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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _____
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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
CH-1260 Nyon (Switzerland)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 011 41 22 363 13 10
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
1
The aggregate market value of the voting common stock held by non-affiliates of
the Registrant (assuming officers and directors are affiliates) was
approximately U.S. $2,371,982.80 as of December 31, 2004, computed on the basis
of the average of the bid and ask prices on such date. The Registrant has no
non-voting common stock.
As of March 25, 2005, there were 70,647,864 shares of the Registrant's
Common Stock outstanding.
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USE OF EUROS
The financial information contained in this Form 10-K is provided in
Euros (E) (except in "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters" which is provided in United States Dollars, and except as
expressly indicated otherwise herein). See Note 1 to the Consolidated Financial
Statements contained in this Form 10-K for further explanation. As of March 5,
2005, 1 Euro was convertible into 1.3240 United States Dollars.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements, which are identified by the words "believe,"
"expect," "anticipate," "intend," "plan" and similar expressions. The statements
contained herein which are not based on historical facts are forward-looking
statements that involve known and unknown risks and uncertainties that could
significantly affect our actual results, performance or achievements in the
future and, accordingly, such actual results, performance or achievements may
materially differ from those expressed or implied in any forward-looking
statements made by or on our behalf. These risks and uncertainties include, but
are not limited to, risks associated with our ability to successfully develop
and protect our intellectual property, our ability to raise additional capital
to fund future operations and compliance with applicable laws and changes in
such laws and the administration of such laws. These risks are described below
and in "Item 1. Business," "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Item 7A. Quantitative and
Qualitative Disclosures About Market Risk" included in this Form 10-K. Readers
are cautioned not to place undue reliance on these forward-looking statements
which speak only as of the date the statements were made.
RISK FACTORS
You should carefully consider the risks described below together with all of the
other information included in this report on Form 10-K. An investment in our
common stock is very risky. If any of the following risks materialize, our
business, financial condition or results of operations could be adversely
affected. In such an event, the trading price of our common stock could decline,
and you may lose part or all of your investment.
We are a company engaged exclusively in research and development activities,
focusing primarily on human and veterinary biology and medicine. When used in
these risk factors, the terms "we" or "our" refer to Mymetics Corporation and
its subsidiaries.
Our strategy was crafted in part to minimize the risks usually associated with
clinical trials, regulatory approvals and marketing, which we would expect to be
borne by our future partner(s).
2
WE HISTORICALLY HAVE LOST MONEY AND EXPECT LOSSES TO CONTINUE FOR THE
FORESEEABLE FUTURE, WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS
UNLESS WE OBTAIN ADDITIONAL FUNDING.
We historically have lost money. In the year ended December 31, 2004, we
sustained net losses of approximately E 2,220,000. In the years ended December
31, 2003 and December 31, 2002, we sustained net losses of approximately E
2,786,000 and E 3,622,000, respectively. We currently are engaged in research
and development activities and do not have any commercially marketable products.
The product research and development process requires significant capital
expenditures, and we do not have any other sources of revenue to off-set such
expenditures. Accordingly, we expect to generate additional operating losses at
least until such time as we are able to generate significant revenues. If we are
unable to draw down on the Standby Equity Distribution Agreement provided by
Cornell Capital or find alternative financing on commercially reasonable terms
or generate revenue from the sale of products, we could be forced to curtail or
cease our operations.
At December 31, 2004, we had an accumulated deficit of approximately E 12,148.
Total cash disbursed since 1990 for operating activities, including Research and
Development, is E 8,340,000. In order to become profitable, we will need to
generate revenues to off-set our operating costs, including our general and
administrative expenses. We may not achieve or sustain our revenue or profit
objectives, and our losses may increase in the future, and, ultimately, we may
have to cease operations.
Our operating results are impossible to predict, because we have not begun
selling any products. As a result, we cannot determine if we will be successful
in our proposed plan of operation. Accordingly, we cannot determine what the
future holds for our proposed plan of business. As such, an investment in our
business is extremely risky and could result in the entire loss of your
investment.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OR PREDICT OUR
FUTURE BUSINESS PROSPECTS.
We have no operating history. We are in the development stage, and our proposed
operations are subject to all of the risks inherent in establishing a new
business enterprise. The likelihood of our success must be considered in light
of the problems, expenses, difficulties, complications, and delays frequently
encountered in connection with the formation of a new business, the development
of new technology, and the competitive and regulatory environment in which we
will operate. We have made no material sales to date and have accumulated a net
deficit from inception through December 31, 2004 of approximately $12 million.
It is likely that additional losses will be incurred in the future. See
"Description of the Business" and "Plan of Operations."
IF WE CANNOT DEVELOP AND INTRODUCE NEW PRODUCTS, WE CANNOT COMPETE SUCCESSFULLY
IN THE MARKETPLACE.
Our key products still are in the development stage. See "Business - Where Are
We and Where Are We Going?". While we are pleased about the progress made to
date on these products, we cannot be sure that these products in development
will be completed or, if completed, will be commercially viable.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS, WHICH COULD HARM OUR FUTURE SALES OF PRODUCTS.
A large number of companies currently compete with us in the market for our
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products. Many of these companies have far greater capital, marketing, and other
resources than we do. Furthermore, we cannot assure you that these or other
firms will not develop new or enhanced products that are more effective than any
that we currently have or will develop in the future.
We have no certainty as to the availability and terms of future financing.
We believe that we will have sufficient working capital available through lines
of credit and the proceeds of future offerings to finance our activities through
at least March 2006. We anticipate, however, that such funds will not be
sufficient to meet our capital needs for the foreseeable future. Therefore, we
expect that we will be required to seek additional financing in the future. We
cannot be sure that such financing will be available or available on attractive
terms, or that such financing would not result in a substantial dilution of
shareholders' interest. If we cannot obtain financing when we need it or on
terms that are commercially reasonable to us, we will not be able to pursue our
business plan as we currently anticipate. See "Use of Proceeds", "Plan of
Operations", "Management's Discussion and Analysis", and "Projections."
ALTHOUGH WE HAVE RESTRUCTURED OUR EXISTING DEBT, WE HAVE NOT ALLEVIATED OUR
WORKING CAPITAL NEEDS.
We need to address our working capital needs by the end of April 2005 to allow
us to continue devoting our efforts to development of the business instead of
raising needed capital.
NEITHER CHRISTIAN ROCHET, OUR CHIEF EXECUTIVE OFFICER, NOR ERNST LUEBKE, OUR
CHIEF FINANCIAL OFFICER, ARE PAID FOR THEIR EFFORTS.
Finding people of comparable talent and dedication to our business would be
difficult given our inability to pay management for their work.
ALTHOUGH WE DO NOT BELIEVE EITHER SYLVAIN FLEURY, OUR CHIEF SCIENTIFIC OFFICER
OR MARC GIRARD, AN IMPORTANT SCIENTIFIC CONSULTANT, ARE PLANNING TO LEAVE US,
REPLACING EITHER OF THESE MEMBERS OF OUR SCIENTIFIC TEAM WOULD BE DIFFICULT.
If we are unable to pay Sylvain Fleury's salary, he may soon lose his Swiss
residency permit. Dr Fleury has been following, and associated with, our AIDS
vaccine project since 1998 and we believe that replacing him as CSO on time for
successfully prosecuting our pending patent applications would be next to
impossible. We are therefore exposed to the risk of losing our pending patent
applications.
OUR BUSINESS MODEL IS PREDICATED ON OUR BELIEF THAT WE WILL BE ABLE TO ENGAGE
LARGE PHARMACEUTICAL COMPANIES TO PARTNER WITH US IN THE DEVELOPMENT OF OUR
PRODUCTS.
Our failure to succeed in this endeavor will dramatically change our financial
needs and ability to successfully sell any products that we develop.
INDUSTRY RISKS.
Like any other bio-technology company, we also face the risk that any results
that we achieve in animal tests will not be replicated in human patients. We
also work in an extremely competitive industry where patent protection is vital
to the long-term success of our company.
OUR PRINCIPAL OFFICES ARE LOCATED IN SWITZERLAND AND IT MAY BE DIFFICULT FOR YOU
TO ENFORCE JUDGMENTS AGAINST US OR OUR DIRECTORS AND EXECUTIVE OFFICERS.
4
Although we are a company incorporated under the laws of Delaware, all but one
of our officers and directors are located outside of the United States. A
substantial portion of our assets now are, and in the future we expect will be,
located outside the U.S. As a result, it may be difficult for investors to
effect service of process on those persons in the U.S. or to enforce in the U.S.
judgments obtained in U.S. courts against us or those persons based on the civil
liability provisions of the U.S. securities laws. It may be difficult and costly
for an investor to get a court in Switzerland to enforce a judgment obtained in
other jurisdictions, including the U.S., against us or our directors or officers
under the securities laws of the United States
WE HAVE ANTI-TAKEOVER PROVISIONS IN OUR BYLAWS THAT MAY DISCOURAGE A CHANGE OF
CONTROL.
Our bylaws contain provisions that could discourage, delay or prevent a change
in control of our company or changes in our management that the stockholders of
our company may deem advantageous. These provisions
- limit the ability of our stockholders to call special meetings of
stockholders;
- provide for a staggered board;
- provide that our board of directors is expressly authorized to make,
alter or repeal the bylaws; and
- establish advance notice requirements for nominations for election
to our board or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
5
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS............................................. 13
ITEM 2. PROPERTIES .......................................... 26
ITEM 3. LEGAL PROCEEDINGS ................................... 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.. 27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................. 27
ITEM 6. SELECTED FINANCIAL DATA ............................. 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.......................................... 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ......... 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................. 34
ITEM 9A. CONTROLS AND PROCEDURES.............................. 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .. 35
ITEM 11. EXECUTIVE COMPENSATION .............................. 38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS....... 43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...... 44
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES............... 50
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.......................................... 52
SIGNATURES............................................................. 73
6
PART I
ITEM 1. BUSINESS
THE CORPORATION
OVERVIEW
We are a holding company conducting business through our subsidiaries 6543
Luxembourg S.A., a joint stock company organized in 2001 under the laws of
Luxembourg ("LuxCo"), and Mymetics S.A. (formerly Hippocampe S.A.), a company
organized in 1990 under the laws of France ("Mymetics S.A."). We were
incorporated in July 1994 pursuant to the laws of the Commonwealth of
Pennsylvania under the name "PDG Remediation, Inc." In November 1996, we
reincorporated under the laws of the State of Delaware and changed our name to
"ICHOR Corporation." In July 2001, we changed our name to "Mymetics
Corporation."
