2	0.2	0.7	0.8
Other operating income	0.0	-	-	-
Total income	0.2	0.2	0.7	0.8

Operating costs
Other external expenses	-8.9	-6.7	-29.5	-25.6
Personnel costs	-5.7	-4.2	-20.0	-16.1
Capitalised development expenditure	2.8	2.2	9.3	4.4
Amortisation of intangible assets and depreciation of
property, plant and equipment	-0.6	-0.5	-2.3	-2.2
Total operating costs	-12.4	-9.3	-42.6	-39.5

Operating loss	-12.2	-9.1	-42.0	-38.7

Financial items
Financial income, other	0.1	0.0	0.1	0.1
Financial expenses, other	-	-	-0.1	-0.0
Results from net financial items	0.1	0.0	-0.1	0.1

Loss before tax	-12.1	-9.1	-42.0	-38.7

Tax on income for the period	-	-	-	-
Loss at end of the period	-12.1	-9.1	-42.0	-38.7

Parent Company statement of comprehensive income

mSEK	Oct-Dec 2022	Oct-Dec 2021	Jan-Dec 2022	Jan-Dec 2021
Net profit Other comprehensive income for the period:	-12.1	-9.1	-42.0	-38.7
Other comprehensive income for the period, net of tax	-	-	-	-
Total comprehensive income for the period	-12.1	-9.1	-42.0	-38.7

Condensed balance sheet, Parent Company

mSEK	31 Dec 2022	31 Dec 2021
ASSETS
Fixed assets
Intangible fixed assets
Capitalised development costs	15.9	9.0
Total intangible fixed assets	15.9	9.0

Financial assets
Shares in group companies	256.2	192.9
Long-term receivables from group companies	22.6	27.0
Total financial assets	278.8	220.0

Total fixed assets	294.7	228.9

Current assets
Short term receivables
Trade receivables	0.6	0.5
Other receivables	0.4	1.1
Prepaid expenses and accrued income	0.8	1.3
Total short term receivables	1.8	3.0

Cash	142.2	220.7
Total current assets	143.9	223.7
TOTAL ASSETS	438.6	452.6

EQUITY AND LIABILITIES
Equity	402.9	444.4

Liabilities
Non-current liabilities
Non-current liabilities to group companies	27.1	--
Total long-term liabilities	27.1	--

Current liabilities
Trade payables	3.0	3.9
Other liabilities	0.7	0.5
Accrued liabilities and deferred income	4.8	3.8
Total current liabilities	8.6	8.2

Total liabilities	35.7	8.2

TOTAL EQUITY AND LIABILITIES	438.6	452.6

Statement of changes in equity, Parent Company

			Share	Loss	Loss for
	Share	Development	premium	brought	the	Total
mSEK	capital	fund	reserve	forward	period	equity
Opening equity January 1. 2021	66.7	6.7	546.2	-250.4	-36.8	332.4

Loss for the period					-38.7	-38.7
Disposition according to AGM
Loss brought forward				-36.8	36.8	-
Development fund		2.3		-2.3		-
Total comprehensive loss for the period		2.3		-39.1	-1.8	-38.7
Transactions with shareholders
Expenses directed share issue. 2020*			-0.1			-0.1
Directed share issue. net after issue expenses.
2021**	13.3		137.3			150.7
Conversion warrants. net after issue
expenses***	0		0.1			0.1
Total transactions with shareholders	13.4		137.3			150.7
Closing equity December 31. 2021	80.0	9.0	683.5	-289.5	-38.7	444.4

Opening equity January 1. 2022	80.0	9.0	683.5	-289.5	-38.7	444.4
Loss for the period					-42.0	-42.0
Disposition according to AGM
Loss brought forward				-38.7	38.7	-
Development fund		6.9		-6.9		-
Total comprehensive loss for the period		6.9		-45.6	-3.4	-42.0
Transactions with shareholders
Conversion warrants. net after issue
expenses****	0.1		0.4			0.5
Total transactions with shareholders	0.1		0.4			0.5

Closing equity December 31. 2022	80.1	15.9	683.9	-335.0	-42.0	402.9

* Issue expenses amount to SEK 4.4m in total in 2020 and 2021.

