Mauna Kea Technologies : 2020 Year-end financial report

Public Limited Company (Société anonyme) with share capital of €1,223,588

Head office: 9 rue d'Enghien

75010 Paris, France

431 268 028 Trade and Companies Register (RCS) Paris

Annual Financial Report 2020

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CONTENTS

CONTENTS

Management report on the consolidated financial statements …………………………………………………….…………….2
Management report on the company financial statements ……..…………………………………………………….…………..22
Report on corporate governance …………………………………………………………………………………………………….……….……..43
Consolidated financial statements prepared in accordance with IFRS
as of December 31, 2020, ……………………………………………………………………………………………………………………….……….….72
Statutory auditors' report on the consolidated financial statements
prepared according to IFRS standards as adopted in the European Union
for the financial year ended December 31, 2020 ………………………………...…………………………….….……………..…….115
Company financial statements for the financial year ended December 31, 2020 ….……………….……………122
Statutory auditors' report on the company financial statements for the financial
year ended December 31, 2020 ....................................................................................................................................	152
Statutory Auditors' special report on related-party agreements and commitments ……………...............158
Statement of the person responsible for the annual financial report …………………………………………….........160

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Management report on the consolidated financial statements

MANAGEMENT REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

1. FOREWORD

At its meeting on April 20, 2021 the Board of Directors reviewed the consolidated financial statements for the financial year ended December 31, 2020 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 2020 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 market authorizations for a wide range of applications in more than 40 countries, including the United States, Europe, Japan and China.

As of December 31, 2020, the Mauna Kea Technologies Group is made up of a multidisciplinary team of 98 employees, has an installed base of almost 694 systems in over 40 countries and has achieved around €97.5 million in sales since its founding, including €6.5 million in the 2020 financial year.

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

• cash available at December 31, 2020 stood at €8.6 million;
• a new equity financing line with Kepler Cheuvreux, which will enable €9.3 million to be raised in the coming 12 months, this amount being dependent on the share price;
• the grant of a repayable advance and a grant for PERSEE project of €0.6 million in 2021;
• the receipt of the 2020 Research Tax Credit for €0.7 million;
• sales outlook taking into account the impact of the Covid-19 crisis.

In this context, the Group considers that it is in a position to meet its commitments until the second quarter of 2022.

Highlights of the financial year:

New authorizations

On March 3, 2020, Mauna Kea Technologies has obtained 510(k) clearance (K193416) from the U.S. Food and Drug Administration (FDA) and CE marking of the next-generation Cellvizio® endomicroscopy platform, built with the Company's new proprietary system architecture. This marks the 18th U.S. FDA 510(k) clearance of the Cellvizio® pCLE/nCLE platform.

The new Cellvizio incorporates breakthrough modular design solutions to facilitate and better integrate endomicroscopy within procedure suites as well as within third-party platforms.

The new platform's hardware and software design was built from the ground up to facilitate future developments, including integration of deep learning (artificial intelligence) capabilities for assisted image interpretation. The ergonomic and significantly reduced footprint of the new Cellvizio should integrate easily with laparoscopic, advanced navigation, and robotic systems. This novel platform is also capable of

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Management report on the consolidated financial statements

hosting other proprietary endomicroscopic architectures with imaging capabilities at other wavelengths supporting fluorescence-guided surgery and molecular imaging.

Clinical results and conferences: the medical value of optical biopsy

Gastroenterology

On November 4, 2020, the Company announced the release of two publications, a meta-analysis and an international Delphi consensus, in peer-reviewed journals, both based on systematic reviews of published clinical studies of needle endomicroscopy for the evaluation of cystic pancreatic lesions.

The first publication entitled "Needle-based Confocal Laser Endomicroscopy in Pancreatic Cysts: a Meta- Analysis", was published in the European Journal of Gastroenterology & Hepatology (2020, DOI: 10.1097/MEG.0000000000001728). Ten studies involving 536 patients were included, and the authors evaluated diagnostic accuracy, sensitivity, specificity, and average procedure time. The meta-analysis concluded that confocal laser endomicroscopy "significantly outperformed" needle-based endoscopic ultrasound imagery in terms of diagnostic accuracy (with a ratio equal to 3.94, [1.58 - 9.82]; P = 0.003) and recommends the use of needle-based endomicroscopy as a safe and effective tool in the diagnostic evaluation algorithm for pancreatic cysts.

The second publication, "Confocal Endomicroscopy for the Evaluation of Pancreatic Cystic Lesions: A Systematic Review and an International Delphi Consensus Report", was published in the peer-reviewed journal, Endoscopy International Open (2020, DOI: 10. 1055/a-1229-4156), and is based on the consensus of an international panel of 15 experts in pancreatic diseases who reviewed the evidence for the application, performance, indications, training, and skills required to perform needle-based endomicroscopy in the evaluation of pancreatic cystic lesions. The consensus summary reflects a high level of agreement regarding the experts' claims and establishes that needle-based endoscopic ultrasound imagery is a minimally invasive and safe procedure that improves the evaluation of pancreatic cystic lesions and "should be routinely performed when needle-based aspiration is indicated for the evaluation of pancreatic cysts". The report also concluded that the use of needle-based endomicroscopy as an adjunct to needle-based aspiration could improve patient management and provide value for money in healthcare by reducing diagnostic errors, stopping unnecessary ongoing monitoring, and avoiding unnecessary surgical procedures.