We own all of the outstanding voting stock of LuxCo and of Mymetics S.A., which
is a wholly-owned subsidiary of LuxCo. In this document, unless the context
otherwise requires, "Mymetics" and the "Corporation" refer to Mymetics
Corporation and its subsidiaries.
We currently do not make, market or sell any products or services, and thus, we
have no revenues. We believe, however, that our research and development
activities will result in strong intellectual property that can generate
revenues for us in the future. Our business model is to conduct our research and
development far enough to be able to sign a partnership agreement with one (or
more) major pharmaceutical company(ies) active in the field(s) of HIV-AIDS
preventive vaccines and/or therapies.
DEVELOPMENT OF THE COMPANY
From our inception in 1990 to December 1997, we operated in the environmental
services industry, focusing on thermal treatment (in Florida), remediation
services (in Florida and Pennsylvania) and waste oil recycling (in Illinois). In
February 1995, we completed an initial public offering. In 1998 and 1999, after
disposing of our thermal treatment, remediation services and waste oil recycling
businesses, we provided consulting services to an industrial customer in Europe.
In June 1999, we acquired a majority interest in Nazca Holdings Ltd., whose
business involved the exploration for and development of groundwater resources
in Chile. Following the disposal of our interest in Nazca in July 2000, we did
not have an operating business.
In March 2001, we acquired 99.9% of the outstanding shares of Mymetics S.A. in
consideration for shares of our common stock and shares of Class B Exchangeable
Preferential Non-Voting Stock of LuxCo, or Preferential Shares, which are
convertible into shares of our common stock. In 2002, we acquired the remaining
0.1% of the outstanding common stock of Mymetics S.A. pursuant to share
exchanges with the remaining stockholders of Mymetics S.A. The terms of these
recent share exchanges were substantially similar to the terms of the share
exchange that occurred in March 2001. Mymetics S.A. was, and continues to be, a
biotechnology research and development company.
On June 30, 2001, we closed on a private offering of 1,333,333 shares of our
common stock, at E1.77 ($1.50) per share, for an aggregate price of E2,355,600
($2,000,000). This private placement was exempt from registration pursuant to
Regulation S of the Securities Act of 1933, and the shares were sold to foreign
investors meeting the requirements of Regulation S.
7
MYMETICS CORPORATION
Mymetics' primary objective is to develop vaccines and therapies to prevent,
respectively treat the effect of certain retroviruses, including the human
immunodeficiency virus, or HIV, the virus that leads to acquired
immunodeficiency syndrome, or AIDS. Additional applications of Mymetics'
research include potential treatments and/or vaccines for animal AIDS, human
oncoviral leukemias, multiple sclerosis, and organ transplantation.
Prior to 2002, our activities were primarily conducted in Europe. During the
second quarter of 2002, through our operations in the United States, we launched
programs in the United States in an attempt to reinforce our intellectual
property portfolio and to accelerate the commercialization of our technology.
This was done, in part, by attempting to target products and business
development in the United States. Again, prior to this time, activities such as
design of the prototype molecules, synthesis, and in vitro testing had been
conducted exclusively in Europe. We believed that expanding our operating
activities in the United States offered numerous advantages, including greater
access to expertise, grants, subsidies, intellectual property and public and
private research teams. Due to financial constraints, we were forced to limit
these activities in January 2003. Following the management changes of July 2003,
our activities again have been conducted exclusively in Europe, with certain
in-vitro tests being performed in the United States.
Under our "best of class" R&D model, the overall research strategy, as
well as most original ideas, are defined and contributed by our own scientific
team, including Dr. Sylvain Fleury, Ph.D. (Chief Scientific Officer), Professor
Marc Girard, DVM, D.Sc. (Head of Vaccine Development), and our founder, Dr.
Pierre-Francois Serres (Head of Exploratory Research), assisted from time to
time by members of our Scientific Advisory Board or by our outside directors,
Professor Stanley A. Plotkin, M.D. and Dr. Robert Zimmer, M.D., Sc.D. Any given
project is first subdivided into modules which are then subcontracted to "best
of class" teams from academia, public or private laboratories or industry, all
chosen for their high standards and specific know how. We can divide our work
into "technology modules," and outsource such modules to the best team available
to carry out needed work. For example, if we need rabbits to be bred, we will
outsource this work on a commercial basis to the best company we can find. Most
of the work that we outsource is easily replaced by other vendors. In unique
cases, like protein engineering, we are more dependent upon companies like
Protein eXpert. That said, we believe that with rare exception, we can replace
these providers as well. We believe we benefit from the established
relationships with our "partners" and approach our relationship in that manner.
Mymetics pays for and coordinates the work, consolidates the results and retains
all intellectual property associated with it. In certain limited cases, we will
sign partnership agreements with companies offering technologies which can
enhance or add value to our own products under development. Our agreement with
Pevion AG, a small Swiss company with which we signed a scientific collaboration
agreement which includes an option to receive an exclusive license to use their
Virosome Vaccine delivery technology in conjunction with our AIDS preventive
vaccine under development is an example of such an agreement. Under this model,
Mymetics retains all intellectual property rights in the combined research and
applies for domestic and international patents whenever justified. As agreed and
coordinated by Mymetics, the research teams are authorized to co-publish their
results.
We intend to sign a partnership agreement with one of the few major
pharmaceutical companies presently active in the preventive vaccine against
HIV-AIDS as soon as our
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human clinical phase I trials are completed. We hope this could happen
as early as 2006. The type of partnership agreement we intend to sign is typical
in the world of biotechnology: an initial cash payment, followed by a series of
payments associated with specific milestones and finally, royalties on any sales
of end products, assuming these will have been approved by the various
regulatory authorities involved, such as the Food and Drug Administration. We
would not expect this to occur prior to 2009.
LUXEMBOURG 6543 S.A.
Our Luxembourg subsidiary, Luxembourg 6543 S.A., was founded in 1999
within the context of the acquisition of Mymetics S.A. by Mymetics Corporation
as a legal vehicle to allow the former French shareholders of Hippocampe S.A. to
defer French taxes due on the exchange of their Hippocampe S.A. shares for
Mymetics Corporation shares. The company presently is dormant and we intend to
liquidate it as soon as the financial resources needed to do so will be
available.
MYMETICS S.A.
Our French subsidiary, Mymetics S.A. (formerly Hippocampe S.A.), founded in
1990, is a biotechnology research and development company devoted to fundamental
and applied research in the area of human and veterinary biology and medicine.
The company is the legal owner of our initial key patents, which were applied
for prior to it being acquired by Mymetics Corporation. Mymetics S.A. is
presently inactive. Its last salaried employee completed her assignment by, and
had her employment contract terminated on January 31, 2005. We do not intend to
hire additional staff in France in the foreseeable future, as all R&D will be
carried on under Mymetics Corporation's responsibility. We intend however to use
this legal entity to apply for European research grants.
TECHNOLOGY
CURRENT APPROACHES
Current drug treatments in HIV focus on slowing or impeding the progress of the
virus once it has infected the body's host cells. Recent approaches seek to
develop therapies that prevent the virus from fusing with host cells. If the
virus cannot fuse, it cannot enter inside the cell and reproduce, thereby
facilitating the successful fight of the body's immune system against the
invasion.
MYMETICS' APPROACH
Our vaccine strategy is based on the use of the gp41 molecule, which is a key
viral membrane protein required for the penetration of HIV into the host cells.
This process occurs in two main steps:
First, binding of HIV gp120 glycoprotein to the CD4 molecule present at the cell
surface, followed by a second binding to the co-receptor (mainly CCR5 or CXCR4);
Gp120, which usually covers gp41, is then released, liberating the gp41 protein,
which mediates the fusion between the viral envelope and the target cell
membrane.
By carefully modifying parts of the HIV gp41 molecule, we have obtained an
engineered molecule that:
o Is trimeric and stable with a folding close to the native protein;
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o Is soluble in the absence of detergent or can be incorporated into
liposomes, which is more suitable for in vivo work;
o Can be easily produced by recombinant bacteria like E. coli;
o Has been stripped of an immunodominant area that generates numerous
non-neutralizing antibodies, which may fool the immune response.
o Has been stripped of its key IL-2-like sequences, minimizing the
important potential cross-reaction with host proteins that may
contribute to the destruction of the immune system seen in HIV
patients;
This type of new engineered trimeric gp41 molecules should be able to elicit
antibodies that block virus-cell fusion, thus preventing HIV-1 infection. Based
on research results recently presented at the world AIDS Vaccine 2004
conference, held in September 2004 in Lausanne, Switzerland, we believe that our
latest neutralizing and transcytosis results and vaccine strategies definitely
place us amongst the most advanced teams devoted to AIDS vaccine research
worldwide.
Our findings further apply to a range of additional diseases, including certain
oncoviruses often associated with leukemia.
BACKGROUND INFORMATION
THE IMMUNE RESPONSE
Normally, the body's immune system responds to the invasion of pathogen. In the
case of HIV, for example, an infected host cell alerts the immune system by
secreting interleukine-2 (IL-2), a special protein (called a cytokine) that acts
as a key messenger for many cells of the immune system.
IL-2 acts as a T cell growth factor, promotes NK proliferation and stimulates B
cell growth (cells that produce antibodies). Together, these "soldier cells"
attack foreign pathogens like viruses, and help to destroy them. From the first
encounter with the invader, the immune system keeps a memory of what happened
and specialized "memory" T and B cells are established as guardians in the
host's body. The next time the invaders try to enter, they will be swiftly
attacked and disarmed.
HIV & AIDS
HIV-1 is a retrovirus that gradually disrupts and attacks the body's immune
system, leading to AIDS.
