##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 Commission file number: 000-28508
 Flamel Technologies S.A.
  Not Applicable  (Translation of Registrants name into English)
 Republic of France  (Jurisdiction of incorporation or organization)
 Parc Club du Moulin a Vent
33, avenue du Docteur Georges Levy
69693 Vénissieux Cedex France  (Address of principal executive offices)
  Name of Exchange onTitle of each class
    
    which RegisteredOrdinary Shares, nominal value 0.122 Euros per share, represented by American
Depositary Shares (as evidenced by American Depositary Receipts), each
representing one Ordinary Share
    
    NASDAQ Global Market
      o þ
  o þ
  þ o
  o þ o o
   þ  o  o
  o þ
  o þ




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##### 



TABLE OF CONTENTS
 PART I
    
    
    1ITEM 1. Identity of Directors, Senior Management and Advisers
    
    
    1ITEM 2. Offer Statistics and Expected Timetable
    
    
    1ITEM 3. Key Information
    
    
    1ITEM 4. Information on the Company
    
    
    12ITEM 4A. Unresolved Staff Comments
    
    
    32ITEM 5. Operating and Financial Review and Prospects
    
    
    32ITEM 6. Directors, Senior Management and Employees
    
    
    40ITEM 7. Major Shareholders and Related Party Transactions
    
    
    48ITEM 8. Financial Information
    
    
    49ITEM 9. The Offer and Listing
    
    
    50ITEM 10. Additional Information
    
    
    51ITEM 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    57ITEM 12. Description of Securities Other Than Equity Securities
    
    
    57PART II
    
    
    58ITEM 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    58ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    58ITEM 15. Controls and Procedures
    
    
    58ITEM 16. [Reserved]
    
    
    61ITEM 16A. Audit Committee Financial Expert
    
    
    61ITEM 16B. Code of Ethics
    
    
    61ITEM 16C. Principal Accountant Fees and Services
    
    
    61ITEM 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    62ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    62PART III
    
    
    63ITEM 17. Financial Statements
    
    
    63ITEM 18. Financial Statements
    
    
    63ITEM 19. Exhibits
    
    
    63




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® ® ® TM ® ®




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##### 



SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
  
    
    our products and product candidates, if approved for marketing, may not produce
significant revenues and we rely on our partners to determine the regulatory and
marketing strategies;
    
    our products and product candidates, in commercial use, may have unintended side
effects, adverse reactions or incidents of misuse;
    
    we may enter into a collaboration with a third party to market or fund a
proprietary product candidate and the terms of such a collaboration may not meet
our expectations;
    
    our delivery technologies or product development efforts may not produce safe,
effective or commercially viable products;
    
    our collaborators could elect to terminate or delay programs at any time and
disputes with collaborators or failure to negotiate acceptable new collaborative
arrangements for our technologies could occur;
    
    we may be unable to manufacture or, if our products are successful, scale-up the
manufacturing of our products economically or on a commercial scale;
    
    unexpected events could interrupt manufacturing operations at our facilities,
which could be the sole source of supply for these products;
    
    after the completion of clinical trials of products incorporating our
technologies and the submission to the U.S. Food and Drug Administration (FDA) of a
New Drug Application, or NDA, for marketing approval and to other health
authorities as a marketing authorization application, the FDA or other health
authorities could refuse to accept such filings or could request additional
pre-clinical or clinical studies be conducted, each of which could result in
significant delays, or such authorities could refuse to approve the product at all;
    
    our product candidates could be ineffective or unsafe during pre-clinical
studies and clinical trials and we and our collaborators may not be permitted by
regulatory authorities to undertake new or additional clinical trials for product
candidates incorporating our technologies, or clinical trials could be delayed;
    
    we may experience significant delays in clinical trials on our products;
    
    we may not realize any revenue from milestone or royalty payments under our
license agreements with our partners, including GlaxoSmithKline;
    
    even if our product candidates appear promising at an early stage of
development, product candidates could fail to receive necessary regulatory
approvals, be difficult to manufacture on a large scale, be uneconomical, fail to
achieve market acceptance, be precluded from commercialization by proprietary
rights of third parties or experience substantial competition in the marketplace;




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
    
    technological changes in the biotechnology or pharmaceutical industries could
render our product candidates obsolete or noncompetitive;
    
    we may face difficulties or set-backs in obtaining and enforcing our patents or
defending claims of patent infringement by others; and
    
    we may need to raise substantial additional funding to continue research and
development programs and clinical trials and could incur difficulties or setbacks
in raising such funds.




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##### 



PART I
 
 ITEM Identity of Directors, Senior Management and Advisers
  
 ITEM 2. Offer Statistics and Expected Timetable
  
 ITEM 3. Key Information
 Selected Financial Data
  Statement of Operations Data*:
 2003
    
    2004
    
    2005
    
    2006
    
    2007Revenues
    
    $
    25,167
    
    
    $
    55,410
    
    
    $
    23,598
    
    
    $
    23,020
    
    
    $
    36,654Cost and Expenses
    
    
    (29,866
    )
    
    
    (46,575
    )
    
    
    (64,367
    )
    
    
    (61,858
    )
    
    
    (77,503
    )Income (Loss) from Operations
    
    
    (4,699
    )
    
    
    8,835
    
    
    
    (40,769
    )
    
    
    (38,838
    )
    
    
    (40,849
    )Interest and foreign exchange gain (loss), net
    
    
    (856
    )
    
    
    363
    
    
    
    4,103
    
    
    
    1,388
    
    
    
    1,221Other income
    
    
    1,128
    
    
    
    100
    
    
    
    5,003
    
    
    
    131
    
    
    
    197Income (loss) before income tax
    
    
    (4,427
    )
    
    
    9,298
    
    
    
    (31,663
    )
    
    
    (37,319
    )
    
    
    (39,431
    )Income tax benefit (expense)
    
    
    503
    
    
    
    3,201
    
    
    
    4,286
    
    
    
    2,118
    
    
    
    1,694Net income (loss)
    
    $
    (3,924
    )
    
    $
    12,499
    
    
    $
    (27,377
    )
    
    $
    (35,201
    )
    
    $
    (37,737
    )Income
(Loss) from Operations per ordinary share
    
    $
    (0.26
    )
    
    $
    0.41
    
    
    $
    (1.77
    )
    
    $
    (1.63
    )
    
    $
    (1.70
    )Basic earnings (loss) per ordinary share
    
    $
    (0.22
    )
    
    $
    0.58
    
    
    $
    (1.19
    )
    
    $
    (1.48
    )
    
    $
    (1.57
    )Diluted earnings (loss) per ordinary share
    
    $
    (0.22
    )
    
    $
    0.53
    
    
    $
    (1.19
    )
    
    $
    (1.48
    )
    
    $
    (1.57
    )Basic weighted average number of shares
outstanding (in thousands)
    
    
    17,762
    
    
    
    21,514
    
    
    
    22,999
    
    
    
    23,812
    
    
    
    24,024Diluted weighted average number of shares
outstanding (in thousands)
    
    
    17,762
    
    
    
    23,559
    
    
    
    22,999
    
    
    
    23,812
    
    
    
    24,024Dividends per share
    
    
    
    
    
    
    
    
    
    
    
 
 (* in thousands of U.S. dollars, except share and per share data) 1




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##### 



Balance Sheet Data*:
 2003
    
    2004
    
    2005
    
    2006
    
    2007Cash, Cash
equivalents &
Marketable
securities
    
    $
    109,617
    
    
    $
    105,374
    
    
    $
    83,774
    
    
    $
    62,771
    
    
    $
    41,062Working capital**
    
    
    102,867
    
    
    
    97,446
    
    
    
    67,092
    
    
    
    55,465
    
    
    
    31,155Total assets
    
    
    127,252
    
    
    
    145,608
    
    
    
    124,351
    
    
    
    114,894
    
    
    
    101,401Long term
liabilities
(excluding deferred
revenues)
    
    
    3,123
    
    
    
    4,665
    
    
    
    12,801
    
    
    
    20,504
    
    
    
    21,483Shareholders equity
    
    
    92,061
    
    
    
    116,757
    
    
    
    86,654
    
    
    
    73,026
    
    
    
    54,627
 
 *
    
    (in thousands of U.S. dollars)**
    
    (current assets  current liabilities) Exchange Rates:
   Year Ended December 31,
    
    High
    
    Low
    
    Average Rate1Euro to U.S. Dollar:2007
    
    
    1.4874
    
    
    
    1.2893
    
    
    
    1.370642006
    
    
    1.3331
    
    
    
    1.1826
    
    
    
    1.255672005
    
    
    1.3507
    
    
    
    1.1667
    
    
    
    1.244782004
    
    
    1.367
    
    
    
    1.176
    
    
    
    1.2482003
    
    
    1.246
    
    
    
    1.036
    
    
    
    1.132
 Previous Six Months,
    
    High
    
    Low
    
    Average Rate1Euro to U.S. Dollar:March, 2008
    
    
    1.5812
    
    
    
    1.5196
    
    
    
    1.552653February, 2008
    
    
    1.5167
    
    
    
    1.4513
    
    
    
    1.474838January, 2008
    
    
    1.4895
    
    
    
    1.4482
    
    
    
    1.471791December, 2007
    
    
    1.4741
    
    
    
    1.4349
    
    
    
    1.457037November, 2007
    
    
    1.4874
    
    
    
    1.4423
    
    
    
    1.468364October, 2007
    
    
    1.4447
    
    
    
    1.4037
    
    
    
    1.422748
 
 
 1
    
    Annual totals represent the average of the noon buying
rates for Euros of each business day during the relevant period. Monthly totals
represent the average of the noon buying rates for Euros for each business day
during the relevant month. 2




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Risk Factors:
  We depend on a few customers for the majority of our revenues, and the loss of any one of these
customers could reduce our revenues significantly.
  Our revenues depend on pharmaceutical and biotechnology companies successfully developing products
that incorporate our drug delivery technologies.
   
    
    our collaborative agreements may not result in any new commercial products;
    
    the existing commercial products developed under our collaborative agreements may
not be successful;
    
    our pharmaceutical and biotechnology company partners may not successfully market
any commercial products;
    
    we may not be able to meet the milestones established in our current or future
collaborative agreements;
    
    we may not be able to successfully develop new drug delivery technologies that would
be attractive to potential pharmaceutical or biotechnology company partners; and
    
    our collaborative partners may terminate their relationships with us.
 Although products that incorporate our drug delivery technologies may appear promising at their
early stages of development and in clinical trials, none of these potential products may reach the
commercial market for a number of reasons.
  3




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
    
    the FDA or an institutional review board may delay or stop the conduct of clinical
trials;
    
    our pharmaceutical or biotechnology partners may face slower than expected rate of
patient recruitment and enrollment;
    
    they may be found to be ineffective or cause harmful side effects, or they may fail
during pre-clinical testing or clinical trials;
    
    we may not find pharmaceutical or biotechnology companies to adopt the technologies
or, if partnered, the business strategy of our partner may change;
    
    our pharmaceutical and biotechnology company partners may find that certain products
cannot be manufactured on a commercial scale and, therefore, may not be economical to
produce; or
    
    products that use our technologies also could fail to achieve market acceptance or
be precluded from commercialization by proprietary rights of third parties.
 We depend on key personnel to execute our business plan. If we cannot attract and retain key
personnel, we may not be able to successfully implement our business plan.
  Products that incorporate our drug delivery technologies are subject to regulatory approval. If
our pharmaceutical and biotechnology company partners do not obtain such approvals, or if such
approvals are delayed, our revenues may be adversely affected.
    4




