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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, 2003
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.)
65, Route du Boiron
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 an accelerated filer (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 8, 2003
----- ----------------------------
Common Stock, $0.01 50,944,505 (1)
par value
(1) This number assumes the conversion of 15,372 shares of Class B Exchangeable
Preferential Non-Voting Stock of our subsidiary, 6543 Luxembourg SA, into
16,393,316 shares of our common stock.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MYMETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF EUROS)
SEPTEMBER 30, 2003 DECEMBER 31, 2002
------------------ -----------------
ASSETS
Current Assets
Cash e 25 e 183
Receivables 88 59
Prepaid expenses 193 36
------------ --------------
Total current assets 306 278
Patents and Other 149 199
------------ --------------
e 455 e 477
============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable e 811 e 452
Taxes and social costs payable 59 119
Note payable 3,110 1,989
Other 75 24
------------ --------------
Total current 4,055 2,584
liabilities
Payable to shareholders 242 242
Shareholders' Equity
Common stock 579 579
Paid-in capital 17,888 17,888
Deficit accumulated during the (22,695) (21,013)
development stage
Cumulative translation adjustment 386 197
------------ --------------
(3,842) (2,349)
------------ --------------
e 455 e 477
============ ==============
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, 2003 SEPTEMBER 30, 2002 DEVELOPMENT STAGE
------------------ ------------------ -----------------
Revenue
Sales e - e - e 224
Interest - 8 34
-------------- --------------- ----------------
- 8 258
-------------- --------------- ----------------
Expenses
Research and development 792 669 3,517
General and administrative 711 1,082 3,617
Bank fee - - 14,932
Interest 129 27 284
Goodwill impairment - - 209
Amortization 49 46 306
Other - 79 81
-------------- --------------- ----------------
1,681 1,903 22,946
-------------- --------------- ----------------
Loss before income tax provision (1,681) (1,895) (22,688)
Income tax provision - - 6
-------------- --------------- ----------------
Net loss (1,681) (1,895) (22,694)
Other comprehensive income
Foreign currency translation
adjustment 189 (11) 386
-------------- --------------- ----------------
Comprehensive loss e (1,492) e (1,906) e (22,308)
============== =============== ================
Basic and diluted loss per share e (0.03) e (0.04) e (0.62)
============== =============== ================
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, 2003 SEPTEMBER 30, 2002
------------------ ------------------
Revenue
Sales e - e -
Interest - -
------------ -------------
- -
------------ -------------
Expenses
Research and development 279 285
General and administrative 198 373
Bank fee - -
Interest 49 12
Goodwill impairment - -
Amortization 15 43
Other - -
------------ -------------
541 713
------------ -------------
Loss before income tax provision (541) (713)
Income tax provision - -
------------ -------------
Net loss (541) (713)
Other comprehensive income
Foreign currency translation
adjustment 33 (4)
------------ -------------
Comprehensive loss e (508) e (717)
============ =============
Basic and diluted loss per share e (0.01) e (0.01)
============ =============
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, 2003 SEPTEMBER 30, 2002 DEVELOPMENT STAGE
------------------ ------------------ ------------------
Cash flow from operating activities
Net Loss e (1,681) e (1,895) e (22,694)
Adjustments to reconcile net loss to
net cash used in operating activities
Amortization 49 46 306
Goodwill impairment - - 209
Fees paid in warrants - - 14,126
Fee paid in common stock - - 806
Changes in current assets and
liabilities, net of
effects from reverse purchase
Decrease(increase) in receivable (29) (82) (50)
Increase(decrease) in accounts
payable 359 (20) 514
Increase(decrease) in taxes and (60) (15) 59
social costs payable
Other (106) 14 (70)
------------ -------------- --------------
(1,468) (1,242) (6,794)
------------ -------------- --------------
Cash flows from investing activities
Patents and other - (68) (337)
Short-term investments - 334 -
Cash acquired in reverse purchase - - 13
------------ -------------- --------------
- 266 (324)
------------ -------------- --------------
Cash flows from financing activities
Proceeds from issuance of common stock - 8 2,851
Borrowing from shareholders 242
Increase in note payable and other
short-term advances 1,121 209 3,794
Loan fees - - (130)
------------ -------------- --------------
1,121 217 6,757
------------ -------------- --------------
Effect on foreign exchange rate on cash 189 (7) 386
------------ -------------- --------------
Net change in cash (158) (766) 25
Cash, beginning of period 183 888 -
------------ -------------- --------------
Cash, end of period e 25 e 122 e 25
============ ============== ==============
The accompanying notes are an integral part of these financial statements.
MYMETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 1. 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, 2002. 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, 2003 were of a normal and
recurring nature. The amounts presented for the nine month periods ended
September 30, 2003, are probably indicative of the results of operations for a
full year.
NOTE 2. EARNINGS (LOSS) PER SHARE
In accordance with SFAS No. 128, Earnings Per Share, and SEC Staff Accounting
Bulletin (SAB) No. 98, basic net income (loss) per common share is computed by
dividing the net income (loss) for the period by the weighted average number of
common shares outstanding during the period. Under SFAS No. 128, diluted net
income (loss) per share is computed by dividing the net income (loss) for the
period by the weighted average number of common and common equivalent shares,
such as stock options and warrants, outstanding during the period.
The weighted average number of shares outstanding for the purposes of
calculating basic and diluted earnings per share for the three month periods
ended September 30, 2003 and September 30, 2002 were 50,944,454 and 50,944,505,
respectively. The weighted average number of shares outstanding for the purposes
of calculating basic and diluted earnings per share for the nine month periods
ended September 30, 2003 and September 30, 2002 were 50,944,454 and 50,897,529,
respectively. The weighted average number of shares outstanding for the purpose
of calculating basic and diluted earnings per share for the development stage
period is 35,975,356. Common equivalent shares, such as stock options and
warrants, were excluded from the calculations of diluted earnings per share for
the three and nine month periods ended September 30, 2003 and 2002 as their
effect would be antidilutive.
NOTE 3. STOCK-BASED COMPENSATION
The Company has a stock-based employee compensation plan. The Company accounts
for the plan under the recognition and measurement principles of APB Opinion No.
25. "Accounting for Stock Issued to Employees," and related interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under the plan had an exercise price equal to or greater than
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," to stock-based employee compensation.
For the nine For the nine
months ended months ended
September 30, September 30,
2003 2002
----------- -------------
Net Loss
As reported E (1,681) E (1,895)
Deduct: Total stock-based employee compensation
Expense determined under fair value based methods for
all awards, net of any related tax effects (26) -
----------- ----------
Pro forma E (1,707) E (1,895)
=========== ==========
Basic and Diluted Loss Per Share
As reported E (0.03) E (0.04)
Pro forma E (0.03) E (0.04)
NOTE 4. REPORTING CURRENCY
Consistent with the location of its activities, beginning January 1, 1999, the
Company adopted the euro (E) as its corporate currency. Accordingly, the Company
prepared all accompanying financial statements in euros.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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, 2002 and, to the extent included therein, our
quarterly reports on Form 10-Q filed during fiscal year 2003.
OVERVIEW
In March 2001, we acquired substantially all of the shares of Mymetics SA
(formerly Hippocampe SA) as our primary operating business. Mymetics SA is a
biotechnology research and development company devoted to fundamental and
applied research in the areas of human and veterinary biology and medicine. The
Company's primary objective is to develop therapies to treat certain
retroviruses including human immunodeficiency virus, or HIV, the virus that
leads to acquired immunodeficiency syndrome, or AIDS. Additional applications of
our research include potential treatments and/or vaccines for animal AIDS, human
and animal oncoviral leukemias, multiple sclerosis and organ transplantation.
Since the acquisition of Mymetics SA, our financial statements have been
prepared treating us as a development stage company. We currently do not make,
market or sell any products or services. As of September 30, 2003, we had not
performed any clinical testing and a commercially viable product is not expected
for several more years. As such, we have not generated any significant revenues.
Revenues reported by us consist of incidental serum by-products of our research
and development activities and interest income. For the purpose of our financial
reporting, the development stage started on May 2, 1990, which is the date that
Mymetics SA was originally organized in France.