HIV attaches itself to the target host cell using a harpoon-like surface protein
called gp160. This protein spears the host cell's membrane, drawing them
together so that the virus can fuse with the host cell.
Once attached, the virus penetrates the cell and commandeers the cell's
machinery. Then it rapidly replicates itself.
What makes HIV-1 so lethal? It targets the most central cell of the immune
system, the CD4+ T cells which produce the IL-2 cytokine, a key messenger for
immune cells. These cells usually coordinate the cellular and humoral responses
that are directed to thwart the pathogen (HIV). When the number of such CD4+ T
cells decreases significantly over time, the amount of IL-2 becomes also too low
for an efficient immune attack orchestration. Consequently, HIV as well as other
pathogens evade the activity of the immune system, leaving the host vulnerable
to disease.
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HIV proves itself an elusive target because it:
o reproduces itself at an extraordinary rate (several billion new virus
particles are created daily)
o mutates rapidly: as it reproduces itself, it makes mistakes that
produce new virus particles that are slightly different; these
differences make the virus harder to target by the immune system.
MYMETICS AND HIV/AIDS
Normally, the immune system would respond to this attack: IL-2 would be secreted
mostly by activated CD4+ T cells to signal the alarm to the other T-Cells
subtypes and B-cells. With HIV, this approach backfires. Why?
Mymetics has discovered a peculiar inter-reactivity between part of the virus's
"harpoon" and the host cell's "alarm" (IL-2). We call it "mimicry".
The shaft of the virus' harpoon, called gp41, actually appears to "mimic" the
host cell's IL-2. This dynamic enables the virus to attach itself to the host
cell membrane at a precise portal. An unusual consequence: when the "soldiers"
(antibodies) arrive to battle the virus, they "confuse" the virus's gp41 with
the host cell IL-2 - and attack and destroy them both.
As the immune system methodically kills its own soldiers, the HIV continues to
replicate swiftly. The equilibrium shifts and the HIV outpace our body's
defenses. The result is AIDS, a fatal disease that affects an increasing number
of people worldwide.
WHERE ARE WE AND WHERE ARE WE GOING?
Mymetics has documented the existence of an important three-dimensional
molecular mimicry between the gp41 glycoprotein of HIV-1 and the human
interleukin-2 (IL-2) cytokine, a mimicry also found in lentiviruses causing AIDS
in other animal species. Mymetics has already explored this mimicry over the
last three years as starting point for developing a safe HIV-1 candidate vaccine
capable of eliciting neutralizing antibodies, while preventing potential harmful
cross-reactivities toward host proteins such as the human IL-2 (Mymetics US
Patent 6,455,265). We believe that this innovative concept may render vaccines
from the 21st century as efficacious as those from the 20th century, in addition
to be safer.
Together with Protein'eXpert S.A., we have succeeded in engineering and
producing in bacteria E. Coli the first gp41 generation in September 2003, which
forms soluble and stable gp41 trimers that closely resembles the native gp41
found on HIV-1. This first generation of gp41 immunogen is devoid of the cluster
I and 2F5/4E10 epitopes, in addition of being mutated in one important IL-2
mimicry area. The design of the first gp41 generation was intended to identify
new important epitopes as well as to focus the immune response on possible
neutralizing epitopes different from the 2F5/4E10 previously identified by other
teams.
From January to August 2004, the first gp41 generation was tested in rabbits for
it's capacity to elicit neutralizing antibodies toward HIV-1. Such antibodies
were obtained in large quantities and their neutralizing potential was evaluated
by our academic collaborators. Thus, a renowned scientist in the field of
transcytosis, Dr.
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Morgane Bomsel (Cochin Institute, Paris, France), obtained 60% inhibition of
HIV-1 transcytosis with primary strains. Sera were also tested in the
laboratory of Dr Christiane Moog (Institut Pasteur, Strasbourg, France), a well
acclaimed specialist in neutralizing antibodies in the HIV field. In the
performed assay, primary T cells infection by primary HIV-1 strains (Bx-08 and
SF-162) were respectively neutralized at 70% and 80% by low sera dilutions. When
total rabbit antibodies were purified from the serum, a neutralizing activity of
80% was obtained with an antibody concentration of 20 ?g/ml, using three primary
HIV-1 strains. These results are similar to those obtained with the 2F5 antibody
(>90% inhibition), one of the most potent neutralizing antibodies so far
identified but which sor has never turned out to be effective vaccine candidate.
Infection of primary human macrophages by primary HIV-1 strains was also
strongly inhibited (>90%) with a low antibody concentration (< 2 ?g/ml). These
preliminary results are highly encouraging, considering that the first gp41
generation of immunogen did not include the 2F5/4E10 epitopes.
A second gp41 generation that has included the 2F5 and 4E10 epitopes was
obtained in August 2004 and produced on a larger scale in September 2004. These
new gp41 immunogens were incorporated into liposomes and were well recognized by
the 2F5 and 4E10 monoclonal antibodies kindly provided by Dr Wayne Koff (IAVI),
which suggest the presence of functional epitopes. Rabbit immunizations with
gp41-liposomes have already started in mid-September and non-human primate
(Rhesus macaque) immunizations are scheduled for November 2004. Presence of
neutralizing antibodies in animal sera will be screened during winter 2005,
involving different neutralizing assays performed by different laboratories in
the US and France. Considering the encouraging results obtained with the first
generation, we are expecting the second generation of gp41 to display a good
cross-clade neutralizing activity toward various HIV-1 primary isolates. Results
are expected by April 2005. Other complementary studies are under investigation
for evaluating protein structures (MNR, circular dichroism), antigenicity and
immunogenicity.
Meanwhile, a third and fourth generation of gp41 immunogens with improved
strategies for epitope maintenance and presentation are already in the pipeline.
These gp41 immunogens should be available in January-February 2005 for new
immunization experiments. We are expecting to initiate mucosa immunizations in
2005 of non-human primates with these two generations of gp41 with newly
formulated adjuvants, then challenge primates with viruses to study the immune
protection. A pre-clinical lot of gp41 immunogen is planed for late 2005 for
toxicology and phamacokinetics evaluation of the best gp41 immunogen. Human
tolerance and immunogenicity of the best gp41 immunogen should thereafter take
place in a phase I clinical trial in 2006-2007.
Visit our website (www.mymetics.com) for more information on our technology.
Visit the IAVI web site (www.iavi.org) for more background information on AIDS.
VACCINAL USE OF THE MIMICRY DISCOVERY
Our current research modules focus on the following three fields:
- - PREVENTIVE VACCINES. We believe that our discovery of the
host-virus IL-2 mimicry opens the door to novel therapeutic and
HIV-AIDS preventive vaccine strategies. We believe that properly
mutated trimeric gp41 represent excellent candidate vaccines
because they are devoid of the "IL-2" like structure and its
harmful associated side effects. Furthermore, these engineered
gp41 have conserved their antigenic properties and correspond to
the most conserved region of the viral envelope glycoprotein,
which otherwise exhibits considerable genetic diversity. Our
12
specific preventive vaccine would be "universal" in that it would
train the body's immune system to recognize and defeat a broad
array of HIV strains, while preventing the induction of the
autoimmune reaction toward IL-2. Our recent advances in protein
engineering and production allowed us to obtain very good soluble
and stable trimeric gp41, which has accelerated the preliminary
vaccine program.
- - THERAPEUTIC MOLECULES. Based on insights into mimicry, we have
developed a series of synthetic peptides that might inhibit the
fusion between HIV or FIV and its target cell in an infected host.
For the in vitro work, these synthetic peptides have been
effective for blocking both HIV and FIV infections, while in vivo
experiments with FIV peptides is under investigation to validate
our HIV model. These therapeutic molecules would prevent the virus
entry into the target cell, inhibiting its attempts to reproduce.
Having demonstrated that the transmission of HIV depends on the
viral load, and that no transmission has been observed below 1500
viral copies/ml., treatment with therapeutic agents may provide a
strategy to control AIDS epidemicity. This application would
complement available antiretroviral drugs, or may even provide a
substitute for the available antiretroviral drugs. In a series of
independent in vitro experiments, our rationally designed peptide
compounds were proven to effectively block viral fusion. These
compounds also showed a potency that is equivalent to the gp41
compound recently approved by the United States Food and Drug
Administration (FDA). The relative potency of our compounds were
presented in a poster presentation given at Interscience
Conference on Antimicrobal Agents and Chemotherapy in San Diego CA
in September 2002. An additional poster presentation at the
International Feline Retrovirus Research Symposium conference in
December 2002 showed the potency of a series of our FIV
gp36-derived peptides, and in particular highlighted the
surprising potency of a short compound (consisting of 8 amino
acids only). Results were also recently published in the Journal
of Virology (March 2003) in an article entitled "Antiviral
Activity and Conformational Features of an Octapeptide Derived
from the membrane-Proximal Ectodomain of the Feline
Immunodeficiency Virus Transmembrane Glycoprotein." An additional
poster presentation at the annual International Conference on
Retroviruses and Opportunistic Infection in Boston in February
2003 communicated the results of a series of benchmarking in vitro
assays, highlighting the potency of our HIV gp41 "IL-2
like"-derived peptide compounds across a wide array of clades or
strains of the virus. These data appear to validate our strategy
of creating compounds from well-conserved, IL-2-homologous
regions, for the greatest possible application for patients
worldwide. Based on the success of in vitro compounds, we launched
our first in vivo tests in the feline model, collaborating with
well-known research partners at the Retroviral Center at the
University of Pisa, Italy. These tests are expected to provide
valuable insight into the actual efficacy of the potential
peptides, in particular the shorter peptides, which would offer a
number of practical advantages in terms of commercialization,
including less complexity, lower cost to manufacture, less
immunogenicity, and potential greater bio-availability.
We currently have compound prototypes potentially capable of commercialization,
including:
- - Therapeutic molecules (pharmacological agents) - administered to
infected subjects to prevent cell infection by HIV and FIV.
- - Preventive vaccines - administered to healthy subjects to prevent
infection by HIV or FIV.