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We may face product liability claims related to participation in clinical trials or the use or
misuse of our products or products that incorporate our technologies.
  Our commercial products are subject to continuing regulation and we may be subject to adverse
consequences if we fail to comply with applicable regulations.
  
    
    adverse drug experience and other reporting requirements;
    
    product promotion and marketing;
    
    product manufacturing, including cGMP compliance;
    
    record keeping;
    
    distribution of drug samples;
 5




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
    
    required post-marketing studies or clinical trials;
    
    updating safety and efficacy information;
    
    use of electronic records and signatures; and
    
    changes to product manufacturing or labeling.
  
    
    issue warning letters;
    
    impose fines;
    
    seize products or order recalls;
    
    issue injunctions to stop future sales of products;
    
    refuse to permit products to be imported into, or exported out of, the United
States;
    
    suspend or limit our production;
    
    withdraw approval of marketing applications; and
    
    initiate criminal prosecutions.
 Regulatory reforms may adversely affect our ability to sell our products profitably.
    If our competitors develop and market drug delivery technologies or related products that are more
effective than ours, or obtain regulatory approval and market such technology or products before we
do, our commercial opportunity will be reduced or eliminated.
  6




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Certain companies to which we have licensed our technology are subject to extensive regulation by
the U.S. Food and Drug Administration. Their failure to meet strict regulatory requirements could
adversely affect our business.
  If we cannot keep pace with the rapid technological change in our industry, we may lose business.
  Our products and technologies may not gain market acceptance.
  7




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
    
    the effectiveness of our marketing strategy;
    
    demonstration of the clinical efficacy and safety of the product or technology;
    
    no evidence of undesirable side effects which delay or extend trials;
    
    no regulatory delays or other regulatory actions;
    
    its cost-effectiveness;
    
    its potential advantage over alternative treatment methods; and
    
    the marketing and distribution support it receives.
  If we cannot adequately protect our technology and proprietary information, we may be unable to
sustain a competitive advantage.
    Third parties have claimed, and may claim in the future, that our technologies, or the products in
which they are used, infringe on their rights and we may incur significant costs resolving these
claims.
    8




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If we or our collaborative partners are required to obtain licenses from third parties, our
revenues and royalties on any commercialized products could be reduced.
  If we use biological and hazardous materials in a manner that causes injury, we may be liable for
significant damages.
  Healthcare reform and restrictions on reimbursements may limit our financial returns.
  Because we have a limited operating history, investors in our shares may have difficulty evaluating
our prospects.
  If we are not profitable in the future, the value of our shares may fall.
  
    
    the demand for our technologies and products;
 9




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
    
    the level of product and price competition;
    
    our ability to develop additional commercial applications for our products;
    
    our ability to control our costs;
    
    our ability to broaden our customer base;
    
    the effectiveness of our marketing strategy;
    
    the effectiveness of our partners marketing strategy for products which use our
technology; and
    
    general economic conditions.
 We may require additional financing, which may not be available on favorable terms or at all, and
which may result in dilution of our shareholders equity interest.
  
    
    the development and acquisition of new products and technologies;
    
    the progress of our research and product development programs;
    
    results of our collaborative efforts with current and potential pharmaceutical and
biotechnology company partners; and
    
    the timing of, and amounts received from, future product sales, product development
fees and licensing revenue and royalties.
 Our share price has been volatile and may continue to be volatile.
 ,
 
    
    fluctuations in our operating results;
    
    announcements of technological collaborations, innovations or new products by us or
our competitors;
    
    governmental regulations;
    
    developments in patent or other proprietary rights owned by us or others;
    
    public concern as to the safety of drugs developed by us or others;
    
    the results of pre-clinical testing and clinical studies or trials by us or our
competitors;
    
    litigation;
 10




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
    
    decisions by our pharmaceutical and biotechnology company partners relating to the
products incorporating our technologies;
    
    actions by the FDA in connection with submissions related to the products
incorporating our technologies;
    
    the perception by the market of biotechnology and high technology companies
generally; and
    
    general market conditions.
 Our operating results may fluctuate, which may adversely affect our share price.
  
    
    demand by consumers for the products we produce;
    
    new product introductions;
    
    pharmaceutical and biotechnology company ordering patterns;
    
    the number of new collaborative agreements into which we enter;
    
    the number and timing of product development milestones that we achieve under
collaborative agreements;
    
    the level of our development activity conducted for, and at the direction of,
pharmaceutical and biotechnology companies under collaborative agreements; and
    
    the level of our spending on new drug delivery technology development and technology
acquisition, and internal product development.
  Fluctuations in foreign currency exchange rates may cause fluctuations in our financial results.
  11




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ITEM 4. Information on the Company
 General Overview
 ®
   ®
 ®
 ®
  12




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
    www.clinicaltrials.gov
 ® ®
 ®
   13




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The Need for Novel Delivery Systems
  Business Strategy
  
    
    to maximize the potential of our existing drug delivery systems;
    
    to develop additional drug delivery technologies;
    
    to develop new formulations of proprietary compounds that we receive from additional
partners;
    
    to leverage capabilities of pharmaceutical partners for clinical development and
commercialization; and
    
    to identify additional compounds for unmet medical needs.
   Medusa: Delivery System for Therapeutic Proteins and Peptides
   
    
    can be metabolized by the human body into harmless substances;
    
    is compatible with the protein or peptide;
    
    keeps the structure of the protein intact;
 14




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
    
    protects the therapeutic agent during transit and delivery; and
    
    has the required release properties once delivered.
  Products Based on the Medusa Technology
 1. Interferon
    2. FT-105: Long-acting Basal Insulin Formulation
  Insulin Market
  15




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The Development of FT-105 basal insulin
     ®
 3. Interleukin
 ®
 16




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Other Products Based on the Medusa Technology
  Micropump: Delivery System for the Oral Administration of Drugs
      17




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Products Based on the Micropump Technology
  1. Coreg CR
  The Market for Beta Blockers
   18




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2. Asacard162.5mg: Controlled-Release Cardiovascular Aspirin
   Other Products Based on Micropump Technology
  Photochromic Materials
     Strategic Alliances
  19




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GlaxoSmithKline
  Merck Serono
 
 Wyeth
  TAP
 ®
 Bristol-Myers Squibb
 ®
 Biovail
 TM
 20




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Servier
  Merck & Co.
  Corning: Photochromic Materials
    Manufacturing
   21




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##### 



Patents and Proprietary Technology
   ®
    22




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Government Regulation
    New Drug and Biological Product Development and Approval Process
 United States
   23




---



##### 



Chemical and Formulation Development
   Pre-Clinical Testing
  Investigational New Drug Application
 USA:
 24




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European Union:
 Clinical Trials
    New Drug Application or Biological License Application
   25




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Other Countries
   Regulation of Combination Drugs
  26




---



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Marketing Approval and Reporting Requirements
    Post-Marketing Obligations
   27




---



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Patent Restoration and Exclusivity
    28




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Regulation of Medical Devices
 United States
  Other Countries
   29




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Other Regulation
 Controlled Substances Act
  cGMP.
  Healthcare Reimbursement
  30




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Competition
      
    
    demonstration of its clinical efficacy and safety;
    
    its cost-effectiveness;
    
    its potential advantage over alternative treatment methods; and
    
    the marketing and distribution support it receives.
 Description of Property
   31




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ITEM 4A. Unresolved Staff Comments
  
 ITEM 5. Operating and Financial Review and Prospects
  Overview
      32




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##### 



  
     33




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##### 



Critical Accounting Policies
 Revenue Recognition
        Translation of Financial Statements
  34




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##### 



Results of Operations
  Operating Revenues
  2005
    
    2006
    
    2007LICENSE AND RESEARCH REVENUES
    
    
    20.8
    
    
    
    20.3
    
    
    
    10.3RESEARCH
    
    
    
    
    15.4
    
    
    
    13.4
    
    
    
    5.5Research
    
    GSK  Coreg CR
    
    
    8.6
    
    
    
    9.6
    
    
    
    1.9TAP Lansoprazole
    
    
    6.8Wyeth Pharmaceuticals
    
    
    
    
    
    
    
    
    
    
    0.3RHEI Pharmaceuticals
    
    
    
    
    
    
    
    
    
    
    0.1Undisclosed Partners
    
    
    
    
    
    
    3.8
    
    
    
    3.2LICENSES
    
    
    
    
    5.4
    
    
    
    6.9
    
    
    
    4.8Up Front Payment
    
    GSK  Coreg CR
    
    
    0.8
    
    
    
    0.2TAP Lansoprazole
    
    
    0.9Biovail Genvir
    
    
    0.2Wyeth Pharmaceuticals
    
    
    
    
    
    
    
    
    
    
    0.2RHEI Pharmaceuticals
    
    
    
    
    
    
    
    
    
    
    0.2Undisclosed Partners
    
    
    
    
    
    
    0.7
    
    
    
    0.4Milestones
    
    GSK Coreg CR
    
    
    2.0
    
    
    
    6.0
    
    
    
    4.0TAP Lansoprazole
    
    
    1.5TOTAL
    
    
    
    
    20.8
    
    
    
    20.3
    
    
    
    10.3GSK Coreg CR
    
    
    11.4
    
    
    
    15.8
    
    
    
    5.9TAP Lansoprazole
    
    
    9.2Biovail Genvir
    
    
    0.2Wyeth Pharmaceuticals
    
    
    
    
    
    
    
    
    
    
    0.5RHEI Pharmaceuticals
    
    
    
    
    
    
    
    
    
    
    0.3Undisclosed Partners
    
    
    
    
    
    
    4.5
    
    
    
    3.6
     35




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Operating Expenses
  
 ®
    36




---



##### 



Non-Operating Items
 Societes dInvestissement à
Capital Variable
  ®
    Net Income/Loss
  Liquidity and Capital Resources
  37




---



##### 



38




---



##### 



Payments Due Per PeriodLess than
    
    1 to 3
    
    3 to 5
    
    More than(in thousands of U.S.)
    