** Issue expenses amount to SEK 8.8m.

*** Expenses amount to SEK 0.0m.

**** Expenses amount to SEK 0.0m.

Cash flow statement, Parent Company

mSEK	Oct-Dec 2022	Oct-Dec 2021	Jan-Dec 2022	Jan-Dec 2021

Current operations
Operating loss	-12.2	-9.1	-42.0	-38,7
Adjustments for items not included in cash flow
Depreciation	0.6	0.5	2.3	2,2
Interest received	0.1	0.0	0.1	0,1
Interest paid	-	-	-0.1	-0,0
Cash flow from current activities before changes in
working capital	-11.6	-8.5	-39.7	-36,5

Changes in working capital
Decrease/increase in current receivables	-0.1	-1.2	1.2	-0,7
Decrease/increase in current liabilities	1.8	2.2	0.4	0,2
Total changes in working capital	1.8	1.0	1.6	-0,4

Cash flow from operating activities	-9.8	-7.5	-38.1	-36,9

Cash flow from investing activities
Acquisition of intangible assets	-2.8	-2.2	-9.3	-4,4
Shareholder contribution	-18.3	-4.0	-63.3	-30,0
Repaid group companies	20.0	13.1	70.4	50,2
Loan group companies	-15.6	-17.5	-38.8	-44,0
Decrease/increase in other non-current receivables	-	0.5	-	0.5
Cash flow from investing activities	-16.7	-10.1	-41.0	-27,8

Cash flow from financing activities
Conversion warrants	0.3	-0.0	0.5	0,1
New share issue	-	150.7	-	150,6
Cash flow from financing activities	0.3	150.7	0.5	150,7
		-
Cash flow for the period	-26.2	133.0	-78.6	86,0
Cash and cash equivalents at beginning of period	168,3	87.7	220.7	134.8
Cash and cash equivalents at end of period	142,2	220.7	142.2	220.7

Notes

Note 1 Accounting policies

The year-end report for the Group has been prepared in accordance with IAS 34 Interim Reports and the Annual Accounts Act. The year-end report for the Parent Company has been prepared in accordance with the Annual Accounts Act.

The Group's accounting policies are unchanged from previous year and these correspond with the accounting principles that were used in the preparation of the most recent Annual Report with the exception of the additional applications principles for accounting for license revenues described below. Information according to IAS 34.16A is included in these financial statements and related notes as well in other parts of this year-end report.

License revenue refers to the out-licensing of the parent company's patented software platform µiFidelity®. When licensing the Group's intellectual property (IP) to a customer, a distinction is made between two types of licensing with associated distinct performance obligation that affect whether revenue is to be reported at a certain time or accrued over time:

a) Right to access IP the agreement requires, or the customer can reasonably expect, that the Group will take measures that significantly affect the rights the customer is entitled to, that these measures directly affect the customer and that the measures do not involve the transfer of goods/services to the customer when the measures are carried out. The performance obligation and thus the income is reported over time, usually linearly.
b) Right to use IP the customer only has the right to use the IP in its existing state at the time when the right was granted to the customer. The performance obligation is fulfilled initially, at that time.

In accordance with the terms of the license agreement, it has been determined to be a right to use IP and recognised at the effective date of the contract.

Capitalised expenditures for development of products

Expenditure for development, where research results or other knowledge are applied to achieve new or improved products or processes, is recognised as an asset in the Statement of Financial Position only if the following conditions are satisfied:

1. It is technically possible to complete the intangible asset and use or sell it,
1. The Company intends to complete the intangible asset and use or sell it,
1. The conditions to use or sell the intangible asset are in place,
1. The Company demonstrates how the intangible asset will generate likely future economic benefits,
1. There are adequate technological, economic and other resources to complete development and to use or sell the intangible asset, and
1. The expenditure relating to the intangible asset during its development can be measured reliably Directly related expenditure that is recognised mainly consists of expenditure from

subcontractors and expenses for employees.

Other development expenditure that does not satisfy these criteria is expensed when it arises. Development expenditure previously expensed is not recognised as an asset in subsequent periods. The group has assessed all the above criteria to be fulfilled during the period, the costs for development that has been incurred is therefore activated.

Financial assets and liabilities

Other financial assets and liabilities in the balance sheet are reported as acquisition value, which is judged to be a good approximation to the fair value of the items.