As of September 30, 2003, we have an accumulated deficit of approximately E 22.7
million. Our losses have resulted primarily from research and development
activities, related general and administrative expenses and bank fees incurred
in connection with the acquisition of Mymetics SA. To date, our principal
sources of funding have been private equity financings and bank financings. We
expect to continue to incur substantial operating losses for the foreseeable
future as we continue our research and development activities.
The following discussion and analysis of our results of operations and financial
condition for the nine and three months ended September 30, 2003 should be read
in conjunction with our consolidated financial statements and related notes
included in this report on Form 10-Q.
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 2002
Revenues for the nine months ended September 30, 2003 was nil compared to E8,000
for the nine months ended September 30, 2002.
Costs and expenses decreased to E1,681,000 for the nine months ended September
30, 2003 from E1,903,000 for the nine months ended September 30, 2002. Research
and development expenses increased to E792,000 in the current period from
E669,000 in the comparative period of 2002 as a result of an increase in
research activities until the end of July 2003, after which they were suspended
for the reasons invoked under Item 5 below. General and administrative expenses
decreased to E711,000 in the nine months ended September 30, 2003 from
E1,082,000 in the comparative period of 2002 due to decreases in staffing
levels.
The Corporation reported a net loss of E1,681,000, or E0.03 per share, for the
nine months ended September 30, 2003, compared to E1,903,000, or E0.04, for the
nine months ended September 30, 2002.
THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 2002
Revenue was nil for the three months ended September 30, 2003 and the three
months ended September 30, 2002.
Costs and expenses decreased to E541,000 for the three months ended September
30, 2003 from E713,000 for the three months ended September 30, 2002. Expenses
related to this last quarter were minimal due to the facts related under Item 5
below. Research and development expenses decreased to E279,000 in the current
period from E285,000 in the comparative period of 2002 due to decreases in
staffing levels. General and administrative expenses decreased to E198,000 in
the three months ended September 30, 2003 from E373,000 in the comparative
period of 2002 due to decreases in staffing levels.
We reported a net loss of E541,000, or E0.01 per share, for the three months
ended September 30, 2003, compared to E713,000, or E0.01, for the three months
ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2003, we had approximately E25,000 in cash compared to
E183,000 at December 31, 2002.
Net cash used by operating activities was E1,468,000 for the nine months ended
September 30, 2003, compared to E1,242,000 for the nine months ended September
30, 2002. A increase in accounts payable provided cash of E359,000 for the nine
months ended September 30, 2003 compared to a decrease of E20,000 for the nine
months ended September 30, 2002.
Investing activities provided cash of nil for the nine months ended September
30, 2003 compared to E266,000 for the same period last year. Short term
investment provided cash of nil for the nine months ended September 30, 2003
compared to E334,000 for the nine months ended September 30, 2002.
Financing activities provided cash of E1,121,000 for the nine months ended
September 30, 2003 compared to E217,000 in the same period last year. We had a
non-revolving term facility in the principal amount of up to E3.15 million,
which matured on December 15, 2003 before being first converted into a sight
facility on July 30, 2003, then cancelled on September 19, 2003 with repayment
being deferred to June 30, 2004 on November 4, 2003. Mymetics had borrowed an
aggregate of E3.1 million pursuant to this non-revolving term facility.
These financial statements have been prepared assuming we will continue as a
going concern. We have experienced significant losses since inception resulting
in a deficit in shareholders' equity of E3.8 million as of September 30, 2003,
which raises substantial doubts about our ability to remain as a going concern.
Deficits in operating cash flows since inception have been financed through debt
and equity sources.
In order to remain a going concern, we intend to seek additional financial
resources to continue our research and development, pre-clinical and clinical
studies and regulatory activities necessary to bring our potential products to
market and to establish production, marketing and sales capabilities. The timing
and amount of spending of such financial resources cannot be accurately
predicted and will depend on several factors, including the progress of our
efforts in raising such financial resources, the progress of our research and
development efforts and pre-clinical and clinical activities, competing
technological and market developments, the time and costs of obtaining
regulatory approvals, the time and costs involved in filing, prosecuting and
enforcing patent claims, the progress and cost of commercialization of products
currently under development, market acceptance and demand for our products and
other factors beyond our control.