    Total
    
    1 year
    
    years
    
    years
    
    5 yearsLong-Term Debt (see note 14)
    
    $
    3,124
    
    
    $
    724
    
    
    $
    157
    
    
    $
    1,964
    
    
    $
    279Capital Lease Obligation (see
note 15)
    
    $
    304
    
    
    $
    260
    
    
    $
    44Operating Leases (see note 21.2)
    
    $
    5,071
    
    
    $
    1,187
    
    
    $
    1,587
    
    
    $
    1,324
    
    
    $
    973Total Contractual Cash Obligations
    
    $
    8,499
    
    
    $
    2,171
    
    
    $
    1,788
    
    
    $
    3,288
    
    
    $
    1,252
  39




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##### 



ITEM 6. Directors, Senior Management and Employees
 Directors and Senior Management
  Year ofInitialName
    
    Position
    
    AppointmentElie Vannier (1) (2)
    
    Non-Executive Chairman of the Board of Directors
    
    2005Cor Boonstra (2) (4)
    
    Director
    
    2005Frédéric Lemoine (2) (3)
    
    Director
    
    2005Lodewijk J.R. de Vink (1) (3)
    
    Director
    
    2006John L. Vogelstein(1) (3)
    
    Director
    
    2005Dr; Frank J.T Fildes (5)
    
    Director
    
    2008Stephen H. Willard (6)
    
    Chief Executive Officer and Director
    
    2000
 
 (1)
    
    Member of the Compensation Committee(2)
    
    Member of the Audit Committee(3)
    
    Member of the Nominating and Corporate Governance Committee(4)
    
    Retired on February 29, 2008(5)
    
    Nominated on February 29, 2008 in replacement of Cor Boonstra(6)
    
    Appointed as a Director in 2001  Year ofInitialName
    
    Position
    
    AppointmentMichel Finance (6)
    
    Executive Vice President and Chief Financial Officer
    
    2005Rafael Jorda
    
    Executive Vice President and  Chief Operating Officer
    
    1991Christian Kalita
    
    Directeur Général Délégué Pharmacien Responsable (Chief Pharmacist)
    
    2005Yves Bourboulou
    
    Industrial Director
    
    2005Martine Capelle
    
    Human Resources Director
    
    2006Catherine Castan
    
    Director of R&D Micropump
    
    1992You Ping Chan
    
    Director of Chemistry Department
    
    1992Siân Crouzet (7)
    
    Financial Controller
    
    2005Katherine Hanras
    
    Intellectual Property Director
    
    1998Roger Kravtzoff
    
    Preclinical and Early Clinical Development Director
    
    2002Nigel McWilliam
    
    Director of Business Development
    
    2005Remi Meyrueix
    
    Director of Physico-Chemistry
    
    1990Charles Mosseri-Marlio
    
    Director of Strategic Planning and Investor Relations
    
    2004Raphaëlle Portella
    
    Legal Counsel, France
    
    2006David Weber
    
    Supply Chain Director
    
    2004
 
 (6)
    
    On March 3, 2008 the Company announced the departure of Michel Finance.(7)
    
    On March 3, 2008 the Company announced the nomination of Siân Crouzet as Principal
Financial Officer.  40




---



##### 



societe anonyme Directeur Général Directeurs Généraux Délégués
 statuts
   
    
    Elie Vannier, Chairman of the Board of Directors and former COO of GrandVision
SA, Director of Ingénico, Famar, Visilab, GrandVision, Conbipel and Compagnie
Européenne de Téléphonie,
    
    Cor Boonstra who retired in February 2008, former chairman and chief executive
officer of Philips Electronics NV and Director of Hunton Douglas, and replaced by
Dr. Frank J.T Fildes, the former Senior Vice President: Head of Global Development
for AstraZeneca, PLC, Director of ProStrakan Group PLC and Piramed, Ltd, member of
the Scientific Advisory Board of UCB Pharmaceuticals; and a member of the New
Agents Development Committee for Cancer Research UK,
    
    Frédéric Lemoine, Chairman of the Supervisory Board of AREVA, former Deputy
General Secretary of Economic Affairs to President Jacques Chirac of France,
Director of Groupama SA and member of the Censor to the Supervisory Board of
Générale de Santé,
    
    Lodewijk J.R. de Vink, former President of Schering Plough International, former
Chairman and Chief Executive Officer of Warner Lambert, Inc., Director of Alcon,
Roche, Stiefel and member of the International Advisory Board of Sothebys and
Member of the European Advisory Council of Rothschild,
    
    John L. Vogelstein, who is Senior Advisor of Warburg Pincus, former Vice
Chairman of Warburg Pincus and Director of Mattel, Inc.
 Board Practices
   41




---



##### 



statuts societes anonymes statuts
 Comité dEntreprise
   Compensation of Directors and Officers
   Senior Management and Executive Officers
     42




---



##### 



43




---



##### 



Options to Purchase Securities from the Company
  2 2
   44




---



##### 



Free of Charge Share Awards Granted and Warrants Subscribed from January 1, 2007 to 31
March 2008
 Free ofExercise
    
    Exercise
    
    
    
    ChargePrice in
    
    Price in
    
    
    
    ShareWarrants
    
    Euros 
    
    USD $2
    
    Expiration
    
    AwardsVannier
    
    
    25,000
    
    
    
    20.54
    
    
    
    27.83
    
    
    May 2010Boonstra
    
    
    25,000
    
    
    
    20.54
    
    
    
    27.83
    
    
    May 2010De Vink
    
    
    25,000
    
    
    
    20.54
    
    
    
    27.83
    
    
    May 2010Lemoine
    
    
    25,000
    
    
    
    20.54
    
    
    
    27.83
    
    
    May 2010Vogelstein
    
    
    25,000
    
    
    
    20.54
    
    
    
    27.83
    
    
    May 2010Autant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Bardet
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000Bourboulou
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Borel
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000Boutherin-Falson
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500Capelle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000Castan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500Chan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000Commaret
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Constancis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000Crouzet
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000Fernandez
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Franoux
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000Gorria
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000Guimberteau
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000Hanras
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Kalita
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500Kravtzoff
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000Lemercier
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Marlio
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,500McWilliam
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Meyrueix
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500Nicolas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Portella
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Prevot
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Vialas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Weber
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000
 45




---



##### 



Employees
  Employees
 Venissieux (1)
    
    Pessac (2)
    
    USA (3)
    
    TotalYear End2005
    
    
    123
    
    
    
    131
    
    
    
    5
    
    
    
    2592006
    
    
    128
    
    
    
    174
    
    
    
    4
    
    
    
    3062007
    
    
    130
    
    
    
    168
    
    
    
    4
    
    
    
    302
 
 (1)
    
    Primarily engaged in research activities(2)
    
    Primarily engaged in technical and pharmaceutical development activities and manufacturing(3)
    
    Primarily engaged in administrative and marketing activities  Share Ownership
   Exercise
    
    Exercise% of Ordinary
    
    
    
    
    
    
    
    
    
    Price in
    
    Price in USDShares
    
    Shares
    
    
    
    
    
    Number of
    
    Euros
    
    (2)
    
    
    
    
    
    
    
    TotalName
    
    Owned
    
    Outstanding
    
    Warrants
    
    Options
    
    
    
    $
    
    Expiration
    
    Total
    
    %Vannier
    
    
    1
    
    
    
    0,00
    %
    
    
    
    
    
    
    75 000
    
    
    
    13,72
    
    
    
    16,68
    
    
    September 200825 000
    
    
    
    
    
    
    
    14,6
    
    
    
    18,48
    
    
    June 200925 000
    
    
    
    
    
    
    
    20,54
    
    
    
    27,83
    
    
    May 2010
    
    125 001
    
    
    0,43
    %De Vink
    
    
    1
    
    
    
    0,00
    %
    
    
    63 084
    
    
    
    
    
    
    
    20,07
    
    
    
    23,99
    
    
    March 200925 000
    
    
    
    
    
    
    
    14,6
    
    
    
    18,48
    
    
    June 200925 000
    
    
    
    
    
    
    
    20,54
    
    
    
    27,83
    
    
    May 2010
    
    113 085
    
    
    0,39
    %Fildes
    
    
    1
    
    
    
    0,00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    0,00
    %Lemoine
    
    
    1
    
    
    
    0,00
    %
    
    
    30 750
    
    
    
    
    
    
    
    14,91
    
    
    
    17,88
    
    
    November 200825 000
    
    
    
    
    
    
    
    14,6
    
    
    
    18,48
    
    
    June 200925 000
    
    
    
    
    
    
    
    20,54
    
    
    
    27,83
    
    
    May 2010
    
    80 751
    
    
    0,28
    %Vogelstein
    
    
    100 001
    
    
    
    0,34
    %
    
    
    60 000
    
    
    
    
    
    
    
    14,91
    
    
    
    17,88
    
    
    November 20083 083
    
    
    
    
    
    
    
    20,07
    
    
    
    23,99
    
    
    March 200925 000
    
    
    
    
    
    
    
    14,6
    
    
    
    18,48
    
    
    June 200925 000
    
    
    
    
    
    
    
    20,54
    
    
    
    27,83
    
    
    May 2010
    
    213 084
    
    
    0,73
    %Willard
    
    
    40 001
    
    
    
    0,14
    %
    
    
    
    
    
    
    40 000
    
    
    
    7,58
    
    
    
    4,99
    
    
    September 201040 000
    
    
    
    6,4
    
    
    
    5,73
    
    
    December 201025 000
    
    
    
    6,4
    
    
    
    5,73
    
    
    December 201050 000
    
    
    
    1,09
    
    
    
    0,99
    
    
    September 2011195 000
    
    
    
    2,33
    
    
    
    2,04
    
    
    March 2012200 000
    
    
    
    4,32
    
    
    
    4,62
    
    
    March 2013100 000
    
    
    
    20,81
    
    
    
    25,27
    
    
    December 2013150 000
    
    
    
    14,81
    
    
    
    19,70
    
    
    December 2014100 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 2015100 000
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    1 040 001
    
    
    3,66
    %
 46




---



##### 



Exercise
    
    Exercise
    
    
    
    Free of% of Ordinary
    
    
    
    
    
    
    
    
    
    Price in
    
    Price in USD
    
    
    
    ChargeShares
    
    Shares
    
    
    
    
    
    Number of
    
    Euros
    
    (2)
    
    
    
    Share
    
    
    
    
    
    TotalName
    
    Owned
    
    Outstanding
    
    Warrants
    
    Options
    
    
    
    $
    
    Expiration
    
    Awards
    
    Total
    
    %Bourboulou
    
    
    
    
    
    
    0,00
    %
    
    
    
    
    
    
    50 000
    
    
    
    13,08
    
    
    
    17,49
    
    
    May 201520 000
    
    
    
    12,86
    
    
    
    15,83
    
    
    September 20156 500
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    10 000
    
    
    
    86 500
    
    
    
    0,30
    %Capelle
    
    
    
    
    
    
    0,00
    %
    
    
    
    
    
    
    25 000
    
    
    
    13,97
    
    
    
    17,65
    
    
    June 20163 750
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    6 800
    
    
    
    35 550
    
    
    
    0,13
    %Castan
    
    
    
    
    
    
    0,00
    %
    
    
    
    
    
    
    3 000
    
    
    
    1,09
    
    
    
    0,99
    
    
    September 20115 000
    
    
    
    9,88
    
    
    
    11,66
    
    
    June 201340 000
    
    
    
    20,81
    
    
    
    25,27
    
    
    December 201320 000
    
    
    
    12,86
    
    
    
    15,83
    
    
    September 201520 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 20156 000
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    9 000
    
    
    
    103 000
    
    
    
    0,36
    %Chan
    
    
    
    
    
    
    0,00
    %
    
    
    
    
    
    
    5 000
    
    
    
    9,88
    
    
    
    11,66
    
    
    June 201320 000
    
    
    
    12,86
    
    
    
    15,83
    
    
    September 201520 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 20154 500
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    9 300
    
    
    
    58 800
    
    
    
    0,21
    %Crouzet
    
    
    
    
    
    
    0,00
    %
    
    
    
    
    
    
    50 000
    
    
    
    12,86
    
    
    