Note 2 Breakdown of net sales by country is as follows

	Oct-Dec	Oct-Dec	Jan-Dec	Jan-Dec
mSEK	2022	2021	2022	2021
Germany	1.3	1.1	4.4	4.3
Norden	0.1	0.0	0.5	0.2
Other countries in Europe	0.3	0.3	1.5	1.8
Other countries outside of Europe	0.0	0.0	0.1	0.1
Total net sales	1.8	1.5	6.6	6.5

Note 3 Other expenses

	Oct-Dec	Oct-Dec	Jan-Dec	Jan-Dec
mSEK	2022	2021	2022	2021
Product development	2.8	2.2	9.3	4.4
EPIC-Knee study	3.2	2.7	12.0	11.8
Patent costs	0.2	0.6	2.0	3.8
Sales and marketing costs	4.2	2.3	10.2	7.3
Other expenses	3.9	2.9	9.9	9.8
Total other expenses	14.4	10.8	43.3	37.1

Note 4 Leasing

The company has extended the lease agreement for the head office and general IT agreement and some more minor car agreements during the financial year 2022. For further information, see note 21 in the Annual Report 2021.

Definitions

General:	All amounts in the tables are presented in mSEK unless otherwise stated. All amounts in brackets () represent comparative figures for the same period of
	the prior year, unless otherwise stated.
Net debt/equity ratio:	Net debt at the end of the period divided by equity at the end of the period.

Glossary

Approved orders:	Orders which have been approved for surgery, are in production and will be invoiced.
Arthritis:	See Osteoarthritis.
Arthroscopy:	Inspection of the inside of a joint with the help of an arthroscope. An instrument is introduced through a small cut to investigate the inside of the joint and possibly correct any problems (a type of keyhole surgery).
Cartilage:	Shock absorbing and friction reducing tissue. This tissue that covers the end of bones and allows movement with low friction.
Cartilage defect of grade III (ICRS scale):	Lesion through the cartilage, exposing the bone.
Cartilage defect of grade IV (ICRS scale):	Defect extending down to >50% of the cartilage depth.
CE marking:	A CE mark means that the manufacturer or importer has the formal approvals necessary to market and sell the product in the European Economic Area.
Clinical results:	Outcome from clinical treatment of humans, where parameters such as efficacy and safety are evaluated.
Cobalt chrome:	A metal alloy mainly consisting of cobalt and chromium, commonly occurring in metal alloys used in knee prostheses.
Debridement:	Removal of damaged tissue.
Degenerative origin:	Conditions in which the cells, tissues or organs deteriorate and lose function. In degenerative joint disease, the deterioration is due to wear, tear or breakdown of cartilage.
ESSKA:	European Society of Sports Traumatology, Knee Surgery & Arthroscopy
FDA:	US Food and Drug Administration.
Focal cartilage defect:	A cartilage defect in a well-defined area.
Femoral condyles:	Two bony protuberances on the thighbone side of the knee joint that articulate with the shinbone. The name originates from the anatomical terms femur (thighbone) and condyle (articular head).
Gross order intake:	Gross order intake represents the aggregated value of Episealer® orders received and approved by responsible surgeon during the relevant period.
Hydroxyapatite:	A mineral that is the major component of human bone tissue and the main mineral of dental enamel and dentin.
Invasive treatment	Treatments that require a surgical procedure.
alternative:
Micro fracturing:	A biological surgical technique that can be used in treatment of focal cartilage defects (not extensive osteoarthritis) in an attempt to stimulate the growth of new cartilage.
MRI:	Magnetic resonance imaging, a medical imaging technique where images acquired using a strong magnetic field allows the user to get three-dimensional image data of the patient.

MTP:	Short for metatarsophalangeal, refers to relations between the metatarsal bones and the proximal phalanges (toe bones) of the toes
OA:	See osteoarthritis.
Order book:	Order book represents all orders that have been booked but where no revenue has been recognised.
Orthopaedics:	The medical specialty that focuses on injuries and diseases of the body's musculoskeletal system. This complex system includes bones, Joints, ligaments, tendons, muscles and nerves.
Osteoarthritis:	A type of joint disease that is characterised by loss of joint function with varying destruction of joint cartilage and the underlying bone.
Osteochondral defect:	Cartilage and underlying bone defect.
Patellofemoral:	Refers to relations between the patella (knee cap) and femur (thighbone) in the knee.
Prosthesis:	An artificial device that replaces a missing or injured body part, such as artificial arm or leg. The term prosthesis is also used for certain of the implants that are used to repair joints, such as hip and knee prostheses,
Reimbursement:	Reimbursement is a word that is used generally in the healthcare industry to describe the payment systems that apply to healthcare costs in various countries.
Talus:	A foot bone constituting a part of the ankle joint. Also referred to as astragalus and ankle bone.
TKA:	Total knee arthroplasty, total knee joint replacement, which is a surgical procedure primarily used to relieve arthritis in which the knee joint is replaced with artificial parts (prostheses).
Traumatic damage:	Damage caused by an outside force, such as fall injuries.
The trochlea area:	The part of the knee joint that is right under the knee-cap, part of the femur (thigh bone)
UKA:	Unicompartmental knee arthroplasty, partial knee joint replacement which is a surgical procedure primarily used to relieve arthritis in one of the knee compartments. Parts of the knee joint are replaced with artificial parts (prostheses).