We will seek to raise the required capital from humanitarian donors such as the
International AIDS Vaccine Initiative (IAVI), lenders and/or equity or debt
issuance and/or potential partnership with major international pharmaceutical
and biotechnology firms. However, there can be no assurance that we will be able
to obtain grants and/or raise additional capital on terms satisfactory to us, or
at all. In the event that we are not able to obtain such additional capital or
grants, we would be required to restrict or even halt our operations. If
adequate funds are not available, we could be required to delay development or
commercialization of our products or technologies that we would otherwise seek
to commercialize for ourselves, or reduce the marketing, customer support or
other resources devoted to our products, any of which could have a material
adverse effect on our business, financial condition and result of operations.
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 sensitive to interest rates. An increase in interest rates may
decrease the fair value and a decrease in interest rates may increase the fair
value of such financial instruments. We have debt obligations which are
sensitive to interest rate fluctuations. The following tables provide
information about our exposure to interest rate fluctuations for the carrying
amount of such debt obligations as of September 30, 2003 and 2002 and expected
cash flows from these debt obligations:
AS AT SEPTEMBER 30, 2003
(IN THOUSANDS)
EXPECTED FUTURE CASH FLOW
YEAR ENDING DECEMBER 31,
CARRYING FAIR ----------------------------------------------------
VALUE VALUE 2003 2004 2005 2006 2007 THEREAFTER
----- ----- ---- ---- ---- ---- ---- ----------
- -----------------------------------------------------------------------------------------------------------------
Debt obligations E3,110 E3,1105 E - E3,110 E - E - E - E -
- -----------------------------------------------------------------------------------------------------------------
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Within 90 days prior to the
filing date of this report, our principal executive officer and principal
financial officer, carried out an evaluation of the effectiveness and design of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-14(c) and 15d-14(c)) and have concluded that, based on such evaluation, our
disclosure controls and procedures were adequate and effective to ensure that
material information relating to us, including our consolidated subsidiaries,
was made known to them by others within those entities, particularly during the
period in which this Quarterly Report on Form 10-Q was being prepared.
Changes in Internal Controls. Following the election of new Directors and the
appointment of new officers, all of them residing in France or Switzerland, the
effective control as well as the daily operations of the Company have been moved
out of the US. In this context, the books are now kept in the Company's French
subsidiary office near Lyon, under direct control of the new chief financial
officer. We believe that the new procedures allow for tighter internal control.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 19, 2000, the Swiss Law firm which had been retained by the
Directors of our French subsidiary Mymetics SA (formerly Hippocampe SA) to
advise them during their loan and reverse merger negotiations with MFC Merchant
Bank SA filed a claim in the Court of Geneva (Switzerland) against Mymetics SA
following the latter's decision to refuse to pay more than 13.3% of the firm's
invoice for legal services. Following initial hearings, the Court ordered an
amount of CHF 89,188, accruing interest at 5% p.a., to be put in receivership by
MFC Merchant Bank SA on that day. The sum claimed in principal, interests and
expenses amounts to approx. CHF 120'000 (E80,000) to this day. Final judgement
is now imminent and in view of the case proceedings so far, it is the opinion of
the new Management of the Company that the plaintiff will prevail.
On April 21, 2003 our former Vice President of Development, Joseph D. Mosca,
filed a claim against us in the Circuit Court of Maryland for Howard County. Mr.
Mosca claims that we breached the employment agreement between him and us and
that we violated the Maryland wage payment and collection law by not paying him
all the amounts he is owed. He was demanding $375,000 in damages as a result of
such claims. On May 22, 2003, this case was moved to the U.S. District Court in
Maryland. Following settlement discussions, we reached an agreement with Mr.
Mosca in October 2003 whereby Mymetics will pay Mr. Joseph D. Mosca, no later
than November 1, 2004, a final settlement of $10,000, in exchange of which Mr.
Mosca is waiving all further charges and claims against the Company.