    15,83
    
    
    September 20155 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 20153 750
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    6 800
    
    
    
    65 550
    
    
    
    0,23
    %Finance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200 000
    
    
    
    12,86
    
    
    
    15,83
    
    
    September 201520 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 201530 000
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    2 500
    
    
    
    252 500
    
    
    
    0,89
    %Hanras
    
    
    
    
    
    
    0,00
    %
    
    
    
    
    
    
    5 000
    
    
    
    9,88
    
    
    
    11,66
    
    
    June 201340 000
    
    
    
    20,81
    
    
    
    25,27
    
    
    December 2013
    
    
    2 500
    
    
    
    47 500
    
    
    
    0,17
    %Jorda
    
    
    369
    
    
    
    0,00
    %
    
    
    
    
    
    
    20 000
    
    
    
    2,78
    
    
    
    2,49
    
    
    December 20115 000
    
    
    
    9,88
    
    
    
    11,66
    
    
    June 201360 000
    
    
    
    14,81
    
    
    
    19,70
    
    
    December 2014105 000
    
    
    
    12,86
    
    
    
    15,83
    
    
    September 201575 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 201560 000
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    5 000
    
    
    
    330 369
    
    
    
    1,16
    %Kalita
    
    
    
    
    
    
    0,00
    %
    
    
    
    
    
    
    50 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 20156 500
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    9 500
    
    
    
    66 000
    
    
    
    0,23
    %Kravtzoff
    
    
    0
    
    
    
    0,00
    %
    
    
    
    
    
    
    20 000
    
    
    
    1,36
    
    
    
    1,34
    
    
    June 20125 000
    
    
    
    9,88
    
    
    
    11,66
    
    
    June 201330 000
    
    
    
    12,86
    
    
    
    15,83
    
    
    September 201520 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 20154 500
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    9 300
    
    
    
    88 800
    
    
    
    0,31
    %McWilliam
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100 000
    
    
    
    12,86
    
    
    
    15,83
    
    
    September 20155 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 201510 000
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    5 000
    
    
    
    120 000
    
    
    
    0,42
    %Meyrueix
    
    
    125
    
    
    
    0,00
    %
    
    
    
    
    
    
    40 000
    
    
    
    4,87
    
    
    
    4,65
    
    
    April 201040 000
    
    
    
    2,78
    
    
    
    2,49
    
    
    December 20115 000
    
    
    
    9,88
    
    
    
    11,66
    
    
    June 201340 000
    
    
    
    14,81
    
    
    
    19,70
    
    
    December 201430 000
    
    
    
    12,86
    
    
    
    15,83
    
    
    September 201520 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 20157 250
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    9 900
    
    
    
    192 275
    
    
    
    0,68
    %Mosseri-Marlio
    
    
    
    
    
    
    0,00
    %
    
    
    
    
    
    
    50 000
    
    
    
    19,2
    
    
    
    23,61
    
    
    March 201410 000
    
    
    
    12,86
    
    
    
    15,83
    
    
    September 20155 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 20152 250
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    5 200
    
    
    
    72 450
    
    
    
    0,26
    %Portella
    
    
    
    
    
    
    0,00
    %
    
    
    
    
    
    
    2 750
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    5 000
    
    
    
    7 750
    
    
    
    0,03
    %Weber
    
    
    
    
    
    
    0,00
    %
    
    
    
    
    
    
    50 000
    
    
    
    12,02
    
    
    
    14,81
    
    
    September 20142 750
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    5 000
    
    
    
    57 750
    
    
    
    0,20
    %
 47




---



##### 



ITEM 7. Major Shareholders and Related Party Transactions
 A. Major Shareholders
  Amount of Ordinary
    
    PercentageIdentity of Person or Group
    
    Shares Owned
    
    of ClassO.S.S. Capital Management LP
    
    
    6,346,047
    (1)
    
    
    26.37
    %BVF, Inc.
    
    
    2,435,172
    (2)
    
    
    10.12
    %Knoll Capital Management LP
    
    
    2,230,463
    (3)
    
    
    9.27
    %Greenlight Capital Management
    
    
    1,887,008
    (4)
    
    
    7.84
    %Silver Point Capital L.P
    
    
    1,500,000
    (5)
    
    
    6.23
    %
 
 (1)
    
    Based solely on a review of a Schedule 13D/A filed on August 31, 2007,
O.S.S. Capital Management LP, shares beneficial ownership over the
Ordinary Shares it owns with Schafer Brothers LLC and Oscar S.
Schafer; in respect of 13.3% of the Ordinary Shares with O.S.S.
Overseas Fund Ltd.; in respect of 12.1% of the Ordinary Shares with
O.S.S. Advisors Ltd; and in respect of 11.1% of the Ordinary Shares
with Oscar S. Schafer & Partners II LP.(2)
    
    Based solely on a review of a Schedule 13G filed on January 24, 2008,
BVF Inc. shares beneficial ownership over the Ordinary Shares it owns
with BVF partners.(3)
    
    Based solely on a review of a Schedule 13G/A filed on February 11,
2008, Knoll Capital Management, LP shares beneficial ownership over
the Ordinary Shares it owns with Fred Knoll.(4)
    
    Based solely on a review of a Schedule 13G/A filed on February 14,
2008, Greenlight Capital, LLC shares beneficial ownership over the
Ordinary Shares it owns with David Einhorn.(5)
    
    Based solely on a review of a Schedule 13G filed on February 14, 2008,
Silver Point Capital L.P shares beneficial ownership over the Ordinary
Shares it owns.  48




---



##### 



Major Shareholder
    
    Date
    
    Ownership PercentageO.S.S. Capital Management LP
    
    February 11, 2005
    
    
    7.80
    %Schafer Brothers LLC
    
    April 18, 2005
    
    
    9.70
    %Oscar S. Schafer
    
    May 11, 2005
    
    
    11.9
    %May 12, 2005
    
    
    12.3
    %June 23, 2005
    
    
    11.7
    %September 9, 2006
    
    
    13.0
    %January 13, 2006
    
    
    15.4
    %February 14, 2007
    
    
    17.6
    %August 31, 2007
    
    
    26.37
    %BVF, Inc.
    
    February 14, 2005
    
    
    10.31
    %BVF Partners L.P.
    
    April 21, 2005
    
    
    11.41
    %July 22, 2005
    
    
    9.5
    %January 13, 2006
    
    
    8.1
    %April 25, 2006
    
    
    6.7
    %September 18, 2006
    
    
    5.5
    %October 16, 2006
    
    
    4.9
    %January 24, 2008
    
    
    10.12
    %Knoll Capital Management L.P.
    
    April 20, 2005
    
    
    7.8
    %Fred Knoll
    
    February 9, 2006
    
    
    8.5
    %February 11, 2008
    
    
    9.27
    %July, 18, 2005
    
    
    6.44
    %Greenlight Capital Management
    
    February 14, 2008
    
    
    7.84
    %Silver Point Capital L.P.
    
    October 29, 2007
    
    
    5.2
    %February 14, 2008
    
    
    6.23
    %
 B. Related Party Transactions
  C. Interests of Experts and Counsel
  
 ITEM 8. Financial Information
 Financial Statements
  Legal Proceedings
  49




---



##### 



Billhofer v. Flamel Technologies et al
  Dividend Policy
  
 ITEM 9. The Offer and Listing
   Price Per ADS (U.S.$)Year
    
    High
    
    Low2003
    
    
    42.85
    
    
    
    3.742004
    
    
    31.73
    
    
    
    14.672005
    
    
    21.37
    
    
    
    12.252006
    
    
    34.88
    
    
    
    16.72007
    
    
    36.97
    
    
    
    8.17
 Price Per ADS (U.S.$)Quarter Ended
    
    High
    
    Low1st Quarter, 2005
    
    
    19.65
    
    
    
    12.822nd Quarter, 2005
    
    
    21.37
    
    
    
    12.253rd Quarter, 2005
    
    
    20.45
    
    
    
    14.904th Quarter, 2005
    
    
    19.77
    
    
    
    17.221st Quarter, 2006
    
    
    24.40
    
    
    
    18.502ndQuarter, 2006
    
    
    21.37
    
    
    
    17.373rd Quarter, 2006
    
    
    18.75
    
    
    
    16.74th Quarter, 2006
    
    
    34.88
    
    
    
    18.371st Quarter 2007
    
    
    36.97
    
    
    
    25.602nd Quarter 2007
    
    
    29.87
    
    
    
    20.973rd Quarter 2007
    
    
    24.39
    
    
    
    8.994th Quarter 2007
    
    
    12.03
    
    
    
    8.171st Quarter 2008
    
    
    10.65
    
    
    
    8.38
 50




---



##### 



Price Per ADS (U.S.$)Month Ended
    
    High
    
    LowOctober 31, 2007
    
    
    12.03
    
    
    
    8.34November 30, 2007
    
    
    9.00
    
    
    
    8.25December 31, 2007
    
    
    10.70
    
    
    
    8.17January 31, 2008
    
    
    10.65
    
    
    
    9.305February 28, 2008
    
    
    9.57
    
    
    
    8.38March 31,2008
    
    
    9.48
    
    
    
    8.40
 
 ITEM 10. Additional Information
 Exemptions from certain NASDAQ Corporate Governance Rules
  statuts,
 Memorandum and Articles of Association
  Ownership of Shares by Non-European Union Persons
   51




---



##### 



Material Contracts
  Exchange Controls
  Taxation
 Tax Consequences to Non-U.S. Holders
  Treaty"
   Taxation on Sale or Disposal of Flamel Ordinary Shares
  
    
    the holder is not a French resident for French tax purposes; and
    
    the holder has held not more than 25% of Flamels dividend rights, known as
droits aux benefices sociaux, at any time during the preceding five years, either
directly or indirectly.
   52




---



##### 




 Taxation of Dividends
   réfaction de 40%) (abattement fixe annuel)   credit dimpôt  
    avoir fiscal credit dimpôt  
 crédit dimpôt avoir fiscal
 Australia
    
    Gabon
    
    Luxembourg
    
    New Zealand
    
    SwitzerlandAustria
    
    Ghana
    
    Malaysia
    
    Niger
    
    TogoBelgium
    
    Iceland
    
    Mali
    
    Norway
    
    TurkeyBolivia
    
    India
    
    Malta
    
    Pakistan
    
    UkraineBrazil
    
    Israel
    
    Mauritius
    
    Saint-Pierre et Miquelon
    
    United KingdomBurkina Faso
    
    Italy
    
    Mayotte
    
    Senegal
    
    United StatesCameroun
    
    Ivory Coast
    
    Mexico
    
    Singapore
    
    VenezuelaCanada
    
    Japan
    
    Namibia
    
    South KoreaEstonia
    
    Latvia
    
    Netherlands
    
    SpainFinland
    
    Lithuania
    
    New Caledonia
    
    Sweden
  53




---



##### 



Estate and Gift Tax
   Wealth Tax
 impôt de solidarité sur la fortune
  Tax Consequences to U.S. Holders
   
    
    the U.S. Holder owns, directly or indirectly, less than 10% of Flamels share
capital;
    
    the U.S. Holder is entitled to the benefits of the Treaty under the limitations
on benefits article of that Treaty;
    
    the U.S. Holder holds Flamel Shares as capital assets; and
    
    the U.S. Holders functional currency is the U.S. dollar.
    54




---



##### 



Taxation of Dividends
 Withholding Tax
   credit dimpôt  
 
    
    the U.S. Holder is an individual or other non-corporate holder that is a resident of
the United States for purposes of the Treaty;
    
    the U.S. Holder is a U.S. corporation, other than a regulated investment company;
    
    the U.S. Holder is a U.S. corporation which is a regulated investment company,
provided that less than 20% of the U.S. Holders shares are beneficially owned by
persons who are neither citizens nor residents of the United States; or
    
    the U.S. Holder is a partnership or trust that is a resident of the United States
for purposes of the Treaty, but only to the extent that the U.S. Holders partners,
beneficiaries or grantors would qualify as eligible under one of the first two points
in this list.
 U.S. Income Tax. crédit dimpôt avoir fiscal
   55




---



##### 




    
    First, as a tax-free return of capital, which will cause a reduction in the adjusted
basis of a U.S. Holders Flamel Shares. This adjustment will increase the amount of
gain, or decrease the amount of loss, which a U.S. Holder will recognize if such U.S.
Holder later disposes of those Flamel Shares.
    
