Mauna Kea Technologies : 2019 Year-end Financial report

A Public Limited Company (Société anonyme) with capital of €1,222,869.60

Head office: 9 rue d'Enghien

75010 Paris, France

431 268 028 in the Paris Trade and Companies Register Paris

Management Report on the Consolidated Financial

Statements - 2019

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Consolidated Financial Statements - Management Report

1. FOREWORD

At its meeting on April 27, 2020 the Board of Directors reviewed the consolidated financial statements for the financial year ended December 31, 2019 and approved said financial statements. These consolidated financial statements were produced using the IFRS guidelines.

2. FINANCIAL POSITION OF THE GROUP DURING THE PAST FINANCIAL YEAR

2.1 Report on significant activity and events during the 2019 financial year

Mauna Kea Technologies is a medical device design and sales company whose mission is to eliminate uncertainties in diagnosis and treatment and to improve patient care for a number of clinical indications. In becoming a global player in real-time cellular diagnostics, the Company's prime objectives are to constantly improve the quality of care provided to patients and efficiency of healthcare professionals and systems. The Company's flagship product, Cellvizio, has received marketauthorizations for a wide range of applications in more than 40 countries, including the United States, Europe, Japan and China.

As of December 31, 2019, the Mauna Kea Technologies Group is made up of a multidisciplinary team of 101 employees, has an installed base of almost 670 systems in over 40 countries and has achieved around €91 million in sales since its founding, including €7.4 million in the 2019 financial year.

The going concern assumption was adopted by the Board of Directors taking into account the following elements:

• Cash available at December 31, 2019 stood at €10 million;
• The drawdown of the second tranche of €6 million provided for under the contract signed with the EIB in 2019, following the amendmentby the EIB of the sales covenants associated with that drawdown;
• The payment on April 20 of a U.S. paycheck protection loan (PPP) of approximately €0.6 million to MKT Inc.;
• The granting of a repayable advance and a grant for PERSEE project of €0.5 million in 2020;
• The receipt of the balance of the research tax credit for 2019 and the pre-financing of the research tax credit for 2020 for an amount of €0.8 million;
• Sales outlook taking into account the impact of the Covid-19 crisis.

Highlights of the financial year.

Obtained the first FDA authorization for the use of Cellvizio enabling the targeting and imaging of

peripheral pulmonary nodules

In February 2019, the Group obtained a new FDA 510(k) authorization in the United States for the use of the AQ-Flex 19 confocal miniprobe through the use of transbronchial needles with existing bronchoscopes and bronchoscopic accessories. This is the 16th 510(k) authorization received from the U.S. FDA for the Cellvizio® platform.

Clinical results and conferences: the medical value of optical biopsy

Gastroenterology

May 2019

Held 17 presentations supporting Cellvizio® during the Digestive Disease Week® (DDW) Conference in San Diego in the United States. These presentations address Barrett's esophagus, inflammatory bowel disease

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Consolidated Financial Statements - Management Report

(IBD), food allergies, pancreatic cysts and other gastrointestinal diseases. The studies focused on the potential impact from the use of Cellvizio® in patient treatment and improvement of results.

June 2019

Reimbursement coverage of confocal laser endomicroscopy in France for Barrett's esophagus, through the creation of a new specific procedural code to be added to the Common Classification of Medical Procedures (CCAM). The French National Association of Health Insurance Funds (UNCAM) created the following procedure, in sub-paragraph "07.01.09.01 - Endoscopy of the salivary glands and digestive tract" of Book II of the Social Security Code: "Esophageal endoscopy with biopsy guided by confocal laser endomicroscopy - Pre-therapeutic esophageal mapping with biopsy guided by confocal laser endomicroscopy". Decision on April 18, 2019 of the French National Association of Health Insurance Funds related to the list of procedures and services covered by health insurance, published in the Official Journal of the French Republic. Accessible on https://www.legifrance.gouv.fr.

