UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO _________
COMMISSION FILE NUMBER: 000-25132
MYMETICS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 25-1741849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
European Executive Office
14, rue de la Colombiere
1260 Nyon (Switzerland)
(Address of principal executive offices)
011 41 22 363 13 10
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [X]
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
Class Outstanding at November 4, 2006
----- -------------------------------
Common Stock, $0.01 105,170,464
par value
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MYMETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF EUROS)
September 30, December 31,
2006 2005
------------ ------------
ASSETS
Current Assets
Cash E 45 E 70
Receivables 62 42
Prepaid expenses 0 2
-------- --------
Total current assets 107 114
Patents 352 52
-------- --------
E 459 E 166
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current Liabilities
Accounts payable E 2,227 E 2,095
Taxes and social costs payable 15 15
Current portion of notes payable 4,298 3,754
Other 288 301
-------- --------
Total current liabilities 6,828 6,165
Payable to Shareholders 242 242
Note Payable, less current portion -- 39
-------- --------
Total liabilities 7,070 6,446
Shareholders' Equity (Deficit)
Common stock, U.S. $.01 par value; 495,000,000 shares
authorized; issued and outstanding
105,170,464 at September 30, 2006 and
82,670,464 at December 31, 2005 1,018 778
Common stock issuable; 600,000 shares -- 59
Preferred stock, U.S. $.01 par value; 5,000,000 shares
authorized; none issued or outstanding -- --
Additional paid-in capital 6,991 6,227
Deficit accumulated during the development stage (15,377) (14,087)
Accumulated other comprehensive income 757 743
-------- --------
(6,611) (6,280)
-------- --------
E 459 E 166
======== ========
The accompanying notes are an integral part of these financial statements.
MYMETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(IN THOUSANDS OF EUROS, EXCEPT FOR PER SHARE AMOUNTS)
FOR THE NINE FOR THE NINE TOTAL ACCUMULATED
MONTHS ENDED MONTHS ENDED DURING THE
SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 DEVELOPMENT STAGE
------------------ ------------------ -----------------
Revenue
Sales E -- E -- E 224
Interest -- -- 34
-------- -------- --------
-- -- 258
-------- -------- --------
Expenses
Research and development 468 340 5,554
General and administrative 622 904 7,022
Bank fee -- -- 935
Interest 125 164 1,089
Goodwill impairment -- -- 209
Amortization 75 55 536
Directors' fees -- -- 274
Other -- -- 10
-------- -------- --------
1,290 1,463 15,629
-------- -------- --------
Loss before income tax provision (1,290) (1,463) (15,371)
Income tax provision -- -- (6)
-------- -------- --------
Net loss (1,290) (1,463) (15,377)
Other comprehensive income
Foreign currency translation
adjustment 14 (94) 757
-------- -------- --------
Comprehensive loss E (1,276) E (1,557) E(14,620)
======== ======== ========
Basic and diluted loss per share E (0.01) E (0.02)
======== ========
The accompanying notes are an integral part of these financial statements.
MYMETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(IN THOUSANDS OF EUROS, EXCEPT FOR PER SHARE AMOUNTS)
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2005
------------------ ------------------
Revenue
Sales E -- E --
Interest -- --
-------- --------
-- --
-------- --------
Expenses
Research and development 149 (30)
General and administrative 361 261
Bank fee -- --
Interest -- 56
Goodwill impairment -- --
Amortization 25 25
Directors' fees -- --
Other -- --
-------- --------
535 312
-------- --------
Loss before income tax provision (535) (312)
Income tax provision -- --
-------- --------
Net loss (535) (312)
Other comprehensive income
Foreign currency translation
adjustment (6) (27)
-------- --------
Comprehensive loss E (541) E (339)
======== ========
Basic and diluted loss per share E (0.01) E (0.00)
======== ========
The accompanying notes are an integral part of these financial statements.
MYMETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF EUROS)
FOR THE NINE FOR THE NINE TOTAL ACCUMULATED
MONTHS ENDED MONTHS ENDED DURING THE
SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 DEVELOPMENT STAGE
------------------ ------------------ -----------------
Cash flow from operating activities
Net Loss E (1,290) E (1,463) E (15,377)
Adjustments to reconcile net loss to
net cash used in operating activities
Amortization 75 55 536
Goodwill impairment -- -- 209
Fees paid in warrants -- -- 223
Services and fee paid in common stock -- 441 1,928
Amortization of debt discount -- -- 210
Changes in current assets and
liabilities, net of effects
from reverse purchase
Decrease(increase) in receivables (20) 42 (24)
Increase(decrease) in accounts payable 132 631 1,929
Increase(decrease) in taxes and -- -- 15
social costs payable
Increase(decrease) in other (11) -- 336
-------- -------- --------
Net cash used in operating activities (1,114) (294) (10,015)
-------- -------- --------
Cash flows from investing activities
Patents and other (375) (48) (768)
Cash acquired in reverse purchase -- -- 13
-------- -------- --------
Net cash used in investing activities (375) (48) (755)
-------- -------- --------
Cash flows from financing activities
Proceeds from issuance of common stock 945 70 4,964
Borrowing from shareholders -- -- 242
Increase in note payable and other
short-term advances 505 366 4,982
Loan fees -- -- (130)
-------- -------- --------
Net cash provided by financing activities 1,450 436 10,058
-------- -------- --------
Effect on foreign exchange rate on cash 14 (94) 757
-------- -------- --------
Net change in cash (25) -- 45
Cash, beginning of period 70 -- --
-------- -------- --------
Cash, end of period E 45 E -- E 45
======== ======== ========
The accompanying notes are an integral part of these financial statements.
MYMETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(UNAUDITED)
Note 1. The Company and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim period consolidated financial statements of Mymetics
Corporation (the "Company") set forth herein have been prepared by the Company
pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosure normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such SEC rules and regulations. The interim period
consolidated financial statements should be read together with the audited
financial statements and the accompanying notes included in the Company's latest
annual report on Form 10-K for the fiscal year ended December 31, 2005.
The accompanying financial statements of the Company are unaudited. However, in
the opinion of the Company, the unaudited consolidated financial statements
contained herein contain all adjustments necessary to present a fair statement
of the results of the interim periods presented. All adjustments made during the
three- and nine-month periods ended September 30, 2006 were of a normal and
recurring nature.
The amounts presented for the three- and nine-month periods ended September 30,
2006, are not necessarily indicative of the results of operations for a full
year.
The amounts in the notes are rounded to the nearest thousand of Euros except for
per share amounts.
The Company was created for the purpose of engaging in research and development
of human health products. Its main research efforts have been concentrated in
the prevention and treatment of the HIV-AIDS virus. The Company has established
a network which enables it to work with education centers, research centers,
pharmaceutical laboratories and biotechnology companies.
These financial statements have been prepared treating the Company as a
development stage company. As of September 30, 2006, the Company had not
performed any human clinical testing and revenues obtained from the sale or
licensing of the Company's technology are not expected before 2007 at the
earliest. As such, the Company has not generated significant revenues. Revenues
reported by the Company consist of incidental serum by-products of the Company's
research and development activities and interest income. For the purpose of
these financial statements, the development stage started May 2, 1990.
These financial statements have been prepared assuming the Company will continue
as a going concern. The Company has experienced significant losses since
inception resulting in a deficit in shareholders' equity (deficit) of E6,611 at
September 30, 2006. Deficits in operating cash flows since inception have been
financed through debt and equity funding sources. In order to remain a going
concern and continue the Company's research and development activities,
management intends to seek additional funding. Further, the Company's current
liabilities exceed its current assets by E6,370 as of September 30, 2006, and
there is no assurance that cash will become available to pay current liabilities
in the near term. Management is seeking additional financing but there can be no
assurance that management will be successful in any of those efforts.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany accounts and transactions have been
eliminated.