    Second, the balance of the dividend in excess of the adjusted basis will be taxed as
capital gain recognized on a sale or exchange.
 crédit
dimpôt avoir fiscal
 Taxation of Capital Gains
 French Tax.
 U.S. Income Tax.
  
    
    75% or more of its gross income is passive income; or
    
    its assets which produce passive income or which are held for the production of
passive income amount to at least 50% of the value of its total assets on average.
  French Estate and Gift Taxes
  
    
    the U.S. Holder is domiciled in France at the time of making the gift, or at the
time of the U.S. Holders death; or
    
    the U.S. Holder used the Flamel Shares in conducting a business through a permanent
establishment or fixed base in France, or the U.S. Holder held the Flamel Shares for
that use.
 56




---



##### 



French Wealth Tax
 participation substantielle)
 United States Information Reporting and Backup Withholding
   Documents on Display
 www.sec.gov www.flamel.com
 
 ITEM 11. Quantitative and Qualitative Disclosures About Market Risk
  
 ITEM 12. Description of Securities Other Than Equity Securities
  57




---



##### 



PART II
 
 ITEM 13. Defaults, Dividend Arrearages and Delinquencies
  
 ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 ITEM 15. Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  Management Report on Internal Control over Financial Reporting
   
    
    pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
Company;
    
    provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of
America;
    
    provide reasonable assurance that receipts and expenditures of the
Company are being made only in accordance with authorization of
management and directors of the Company; and
    
    provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of assets that could
have a material effect on the consolidated financial statements.
   58




---



##### 



Report of Independent Registered Public Accounting Firm on Internal Control over Financial
Reporting
        
 
 59




---



##### 



ITEM 16. [Reserved]
 
 ITEM 16A. Audit Committee Financial Expert
  
 ITEM 16B. Code of Ethics
  
 ITEM 16C. Principal Accountant Fees and Services
  Fiscal 2007 Fees
    
    Fiscal 2006 FeesFee Category
    
    (Euros)
    
    (Euros)Audit
    
    
    333,275
    
    
    
    158,300Audit-Related Fees
    
    
    15,000
    
    
    
    133,525Tax Fees
    
    
    47,413
    
    
    
    38,090All Other Fees
    
    
    0
    
    
    
    0Total Fees
    
    
    395,688
    
    
    
    329,915
 All fees were billed in Euros. Using the average exchange rate of 1.37064 U.S dollars per Euro for
2007 and 1.25567 U.S dollars per Euro for 2006, audit fees equaled $542,346 for Fiscal 2007 and
$414,264 for Fiscal 2006.
 Audit Fees.
 Audit-Related Fees.
 Tax Fees.
 All Other Fees.
 60




---



##### 



Audit Committees Pre-Approval Policies and Procedures
    
 
 ITEM 16D. Exemptions from the Listing Standards for Audit Committees
  
 ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 .
 61




---



##### 



PART III
 
 ITEM 17. Financial Statements
  
 ITEM 18. Financial Statements
  Report of independent registered public accounting firm
    
    F-2Consolidated Balance Sheets as of December 31, 2006 and 2007
    
    F-3Consolidated Statement of Operations for the Years Ended December 31,
2005, 2006 and 2007
    
    F-4Consolidated Statements of Shareholders Equity for the Years Ended
December 31, 2005, 2006 and 2007
    
    F-5Consolidated Statements of Cash Flows for the Years Ended December 31,
2005, 2006 and 2007
    
    F-6Notes to Consolidated Financial Statements
    
    F-7
  
 ITEM 19. Exhibits
 EXHIBIT INDEX
 ExhibitNumber
    
    Description1.1
    
    Revised Statutsor charter of the Company.2.1
    
    Deposit Agreement among Flamel, The Bank of New York, as
Depositary, and holders from time to time of American Depositary
Shares issued thereunder (including as an exhibit the form of
American Depositary Receipt). (1)8.1
    
    List of Subsidiaries. (Filed herewith)11.1
    
    Code of Ethics for CEO (Directeur Général), Delegated Managing
Directors (Directeurs Generaux Delegues) and Senior Financial
Officers. (2)12.1
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed
herewith)12.2
    
    Certification of the Principal Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed
herewith)13.1
    
    Certification of the Chief Executive Officer pursuant to USC
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (Furnished herewith)13.2
    
    Certification of the Principal Financial Officer pursuant to USC
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (Furnished herewith)23
    
    Consent of Ernst & Young Audit. (Filed herewith)
 
 (1)
    
    Incorporated by reference to Post-Effective Amendment No. 1 to the Companys registration
statement on Form F-6 filed July 26, 2001, as amended (No. 333-12790).(2)
    
    Incorporated by reference to the Companys annual report on Form 20-F filed on April 26, 2004.The registrant undertakes to provide to each shareholder requesting the same a copy of each exhibit
referred to herein upon payment of a reasonable fee limited to the registrants reasonable expenses
in furnishing such exhibit. 62




---



##### 



FLAMEL TECHNOLOGIES S.A.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of December 31, 2006 and 2007
    
    F-3Consolidated Statements of Operations for the Years Ended December 31, 2005,
2006 and 2007
    
    F-4Consolidated Statements of Shareholders Equity for the Years
Ended December 31, 2005,
2006 and 2007
    
    F-5Consolidated Statements of Cash flows for the Years Ended
December 31, 2005, 2006 and 2007
    
    F-6Notes to Consolidated Financial Statements
    
    F-7
 F-1




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
        
 
 F-2




---



##### 



FLAMEL TECHNOLOGIES S.A.
 
 CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars except share data)
 December 31,Note
    
    
    2006
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    
    6
    
    
    $
    51,827
    
    
    $
    26,313Marketable securities
    
    
    7
    
    
    
    10,944
    
    
    
    14,749Accounts receivable (net of allowance of $113 and $126 at December 31,
2006 and 2007 respectively)
    
    
    
    
    
    
    5,583
    
    
    
    4,987Inventory
    
    
    8
    
    
    
    3,332
    
    
    
    1,771Research and development tax credit receivable current portion
    
    
    18
    
    
    
    615
    
    
    
    5,490Prepaid expenses and other current assets
    
    
    9
    
    
    
    4,478
    
    
    
    2,800Total current assets
    
    
    
    
    
    
    76,779
    
    
    
    56,110Property and equipment, net
    
    
    10
    
    
    
    25,705
    
    
    
    35,140Other assets:Research and development tax credit receivable less current portion
    
    
    18
    
    
    
    11,599
    
    
    
    9,932Other long-term assets
    
    
    
    
    
    
    811
    
    
    
    219Total assets
    
    
    
    
    
    $
    114,894
    
    
    $
    101,401LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    
    14
    
    
    
    
    
    
    
    724Current portion of capital lease obligations
    
    
    15
    
    
    
    420
    
    
    
    256Accounts payable
    
    
    
    
    
    
    9,702
    
    
    
    8,568Current portion of deferred revenue
    
    
    13
    
    
    
    562
    
    
    
    2,948Advances from customers
    
    
    
    
    
    
    394
    
    
    
    1,215Accrued expenses
    
    
    11
    
    
    
    5,505
    
    
    
    5,369Other current liabilities
    
    
    12
    
    
    
    4,731
    
    
    
    5,875Total current liabilities
    
    
    
    
    
    
    21,314
    
    
    
    24,955Long-term debt, less current portion
    
    
    14
    
    
    
    2,795
    
    
    
    2,400Capital lease obligations, less current portion
    
    
    15
    
    
    
    272
    
    
    
    44Deferred revenue, less current portion
    
    
    13
    
    
    
    50
    
    
    
    336Other long-term liabilities
    
    
    12 - 19
    
    
    
    17,437
    
    
    
    19,039Total long-term liabilities
    
    
    
    
    
    
    20,554
    
    
    
    21,819Commitments and contingencies:
    
    
    
    
    
    
    
    
    
    
    Shareholders equity :
    
    
    17Ordinary shares: 23,990,590 issued and outstanding at December 31, 2006
and 24,051,590 at December 31, 2007 (nominal value
0.122 euro)
    
    
    
    
    
    
    3,480
    
    
    
    3,490Additional paid-in capital
    
    
    
    
    
    
    173,479
    
    
    
    185,173Accumulated deficit
    
    
    
    
    
    
    (110,384
    )
    
    
    (148,121
    )Accumulated other comprehensive income
    
    
    
    
    
    
    6,451
    
    
    
    14,085Total shareholders equity
    
    
    
    
    
    
    73,026
    
    
    
    54,627Total liabilities and shareholders equity
    
    
    
    
    
    $
    114,894
    
    
    $
    101,401
  F-3




---



##### 



FLAMEL TECHNOLOGIES S.A.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands of dollars except share data)
 Year ended December 31,Note
    
    
    2005
    
    
    2006
    
    
    2007Revenue:License and research revenue
    
    
    3
    
    
    $
    20,825
    
    
    $
    20,263
    
    
    $
    10,307Product sales and services
    
    
    2
    
    
    
    1,757
    
    
    
    2,083
    
    
    
    19,768Other revenues
    
    
    
    
    
    
    1,016
    
    
    
    674
    
    
    
    6,579Total revenue
    
    
    
    
    
    
    23,598
    
    
    
    23,020
    
    
    
    36,654Costs and expenses:Cost of products and services sold
    
    
    
    
    
    
    (2,525
    )
    
    
    (6,250
    )
    
    
    (17,320
    )Research and development
    
    
    
    
    
    
    (47,301
    )
    
    
    (38,233
    )
    
    
    (43,557
    )Selling, general and administrative
    
    
    
    
    
    
    (14,541
    )
    
    
    (17,375
    )
    
    
    (16,626
    )Total
    
    
    
    
    
    
    (64,367
    )
    
    
    (61,858
    )
    
    
    (77,503
    )Income (loss) from operations
    
    
    
    
    
    
    (40,769
    )
    
    
    (38,838
    )
    
    
    (40,849
    )Interest expense
    
    
    
    
    
    
    (68
    )
    
    
    (35
    )
    
    
    (16
    )Interest income
    
    
    
    
    
    
    3,671
    
    
    
    2,022
    
    
    