13
For the year ended December 31, 2004, we focused on research and development
and, as a result, did not generate any revenues or engage in any licensing
activities. For the years ended December 31, 2004, December 31, 2003 and
December 31, 2002, we spent E 612,000, E 1,263,000 and E 1,878,000 respectively,
on research and development activities.
KEY PERSONS
See ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
RESEARCH AND DEVELOPMENT EXPENSES
INTELLECTUAL PROPERTY
We are the exclusive owner of intellectual property relating to our core
business which is focused on the development of novel HIV and FIV therapeutics
and vaccines. Particularly, we own two issued French patents FR99 06528 and FR01
15424 and one U.S. issued patent US 6,455,265 and its corresponding national
filings and divisional filings in various countries including Europe, the United
States, Japan, Canada and Israel. We also filed two Patent Cooperation Treaty,
or PCT, applications, WO 03/048187 and WO 03/104262, with national phases in the
United States and EP. We have additionally filed four United States provisional
applications related to the field.
On July 24, 2004, we applied for a new U.S. patent which covers our mutated,
trimeric, stable recombinant gp41 protein.
We rely primarily on a combination of patent, copyright, trademark and trade
secret laws, as well as contractual restrictions, to protect our intellectual
property. These legal protections afford limited protection. We generally
require employees, strategic research partners and consultants with access to
our intellectual property to execute confidentiality agreements. Despite our
efforts to protect our intellectual property, unauthorized parties may attempt
to copy the research and research methods that form the basis of our
intellectual property. The laws of many countries do not afford the same level
of protection as those provided by United States intellectual property laws.
Litigation may be necessary to protect and enforce our rights in our
intellectual property.
COMPETITION
We have not yet developed an actual product or generated any revenues. Our
future competitive position depends on our ability to successfully develop our
intellectual property, and to license or sell such intellectual property to
third parties on financially favorable terms. Although we believe that the
results of our research and development activities have been favorable, there
are numerous entities and individuals conducting research and development
activities in the area of human biology and medicine all of which could be
considered competitors.
Preventive Vaccines. We are conducting research aimed at developing a preventive
vaccine for the HIV-1 virus, which vaccine will provide protection against a
broad array of viral strains.
In the field of HIV vaccines, the failure in 2003 of the VAXGEN product in Phase
III clinical trials underscores the need for an effective solution to the global
14
challenge posed by HIV. As this particular candidate was based on technology
unrelated to our technology, we do not feel that the cessation of clinical
trials with respect to VAXGEN negatively impacts our prospects for developing a
viable preventive vaccine.
The worldwide vaccine market is dominated by four large multinational
companies: Sanofi Pasteur S.A. (formerly Aventis Pasteur S.A.), Merck & Co.,
GlaxoSmithKline Plc, and Chiron Inc. Other companies such as Progenics
Pharmaceuticals, Inc., are also developing preventive vaccines.
While many of these individuals and entities have greater financial and
scientific capabilities, and greater experience in conducting pre-clinical and
clinical trials, we believe that our innovative approach to vaccine development,
which is based on the observed immunological cross-reactivity (or mimicry)
between the well preserved, antigenic and immunodominant domain of GP41 and
IL-2, and relies on the observation of expected autoimmune consequences in HIV
infected subjects, will provide an advantage over existing and future approaches
that have been pursued so far, including:
- Sub-unit vaccine: a technology addressing a piece of the outer
surface of HIV, such as GP160 or GP120, produced by genetic engineering.
- Live vector vaccine: a live bacterium or virus such as vaccinia (used
in the smallpox vaccine) modified so it cannot cause disease, but can transport
into the body one or more genes that makes one or more HIV proteins.
- Vaccine combination: an example includes a "prime-boost strategy",
use of a recombinant vector vaccine to induce cellular immune responses followed
by booster shots of a sub-unit vaccine to stimulate antibody production.
- Peptide vaccine: chemically synthesized pieces of HIV proteins
(peptides) known to stimulate HIV-specific immunity. - Virus-like particle
vaccine (pseudovirion vaccine): a non-infectious HIV look-alike that has one or
more, but not all, HIV proteins.
- DNA vaccine: direct injection of genes coding for HIV proteins.
- Whole-killed virus vaccine: HIV that has been inactivated by
chemicals, irradiation or other means rendering it non-infectious.
- Live-attenuated virus vaccine: live HIV from which one or more
apparent disease-promoting genes of the virus have been deleted.
GOVERNMENTAL REGULATION
Our strategy was crafted in part to minimize the risks usually associated with
clinical trials, regulatory approvals and marketing, which we would expect to be
borne by future partner(s).
We contract with third parties to perform research projects related to our
business. These third parties are located in various countries and are subject
to the applicable laws and regulations of their respective countries.
Accordingly, regulation by government authorities in the United States and
foreign countries is a significant factor in the development, manufacture and
marketing of our proposed products by our future partners and therefore has an
indirect impact on our ongoing research and product development activities. Any
products that will be developed by our future partners(s) based on our
15
technology will require regulatory approval by government agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous pre-clinical studies and clinical trials and other approval procedures
of the FDA and similar regulatory authorities in foreign countries. In addition,
various federal and state statutes and regulations will also govern or influence
testing, manufacturing, safety, labeling, storage and record keeping related to
such products and their marketing. The process of obtaining these approvals and
the subsequent substantial compliance with appropriate federal and state
statutes and regulations require the expenditure of substantial time and
financial resources. Obtaining royalties in the future will depend on our future
partners' ability to obtain and maintain the necessary regulatory approvals.
Pre-clinical studies generally are conducted on laboratory animals to evaluate
the potential safety and the efficacy of a product. In the United States, we
must submit the results of pre-clinical studies to the FDA as a part of an
investigational new drug application, or IND, which application must become
effective before we can begin clinical trials in the United States. An IND
becomes effective 30 days after receipt by the FDA unless the FDA objects to it.
Typically, clinical evaluation involves a time-consuming and costly three-phase
process. At this time, neither we nor any of our partners has submitted any of
our pre-clinical results to the FDA nor any European or other health regulation
agency. The process which is described below is therefore to be considered as
generic background information which is relevant to the industry as a whole.
Phase I. Refers typically to closely monitored clinical trials and includes the
initial introduction of an investigational new drug into human patients or
normal volunteer subjects. Phase I clinical trials are designed to determine the
metabolic and pharmacologic actions of a drug in humans, the side effects
associated with increasing drug doses and, if possible, to gain early evidence
on effectiveness. Phase I trials also include the study of structure-activity
relationships and mechanism of action in humans, as well as studies in which
investigational drugs are used as research tools to explore biological phenomena
or disease processes. During Phase I clinical trials, sufficient information
about a drug's pharmacokinetics and pharmacological effects should be obtained
to permit the design of well-controlled, scientifically valid, Phase II studies.
The total number of subjects and patients included in Phase I clinical trials
varies, but is generally in the range of 20 to 80 people.
Phase II. Refers to controlled clinical trials conducted to evaluate the
effectiveness of a drug for a particular indication or indications in patients
with a disease or condition under study and to determine the common short-term
side effects and risks associated with the drug. These clinical trials are
typically well-controlled, closely monitored and conducted in a relatively small
number of patients, usually involving no more than several hundred subjects.
Phase III. Refers to expanded controlled clinical trials, which many times are
designated as "pivotal trials" designed to reach end points that the FDA has
agreed in advance, if met, would allow approval for marketing. These clinical
trials are performed after preliminary evidence suggesting effectiveness of a
drug has been obtained. They are intended to gather additional information about
the effectiveness and safety that is needed to evaluate the overall benefit-risk
relationship of the drug and to provide an adequate basis for physician
labeling. Phase III trials can include from several hundred to several thousand
subjects depending on the specific indication being treated.
The FDA closely monitors the progress of each of the three phases of clinical
trials that are conducted in the United States and may, at its discretion,
reevaluate, alter, suspend or terminate the testing based upon the data
accumulated to that point and the FDA's assessment of the risk/benefit ratio to
the patient. We have
16
not yet conducted any clinical trials and are currently focused on research.
Once Phase III trials are completed, drug developers submit the results of
pre-clinical studies and clinical trials to the FDA, in the form of an new drug
application, or NDA, for approval to commence commercial sales. In response, the
FDA may grant marketing approval, request additional information or deny the
application if the FDA determines that the application does not meet the
predetermined study end points and other regulatory approval criteria.
Furthermore, the FDA may prevent a drug developer from marketing a product under
a label for its desired indications, which may impair commercialization of the
product.
If the FDA approves the new drug application, the drug becomes available for
physicians to prescribe in the United States. After approval, the drug developer
must submit periodic reports to the FDA, including descriptions of any adverse
reactions reported. The FDA may request additional studies, known as Phase IV
trials, to evaluate long-term effects. We will be required to comply with
similar regulatory procedures in countries other than the United States.
In addition to studies requested by the FDA after approval, a drug developer may
conduct other trials and studies to explore use of the approved compound for
treatment of new indications. The purpose of these trials and studies and
related publications is to broaden the application and use of the drug and its
acceptance in the medical community.
Our future partner(s) will have to complete an approval process, similar to the
one required in the United States, in virtually every foreign target market in
order to commercialize product candidates based on our technology in those
countries. The approval procedure and the time required for approval vary from
country to country and may involve additional testing. Approvals (both foreign
and in the United States) may not be granted on a timely basis, or at all. In
addition, regulatory approval of prices is required in most countries other than
the United States. We face the risk that the resulting prices would be
insufficient to generate an acceptable return to our partner(s).
EMPLOYEES
As of December 31, 2004, Our Luxembourg affiliate had no employees,
Mymetics S.A. had one full-time employee which had her contract terminated as of
January 31, 2005 and Mymetics Corporation had two full-time employees: Mr.
Cristian J.-F. Rochet, our Chief Executive Officer, and Mr. Ernst Luebke, our
Chief Financial Officer. Both officers were employed under informal agreements
based on general terms agreed in 2003 by our Board of Directors. Under said
agreements, both officers' salary will only be paid once the Company's financial
position would allow it to do so. At December 31, 2004, Mr. Rochet and Mr.