Foreign Currency Translation
The Company translates non-Euro assets and liabilities of its subsidiaries at
the rate of exchange at the balance sheet date. Revenues and expenses are
translated at the average rate of exchange throughout the year. Unrealized gains
or losses from these translations are reported as a separate component of
comprehensive income. Transaction gains or losses are included in general and
administrative expenses in the consolidated statements of operations. The
translation adjustments do not recognize the effect of income tax because the
Company expects to reinvest the amounts indefinitely in operations. The
Company's reporting currency is the Euro because substantially all of the
Company's activities are conducted in Europe.
Receivables
Receivables are stated at their outstanding principal balances. Management
reviews the collectibility of receivables on a periodic basis and determines the
appropriate amount of any allowance. Based on this review procedure, management
has determined that the allowances at September 30, 2006 and December 31, 2005
are sufficient. The Company charges off receivables to the allowance when
management determines that a receivable is not collectible.
Current liabilities
The Company was not able to meet the E900,000 loan repayment due at September
30, 2006 to MFC Merchant SA ("MFC") under its E3.7 million credit facility. MFC
had initially agreed to delay declaring a default to allow MFC and the Company
to negotiate terms of repayment acceptable to MFC, and for the Company to
identify additional investors to fund the repayment, which it did.
On September 1, 2006, the Company received a letter from MFC declaring the
Company in default. Under the terms of the credit facility, the Company's
default accelerates the repayment of the credit facility. In its letter, MFC
demanded repayment no later than September 5, 2006 of the total outstanding
balance under the credit facility, totaling approximately E3.9 million including
interest through such date. The Company has not made that repayment.
In response to the prior threats of MFC to declare the Company in default of the
above credit facility and receipt of the September 1, 2006 letter from MFC
described above, the Company proceeded with lawsuits in Delaware and New York
against MFC, Michael J. Smith, John M. Musacchio and Michael K. Allio,
personally, and KHD Humboldt Wedag International, Ltd. (f/k/a MFCBancorp., Ltd.)
alleging breaches of fiduciary duty, interference with prospective business
relations and civil conspiracy against one or more of the foregoing parties. The
Company believes that it has valid grounds to contest the validity of the credit
facility with MFC and intends to defend itself vigorously against MFC's efforts
to foreclose on the loan.
Research and Development
Research and development costs are expensed as incurred.
Taxes on Income
The Company accounts for income taxes under an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences, the
Company generally considers all expected future events other than enactments of
changes in the tax laws or rates.
Earnings per Share
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding in the
period. The weighted average number of shares was 104,409,594 and 72,032,474 for
the three months ended September 30, 2006 and 2005, respectively. The weighted
average number of shares was 104,409,594 and 70,591,953 for the nine months
ended September 30, 2006 and 2005, respectively. Diluted earnings per share
takes into consideration common shares outstanding (computed under basic
earnings per share) and potentially dilutive securities. Warrants and options
were not included in the computation of diluted earnings per share because their
effect would be anti-dilutive due to net losses incurred.
Stock-Based Compensation
As of January 1, 2006, the Company adopted SFAS No. 123(R) using the modified
prospective method, which requires measurement of compensation cost for all
stock-based awards at fair value on date of grant and recognition of
compensation over the service period for awards expected to vest. The fair value
of stock options is determined using the Black-Scholes valuation model, which is
consistent with the Company's valuation techniques previously utilized for
options in footnote disclosures required under SFAS No. 123, Accounting for
Stock Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure.
Since the Company did not issue stock options to employees during the three
months ended September 30, 2006 or 2005, there is no effect on net loss or
earnings per share had the Company applied the fair value recognition provisions
of SFAS No. 123(R) to stock-based employee compensation. When the Company issues
shares of common stock to employees and others, the shares of common stock are
valued based on the market price at the date the shares of common stock are
approved for issuance.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis of the results of operations and financial
condition of Mymetics Corporation for the periods ended September 30, 2006 and
2005 should be read in conjunction with the Company's audited consolidated
financial statements and related notes and the description of the Company's
business and properties included elsewhere herein.