October 2019

Mauna Kea Technologies announces positive findings on needle-based endomicroscopy in the diagnosis and management of pancreatic cystic lesions. Three recent clinical publications have shown that Cellvizio®'s AQ-Flex™ 19 significantly improves the accuracy of diagnosis compared with the standard methods, with a positive impact on the treatment of patients suffering from pancreatic cystic lesions.

Pneumonology

February 2019

Publication of a new FDA 510(k) authorization in the United States for the use of the AQ-FlexTM 19 confocal miniprobe through trans-bronchial needles with existing bronchoscopes and bronchoscopy accessories. This is the 16th 510(k) authorization received from the U.S. FDA for the Cellvizio® platform.

May 2019

Publication of a prospective study (ClinicalTrials.gov Identifier: NCT02689050) demonstrating Cellvizio's potential as a diagnostic and evaluation aid in lung cancers. The results of a clinical study published in the European Respiratory Journal demonstrated that lung cancer characteristics may be recognized with precision using Cellvizio®'s AQ-Flex™ 19 confocal miniprobe through thin needles.

November 2019

Mauna Kea Technologies joined a Dutch consortium of molecular imaging which was awarded a grant of €5.4 million. The purpose of the MEDPHOT consortium is to develop an optical molecular imaging solution for pulmonary diseases.

Financing

Financial debt was restructured during the financial year:

• The IPF Partners financing, issued in February 2017 and again in May 2019 totaling €9 million, was fully repaid on June 28, 2019 for €10.7 million including early repayment fees.
• Financing of €22.5 million was contracted on June 20, 2019 with the European Investment Bank (EIB). The first tranche of this financing, for €11.5 million, repayable in full after 5 years, was received on July 3, 2019. This loan, together with 1,450,000 warrants (BSA) repayable in shares or cash, is intended to finance 50% of future research expenses.

A €7.5 million capital increase reserved for Johnson & Johnson Innovation Inc. through the issue of 5,357,142 new ordinary shares for a unit subscription price of €1.40, raises this company's stake in Mauna Kea Technologies to 17.5% at the end of 2019.

This capital increase is intended to finance current operations, in particular in the fields of clinical studies, development activities, and sales and marketing efforts in the United States.

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Furthermore, Research Tax Credit receivables in respect of the 2017 and 2018 and part of the 2019 financial years were assigned in May and October 2019 for €2 million and €0.5 million respectively.

2.2 Research and development, innovation and new products

Research and Development

At the end of December 2019, the Research and Development team had 29 employees (doctors, engineers or technicians) covering the fields of expertise necessary for the development of the Group's products and technologies, namely:

• optics and optotronics;
• mathematics applied to image processing;
• digital and analog electronics;
• software development;
• micro-mechanicalengineering, materials and processes for precision assembly.

The R&D team shares biological and medical knowledge regarding applications and product use with the specialists of the Clinical Affairs team and the Product Managers.

Upstream R&D

The Company is organized to draw on the necessary resources to directly inspire technological innovations that will enable it to expand in its market, and win new markets, by exploring solutions likely to encourage the development of innovative solutions to improve the care given to patients.

The Innovation Department provides ongoing scientific and technological oversight. Its objective is to identify and validate the ability of the technologies or components to remain at the leading edge of technology while limiting any risk of obsolescence relative to key components by identifying technical alternatives upstream.

The upstream studies arising from this monitoring are conducted by R&D department teams, either internally or through external collaborative efforts. They may constitute the preliminary phase of feasibility assessment that helps to decide whether to begin a product development project.

On the clinical level, the Company collaborates with various hospitals to assess the potential relevance and usability of the Cellvizio technology in new indications.

The upstream studies carried out in collaboration with academic laboratories are often co-funded to optimize the costs of research through grants or doctoral thesis scholarships.

Molecular imaging provides insight into molecular and cellular processes in the body, and has the potential to transform healthcare by offering earlier detection and enabling more precise treatment of diseases. For

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