Luebke were owed Euro 51,230 and Euro 115,494 respectively as a result of this
decision.
WWW.MYMETICS.COM
News and information about Mymetics Corporation and its subsidiaries is
available on our web site, www.mymetics.com.
ITEM 2. PROPERTIES
We currently occupy two leased properties, one in Nyon, Switzerland, very near
to Geneva, and the other in Saint-Genis Laval, France, very near to Lyon.
Our Nyon facility, at 14, rue de la Colombiere, has approximately 60 square
meters of office space that houses our administrative operations.
17
Our Saint Genis Laval location, at 52, avenue de Chanoine Cartellier has
approximately 45 square meters of office space that is used by our head of
exploratory research.
We also conduct our research operations at the properties of various third
parties, worldwide.
We believe that our current facilities are adequate for our foreseeable needs,
and no additional space presently is necessary. The lease in Nyon can be
terminated at short notice, and the one in Saint Genis Laval expires in 2006.
ITEM 3. LEGAL PROCEEDINGS
We are a party to routine litigation incident to our business. Our policy is to
defend vigorously only the suits with material amounts being sought in damages
and after considering the potential legal costs involved. We do not currently
maintain any insurance but are planning to conclude one as soon as our financial
resources will allow it.
We are subject to a judgment against our subsidiary Mymetics S.A. issued in July
2004 by a court ("Tribunal de Prud'hommes") in Nantes (France). A former
employee received a temporary judgment against us for E4,000 for alleged
wrongful termination by the former management of Mymetics S.A. We do not intend
to appeal the judgment as the legal costs involved would probably be higher than
the damage at stake.
We were party to a second case in which a creditor of ours claims that we owe it
approximately E30,000. The claim was filed before a court in Lyon ("Tribunal de
Grande Instance") on June 29, 2004. We expect to settle the case as soon as our
financial resources will allow it.
We are subject to a proceeding brought by Dr. Serres, a current director and
former officer for alleged wrongful termination of Dr. Serres by our previous
management. Dr. Serres was reinstated as Chief Scientific Officer by the new
Board of Directors retroactively from May 5, 2003 until November 3, 2003, when
he was promoted as Head of Exploratory Research, his current position with the
Company. In exchange for being reinstated retroactively, Dr Serres agreed to
forfeit all legal and punitive compensation for having been terminated without
cause. The French Industrial Tribunal granted Dr. Serres E45,735 in an emergency
injunction of October 14, 2003. The final amount which Dr. Serres has claimed in
terms of legal and punitive compensation if the case had been allowed to run its
full course is in excess of Euro 175,000. Our French legal counsel believe
however that this claim is without merit as under French law, salaried company
directors and officers are only eligible for severance pay and other
compensation if certain, very stringent, conditions are met which, in our
counsels' opinion, is evidently not the case for Dr. Serres. The agreement
between Dr. Serres and the Company has yet to be finalized.
While we expect to prevail in all of these cases, our management believes that
adverse results in one or more of these cases could have a material adverse
effect on our results of operations in future periods.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information. The Corporation's common stock is quoted on the OTC
Bulletin Board under the trading symbol "MYMX". The Corporation's trading symbol
changed from ICHR to MYMX in July 2001, pursuant to a corporate name change from
ICHOR Corporation to Mymetics Corporation. The following table sets forth the
quarterly high and low sale price per share of the Corporation's common stock
for the periods indicated. The prices represent inter-dealer quotations, which
do not include retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
FISCAL QUARTER ENDED HIGH LOW
2003
March 31......................................... $ 0.22 $ 0.09
June 30.......................................... 0.14 0.09
September 30..................................... 0.12 0.07
December 31...................................... 0.14 0.04
2004
March 31......................................... $ 0.125 $ 0.125
June 30.......................................... 0.118 0.10
September 30..................................... 0.08 0.08
December 31...................................... 0.30 0.27
(b) Stockholders. At March 5, 2005, the Corporation had approximately
796 holders of record of its common stock, some of which are securities clearing
agencies and intermediaries.
(c) Dividends. The Corporation has not paid any dividends on its common
stock and does not anticipate that it will pay any dividends in the foreseeable
future.
(d) Securities Authorized for Issuance Under Equity Compensation Plans.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about the common stock that may be
issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2004.
19
- -----------------------------------------------------------------------------------------------------------------------------
Number of Securities remaining
available for issuance under
Number of Securities to be Weighted Average Exercise equity compensation plans
issued upon exercise of Price of Outstanding (excluding securities reflected
Options, Warrants and Options, Warrants and in column (a))
Rights Rights
Plan Category (a) (b) (c)
- -----------------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans
Approved by Security Holders (1) 556,250 (2) U.S. $0.92 4,557,500
- -----------------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans not
Approved by Security Holders 1,500,000 (3) U.S. $0.10 N/A
- -----------------------------------------------------------------------------------------------------------------------------
Total 2,186,416 U.S. $0.39 4,557,500
- -----------------------------------------------------------------------------------------------------------------------------
(1) Equity compensation plans approved by our security holders include (i) our
1994 Amended and Restated Stock Option Plan, (ii) our 1995 Qualified Incentive
Stock Option Plan and (iii) our 2001 Stock Option Plan. Our 1994 Amended and
Restated Stock Option Plan and our 1995 Qualified Incentive Stock Option Plan
were both terminated in March 2001, but some options granted under these plans
prior to such termination remain outstanding and are included in this table.
(2) Includes (i) 442,500 shares of common stock underlying options granted under
our 2001 Stock Option Plan, (ii) 100,000 shares of common stock underlying
options granted under our 1995 Qualified Incentive Stock Option Plan and (iii)
13,750 shares of common stock underlying options granted under our 1994 Amended
and Restated Stock Option Plan.
(3) We do not have any formal equity compensation plan that has not been
authorized by our stockholders. These grants are made on an individual basis and
are approved by our board of directors. Accordingly, there are no shares of
common stock reserved for issuance under these arrangements.
ISSUANCES OF UNREGISTERED SECURITIES
Set forth below is information regarding our sales of unregistered
securities during the period commencing on January 1, 2004 and ending on March
7, 2005. These issuances were made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as
transactions by an issuer not involving any public offering.
The present Board of directors believes that until such time as
the Company has fully recovered from its present difficult situation, it should
be managed exclusively by major shareholders to ensure that stakeholders' long
term interests would prevail over short term mercenary considerations.
The present Board of directors further believes that the Company
needs to have rapid access to the inner circle of world opinion leaders in
matters of HIV-AIDS if it wants to have its ideas, work and results peer
recognized and accepted to qualify for grants and other donations. With this in
mind, we have been able to attract world class personalities such as Mr.
Jacques-Francois 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, DVM, D. Sc., former Head
20
of the Laboratory of Molecular Virology at the Pasteur Institute in Paris
(France), former Director, European Research Center for Virology and Immunology
(CERVI) in Lyon (France), former Head of the HIV Task Force at the French
National Agency for AIDS Research (ANRS), Paris, former Director General of the
Merieux Foundation in Lyon (France), former Chairman of the European Consortium
for an HIV Vaccine (EuroVac), Brussels. But one doesn't attract bees with
vinegar, thus:
- - - In January 2004, we issued two investors 2,000,000 common shares of
Mymetics Corporation for E166,400, or approximately $.10 per share.
- - - In January 2004, we issued the same two investors warrants to acquire,
before July 31, 2004, an additional 2,000,000 common shares of Mymetics
Corporation at $.10 per share.
- - - In January 2004, we issued Professor Marc Girard, DVM, D. Sc., 500,000
common shares of Mymetics Corporation in recognition of his support of
the Company and in compensation for his modest remuneration as Head of
our Vaccines Development.
- - - In January 2004, we issued two free-lance secretaries 25,000 shares
each for services rendered to our CEO, Mr. Christian Rochet, in lieu of
cash compensation.
- - - In February 2004, we issued one investor 2,500,000 common shares of
Mymetics Corporation for $250,000, or $.10 per share.
- - - In February 2004, we issued the same investor a warrant to acquire,
before July 31, 2004, an additional 2,500,000 common shares of Mymetics
Corporation at $.10 per share.
- - - In April 2004, we issued CEDIC, a not-for-profit French foundation
headed by Professor Touraine, 120,000 shares in settlement of a dispute
which had arisen during the previous management's tenure.
- - - In May 2004, we issued MFC Merchant Bank SA 500,000 shares as fee for
the 6-month extension of its E3.2 million loan.
- - - In June 2004, two investors exercised their options to acquire
2,000,000 common shares of Mymetics Corporation for $200,000, or $.10
per share.
- - - In August 2004, we issued two investors 500,000 common shares of
Mymetics Corporation for $50,000, or $.10 per share.
- - - In August 2004, we issued one investor 766,667 common shares of
Mymetics Corporation for $100,000, or $.13 per share.
- - - In August 2004, we issued our French accountant and a Swiss consultant
100,000 shares each for services rendered to the Company, in lieu of
cash compensation.
- - - In August 2004, we issued one investor 200,000 common shares of
Mymetics Corporation for $24,000, or $.12 per share.
- - - In August 2004, we issued our Luxembourg legal adviser 50,000 common
shares of Mymetics Corporation for services rendered in lieu of cash
compensation.
- - - In September 2004, we issued one investor 50,000 common shares of
Mymetics Corporation for $5,000, or $.10 per share.
21
- - - In September 2004, we issued our CEO's free-lance secretary 20,000
shares each for services rendered in lieu of cash compensation.
- - - In September 2004, we issued two German market communication
consultants 500,000 shares for services rendered to the Company, in
lieu of cash compensation.
- - - In October 2004, we issued Cornell Capital Partners LLP 2,013,109
shares as commitment fee under the $5 million Standby Equity Funding
Agreement.
- - - In October 2004, we issued Newbridge Securities Corporation 93,633
shares as fee under the $5 million Standby Equity Funding Agreement.
- - - In November 2004, we issued one investor 40,000 common shares of
Mymetics Corporation for $5,000, or $.10 per share.