This report contains forward-looking statements that involve risks and
uncertainties. The statements contained in this report are not purely
historical, but are forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. These forward looking statements concern
matters that involve risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements. Words
such as "may," "will," "should," "could," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential," "continue", "probably" or similar
words are intended to identify forward looking statements, although not all
forward looking statements contain these words.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date hereof to conform such statements to actual results or to changes
in our expectations.
Readers are urged to carefully review and consider the various disclosures made
by us which attempt to advise interested parties of the factors which affect our
business, including without limitation disclosures made under the captions
"Management Discussion and Analysis of Financial Condition and Results of
Operations," "Risk Factors," "Consolidated Financial Statements" and "Notes to
Consolidated Financial Statements" included in our annual report on Form 10-K
for the year ended December 31, 2005 and, to the extent included therein, our
quarterly reports on Form 10-Q filed during fiscal year 2006.
NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
Revenue was nil for the nine months ended September 30, 2006 and September 30,
2005.
Costs and expenses decreased to E1,290,000 for the nine months ended September
30, 2006 from E1,463,000 (-11.8%) for the nine months ended September 30, 2005.
Research and development expenses increased to E468,000 in the current period
from E340,000 (37.6%) in the comparative period of 2005 as we are now preparing
the viral challenge tests of our immunized non-human primates. General and
administrative expenses decreased to E622,000 in the nine months ended September
30, 2006 from E904,000 in the comparative period of 2005 (-31.2%) mostly due to
overall cost reduction measures and the fact that the comparative period of 2005
included the cost of 1,500,000 shares issued to an affiliate of MFC under
pressure from MFC.
The Company reported a net loss of E1,290,000, or E0.01 per share, for the nine
months ended September 30, 2006, compared to a net loss of E1,463,000, or E0.01,
for the nine months ended September 30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash of E45,000 at September 30, 2006 compared to E70,000 at
December 31, 2005.
We have not generated any material revenues since we commenced our current line
of business in 2001, and we do not anticipate generating any material revenues
on a sustained basis unless and until a licensing agreement or other commercial
arrangement is entered into with respect to our technology.
Increases in borrowing provided cash of E505,000 in the current period, of which
E200,000 came from one of our shareholders and the balance pursuant to a
non-revolving term facility compared to E366,000 during the nine months ended
September 30, 2005. The non-revolving term facility is in the principal amount
of up to E3.7 million and was to mature on December 31, 2006 before the Company
was declared in default by MFC. At September 30, 2006, Mymetics had borrowed an
aggregate of E3,947,000 pursuant to this non-revolving term facility.
As of September 30, 2006, we had an accumulated deficit of approximately E15.4
million, and we incurred losses of E1,290,000 in the nine-month period ending on
that date. These losses are principally associated with the research and
development of our HIV vaccine technologies. We expect to continue to incur
expenses in the future for research, development and activities related to the
future licensing of our technologies.
Accounts payable of E2,227,000 at September 30, 2006, include E353,000 due to
our officers as unpaid salaries, fees and out-of-pocket expenses, after E292,000
has been converted into restricted shares of our common stock at $0.10 per share
for a total of 3,500,000 shares, on July 20, 2006. The E242,000 payable to
shareholders at September 30, 2006, represents various amounts advanced by a
shareholder and former director to Hippocampe S.A. (now Mymetics S.A., our
French affiliate) between 1990 and 1999. These advances are reimbursable subject
to the French legal concept of "retour a meilleure fortune", or literally,
"return to better times," which means when the Company's financial status
improves so that repayment is possible. This ambiguous concept has been
contractually defined in November 1998 between the lender and Aralis
Participations S.A., then a major shareholder of Hippocampe S.A., as essentially
a positive working capital ratio of 1.2 during four consecutive quarters, said
ratio to be computed exclusively on the basis of commercial revenues for
Hippocampe S.A., i.e., to the exclusion of subsidies, whether from related or
unrelated parties. Considering the present status of Mymetics S.A., it is
impossible to predict when such amounts will be reimbursed to the lender, if at
all. Consequently, they are classified as long term debts. Because our French
subsidiary is in receivership (as disclosed in our Form 8-K dated February 13,
2006), Mymetics SA cannot return to "better times" so long as the collection
efforts of Dr. Serres force the Company to remain in receivership. Consequently,
this amount will never have to be repaid, and we most probably will have to
reverse it as soon as the French courts close the Mymetics SA file.