Pulmonology

As part of his collaboration with Johnson & Johnson's Lung Cancer Initiative (LCI), Dr. Christopher Manley, Director of the Department of Interventional Pulmonology and Assistant Professor of Medicine at the Fox Chase Cancer Center (FCCC) in Philadelphia, and Dr. Jouke T. Annema, Professor of Pulmonary Endoscopy at the University of Amsterdam Medical Center, obtained approval to initiate a pilot clinical study, combining nCLE and robotic bronchoscopic navigation, using both Cellvizio® and the Monarch™ platform from Auris Health, Inc. one of Johnson & Johnson's medical device companies, for the diagnosis of peripheral lung nodules. The trial will be co-funded by Johnson & Johnson's LCI and Mauna Kea Technologies (Clinicaltrials.gov: NCT04441749). The main objective of this study is to assess the feasibility and safety of nCLE during bronchoscopy with robotic navigation in the assessment of peripheral lung lesions. This study will cover 25 patients with peripheral nodules.

Urological Oncology

On December 15, 2020, the Company and Telix Pharmaceuticals Limited, a company focused on the development of diagnostic and therapeutic products based on "Targeted Molecular Radiation" (TMR) technology ("Telix"), announced the start of an exclusive scientific and clinical research collaboration in the field of molecular imaging-guided urological oncology.

The scientific research collaboration between Telix and Mauna Kea called the "Alliance for Imaging and Robotics in Surgery (IRiS)", or "IRiS Alliance", was created to develop and validate the potential of the two companies' combined technologies. The IRiS Alliance is based on the conviction that the use of cancer-

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specific positron emission tomography (PET) molecular imaging agents combined with fluorescent dyes, in conjunction with laser confocal endomicroscopy, can significantly improve surgical techniques and clinical outcomes in patients with urological cancers.

The IRiS Alliance aims to demonstrate that preoperative planning, intraoperative guidance, evaluation of surgical resection margins and other surgical parameters can be improved by combining these methods. The primary objective of the IRiS Alliance is to develop and evaluate the use of Telix's dual-modality PET and fluorescence imaging molecular marker with the near-infrared version of the Cellvizio endomicroscopy platform to improve surgical interventions for prostate and kidney cancers.

New financing

On April 20, 2020, the Company obtained through its subsidiary Mauna Kea Inc. the payment of a loan convertible under conditions into a grant in the amount of €0.6 million under the Paycheck Protection Program in the U.S. Having reasonable assurance as of December 31, 2020 that the criteria for forgiveness will be met, and in accordance with IAS 20, this loan has been deemed to be a government grant and is presented under "Other income" in the income statement.

On July 8, 2020, in accordance with the loan agreement of June 19, 2020 with the EIB, as amended on June 19, 2020, the Company received Tranche 2 for €6 million. This second tranche will bear annual interest of 3% and capitalized interest of 4% payable in 5 years with the principal. Tranche 2 is also accompanied by the issue of share subscription warrants (BSA) entitling the holder, in the event of exercise, to subscribe to a maximum of 500,000 Company shares (i.e. 1.6% of the share capital on a non-diluted basis). These BSA warrants were issued on the basis of the twenty-fourth resolution adopted by the Combined General Meeting of July 2, 2020. The exercise price of the warrants is equal to the volume weighted average of the last three trading days preceding their issue, less a 5% discount. The BSA warrants may be exercised starting from their issuance and until July 3, 2039.

On July 17, 2020, the Company announced that BNP Paribas and Bpifrance had approved €4 million in financing in the form of a government-backed loan. BNP Paribas and Bpifrance have each a loan of €2 million at fixed interest rates of 0.25% and 1.75% respectively. These non-dilutive loans will be 90% guaranteed by the French government (ministerial decrees of March 23 and April 17, 2020 granting the State guarantee to credit institutions and financial companies, pursuant to Article 6 of Law No. 2020-289 of March 23, 2020). Each loan is for an initial term of one year. At the end of the first year, repayment of the principal due may be again deferred, at the Company's option, for a maximum 5 year term. At August 11, 2020, the loan was fully drawn down. At the reporting date of the financial statements, Management believes that the Company will certainly request a postponement of the repayment of its government- backed loans.

Pandemic Covid-19

Due to the Covid-19 pandemic, a set of preventive measures has been put in place within the Company, and this, by absolute necessity to preserve the health of its employees. The Company has therefore asked its employees in France to work from home and to organize remote meetings and events as much as possible. For those employees who need to be in the workplace, physical distancing measures and hygiene precautions are in place.

All measures proposed by the French government have been examined from a financial point of view. The Group benefited in particular from employee partial employment payments for €90 thousand, presented under "Other income" in the income statement. The Group also benefited from the deferred payment of social security contributions. As of December 31, 2020, €493 thousand of deferred contributions remains to be paid.

BNP Paribas and Bpifrance have also approved €4 million in financing for the Group in the form of a government-backed loan. At August 11, 2020, the loan was fully drawn down.

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