- - - In November 2004, we issued one creditor (and former plaintiff)
2,000,000 common shares of Mymetics Corporation as collateral for the
CHF 120,000 (approx. $100,000) awarded to him by the courts of Geneva
(Switzerland). These shares shall be returned to the Company once the
amount due is fully paid.
- - - In March 2005, we issued MFC Merchant Bank SA 500,000 shares as fee
for the restructuring of its E3.4 million loan.
- - - In March 2005, we issued Professor Stanley A. Plotkin 200,000 shares as
initial fee for joining our Board of Directors.
- - - In March 2005, we issued Northern Light International 1,500,000 shares
as fee for consulting services.
All such issues of shares and warrants were made under an informal Equity
Compensation Plan not approved by Security holders. These grants were made on an
individual basis and were approved by our Board of directors.
ITEM 6. SELECTED FINANCIAL DATA
The following table reflects selected consolidated financial data for
the Corporation for the fiscal years ended December 31, 2004, 2002, 2001, 2000,
and 1999, respectively.
22
For THE FOR THE FOR THE FOR THE FOR THE
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC 31, DEC 31, DEC 31, DEC 31, DEC 31,
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(EUROS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA
Operating revenues 0 0 8 26 13
Research & Development
Expenses 612 1,263 1,878 482 101
General & Administrative
Expenses 1,264 1,090 1,293 1,034 351
Loss from continuing
Operations 2,202 2,786 (3,622) (1,848) (1,314)
COMMON SHARE DATA(1)
Loss from continuing
operations per
common share (0.04) (0.05) (0.07) (0.04) (0.04)
Weighted average common
shares outstanding
(in thousands) 62,145 51,285 50,046 42,460 33,311
BALANCE SHEET DATA
Working capital (2,035) (4,294) (2,306) 504 (652)
Total assets 192 367 477 1,692 625
Long-term obligations 3,110 242 242 242 242
Total stockholders'
equity (5,065) (4,400) (2,349) 693 (765)
(1) Basic and diluted common share data is the same.
23
ITEM 7. 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 years ended December 31, 2004, 2003
and 2002 should be read in conjunction with the Corporation's audited
consolidated financial statements and related notes and the description of the
Company's business and properties included elsewhere herein.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEARS ENDED
DECEMBER 31, 2003 AND DECEMBER 31, 2002
We did not achieve any revenue for the years ended December 31, 2004 or December
31, 2003. Our lack of revenue is directly attributable to our focus on research
and development. The Company predicts that this focus will continue for the
foreseeable future, but we are unable to predict future economic conditions at
the time that our products are ready to be commercialized by our future
partners(s), as described elsewhere in this document. Future revenues could be
affected by local and other economic conditions, technology, competitive forces,
and/or challenges to the Company's intellectual property.
We achieved E8,000 in revenue for the year ended December 31, 2002.
Costs and expenses decreased to E2,202,000 for the year ended December 31, 2004
from E2,786,000 for the year ended December 31, 2003, a decline in costs and
expenses of 20.9%.
Research and development expenses decreased to E612,000 in the current period
from E1,263,000, a decline of 51.5% in the comparative period of 2003, mostly
due to our decision to adapt our R&D efforts to our present financial
capabilities by i) focusing our efforts on the development of a preventive human
vaccine against HIV-AIDS, an area in which we believe to have a competitive
advantage and which addresses a world crisis of catastrophic proportion, ii)
temporarily suspending our development efforts of therapeutic human antiviral
peptides which, despite showing very encouraging results, would be facing strong
existing competition, iii) suspending the development of a feline preventive
vaccine which, despite being an excellent model for our mimicry based technology
would have only limited commercial potential and iv) abandoning all development
of our feline therapeutic peptides due to our perception of a weak or non
existent commercial potential.
General and administrative expenses increased to E1,264,000 in the year ended
December 31, 2004 from E1,090,000, an increase of 16.0% in the comparable period
of 2003. The net increase in our expenses results from i) a general decrease of
E62,000 in operating expenses such as rent, lawyers fees, etc. and ii) E207,000
as cost of shares issued for services, such as the initial grant of 500,000
shares to Professor Girard, our Head of vaccines development (E29,000), or the
cost of shares issued in addition to cash, either to "buy time" from critical
creditors inherited from the former management or to "buy fidelity" from
critical suppliers of services.
Costs and expenses decreased to E2,786,000 for the year ended December 31, 2003
from E3,630,000 for year ended December 31, 2002, a decline of 23.3%,
essentially as a result of a decrease in salaries and fees paid to former well
paid officers having left the Company in 2003, partially replaced in August 2003
by shareholder officers drawing moderate salaries and incurring limited travel
expenses, in particular a marked reduction of transatlantic flights.
Research and development expenses decreased to E1,263,000 in 2003 from
E1,878,000 in the comparable period of 2002, a decline of 32.7%. General and
administrative
24
expenses decreased to E1,090,000 in the year ended December 31, 2003 from
E1,293,000 in the comparable period of 2002, a decline of 15.7% reflecting the
former management's decision to wind up the Company.
CRITICAL ACCOUNTING POLICIES AND MANAGEMENT ESTIMATES
The preparation of consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America
requires management to use judgment in making estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. Certain of the
estimates and assumptions required to be made relate to matters that are
inherently uncertain as they pertain to future events. While management believes
that the estimates and assumptions used were the most appropriate, actual
results could differ significantly from those estimates under different
assumptions and conditions. The following is a description of those accounting
policies believed by management to require subjective and complex judgments
which could potentially affect reported results.
REVENUE RECOGNITION AND RECEIVABLES
As we are a development stage company, 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.
However, should the Company engage in any form of commercial activity, a Revenue
Recognition and Receivables policy according to the following principles would
be implemented:
Revenue related to the sale of products is recognized when all of the following
conditions are met: persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed or determinable, and collectibility is reasonably
assured. 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 December 31, 2004
and 2003 are sufficient. The Company charges off receivables to the allowance
when management determines that a receivable is not collectible. The Company may
retain a security interest in the products sold.
The Company makes estimates of the uncollectibility of its accounts receivable.
The Company analyzes accounts receivable and historical bad debt levels,
customer credit worthiness, and current economic trends when evaluating the
adequacy of the allowance for doubtful accounts. In addition, customers in
bankruptcy are analyzed and estimates are made in connection with the expected
recovery of pre-petition and post-petition claims. The Company's net income is
directly affected by management's estimate of the collectibility of accounts
receivable.
Management believes that adequate controls are in place to ensure compliance
with contractual product specifications, a substantial history of such
performance has been established, and historical returns and allowances have not
been significant. If actual sales returns and allowances exceed historical
amounts, the Company's sales would be adversely affected.
The Company continuously monitors collections and payments from its customers.
While credit losses have historically been within expectations and the
provisions established, the Company cannot guarantee that it will continue to
experience the same credit loss rates that it has in the past.
25
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 of Notes to Consolidated Financial Statements for a full description
of recent accounting pronouncements including the respective dates of adoption
and effects on results of operations and financial condition.
BUSINESS PLAN
During the next 12 months we intend to continue development and
commercialization activities currently underway and to explore new activities.
With respect to our gp41 research activities, we intend to continue the
activities currently ongoing. In this regard:
- We completed the testing in rabbits for capacity to elicit
neutralizing antibodies from our first generation of recombinant, mutated,
trimeric, stable and soluble gp41 proteins at two laboratories in France and
received highly encouraging results.
- We expect to complete the screening for the presence of
neutralizing antibodies in animal sera with our second and third generations of
recombinant, mutated, trimeric, stable and soluble gp41 proteins and to have
results by the end of 2005.
- We plan to continue to engage in gp41 testing, including
initiating mucosa immunizations of non-human primates and, beginning in 2006, a
phase I clinical trial for human tolerance.
The precise timing of the gp41 (and any related) activities over the next 12
months and beyond cannot be predicted with certainty, as they are dependent upon
the timing of completion of research and development milestones and the
requirements of our testing laboratories. For a description of the activities
proposed to be conducted in relation to gp41, see "Description of Business -
Where Are We and Where Are We Going?"
Along with our gp41 research, we continue to explore other complementary
research studies conducive to the further research and development of an HIV-1
vaccine.
As discussed in the section entitled "Description of Business - Mymetics
Corporation," we subcontract our research project modules to best of class
research teams. We pay for and coordinate the work, consolidate the results, and
retain all associated intellectual property. On rare occasions, we sign
partnership agreements with companies offering technologies that can enhance our
products.
As discussed in the section entitled "Description of Business - Government
Regulation," we will contract with third parties to develop future products
based upon our technology, and the process for that product development is
highly regulated.
The first phase involves closely monitored clinical trials and the initial
introduction of an investigational new drug into human patients. We expect to
complete these human clinical phase I trials by the end of 2007 and then to sign
a partnership agreement with a major pharmaceutical company. The agreement most
likely would involve an initial cash payment, followed by a series of payments
associated with specific milestones and, finally, royalties on any sales of end
products.
We have initiated discussions under Non Disclosure Agreements with three of the
five major pharmaceutical companies targeted as potential development partners.
We do not expect to generate any revenues from any of our product development
activities or licensing until 2009.
26
LIQUIDITY AND CAPITAL RESOURCES
The Corporation had no/immaterial cash at December 31, 2004, compared to
E125,000 at December 31, 2003 and E183,000 at December 31, 2002.
As we are a development stage company, 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 pursuant to a non-revolving term facility and other short
term advances provided cash of E241,000 in current year, E1,138,000 in the
comparative period last year and E2,173,000 in 2002. The non-revolving term
facility is in the principal amount of up to E3.7 million and matures on
December 31, 2006, with partial repayments of E200,000 on June 30, 2005,
E300,000 on December 31, 2005 and E400,000 on June 30, 2006. In addition, any
amount repaid under this facility can be converted at the lender's option into
"rule 144" restricted common shares of Mymetics Corporation at $0.30 per share.
At December 31, 2004, Mymetics had borrowed an aggregate of E3,368,000 pursuant
to this non-revolving term facility.