Net cash used in operating activities was E1,114,000 for the period ended
September 30, 2006, compared to E294,000 for the period ended September 30,
2005, due mostly to an increase in Accounts Payable of E132,000.
Investing activities used E375,000 during the nine months ended September 30,
2006, entirely in the application of new patents, as compared to E48,000 used
during the nine months ended September 30, 2005.
Financing activities provided cash of E1,450,000 for the period ended September
30, 2006 compared to E436,000 in the same period last year.
Proceeds from issuance of common stock provided E945,000 during the period ended
September 30, 2006 compared to E70,000 in the same period in 2005.
Salaries and related payroll costs represent fees for all of our directors other
than our employee directors, gross salaries for two of our executive officers,
and payments under consulting contracts with two of our officers. We do not pay
our non-employee directors, and we credit our salaried executive officers a
combined amount of E54,000 per month under an informal agreement approved by our
Board of Directors in 2003 until June 30, 2006. On July 1, 2006, the Board of
Directors approved formal Executive Employment Agreements with our CEO, CFO and
CSO.
Since January 15, 2004, payments of E4,000 per month for Professor Marc Girard's
services as our Head of Vaccines Development were due pursuant to a consulting
agreement dated June 10, 2004, as disclosed in our filing on Form 10-Q for the
period ended September 30, 2004 to the Securities and Exchange Commission. We
have not been able to make the payments due under the agreement on a regular
basis, and we owed Professor Girard approximately E59,000 at September 30, 2006,
after conversion of E40,000 into restricted shares of the Company's common stock
at $0.10 per share (resulting in our issuance to Professor Girard of 500,000
shares of our common stock).
Monthly fixed and recurring expenses for "Property leases" of E1,000 represents
the monthly lease and maintenance payments to unaffiliated third parties for our
executive offices located at 14, rue de la Colombiere in Nyon (Switzerland) (600
square feet), which can be cancelled on one month notice. We do not lease any
research facilities since Dr. Fleury's facilities were provided free of charge
until June 30, 2006 by CHUV. As a temporary measure following the termination of
our agreement with CHUV, we have leased minimal office facilities for Dr. Fleury
starting August 15, 2006 at a monthly cost of E1,000, which includes full access
to medical databases over high speed internet connection. This lease can be
cancelled on very short term notice as we are planning to lease in the next few
months facilities on the campus of the Swiss Federal Institute of Technology
(EPFL) in Lausanne (Switzerland), located 15 miles from our Nyon office,
including laboratory facilities to conduct quality checks and to verify
scientific results.
Included in professional fees are estimated recurring legal fees paid to outside
corporate counsel and ongoing litigation expenses, audit and review fees paid to
our independent accountants, and fees paid for investor relations.
Interest expense represents interest paid to MFC Merchant Bank S.A. for a note
payable. This note payable in the maximum principal amount of E3.7 million
carries an interest rate of Libor + 4% which is accrued on a quarterly basis.
As of September 30, 2006, we had three full-time salaried executives, exclusive
of our contracts for the consulting services of Professor Girard, our Head of
Vaccines Development. Certain secretarial work for our CEO is outsourced to
self-employed secretaries who accept being partially paid in common stock of
Mymetics at the current market price.
We anticipate hiring an assistant to our CFO as well as a part-time laboratory
technician in the first half of 2007, and may need to hire additional personnel
to meet the needs and demands of any future workload.