In late June 2003, Dr. Pierre-Francois Serres, our former chief scientific
officer and a current member of our board, filed a claim against our French
subsidiary, Mymetics SA, claiming he is entitled to benefits arising out of his
termination from employment. In a judgment passed on October 14, 2003, the court
ruled in favor of Dr. Pierre-Francois Serres and consequently, allowed him a
total compensatory amount of E46,735. In a further agreement with the current
Board of Directors, Dr. Serres pledged not to claim payment of this amount
following the Board's decision to reinstate him as Chief Scientific Officer of
the Company.
In September 2003, three former employee of our French subsidiary, Mymetics SA,
filed claims totaling approximately E27,000 against their former employer,
claiming that neither their salary nor the severance compensations they were
legally entitled to had been paid to them. The new Board of Directors believes
that these claims are fully justified and cannot be reasonably challenged in
court. Due to the critical financial situation of the Company, created in part
by the decision of the former Chief Financial Officer (made shortly before his
resignation) to close all our bank accounts, compounded by the decision of MFC
Merchant Bank SA to cancel the undrawn balance of our line of credit facility,
we are currently unable to settle this matter out of court. As a consequence, it
is likely that the courts will decide, probably before the end of November, in
favor of the plaintiffs who, in the absence of immediate payment, will then be
entitled (even compelled under French social laws) to pursue the matter at the
higher court level, where our subsidiary's insolvency would in all probability
be determined and liquidation proceedings immediately initiated. Considering
that Mymetics SA is the legal owner of our key patents, such events could have a
devastating effect on our ability to remain a going concern.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On July 20, 2003, Messrs. Christian Rochet and Ernst Lubke (now President and
Chief Executive Officer and Chief Financial Officer of the Company) then
representing a group of 9 Swiss and French shareholders (including the Founder
of Mymetics, Dr. Pierre-Francois Serres) holding at that time over 55% of the
Company's share capital, met with Mr. John M. Musacchio, then Chief Operating
Officer and Chief Financial Officer of the Company, to inform him of the
decision of said group of shareholders to request the resignation of all the
Directors and Officers of the Company (except Dr. Serres) and their intent to
have some of the Company's major shareholders appointed as new Directors and
officers. Mr. Musacchio acknowledged this decision and pledged an orderly
transfer of responsibilities.
The reasons for this group of shareholders' decision were the alarming Company
disclosures (or absence of disclosures), and in particular:
- - the continuously high ratio of general and administrative expenses
compared to R&D expenses,
- - the scarcity of significant, published scientific results,
- - the refusal of the Board of Directors to acknowledge and act on
nominations to the Board of Mymetics of prestigious and well connected
personalities, made in August 2001 by Messrs. Rochet and Lubke,
- - the apparent inability of the Company to attract new capital following
the significant decline of the Company's share price in August 2002,
- - the resignation of key executives (the CEO and the VP of development)in
February 2003,
- - and finally, the unfriendly removal of Dr. Serres, the Company's
Founder and Chief Scientific Officer in May 2003.
The aforementioned shareholders intend to redress the situation by severely
limiting G&A expenses, in particular salaries, consulting fees and travel
expenses, and to devote a higher proportion of funds to the Company's core
business, i.e. R&D related to AIDS and other autoimmune related pathologies. To
achieve this goal, we can rely on the backing of some prominent personalities in
matters of AIDS, such as Mr. Jacques Martin, former CEO of Laboratoires Merieux,
member of the Board of the IAVI and CEO of the vaccine Fund chaired by Mr.
Nelson Mandela, and Professor Marc Girard, former CSO of Laboratoires Merieux,
present CEO of the Merieux Foundation, a most respected expert on vaccines.
On July 24, 2003, a letter formally requesting the resignation of the Company
Directors and Officers (except Dr. Serres) was sent by said group of
shareholders to the Company Counsel, following which new Directors were elected
and new Officers appointed on July 30 and 31, 2003. A management audit of the
Company's position, procedures, operations and material transactions since July
20, 2003 was immediately performed. Critical findings and subsequent, related
events since our takeover are listed hereafter.