As of December 31, 2004, we had an accumulated deficit of approximately E12
million and we incurred losses of E2,202,000 in the twelve-month period ending
December 31, 2004. These losses are principally associated with the research and
development of our HIV vaccine technologies, research into potential animal AIDS
treatments, and other related research activity. We expect to continue to incur
expenses in the future for research, development and activities related to the
future licensing of our technologies. These losses also include approximately
E1,383,000 of stock based compensation and E274,000 directors' fees. For further
information regarding stock-based compensation and other amounts paid to
officers, directors, affiliates and their immediate family members, see the
section of this report entitled "Executive Compensation."
Accounts payable of E1,491,000 at December 31, 2004, include E326,000 due to our
officers as unpaid salaries, fees and out-of-pocket expenses and E1,165,000
representing various monthly bills for operating expenses paid to unrelated
third parties, including utility bills, equipment servicing, laboratory
expenses, plant and office expenses, and professional fees. Payable to
Shareholders of E242,000 at December 31, 2004, represents various amounts
advanced by our founder, Dr. P.-F. Serres, 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 "return to better times". This ambiguous concept has been contractually
defined in november 1998 between Dr. Serres 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 Dr. Serres. Consequently, they are classified as
long term debts.
Net cash used by operating activities was E1,241,000 for the year ended December
31, 2004, compared to E1,773,000 for the year ended December 31, 2003 and
E3,235,000 for the year ended December 31, 2002. The major factor were
successive increases in accounts payable, which provided cash of E259,000,
E780,000 and E16,000 for the years ended December 31, 2004, 2003 and 2002
respectively.
Investing activities provided immaterial cash for the years ended December 31,
2004 and 2003, and E252,000 for 2002.
27
Financing activities provided cash of E928,000 for the year ended December 31,
2004 compared to E1,263,000 in the same period last year and E2,181,000 in 2002.
Proceeds from issuance of common stock provided cash of E687,000 for the year
ended December 31, 2004 compared to E125,000 in the same period in 2003 and
E8,000 during the year 2002.
Our budgeted monthly cash outflow, or cash burn rate, for 2005
is approximately 240,000 per month for fixed and normal recurring expenses, as
follows, assuming we will be able to obtain the necessary financing:
Current budget Monthly 12 Months
------- ---------
Management salaries, social costs and fees E 50,000 600,000
Traveling expenses 20,000 240,000
Property leases and operating expenses 2,000 24,000
Administration (accounting and 1 secretary) 13,000 156,000
Professional fees 20,000 240,000
Interest expenses 14,000 168,000
------- ---------
Total General and Administrative expenses E 119,000 1,452,000
------- ---------
Internal R&D (salaries and Laboratory reagents) 18,000 216,000
Pre-clinical trials 35,000 420,000
External collaborators 68,000 816,000
------- ---------
Total Research and Development expenses 121,000 1,452,000
------- ---------
Total E 240,000 2,880,000
======= =========
We expect that the monthly cash outflow may increase significantly as the
Company increases its research and development activities, and prepares for
additional research and compliance duties associated with the signing of a
partnership agreement with a major pharmaceutical company.
"Salaries and related payroll costs" represents 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 two salaried executive
officers a combined amount of E16,000 per month (E20,000 in 2005). Since January
1, 2004, payments of $CHF 9,000 (approx. E6,000) per month for Sylvain Fleury's
services as our Chief Scientific Officer have been made pursuant to a three-way
consulting agreement with Centre Hospitalier Universitaire Vaudois (CHUV), a
Swiss University Hospital located in Lausanne, where Dr. Fleury is employed to
allow him to supervise a research project funded by the Swiss FNRS (Swiss
National Research Foundation) which he had initiated before joining Mymetics.
Since January 1, 2004, payments of $E4,000 per month for Marc Girard's services
as our Head of Vaccines Development have been made pursuant to a consulting
agreement with the World Health Organization. For further information regarding
these consulting agreements, see "Executive Compensation - Employment and
Consulting Contracts" appearing elsewhere in this report
Monthly fixed and recurring expenses for "Property leases" of $E2,000 represents
the 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), and at 52, avenue du Chanoine Cartellier in
Saint Genis Laval (France) (500 square feet). The lease of our Swiss office can
be cancelled on one month notice, while the lease of our French facility expires
in January 2006. We do not lease any research facilities, Dr. Fleury's
facilities
28
being provided free of charge by CHUV as part of his FNRS project. We will
eventually have to lease our own minimal laboratory facilities to conduct
quality checks and to verify scientific results once Dr. Fleury's FNRS project
comes to an end, which is not scheduled to occur before the end of 2005. We are
planning to lease in due time readily available facilities on the campus of the
Swiss Federal Institute of Technology (EPFL) in Lausanne (Switzerland), located
15 miles from our Nyon office.
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 amount of E3.7 million carries an
interest rate of Libor + 4% which is accrued on a quarterly basis.
As of March 17, 2005, we had two full-time salaried executives, exclusive of our
contracts for the consulting services of our Chief Scientific Officer and our
Head of Vaccines Development. Certain secretarial work for our CEO is outsourced
to self-employed secretaries who accept being partially paid in common
restricted shares of Mymetics at the current market price of our common stock.
We anticipate hiring an administrative assistant to our CFO as well as a
part-time laboratory technician and a scientific assistant to our CSO in the
first half of 2005, and may need to hire additional personnel in order 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
current cash reserves or from 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 Corporation anticipates its operations will require approximately E2.8
million in the year ending December 31, 2005. The Corporation will seek to raise
the required capital from lenders, equity or debt issuances, donors and/or
potential partnerships with major international pharmaceutical and biotechnology
firms. However, there can be no assurance that the Corporation will be able to
raise additional capital on terms satisfactory to the Corporation, or at all, to
finance its operations. In the event that the Corporation is not able to obtain
such additional capital, it would be required to further restrict or even halt
its operations.
RECENT FINANCING ACTIVITIES
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. We expect to begin phase I clinical trials in
2006. We will subcontract this research work to best of class research teams.
We do not anticipate that our existing capital resources will be sufficient to
fund our cash requirements through the next month. 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 the exercise
of warrants and options and other sources such as private placements under
29
Regulation D and Regulation S under the Securities Act of 1933. Additional
working capital will be required to meet our requirements by July 2005. 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.
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 the exercise of additional options and
warrants currently held by investors and 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.
OFF-BALANCE SHEET ARRANGMENTS
The Corporation 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 E3,368 E500 E2,868 E0 E0
Capital Lease Obligations E0 E0 E0 E0 E0
Operating Lease Obligations E7 E6 E1 E0 E0
Purchase Obligations E180 E120 E30 E30 E0
Other Long-Term Liabilities Reflected on E242 E0 E242 E0 E0
Mymetics Balance Sheet under GAAP
TOTAL E429 E126 E273 E30 E0
(1) Includes E62,000 with our supplier of gp41 proteins and E10,000 for
neutralizing antibodies tests currently under way.
(2) Office lease rent in France.
(3) French auditors ("Commissaire aux Comptes") are elected for 6 years and
cannot be terminated. Our French auditor has been reelected in 2003. Based
on current budget and cost estimates, we posted E20,000 for the 2004 audit
and E15,000 per year for the audits 2005 until 2009.
(4) Due to Dr. P.-F. Serres, one of our directors, repayable only after our
French subsidiary's financial situation has been stable and its equity
reconstituted. We hope to achieve this condition within 3 years.
30
ITEM 7A. 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. The following tables provide information about our exposure
to interest rate fluctuations for the carrying amount of such debt obligations
as of December 31, 2004 and 2002 and expected cash flows from these debt
obligations.
31
EXPECTED FUTURE CASH FLOW
YEAR ENDING DECEMBER 31, 2004
(IN THOUSANDS)
--------------
CARRYING FAIR
VALUE VALUE 2005 2006 2007 2008 2009 THEREAFTER
----- ----- ---- ---- ---- ---- ---- ----------
Debt obligations...... E3,368 E3,368 E3,060 E-- E-- E-- E-- E--
YEAR ENDING DECEMBER 31, 2003
(IN THOUSANDS)
--------------
CARRYING FAIR
VALUE VALUE 2004 2005 2006 2007 2008 THEREAFTER
----- ----- ---- ---- ---- ---- ---- ----------
Debt obligations...... E3,127 E3,127 E3,221 E-- E-- E-- E-- E--
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data required with
respect to this Item 8, and as identified in Item 14 of this annual report, are
included in this annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures. As of the end of the registrant's fiscal
year ended December 31, 2004, 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.
(b) Changes in Internal Control Over Financial Reporting. During the fiscal year
ended December 31, 2004, there were no changes in the registrant's internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
33
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The number of directors of the Company is established at six.
Our six person board is divided into three classes, designated as Class I, Class
II and Class III. The term of the Class I directors will expire at our 2004
annual meeting of stockholders, the term of the Class II directors will expire
at our 2005 annual meeting of stockholders, and the term of the Class III
directors will expire at our 2003 annual meeting of stockholders. A plurality of
the votes of the shares of our common stock present in person or represented by
proxy at the annual meeting and entitled to vote on the election of directors
are required to elect the directors.
There currently are two vacancies on the Board caused by the resignation of
Peter P. McCann, Ph.D., who was a Class III director whose term would have
expired at our 2003 annual meeting of stockholders, and Patrice Pactol, who was
a Class II director, whose term would have expired at our 2005 annual meeting of
stockholders. We intend to have Dr. Sylvain Fleury, Ph. D., our current Chief
Scientific Officer, elected to fill the vacancy caused by the resignation of Mr.
Patrice Pactol. The position left vacant by the resignation of Dr. Peter McCann
will be reserved for a potential candidate related to the securing of a
strategic partner.
34
The following table sets forth information regarding each of our current
directors and executive officers.