We intend to continue to incur additional expenditures during the next 12 months
for additional research and development of our HIV vaccines. These expenditures
will relate to the continued gp41 testing and are included in the monthly cash
outflow described above. Additional funding requirements during the next 12
months may arise upon the commencement of a phase I clinical trial. We expect
that funding for the cost of any clinical trials would be available either from
debt or equity financings, donors and/or potential pharmaceutical partners
before we commence the human trials.
In the past we have financed our research and development activities primarily
through debt and equity financings from various parties.
The Company anticipates its operations will require approximately E6 million
until December 31, 2007. An additional E2 million will be needed either to
settle or to litigate the MFC case. The Company will seek to raise the required
capital from equity or debt financings, donors and/or potential partnerships
with major international pharmaceutical and biotechnology firms. However, there
can be no assurance that the Company will be able to raise additional capital on
terms satisfactory to the Company, or at all, to finance its operations. In the
event that the Company is not able to obtain such additional capital, it would
be required to further restrict or even halt its operations.
RECENT FINANCING ACTIVITIES
To date we have generated no material revenues from our business operations. We
are unable to predict when or if we will be able to generate revenues from
licensing our technology or the amounts expected from such activities. These
revenue streams may be generated by us or in conjunction with collaborative
partners or third party licensing arrangements, and may include provisions for
one-time, lump sum payments in addition to ongoing royalty payments or other
revenue sharing arrangements. However, we presently have no commitments for any
such payments.
Sources of additional capital include funding through future collaborative
arrangements, licensing arrangements, and debt and equity financings. We do not
know whether additional financing will be available on commercially acceptable
terms when needed. If we cannot raise funds on acceptable terms when needed, we
may not be able to successfully commercialize our technologies, take advantage
of future opportunities, or respond to unanticipated requirements. If we are
unable to secure such additional financing when needed, we will have to curtail
or suspend all or a portion of our business activities and we could be required
to cease operations entirely. Further, if we issue equity securities, our
shareholders may experience severe dilution of their ownership percentage.
We are presently engaged in raising the equivalent of E8 million from Swiss
investors under Regulation S under the Securities Act of 1933 in the form of
Convertible Notes at staggered conversion prices between $0.10 and $0.60
(depending on the date committed). This method was preferred to straight sales
of shares at current market price as we and our new investors believe that the
market price presently does not accurately reflect the value of our common stock
but only reflects our past and the difficulty we face in communicating our
results to the public due to the complex scientific issues involved and the
requirements of secrecy under patent laws, which preclude us from communicating
our latest results until the relevant patent applications become public eighteen
months after filing.
We anticipate using our current funds and those we receive in the future both to
meet our working capital needs and for funding the ongoing research costs
associated with our gp41 testing. Provided we can obtain sufficient financing
resources, we expect to begin phase I clinical trials in 2007. In accordance
with our past strategy, we intend to subcontract such work to "best of class"
research teams unless institutions such as the US National Institutes of Health
(NIH) or the French CEA decide to conduct it at their own expenses, which they
presently do.
We do not anticipate that our existing capital resources will be sufficient to
fund our cash requirements through the next three months. We do not have enough
cash presently on hand, based upon our current levels of expenditures and
anticipated needs during this period, and we will need additional proceeds from
additional equity investments such as private placements under Regulation D and
Regulation S under the Securities Act of 1933. The extent and timing of our
future capital requirements will depend primarily upon the rate of our progress
in the research and development of our technologies, our ability to enter into a
partnership agreement with a major pharmaceutical company, and the results of
future clinical trials.