    1,691Foreign exchange gain (loss)
    
    
    
    
    
    
    500
    
    
    
    (599
    )
    
    
    (454
    )Other income
    
    
    5
    
    
    
    5,003
    
    
    
    131
    
    
    
    197Income (loss) before income taxes
    
    
    
    
    
    
    (31,663
    )
    
    
    (37,319
    )
    
    
    (39,431
    )Income tax benefit
    
    
    18
    
    
    
    4,286
    
    
    
    2,118
    
    
    
    1,694Net income (loss)
    
    
    
    
    
    $
    (27,377
    )
    
    $
    (35,201
    )
    
    $
    (37,737
    )Earnings (loss) per shareBasic earnings (loss) per share
    
    
    
    
    
    $
    (1.19
    )
    
    $
    (1.48
    )
    
    $
    (1.57
    )Diluted earnings (loss) per share
    
    
    16
    
    
    $
    (1.19
    )
    
    $
    (1.48
    )
    
    $
    (1.57
    )Weighted average number of shares outstanding (in thousands) :Basic
    
    
    
    
    
    
    22,999
    
    
    
    23,812
    
    
    
    24,024Diluted
    
    
    
    
    
    
    22,999
    
    
    
    23,812
    
    
    
    24,024
  F-4




---



##### 



FLAMEL TECHNOLOGIES S.A.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Amounts in thousands of dollars except share data)
 AccumulatedOtherAdditional
    
    
    
    
    
    
    Deferred
    
    
    Comprehen-Ordinary Shares
    
    
    Paid-in
    
    
    Accumulated
    
    
    Compen-
    
    
    sive Income
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    sation
    
    
    (Loss)
    
    
    EquityBalance at January 1, 2005
    
    
    21,751,590
    
    
    $
    3,135
    
    
    $
    148,389
    
    
    $
    (47,806
    )
    
    $
    (1,122
    )
    
    $
    14,161
    
    
    $
    116,757Issuance of ordinary shares on exercise of
warrants
    
    
    1,125,000
    
    
    
    180
    
    
    
    9,196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,376Issuance of ordinary shares on exercise of
stock -options
    
    
    830,000
    
    
    
    121
    
    
    
    4,148
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,269Compensation on warrants granted to non
employees
    
    
    
    
    
    
    
    
    
    
    207
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207Amort. deferred compensation
    
    
    
    
    
    
    
    
    
    
    (820
    )
    
    
    
    
    
    
    1,122
    
    
    
    
    
    
    
    302Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,377
    )
    
    
    
    
    
    
    
    
    
    
    (27,377
    )Unrealized gains (loss) on
available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,887
    )
    
    
    (1,887
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,993
    )
    
    
    (14,993
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (44,257
    )Balance at December 31, 2005
    
    
    23,706,590
    
    
    $
    3,436
    
    
    $
    161,120
    
    
    $
    (75,183
    )
    
    $
    0
    
    
    $
    (2,719
    )
    
    $
    86,654Subscription of warrants
    
    
    
    
    
    
    
    
    
    
    706
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    706Issuance of ordinary shares on exercise of
stock -options
    
    
    257,000
    
    
    
    40
    
    
    
    1,366
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,406Issuance of ordinary shares on exercise of
warrants
    
    
    27,000
    
    
    
    4
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    504Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    9,787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,787Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,201
    )
    
    
    
    
    
    
    
    
    
    
    (35,201
    )Unrealized losses on available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,187
    
    
    
    9,187Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (26,031
    )Balance at December 31, 2006
    
    
    23,990,590
    
    
    $
    3,480
    
    
    $
    173,479
    
    
    $
    (110,384
    )
    
    $
    0
    
    
    $
    6,451
    
    
    $
    73,026Subscription of warrants
    
    
    
    
    
    
    
    
    
    
    362
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362Issuance of ordinary shares on exercise
of stock -options
    
    
    61,000
    
    
    
    10
    
    
    
    197
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    11,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,135Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,737
    )
    
    
    
    
    
    
    
    
    
    
    (37,737
    )Unrealized losses on available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    17Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,617
    
    
    
    7,617Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (30,103
    )Balance at December 31, 2007
    
    
    24,051,590
    
    
    $
    3,490
    
    
    $
    185,173
    
    
    $
    (148,121
    )
    
    $
    0
    
    
    $
    14,085
    
    
    $
    54,627
  F-5




---



##### 



CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars except share data)
 Year ended December 31,2005
    
    
    2006
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    (27,377
    )
    
    $
    (35,201
    )
    
    $
    (37,737
    )Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:Depreciation of property and equipment
    
    
    4,743
    
    
    
    5,639
    
    
    
    6,198Loss (gain) on disposal of property and equipment
    
    
    (93
    )
    
    
    (92
    )
    
    
    (39
    )Gains on sales of marketable securities
    
    
    (3,650
    )
    
    
    (1,336
    )
    
    
    (318
    )Grants recognized in other income and income from operations
    
    
    
    
    
    
    (183
    )
    
    
    (1,216
    )Stock compensation expense
    
    
    546
    
    
    
    9,989
    
    
    
    12,004Provision for losses on accounts receivable
    
    
    
    
    
    
    15
    
    
    
    Increase (decrease) in cash from:Accounts receivable
    
    
    4,771
    
    
    
    (2,589
    )
    
    
    1,167Inventory
    
    
    351
    
    
    
    (2,059
    )
    
    
    1,818Prepaid expenses and other current assets
    
    
    1,029
    
    
    
    (146
    )
    
    
    2,054Research and development tax credit receivable
    
    
    (4,221
    )
    
    
    (1,365
    )
    
    
    (1,648
    )Accounts payable
    
    
    3,303
    
    
    
    (2,987
    )
    
    
    (3,023
    )Deferred revenue
    
    
    (2,905
    )
    
    
    390
    
    
    
    2,421Accrued expenses
    
    
    813
    
    
    
    387
    
    
    
    (9
    )Other current liabilities
    
    
    3,411
    
    
    
    (1,466
    )
    
    
    547Other long-term assets and liabilities
    
    
    (110
    )
    
    
    1,178
    
    
    
    (1,460
    )Net cash provided by (used in) operating activities
    
    
    (19,389
    )
    
    
    (29,826
    )
    
    
    (19,241
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (11,326
    )
    
    
    (6,394
    )
    
    
    (11,272
    )Proceeds from disposal of property and equipment
    
    
    154
    
    
    
    92
    
    
    
    47Proceeds from sales of marketable securities
    
    
    431,055
    
    
    
    262,584
    
    
    
    94,707Purchase of marketable securities
    
    
    (424,383
    )
    
    
    (183,614
    )
    
    
    (96,713
    )Net cash provided by (used in) investing activities
    
    
    (4,500
    )
    
    
    72,668
    
    
    
    (13,231
    )Cash flows from financing activities:Funding from partner GSK
    
    
    12,311
    
    
    
    5,023
    
    
    
    2,056Use of funds received from partners (GSK) or relating to conditional grants
    
    
    (7,951
    )
    
    
    (2,087
    )
    
    
    Proceeds from loans or conditional grants
    
    
    3,470
    
    
    
    347
    
    
    
    839Principal payments on capital lease obligations
    
    
    (397
    )
    
    
    (419
    )
    
    
    (441
    )Cash proceeds from issuance of ordinary shares and warrants
    
    
    13,646
    
    
    
    2,617
    
    
    
    569Net cash provided by (used in) financing activities
    
    
    21,079
    
    
    
    5,481
    
    
    
    3,023Effect of exchange rate changes on cash and cash equivalents
    
    
    (763
    )
    
    
    2,486
    
    
    
    3,934Net increase (decrease) in cash and cash equivalents
    
    
    (3,573
    )
    
    
    50,809
    
    
    
    (25,515
    )Cash and cash equivalents, beginning of year
    
    
    4,591
    
    
    
    1,018
    
    
    
    51,827Cash and cash equivalents, end of year
    
    $
    1,018
    
    
    $
    51,827
    
    
    $
    26,312Supplemental disclosures of cash flow information:Income tax paid
    
    
    23
    
    
    
    
    
    
    
    Interest paid
    
    
    68
    
    
    
    35
    
    
    
    16Non cash transactions:Capital lease obligations incurred
    
    
    339
    
    
    
    
    
    
    
    
  F-6




---



##### 



FLAMEL TECHNOLOGIES S.A
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Nature of business and summary of significant accounting policies:
 1.1. Nature of business:
 société anonyme
 1.2. Principles of consolidation:
    1.3. Translation of financial statements of foreign entities and foreign currency
transactions:
    1.4. Revenue recognition:
   F-7




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   1.5. Governmental Grants:
     1.6. Research and development costs:
   1.7. Concentration of credit risk:
     F-8




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.8. Earnings per share:
  1.9. Cash and cash equivalents:
  1.10.Marketable securities:
  1.11. Accounts Receivable:
 .
 1.12. Inventories:
  1.13. Property and equipment:
  Land and buildings
    
    20 yearsLaboratory equipment
    
    4 - 5 yearsOffice and computer equipment
    
    3 yearsFurniture, fixtures and fittings
    
    5-10 years
  F-9




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.14. Impairment of Long-Lived Assets:
  1.15. Income taxes:
   1.16 . Employee stock options and warrants:
     F-10




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1.17. Comprehensive Income:
  1.18. Recent Accounting Pronouncements:
 Accounting for Collaborative Agreements
 Accounting for Nonrefundable Advance Payments
for Goods or Services to Be Used in Future Research and Development Activities (
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Fair Value Measurement
 2. Subcontracting agreement:
   F-11




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3. License, research and consulting agreements:
 TAP Pharmaceutical Products Inc.
 ® ®
    Bristol-Myers Squibb
 ®
     SB Pharma Puerto Rico Inc. (GSK)
 ®
 F-12




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          Biovail
    F-13




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Wyeth Pharmaceuticals
  Merck-Serono
   Corning
   Others
  4. Stock based compensation :
 4.1 Adoption of SFAS 123R
 st
 F-14




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2006
    
    2007Weighted-average expected life (years)
    
    
    4.36
    
    
    
    1.71Expected volatility rate
    
    
    52.5
    %
    
    
    52.7
    %Expected dividend yield
    
    
    
    
    
    
    Risk-free interest rate
    
    
    4.66
    %
    
    
    4.83
    %Forfeiture rate
    
    
    5
    %
    
    
    5
    %
    Free of charge share(In thousands of U.S dollars except per
    
    Options
    
    awards
    
    Warrants
    
    Totalshare data)
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007Research and development
    
    
    3,662
    
    
    
    4,598
    
    
    
    56
    
    
    
    1,220
    
    
    
    203
    
    
    
    (88
    )
    
    
    3,921
    
    
    
    5,730Cost of goods sold
    
    
    144
    
    
    
    234
    
    
    
    10
    
    
    
    223
    
    
    
    
    
    
    
    
    
    
    
    154
    
    
    
    457Selling, general and administrative
    
    
    3,581
    
    
    
    4,542
    
    
    
    13
    
    
    
    317
    
    
    
    2,319
    
    
    
    958
    
    
    
    5,914
    
    
    
    5,817Total stock-based compensation expense
    
    
    7,387
    
    
    
    9,374
    
    
    
    79
    
    
    
    1,760
    
    
    
    2,522
    
    
    
    870
    
    
    
    9,989
    
    
    
    12,004Effect on earnings per shareBasic
    
    
    0.31
    
    
    
    0.39
    
    
    
    0.00
    
    
    
    0.07
    
    
    
    0.11
    
    
    
    0.04
    
    
    
    0.42
    
    
    
    0.50Diluted
    
    
    0.31
    
    
    
    0.39
    
    
    
    0.00
    
    
    
    0.07
    
    
    
    0.11
    
    
    
    0.04
    
    
    
    0.42
    
    
    
    0.50
   F-15




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.2 Proforma information for periods prior to adoption of SFAS 123R
  Year EndedDecember 31,(In thousands of U.S. dollars except share data)
    
    2005Net income (loss), as reported
    
    
    (27,377
    )Add: Stock-based employee compensation expense
included in reported net income (loss), net of
related tax effects
    
    
    335Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    (2,220
    )Pro forma net income (loss)
    
    
    (29,262
    )
 Year EndedDecember 31,(In thousands of U.S. dollars except share data)
    
    2005Earnings per share:Basic, as reported
    
    
    (1.19
    )Basic, pro forma
    
    
    (1.27
    )Diluted, as reported
    
    
    (1.19
    )Diluted, pro forma
    
    
    (1.27)
  Year Ended December 31(In U.S. dollars)
    
    2005
    
    2006
    
    2007Weighted avg.
    