This is Episurf Medical

– a unique solution for every patient

EPISURF WAS FOUNDED IN 2009 on a commitment to offer people with painful joint injuries a more active and healthy life through customised treatment alternatives. We put the patient in the centre of the design of implants and surgical instruments. By combining advanced 3D imaging technology with the latest manufacturing technologies, we are able to adapt not only each implant to the patient's injury and anatomy, but also the surgical instruments used. In this way, we can ensure that each patient receives treatment that is perfectly suited to his or her anatomy and, thus, ensure a faster, more secure, and better patient-specific treatment for a more active and healthy life.

A proprietary web-based IT platform for individualised design and surgical pre-planning

Episurf Medical's scalable μiFidelity® system has been developed for damage assessment, surgical pre-planning and cost-effective patient customisation of implants and associated surgical instruments. In a first step, the company's main focus has been on early stage arthritic changes in the knee joint. This is now followed by lesions in the second joint, the ankle.

Individualised implants with a focus on early stages of arthritis

Episurf Medical has three types of knee implants on the market

» Episealer® Condyle Solo for the treatment of localised cartilage and underlying bone defects on the femoral condyles of the knee joint. » Episealer® Trochlea Solo for the treatment of localised cartilage and underlying bone defects in the area behind the patella (the trochlea area). » Episealer® Femoral Twin for the treatment of elongated localised cartilage

and underlying bone defects both on the femoral condyles and in the trochlea area of the knee joint.

Episurf Medical has one implant for the ankle on the market

» Episealer Talus® intended for osteochondral lesions of the talar dome of the ankle joint

Patient-specific surgical instruments

Every product is delivered with our individualised surgical drill guide Epiguide® and a set of associated surgical instrument. We also offer a surgical drill guide, Epiguide® MOS, that is designed for use in mosaicplasty surgery for treatment of cartilage and deep underlying bone defects in the knee joint. Further, for the ankle Episurf Medical offers an individualised sawguide, Talus Osteotomy Guide. It is intended to help the surgeon to find the correct position and depth when performing an osteotomy of the medial malleolus for access to the talar dome of the ankle joint.

Patents and patent applications

The generation of new intellectual property and the ongoing maintenance of current IP is of paramount importance for Episurf Medical to ensure that Episurf Medical's proprietary, existing technologies and future innovations are well protected. In total Episurf Medical has more than 200 patents and patent applications worldwide, distributed over 35 patent families.

» The first Episealer® surgery in a human was performed in December 2012. At the end of 2022, a total of 1,368 surgeries had been performed.

» Episurf Medical's head office is located in Stockholm and the company has sales representation in several countries in Europe, Asia and North America.

» The share (EPIS B) has been listed on Nasdaq Stockholm since June 2014.

Financial calendar

Interim Report January-March 2023 28 April 2023 AGM 2023 4 May 2023 Interim Report April-June 2023 14 July 2023 Interim Report July-September 2023 27 October 2023 Year-End Report 2023 9 February 2024

This is a translation of the original Swedish year-end report. In the event of a discrepancy between this translation and the Swedish original, the Swedish year-end report takes precedence. The information was submitted for publication, through the agency of the contact person set out below, on February 17 2023 at 08.30 (CET).

A report presentation will be uploaded on Episurf's website and on the platform Quartr on the reporting day.

The following analysts follow Episurf Medical's development DNB Analyst: Patrik Ling Redeye Analyst: Oscar Bergman

IR-contact

Pål Ryfors CEO Phone: +46 (0) 709 623 669 E-mail: [email protected]

Veronica Wallin CFO Phone: +46 (0) 700 374 895 E-mail: [email protected]

Episurf Medical AB (publ) org.no 556767-0541 Karlavägen 60, 114 49 Stockholm, Sverige www.episurf.com