Our early attempts at attracting grants from humanitarian donors have not been
successful because such donors are usually barred from making donations to
for-profit and/or publicly traded companies such as Mymetics. In addition, most
humanitarian donors demand that grant recipients abandon their intellectual
property rights or alternatively, severely limit their commercial margins on the
sale of preventive vaccines in the developing world. Based on the discussions we
have had so far with major pharmaceutical companies in view of entering into a
partnership agreement, it is obvious that these potential partners are not
thrilled by the prospect of having to limit their margins in the developing
world. Therefore and in order to become both eligible for grants and attractive
to potential partners, the Company has decided to create (or enter into an
agreement with an existing) non-profit foundation to which our intellectual
property related to HIV Clade C will be granted free of charge through a
cross-licensing agreement. HIV Clade C is the form of HIV virus prevalent in
Africa and other developing countries, mostly in Asia. Mymetics will retain all
intellectual property related to Clade B, the form of HIV virus prevalent in
Europe and North America. Under this scheme, the foundation will be eligible for
humanitarian grants to further R&D specifically aimed at developing countries
while the prospect of having to cope with a low margin distribution of vaccine
in such countries will not hamper our forthcoming negotiations with major
pharmaceutical companies to which will only be able to offer Clade B based
technology for distribution in high-yield markets such as Europe and North
America.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
PAYMENTS DUE BY PERIOD (THOUSANDS OF EUROS)
CONTRACTUAL OBLIGATION TOTAL LESS 1 - 3 3 - 5 MORE
THAN YEARS YEARS THAN
1 YEAR 5 YEARS
Long-term debt E0 E0 E0 E0 E0
Capital Lease Obligations E0 E0 E0 E0 E0
Operating Lease Obligations E0 E0 E0 E0 E0
Purchase Obligations E610 (1,2) E600 E10 E0 E0
Other Long-Term Liabilities Reflected on E242 (3) E0 E0 E0 E242
Mymetics Balance Sheet under GAAP
TOTAL E852 E600 E10 E0 E242
(1) Represents various amounts due to suppliers and partners in respect of the
forthcoming human clinical trials phase I scheduled for 2007.
(2) French auditors ("Commissaire aux Comptes") are elected for 6 years and
cannot be terminated. Our French auditor was re-elected in 2003. Based on
current budget and cost estimates, we posted E5,000 per year for the
audits 2006 and 2007, when we expect the French company to be dissolved.
(3) Due to P.-F. Serres, one of our former directors, repayable only after
certain conditions related to our French subsidiary's financial situation
have been met. Because of Dr. Serres' legal action against our French
subsidiary which resulted in the latter being put under receivership
("Redressement judiciaire"), it is highly unlikely that these conditions
will ever be met and therefore that we will ever have to repay Dr. Serres.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates which could affect
our financial condition and results of operations. We have not entered into
derivative contracts for our own account to hedge against such risk.
INTEREST RATE RISK
Fluctuations in interest rates may affect the fair value of financial
instruments. An increase in market interest rates may increase interest payments
and a decrease in market interest rates may decrease interest payments of such
financial instruments. We have debt obligations which are sensitive to interest
rate fluctuations.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. As of the end of the registrant's fiscal
year ended December 31, 2005, an evaluation of the effectiveness of the
registrant's "disclosure controls and procedures" (as such term is defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) was carried out by the registrant's principal executive
officer and principal financial officer. Based upon that evaluation, the
registrant's principal executive officer and principal financial officer have
concluded that as of the end of that fiscal year, the registrant's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the registrant in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
It should be noted that while the registrant's principal executive officer and
principal financial officer believe that the registrant's disclosure controls
and procedures provide a reasonable level of assurance that they are effective,
they do not expect that the registrant's disclosure controls and procedures or
internal control over financial reporting will prevent all errors and fraud. A
control system, no matter how well conceived or operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 26, 2006, the Court of Appeals of Lyon (France) invalidated a
judgement rendered by the Lyon Industrial Tribunal ("Prud'hommes") in favor of
Dr. Pierre-Francois Serres, a former director and officer of the Company. Under
this lower court judgement and as disclosed on form 10-K for the year ended
December 31, 2005 to the Securities and Exchange Commission, Dr. Serres was
awarded approximately E173,000, of which E100,000 was payable immediately, i.e.
without suspensive effect due to the appeal we filed on December 14, 2005. In
the appeal judgement now rendered, the Court of Appeals qualified as
"fictitious" the employment agreement presented to the lower court by Dr. Serres
as the heart of his case against Mymetics SA. As a result, Dr. Serres not only
suffered a complete defeat but was also condemned to make certain reparatory
payments to Mymetics SA. In addition, Dr. Serres will have to reimburse
approximately E33,000 he had previously been able to seize on the company's bank
account based on the lower court's initial judgement. We intend to vigorously
pursue this matter until fully resolved.