- - On July 28, 2003, Messrs. Michael K. Allio (Director, interim President
and CEO) and John M. Musacchio (Director, COO, CFO and Secretary of the
Mymetics) closed all the "Non MFC" bank accounts of Mymetics
Corporation and transferred their remaining cash balances to the
Company's account with MFC Merchant Bank SA. It is worth noting that
according to various filings of MFC Bancorp, a US publicly traded
Canadian company and the dominant shareholder of MFC Merchant Bank SA,
Mr. John M. Musacchio, is also a Vice president of MFC Bancorp Ltd., in
fact its second highest paid officer as of December 31, 2002.
- - On July 30, Messrs. Michael K. Allio and John M. Musacchio executed on
behalf of the Company (the Borrower) a second amendment to the existing
credit facility agreement with MFC Merchant Bank SA (the Lender) and
MFC Bancorp Ltd. (Guarantor). Purpose of this amendment was essentially
to: (i) increase the principal amount from E3,000,000 to E3,150,000,
(ii) convert the credit facility from "Term Credit" to "On Demand
Credit" and (iii) reaffirm and strengthen the bank's lien on
substantially all of the Company's Intellectual Property. We believe
that this so-called second amendment to the credit facility agreement,
which considerably increases the domination of the MFC group over the
Company, could not have been negotiated and executed on such short
notice if Mr. John M. Musacchio had not been a party to both sides of
the amendment, or in other words, we do not consider this amendment as
having been negotiated and concluded at arm's length by the former
management of Mymetics Corporation.
- - On September 19, 2003, MFC Merchant Bank SA formally cancelled its 3.2
M E credit facility.
- - On October 8, 2003, Messrs. Christian Rochet and Ernst Lubke met with
the management of MFC Merchant Bank SA to discuss the latest
developments and in particular, to draw the bank's attention to the
fact that the Company was in immediate danger of losing its key
Intellectual Property as a result of its inability to pay certain
creditors following the bank's decision to cancel its recently amended
credit facility. Indeed, The Intellectual Property counsel was denying
any further services to the Company, which faced the risk of losing
certain key US patent applications. In addition, former unpaid staff
members of our French subsidiary had initiated legal action against
their former employer, who could be put into forced receivership as a
result of its inability to pay what was legally due to them. Such a
development would represent a real threat to the Company's ability to
continue as a going concern because Mymetics SA, our French subsidiary,
is the legal owner of certain key Mymetics patents. Despite these
pressing facts, Messrs. Rochet and Lubke were informed that the banks'
decision to cancel the credit facility was final. However, after a
personal plea by Mr. Jacques-Francois Martin, the bank agreed that
repayment of the cancelled loan would not be requested before June 30,
2004.
- - On November 4, 2003, MFC Merchant Bank SA confirmed its decision not to
request repayment of the outstanding cancelled credit facility amount
before June 30, 2004.
- - On November 13, 2003, MFC Merchant Bank SA also accepted our analysis
that our IP portfolio was being jeopardized due to our inability to
make payments of patent registration and/or renewal fees as well as our
inability to meet the expenses of prosecution of critical outstanding
patent application. As a result, MFC Merchant Bank SA, which holds a
lien on substantially all our IP portfolio as explained above, has
instructed our IP counsel to prepare a docket of actions needed to
maintain our portfolio and confirmed that it would make all payments
required to that effect, such sums to be added to the balance of the
cancelled credit line previously mentioned. The bank however refused to
consider any rescue plan for our French subsidiary, claiming it did not
own any significant assets any more and could therefore be left to
become bankrupt. We took issue with this analysis and pleaded in vain
that the bank reconsiders its position on this account, but to no
avail.
- - On December 8, 2003, we learned from our IP counsel that on June 25,
2003, a key US patent owned by our French subsidiary had been sold and
assigned to Mymetics Corporation "for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged". It
appears so far that this transfer was only authorized by the former CEO
of our French subsidiary, without authority being granted to her by the
company Board ("Conseil de Surveillance"), as required by French law.