    Weighted avg.
    
    Weighted avg.
    
    Weighted avg.
    
    Weighted avg.
    
    Weighted avg.Fair value1
    
    Exer. Price1
    
    Fair value1
    
    Exer. Price1
    
    Fair value1
    
    Exer. Price19.61
    
    
    
    16.82
    
    
    
    14.39
    
    
    
    25.67
    
    
    
    6.41
    
    
    
    27.83
 
 [1]
    
    Historical exchange rate at date of grant F-16




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.3 Warrants
  Weighted Average
    
    Weighted AverageWarrants
    
    Exercise Price in U.S
    
    Exercise Price inOutstanding
    
    dollars [1]
    
    EurosBalance at January 1, 2005
    
    
    1,275,000
    
    
    $
    7.79
    
    
    
    7.47Warrants granted
    
    
    40,000
    
    
    $
    16.18
    
    
    
    12.34Warrants exercised
    
    
    1,125,000
    
    
    $
    6.34
    
    
    
    6.37Warrants cancelled
    
    
    150,000
    
    
    $
    18.68
    
    
    
    15.70Balance at December 31, 2005
    
    
    40,000
    
    
    $
    16.18
    
    
    
    12.34Warrants granted
    
    
    365,000
    
    
    $
    19.25
    
    
    
    15.78Warrants exercised
    
    
    27,000
    
    
    $
    17.44
    
    
    
    14.24Balance at December 31, 2006
    
    
    378,000
    
    
    $
    19.05
    
    
    
    15.53Warrants granted
    
    
    125,000
    
    
    $
    27.83
    
    
    
    20.54Warrants cancelled
    
    
    2,500
    
    
    $
    16.18
    
    
    
    12.34Balance at December 31, 2007
    
    
    500,500
    
    
    $
    21.26
    
    
    
    16.80
 
 [1]
    
    Historical exchange rate at date of grant 
  Warrants Outstanding
    
    
    Warrants ExercisableWeighted
    
    
    Weighted
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    average
    
    
    average
    
    
    
    
    
    
    averageRange of
    
    
    
    
    
    remaining
    
    
    exercise
    
    
    intrinsic
    
    
    
    
    
    
    exercise
    
    
    Weighted averageexercise prices
    
    Number of
    
    
    contractual
    
    
    price in
    
    
    value in
    
    
    Number of
    
    
    price in
    
    
    intrinsic value inin euros
    
    shares
    
    
    life
    
    
    euros
    
    
    euros
    
    
    shares
    
    
    euros
    
    
    euros0 to 12.34
    
    
    30 500
    
    
    
    2,01
    
    
    
    12,34
    
    
    
    
    
    
    
    23 000
    
    
    
    12,34
    
    
    
    14.60 to 14.91
    
    
    275 750
    
    
    
    1,12
    
    
    
    14,77
    
    
    
    
    
    
    
    275 750
    
    
    
    14,77
    
    
    
    20.07 to 20.54
    
    
    194 250
    
    
    
    2,00
    
    
    
    20,37
    
    
    
    
    
    
    
    69 250
    
    
    
    20,07
    
    
    
    500 500
    
    
    
    1,51
    
    
    
    16,80
    
    
    
    
    
    
    
    368 000
    
    
    
    15,62
    
    
    
    
 
 
  F-17




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.4 Stock Options
  Weighted Average
    
    
    Weighted AverageShares Available
    
    
    Options Granted
    
    
    Exercise Price in
    
    
    Exercise Price infor Grant
    
    
    and Outstanding
    
    
    U.S dollars [1]
    
    
    EurosBalance at January 1, 2005
    
    
    49,000
    
    
    
    3,583,500
    
    
    $
    11.55
    
    
    
    9.72Options authorized
    
    
    1,500,000
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    (1,545,500
    )
    
    
    1,545,500
    
    
    $
    16.83
    
    
    
    13.64Exercised
    
    
    
    
    
    
    (830,000
    )
    
    $
    4.12
    
    
    
    4.26Forfeited
    
    
    794,000
    
    
    
    (874,000
    )
    
    $
    19.60
    
    
    
    15.69Balance at December 31, 2005
    
    
    797,500
    
    
    
    3,425,000
    
    
    $
    13.69
    
    
    
    11.31Options authorized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    (483,750
    )
    
    
    483,750
    
    
    $
    28.81
    
    
    
    22.33Exercised
    
    
    
    
    
    
    (257,000
    )
    
    $
    4.74
    
    
    
    4.39Forfeited
    
    
    32,500
    
    
    
    (122,500
    )
    
    $
    18.82
    
    
    
    14.95Balance at December 31, 2006
    
    
    346,250
    
    
    
    3,529,250
    
    
    $
    16.23
    
    
    
    13.18Options authorized
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    (61,000
    )
    
    $
    2.33
    
    
    
    2.48Forfeited
    
    
    219,500
    
    
    
    (255,500
    )
    
    $
    17.73
    
    
    
    14.06Balance at December 31, 2007
    
    
    1,065,750
    
    
    
    3,212,750
    
    
    $
    16.37
    
    
    
    13.31
 
 [1]
    
    Historical exchange rate at date of grant 
 
    
 F-18




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Stock Options OutstandingWeighted
    
    
    
    
    
    Weighted
    
    Stock Options Exercisableaverage
    
    Weighted
    
    average
    
    
    
    
    
    Weighted
    
    Weightedremaining
    
    average
    
    intrinsic
    
    
    
    
    
    average
    
    averageRange of exercise
    
    Number of
    
    contractual
    
    exercise price
    
    value in
    
    Number of
    
    exercise price
    
    intrinsic valueprices in euros
    
    shares
    
    life
    
    in euros
    
    euros
    
    shares
    
    in euros
    
    in euros0 to 1.36
    
    
    88,000
    
    
    
    4.03
    
    
    
    1.20
    
    
    
    5.58
    
    
    
    88,000
    
    
    
    1.20
    
    
    
    5.582.33 to 2.77
    
    
    255,000
    
    
    
    4.13
    
    
    
    2.43
    
    
    
    4.34
    
    
    
    255,000
    
    
    
    2.43
    
    
    
    4.344.11 to 4.86
    
    
    294,000
    
    
    
    4.76
    
    
    
    4.36
    
    
    
    2.42
    
    
    
    294,000
    
    
    
    4.36
    
    
    
    2.426.40 to 7.58
    
    
    125,000
    
    
    
    2.89
    
    
    
    6.78
    
    
    
    0.38
    
    
    
    125,000
    
    
    
    6.78
    
    
    
    0.389.88 to 12.02
    
    
    224,000
    
    
    
    6.55
    
    
    
    11.08
    
    
    
    
    
    
    
    157,500
    
    
    
    10.88
    
    
    
    12.86 to 16.23
    
    
    1,531,000
    
    
    
    7.66
    
    
    
    14.18
    
    
    
    
    
    
    
    846,250
    
    
    
    14.20
    
    
    
    19.2 to 25.39
    
    
    695,750
    
    
    
    7.46
    
    
    
    22.62
    
    
    
    
    
    
    
    404,188
    
    
    
    21.48
    
    
    
    3,212,750
    
    
    
    6.71
    
    
    
    13.31
    
    
    
    3.25
    
    
    
    2,169,938
    
    
    
    11.64
    
    
    
    3.25
 
 
 
 4.4 Free of charge share award
  Free of ChargeFree of Charge
    
    
    Share Award
    
    
    Weighted AverageShare Award
    
    
    Granted and
    
    
    Fair Value in U.S
    
    
    Weighted AverageAvailable for Grant
    
    
    Outstanding
    
    
    dollars[1]
    
    
    Fair Value in EurosBalance at January 1, 2007
    
    
    94,000
    
    
    
    106,000
    
    
    $
    33.46
    
    
    
    25.39Authorized
    
    
    200,000Granted
    
    
    (130,000
    )
    
    
    130,000
    
    
    $
    8.54
    
    
    
    5.80Forfeited
    
    
    1,450
    
    
    
    (1,450
    )
    
    $
    33.46
    
    
    
    25.39Balance at December 31, 2007
    
    
    165,450
    
    
    
    234,550
    
    
    $
    19.64
    
    
    
    14.53
 
 [1]
    
    Historical exchange rate at date of grant 
 
 F-19




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5. Other Income:
  6. Cash and Cash Equivalents:
  December 31,(In thousands of U.S. dollars)
    
    2006
    
    
    2007HSBC
    
    $
    26,605
    
    
    $
    13,968Credit Lyonnais
    
    
    61
    
    
    
    17Credit Agricole
    
    
    24,883
    
    
    
    4,796Barclays Bank
    
    
    
    
    
    
    7,438Other
    
    
    278
    
    
    
    94Total cash and cash equivalents
    
    $
    51,827
    
    
    $
    26,313
  7. Marketable securities:
    Unrealized GainsFair value
    
    Value at cost
    
    (Losses)(in thousands of U.S dollars)
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007Credit Agricole securities
    
    
    1,520
    
    
    
    4,739
    
    
    
    1,520
    
    
    
    4,739
    
    
    
    
    
    
    
    Credit Lyonnais securities
    
    
    102
    
    
    
    79
    
    
    
    102
    
    
    
    79
    
    
    
    
    
    
    
    HSBC securities
    
    
    2,779
    
    
    
    9,931
    
    
    
    2,779
    
    
    
    9,931
    
    
    
    
    
    
    
    Barclays securities
    
    
    6,543
    
    
    
    
    
    
    
    6,560
    
    
    
    
    
    
    
    (17
    )
    
    
    Total
    
    
    10,944
    
    
    
    14,749
    
    
    
    10,961
    
    
    
    14,749
    
    
    
    (17
    )
    
    
    
  F-20




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Proceeds from sales
    
    Purchase of securities
    
    Gross gains (Losses)(In thousands of U.S dollars)
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007Credit Agricole securities
    
    
    104,280
    
    
    