By way of background, Dr. Serres was terminated by the Company's previous
management and later reinstated by existing management as Chief Scientific
Officer retroactively commencing May 5, 2003. In November 2003 Dr. Serres was
appointed Head of Exploratory Research. Dr. Serres resigned on June 13, 2005 as
director of the Company and as an officer of the Company on December 26, 2005.
Previously, the Lyon Industrial Tribunal had granted Dr. Serres an emergency
injunction on October 14, 2003. In consideration for being reinstated by the
Company's new management, Dr. Serres agreed in August 2003 to forfeit all legal
and punitive compensation for having been terminated by the Company's prior
management. Despite this pledge, Dr. Serres maintained his proceeding and on
November 3, 2005, the Lyon Industrial Tribunal awarded Dr. Serres the full
E173,000 he was seeking, of which approximately E100,000 was payable immediately
despite the fact that we immediately appealed the judgment. We have attempted
without success to negotiate with Dr. Serres regarding the payments immediately
due to him under the judgment. In light of limited financial resources at that
time, we did not have enough funds to both pay Dr. Serres the amount immediately
due of approximately E100,000 and to initiate new rounds of animal preclinical
trials supported by the latest encouraging scientific results. We decided to
allocate existing financial resources to the preclinical trials and to contest
the judgment of the Lyon Industrial Tribunal based upon advice of our French
counsel that the judgment was illegal under French law and that an appeal should
be successful. Dr. Serres pursued a strategy of raising pressure on the Company
to pay his judgment by seeking to have our subsidiary liquidated through the
Tribunal de Commerce in Lyon. He only succeeded in having the company put under
a form of receivership ("Redressement Judiciaire"), as previously disclosed on
form 10-K for the year ended December 31, 2005 to the Securities and Exchange
Commission. We expect to have the company emerge from "Redressement Judiciaire"
before January 31, 2007.
On June 30, 2006 and on July 5, 2006 respectively, Mymetics filed suit in the
Delaware Chancery Court and the New York Supreme Court against its former
officers and directors John M. Mussachio and Michael K. Allio, and significant
investors, Michael Smith, MFC Merchant Bank, S.A. and KHD Humboldt Wedag
International, Ltd., the parent company of MFC, f.k.a. MFC Bancorp, Ltd.,
alleging breaches of fiduciary duty, interference with prospective business
relations and civil conspiracy against one or more of the foregoing parties and
seeking monetary damages for these claims.
The lawsuits allege that Mymetics is an early stage research oriented company,
with early scientific success in developing a vaccine that may prevent the
transmission or spread of HIV. The lawsuits also allege that the defendants,
former Mymetics officers, directors and investors, have materially jeopardized
the future success of Mymetics' ongoing development of an AIDS vaccine by
interfering with and frustrating funding opportunities and wasting Mymetics's
assets in an effort to control the company for their own personal gain.
MFC had recently sent Mymetics a notice of default regarding payment of interest
and principal due on a commercial loan addressed in our Form 8-K filed September
8, 2006
While we expect to prevail in these cases, our management believes that an
adverse result could have a material adverse effect on our results of operations
in future periods.
Our wholly owned subsidiary 6543 Luxembourg SA is presently not involved in any
litigation incident to our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the third quarter of 2006, our four officers agreed to convert
approximately half of their respective claims against the Company arising out of
unpaid salaries, fees and expenses since 2003 for an aggregate 3.5 million
restricted common shares at a price of $0.10 per share (current market price was
$0.03 per share), resulting in a decrease of our debt of E280,000.
During that same third quarter, no shares were issued for services rendered.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief
Financial Officer
32 Section 1350 Certification of Chief Executive Officer
and Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November , 2006 MYMETICS CORPORATION
By: /s/ Christian Rochet
-------------------------------------
President and Chief Executive Officer