As regards adequate consideration, no traces of either a reasonable
contract nor any other evidence have been found so far in the records
of either companies. The auditor of our French subsidiary
("Commissaires aux Comptes"), who enjoys a wide and compelling role of
whistle blower under French Law, believes that such patent transfer is
likely to be interpreted by French tax authorities as criminal misuse
of Company property and tax evasion. In a formal letter dated December
9, 2003 and addressed to the French company's management, he demands
that all details of this transaction be made available to him no later
than December 31, 2003, failing which he would be compelled to submit
the case to the Attorney General ("Procureur General de la
Republique"). We intend of course to heed to that request and to
cooperate fully with any investigation that might follow.
- - Last but not least, the late filing of this Form 10-Q was due to the
difficulties we faced in assembling all the required data under the
hardship described above, but also to the fact that critical service
firms needed to do so in accordance with US regulations were denying us
their services until their outstanding invoices were settled.
Now, despite all of the above and the fact that several key scientific partners
of the Company have not been paid, some of them since early 2003, Mymetics has
been able to show significant results based on Dr. Pierre-Francois Serres
hypothesis, and most notably:
- - A "world's first" in the pursuit of a universal vaccine against AIDS:
the successful synthesis, in an economically sustainable and scalable
fashion, of a stable trimeric form of gp41, the HIV's membrane protein
now regarded by several key scientists as having the highest potential
as a base for a successful AIDS vaccine.
- - The successful synthesis of short and economically feasible therapeutic
anti-HIV peptides, having the potential to become serious competitors
to some of today's most successful, but problems beset, antiviral
drugs.
Since taking office on July 31, 2003, the new Directors and Officers of the
Company have achieved some significant results despite the absence of cash
and/or credit facilities, and in particular:
- - Presentation during the "AIDS Vaccine 2003" venue in New York of our
scientific results to several key scientists of the US National
Institute of Health (NIH) and other public and private AIDS research
institutes. As a result of such presentations, we have been offered to
cooperate with certain key institutes such as SCRIPPS and been invited
to apply for initial NIH AIDS related grants.
- - Successful discussions with several outstanding and high profile
scientists and managers who accepted to join the Company as soon as its
current cash crisis is resolved.
- - Initiation of partnership discussion with pharmaceutical companies, all
world leaders in the respective human or veterinary vaccine related
(AIDS) fields.
- - Initiation of discussions with three potential new investors willing in
principle to acquire from the Company 1 million shares at USD 0.10 per
share. Such discussions are nevertheless hampered by the fact that only
publicly available data such as past Company filings, published
scientific papers and patents, could be produced and used to convince
said potential investors. In addition, critical partners needed to
execute such transactions such as legal counsel, were unwilling to
provide the services needed to perform such transactions in accordance
with US regulations. We are nevertheless hopefull that such discussions
will proceed and be successful after this 10-Q filing has been made.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32 Section 906 Certification of Chief Executive Officer
and Chief Financial Officer
(b) REPORTS ON FORM 8-K
On May 8, 2003 a report on Form 8-K was filed disclosing that the former
Directors had terminated the employment of Dr. Pierre-Francois Serres as chief
scientific officer of the Company, effective as of May 5, 2003. No financial
statements were filed in connection with this report on Form 8-K.
On August 5 and 11, reports on Forms 8-K and 8-K/A respectively were filed to
disclose that:
- - On July 30, 2003, John Musacchio, Robert Demers and Michael Allio
resigned their positions as members of our board of directors effective
July 30, 2003. On that same date, Messrs. Allio and Musacchio resigned
from their positions as Interim Chief Executive Officer and Chief
Financial Officer of the Corporation, respectively.
- - On July 31, 2003, our board of directors, then composed of Robert
Zimmer (appointed on July 30, 2003) and Pierre Francois Serres, held
another meeting. At this meeting, the board appointed Christian Rochet
and Ernst Lubke to fill remaining vacancies on our board of directors.
Mr. Rochet was appointed as a Class II director and Mr. Lubke was
appointed as a Class I director. Immediately thereafter, the board
appointed Mr. Rochet to serve as President and Chief Executive Officer
and Mr. Lubke as Chief Financial Officer and Treasurer.
No financial statements were filed in connection with these reports on Form 8-K
and 8-K/A.
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: December 12, 2003 MYMETICS CORPORATION
By: /s/ Christian Rochet
-------------------------------------
President and Chief Executive Officer