    40,034
    
    
    
    69,494
    
    
    
    42,753
    
    
    
    500
    
    
    
    111Credit Lyonnais securities
    
    
    1,615
    
    
    
    327
    
    
    
    1,288
    
    
    
    292
    
    
    
    7
    
    
    
    2HSBC securities
    
    
    144,147
    
    
    
    40,635
    
    
    
    94,125
    
    
    
    46,818
    
    
    
    740
    
    
    
    171Barclays securities
    
    
    12,542
    
    
    
    13,711
    
    
    
    18,707
    
    
    
    6,851
    
    
    
    90
    
    
    
    34Total
    
    
    250,042
    
    
    
    94,707
    
    
    
    183,614
    
    
    
    96,714
    
    
    
    1,247
    
    
    
    318
 8. Inventory:
  December 31,(In thousands of U.S. dollars)
    
    2006
    
    2007Raw materials
    
    
    1,752
    
    
    
    2,676Finished goods
    
    
    1,752
    
    
    
    535Provision for inventory obsolescence
    
    
    (172
    )
    
    
    (1,439
    )Inventories, net
    
    
    3,332
    
    
    
    1,771
 9. Prepaid expenses and other current assets
  December 31,(In thousands of U.S. dollars)
    
    2006
    
    2007Prepaid expenses
    
    
    1,427
    
    
    
    845Valued-added tax recoverable
    
    
    2,790
    
    
    
    1,662Advance to suppliers
    
    
    261
    
    
    
    293Total Prepaid expenses and other current assets
    
    
    4,478
    
    
    
    2,800
 F-21




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10. Property and Equipment:
  December 31,(In thousands of U.S. dollars)
    
    2006
    
    2007Land and buildings
    
    
    5,930
    
    
    
    6,627Laboratory equipment
    
    
    22,231
    
    
    
    26,101Office and computer equipment
    
    
    3,051
    
    
    
    3,852Furniture, fixtures and fittings
    
    
    13,971
    
    
    
    16,053Construction in progress
    
    
    4,312
    
    
    
    15,731Total property and equipment
    
    
    49,495
    
    
    
    68,366Less accumulated depreciation and amortization
    
    
    (23,790
    )
    
    
    (33,225
    )Property and equipment, net
    
    
    25,705
    
    
    
    35,140
    11. Accrued Expenses:
   December 31,(In thousands of U.S. dollars)
    
    2006
    
    2007Accrued compensation
    
    
    2,364
    
    
    
    1,703Accrued social charges
    
    
    3,128
    
    
    
    3,666Other
    
    
    13
    
    
    
    Total accrued expenses
    
    
    5,505
    
    
    
    5,369
 F-22




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12. Other current and Long Term liabilities:
 12.1. Other current liabilities:
  December 31,(In thousands of U.S. dollars)
    
    2006
    
    2007Funding from partner GSK short term
    
    
    925
    
    
    
    1,805Provision for costs
    
    
    2,256
    
    
    
    2,091Conditional grants short term
    
    
    
    
    
    
    1,362Withholding tax
    
    
    
    
    
    
    236Employee service award provision short term
    
    
    549
    
    
    
    129Valued-added tax payable
    
    
    1,001
    
    
    
    252Total Other current liabilities
    
    
    4,731
    
    
    
    5,875
      F-23




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12.2. Other long term liabilities
  December 31,(In thousands of U.S. dollars)
    
    2006
    
    2007Funding from partner GSK long term
    
    
    12,375
    
    
    
    14,307Conditional grants
    
    
    2,675
    
    
    
    1,372Provision for retirement indemnity (see note 19)
    
    
    914
    
    
    
    1,450Employee service award provision long term
    
    
    976
    
    
    
    1,412Other
    
    
    497
    
    
    
    498Total Other long term liabilities
    
    
    17,437
    
    
    
    19,039
   13. Deferred Revenue:
  14. Long-term Debt:
  December 31,(In thousands of U.S. dollars)
    
    2006
    
    2007Anvar loans (a) :Asacard program
    
    
    853
    
    
    
    953French Ministry of Industry (b)
    
    
    1,942
    
    
    
    2,171Total
    
    
    2,795
    
    
    
    3,124Current portion
    
    
    
    
    
    
    724Long-term portion
    
    
    2,795
    
    
    
    2,400
 
  F-24




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   (In thousands of U.S. dollars)
    
    December 31,2008
    
    
    7242009
    
    
    2010
    
    
    1572011
    
    
    1,6722012
    
    
    2922013
    
    
    2793,124
 15. Capital lease obligations:
   (In thousands of U.S. dollars)
    
    December 31,2008
    
    
    2612009
    
    
    44Total
    
    
    304Less amounts representing interest
    
    
    (4
    )Future payments on capital leases
    
    
    300Less current portion
    
    
    256Long term portion
    
    
    44
  F-25




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 16. Earnings Per Share:
  Year ended December 31,(In thousands, except per share amounts)
    
    2005
    
    2006
    
    2007Numerator:Net income (loss)
    
    
    ($27,377
    )
    
    
    ($35,201
    )
    
    
    ($37,737
    )Denominator:Weighted average shares outstanding used for basic earnings (loss) per
share
    
    
    22,998,504
    
    
    
    23,811,624
    
    
    
    24,024,131Effect of dilutive securities:Stock-options and warrants
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding and dilutive securities used for
diluted earnings (loss) per share
    
    
    22,998,504
    
    
    
    23,811,624
    
    
    
    24,024,131Basic earnings (loss) per share
    
    
    ($1.19
    )
    
    
    ($1.48
    )
    
    
    ($1.57
    )Diluted earnings (loss) per share
    
    
    ($1.19
    )
    
    
    ($1.48
    )
    
    
    ($1.57
    )
  17. Shareholders Equity:
 17.1. Preemptive subscription rights:
 pro rata
 17.2. Dividends:
  F-26




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17.3. Warrants:
  
       17.4. Stock options:
     F-27




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   17.5 Free of Charge Share Awards
      17.6. Accumulated other comprehensive income:
  December 31,(In thousands of U.S. dollars)
    
    2006
    
    2007Unrealized gains (loss) on available-for-sale securities
    
    
    (17
    )
    
    
    Foreign currency translation
    
    
    6,468
    
    
    
    14,085Total
    
    
    6,451
    
    
    
    14,085
 18. Income taxes :
  Year ended December 31,(in thousands of U.S. dollars)
    
    2005
    
    2006
    
    2007France
    
    $
    (31,663
    )
    
    $
    (37,319
    )
    
    $
    (39,431
    )
 F-28




---



##### 

\

FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year ended December 31,(in thousands of U.S. dollars)
    
    2005
    
    2006
    
    2007Income tax benefit (provision) computed at the French statutory rate
    
    
    10,712
    
    
    
    12,438
    
    
    
    13,142Operating losses (not utilized )
    
    
    (10,712
    )
    
    
    (12,438
    )
    
    
    (13,142
    )Withholding tax
    
    
    89
    
    
    
    
    
    
    
    (594
    )Research tax credits
    
    
    4,220
    
    
    
    2,118
    
    
    
    2,288Minimum tax payable
    
    
    (23
    )
    
    
    
    
    
    
    Total
    
    
    4,286
    
    
    
    2,118
    
    
    
    1,694
     December 31,(In thousands of U.S. dollars)
    
    2006
    
    2007Deferred income tax assets:Net french taxable operating loss carry-forwards (not utilized)
    
    
    29,866
    
    
    
    42,056Other deferred income tax assets
    
    
    2,656
    
    
    
    3,684Valuation allowance
    
    
    (32,522
    )
    
    
    (45,740
    )Net deferred income tax assets
    
    
    97
    
    
    
    166Deferred income tax liabilities
    
    
    (97
    )
    
    
    (166
    )Deferred income taxes, net
    
    
    
    
    
    
    
   F-29




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (In thousands of U.S. dollars)
    
    December 31,2008
    
    
    5,490Total current portion
    
    
    5,4902009
    
    
    4,9922010
    
    
    2,4832011
    
    
    2,457Total long term portion
    
    
    9,932Total
    
    
    15,422
 19. Employee Retirement plans:
     2005
    
    2006
    
    2007Average increase of salaries
    
    3%
    
    3%
    
    3%Discounted interest rate
    
    4%
    
    4.5%
    
    5.5%Turn over
    
    average of the last 4 years
    
    average of the last 4 years
    
    average of the last 4 yearsAge of retirement
    
    65 years
    
    65 years
    
    65 years
 F-30




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 31,In thousands of U.S. dollars
    
    2006
    
    2007Benefit obligations at beginning of year
    
    
    664
    
    
    
    913Service cost
    
    
    55
    
    
    
    97Interest cost
    
    
    31
    
    
    
    43Benefits paids
    
    
    (59
    )
    
    
    (39
    )Actuarial loss (gain)
    
    
    137
    
    
    
    299Exchange rate changes
    
    
    86
    
    
    
    137Benefit obligations at end of year
    
    
    914
    
    
    
    1,450
 December 31,Change in plan assets
    
    2006
    
    2007Fair value of plan assets at beginning of year
    
    
    
    
    
    
    Employer contributions
    
    
    59
    
    
    
    39Benefits paid
    
    
    (59
    )
    
    
    (39
    )Fair value of plan assets at end of year
    
    
    
    
    
    
    
 December 31,Reconciliation of funded status
    
    2006
    
    2007Fair value of plan assets
    
    
    
    
    
    
    Benefit obligations
    
    
    914
    
    
    
    1,450Funded status (plan assets less benefit obligations)
    
    
    (914
    )
    
    
    (1,450
    )
  In thousands of U.S. dollars
    
    Year Ending:12/31/2008
    
    
    
    12/31/2009
    
    
    
    12/31/2010
    
    
    
    12/31/2011
    
    
    
    4712/31/2012
    
    
    
    Next 5 Years
    
    
    1,624
  F-31




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 20. Fair value of financial instruments:
  .
 21. Commitments and Contingencies:
 21.1. Capital leases
  21.2. Operating leases
  (In thousands of U.S. dollars)
    
    December 31,2008
    
    
    1,1872009
    
    
    8212010
    
    
    7662011
    
    
    7032012
    
    
    621Thereafter
    
    
    973TOTAL
    
    
    5,071
  21.3. Litigation
  F-32




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 22. Industry and geographic information:
     As of December 31,(in thousands of U.S. dollars)
    
    2005
    
    2006
    
    2007Revenues
USA
    
    $
    18 972
    
    
    $
    16 385
    
    
    $
    15 278France
    
    $
    2 773
    
    
    $
    699
    
    
    $
    1 234Other
    
    $
    1 853
    
    
    $
    5 936
    
    
    $
    20 142Total Revenues
    
    $
    23 598
    
    
    $
    23 020
    
    
    $
    36 654
  As of December 31,(in thousands of U.S. dollars)
    
    2006
    
    2007Long-lived assets:USA
    
    $
    55
    
    
    $
    53France
    
    $
    38 060
    
    
    $
    45 238Total long-lived assets
    
    $
    38 115
    
    
    $
    45 291
 F-33




---



##### 



SIGNATURES
  FLAMEL TECHNOLOGIES S.A.
(Registrant)/s/ Stephen H. WillardStephen H. WillardChief Executive Officer