EXPIRATION OF TERM
NAME CURRENT POSITION WITH THE COMPANY AGE AS A DIRECTOR
- ---- --------------------------------- --- ---------------
Christian Rochet Chief Executive Officer, President 56 2005 (Class II)
And Director (appointed July 31, 2003)
Ernst Luebke Chief Financial Officer, Treasurer 59 2004 (Class I)
And Secretary (appointed July 31, 2003)
Stanley A. Plotkin Director (appointed January 24, 2005) 73 2005 (Unclassified)
Robert Zimmer Director (appointed July 31, 2003) 58 2005 (Class II)
Pierre-Francois Serres Head of Exploratory Research, Founder 55 2003 (Class III)
and Director (appointed November 3, 2003)
Sylvain Fleury, Ph. D. Chief Scientific Officer 42 n/a
(appointed November 3, 2003)
Marc Girard, DVM, D. Sc. Head of Vaccine Development 68 n/a
(appointed January 15, 2004)
35
CHRISTIAN ROCHET
Mr. Rochet is the Chief Executive Officer and a Director of Mymetics.
Prior to joining Mymetics in July 2003, he had been an independent business
consultant on development and diversification strategies for over 21 years. He
became a shareholder of Hippocampe S.A. (now our subsidiary Mymetics S.A.) in
1997, on the scientific advice of Dr. Sylvain Fleury, Ph. D., and was a director
of that company between 1999 and 2001. Between March 2003 and July 31, 2003, Mr.
Rochet, in his capacity as a shareholder of Mymetics, initiated and spearheaded
the efforts of a group of nine dissatisfied shareholders representing a majority
of shares, which led to the resignation of the former Company directors and
officers (with the exception of Dr. Serres) on July 30, 2003. On July 31, 2003,
Mr. Rochet was elected as President and Director, and appointed as Chief
Executive Officer of the Company.
ERNST LUEBKE
Mr. Luebke was appointed as our Chief Financial Officer and as a Director on
July 31, 2003. He was appointed on August 23, 2003. Prior to joining Mymetics,
Mr. Luebke spent over 21 years as an independent international business
consultant and was the founder of several companies active in the medical and
biotech sectors. Along with Christian J.-F. Rochet, he became a major
shareholder of Hippocampe S.A. (now our subsidiary Mymetics S.A.) in 1997, and
was a director of that company between 1999 and 2001. On July 31, 2003, Mr.
Luebke, one of the nine dissatisfied shareholders of Mymetics referred to above,
was elected as Director, and appointed as Chief Financial Officer and Treasurer
of the Company. Mr. Luebke was further appointed Secretary of the Company on
August 29, 2003.
STANLEY A. PLOTKIN, M.D.
Dr. Plotkin was appointed director on January 28, 2005. During the 40-year span
of his career in the field of vaccinology, Stanley A. Plotkin, M.D. developed
the rubella vaccine now in use and worked extensively on a range of other
vaccines, including those addressing polio, rabies, varicella and
cytomegalovirus. Dr. Plotkin is Professor Emeritus of virology at The Wistar
Institute, an independent nonprofit biomedical research institute located on the
campus of the University of Pennsylvania, and Professor Emeritus of Pediatrics
at the University of Pennsylvania. Since 1997, he is also medical and scientific
advisor to the Chief Executive Officer of Aventis Pasteur, world leader in
preventive vaccines, following a seven-year tenure (1990-1997) as medical and
scientific director at Pasteur Merieux Connaught (former name of Aventis
Pasteur). Dr. Plotkin was a member of Wistar's active research faculty from 1960
to 1991, during which time he developed the current Rubella vaccine, RA27/3
strain. He was also professor of pediatrics and microbiology at the University
of Pennsylvania. Dr. Plotkin served concurrently as director of infectious
disease and senior physician at the Children's Hospital of Philadelphia. For two
years, he was associate chairman of the Department of Pediatrics at the
University of Pennsylvania. Over the course of his career, Dr. Plotkin has also
served as senior assistant surgeon with the Epidemic Intelligence Service, U.S.
Public Health Service, and director of the Division of Infectious Diseases at
Children's Hospital of Philadelphia. In 1957, he investigated the last known
outbreak of inhalation anthrax in the U.S. prior to the events of 2001, and
helped demonstrate the efficacy of the current anthrax vaccine.
PIERRE-FRANCOIS SERRES
Dr. Serres first became our Chief Scientific Officer on February 7,
2002 and has been a Director since March 28, 2001. On May 2, 2003, Dr. Serres'
position as Chief Scientific Officer was terminated by the former Board of
Directors. As a result of the changes in the Company's Board of July 31, 2003,
Dr. Serres was reinstated in his former office of Chief Scientific Officer. He
was then
36
promoted as Head of our Exploratory Research efforts on November 3,
2003, and replaced as Chief Scientific Officer by Dr. Sylvain Fleury, Ph. D. Dr.
Serres previously served as the Company's Chief Executive Officer and President
and was the founder, Chief Executive Officer and President since 1990 of our
subsidiary, Mymetics S.A. (formerly, Hippocampe S.A.), a French human and
veterinary research and development company.
ROBERT ZIMMER
Dr. Zimmer is a graduate of the Ecole Centrale de Lyon, M.D. and Sc.D., a
former: (i) assistant-professor at the Faculty of Medicine of Strasbourg
(France), (ii) department head at the Foundation for hormonology research in
Paris from 1979 to 1985, (iii) responsible for the coordination of the Clinical
Pharmacology at Hoffmann La Roche in Basle (Switzerland) from 1985 to 1990, (iv)
Senior Executive President and CSO of Jago Pharma AG, a drug delivery specialist
later acquired by Skyepharma plc from 1990 to 1999. Dr. Zimmer is currently
Chairman and CEO of Bio Delivery Systems S.A. (BDS), a French company
specializing in drug delivery technologies, and Chairman of Zimmer & Associates
AG, a Swiss consulting firm specialized in strategic development of
pharmaceutical products. On July 30, 2003, Dr. Zimmer was elected as Director,
and appointed as Vice President, Head of Business Development of Mymetics
Corporation. Owing however to unexpected but positive developments at BDS which
interfered with his capacity to effectively discharge his duties as an officer
of Mymetics, Dr. Zimmer resigned his officer position on September 1, 2003,
while agreeing to remain as an outside director of the Company.
SYLVAIN FLEURY, Ph.D.
Dr. Fleury was appointed as our Chief Scientific Officer in November
2003. In addition to serving as our Chief Scientific Officer, since 1997, Dr.
Fleury has been working at the Centre Hospitalier Universitaire Vaudois (CHUV),
most recently as a Project Leader at its Department of Experimental Surgery. Dr.
Fleury has also served as Assistant to Professor Giuseppe Pantaleo, a leading
expert in AIDS and as a Project Leader in the Division of Cardiology working at
the CHUV. Dr. Fleury obtained his B. Sc. in microbiology in 1985, his M. Sc. in
Virology in 1988 and his Ph. D. in immunology in 1992, from Universite de
Montreal, Montreal, Research Center in Virology, Institut Armand-Frappier, Laval
and Institut de Recherches Cliniques de Montreal, respectively. Dr. Fleury
completed his postgraduate studies on HIV-AIDS at the NIAID, National Institutes
of Health (NIH), in Bethesda, Maryland in 1996. Dr. Fleury is the published
author of several articles in his field of study and the recipient of several
awards and prizes.
MARC GIRARD, DVM, D. SC.
Professor Girard was appointed as our Head of Vaccine Development in January
2004. Prior to joining Mymetics, Professor Girard served as Director General,
Fondation Merieux, in Lyon, France between 2001 and 2003. Between 1999 and 2001,
Professor Girard served as Director, European Research Center for Virology and
Immunology (CERVI), Lyon, France. Professor Girard has also taught as a
professor since 1966, most recently between 1984 and 1999 at the Institut
Pasteur, Paris, France where he also served as the Head of Laboratory of
Molecular Virology, Department of Virology, Institut Pasteur, Paris between 1980
and 1999. During his career, Professor Girard has served the medical community
in a variety of capacities, including as Head, HIV Vaccine Task Force, French
National Agency for AIDS Research (ANRS), Paris between 1988 and 1998, the
Chairman, Department of Virology, Institut Pasteur, Paris between 1997 and 1999
and the Chairman, European Consortium for an HIV Vaccine (EuroVac), Brussels
between 1999 and 2002. Professor Girard received his D.V.M. (Alfort Veterinary
College) in 1960, his D. Sc. (University of Paris) in 1967 and completed a post
doctoral fellow in 1966 through studies with Prof. James Darnell, MIT then
Albert
37
Einstein College of Medicine and Prof. David Baltimore and Renato
Dulbecco of the Salk Institute. Professor Girard is also the published author of
several articles in his field of study.
AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has appointed three of our directors as members
of our Audit Committee, i.e. Mr. Christian Rochet, Mr. Ernst Luebke and Mr.
Robert Zimmer (outside director) and determined that Mr. Ernst Luebke, who
further serves as Mymetics' CFO, qualifies as our "audit committee financial
expert".
CODE OF ETHICS
We have not adopted a formal "code of ethics" that applies to our principal
executive officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions. Given the very small
number of our company's employees and the recent turmoil our company has faced,
our directors and management believe that adopting a written code of ethics is
not necessary at this time, and that their time and our resources would be
better spent focusing on our operations.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires
our executive officers, directors and persons who own more than 10% of a
registered class of our equity securities to file reports of ownership and
changes of ownership with the SEC within specified due dates. These persons are
required by SEC regulations to furnish us with copies of all such reports they
file. Based solely on the review of the copies of such reports furnished to us,
we believe that, with respect to our fiscal year ended December 31, 2004, all of
our executive officers, directors and 10% stockholders filed all required
reports under Section 16(a) in a timely manner, except as follows: Dr. Serres,
Dr Fleury, Professor Girard and Ms. Reindle.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth for the last three fiscal years information on
the annual compensation earned by Dr. Peter P. McCann, who served as our
President and Chief Executive Officer from February 7, 2002 until January 31,
2003, and Dr. Pierre-Francois Serres, who served as our President and Chief
Executive Officer from March 28, 2001 until February 7, 2002. No named executive
officer received an aggregate annual consideration (salary and bonus) from the
Company in excess of $100,000 during the fiscal year ended December 31, 2004.
38
Annual Compensation Long Term Compensation
Awards Payouts
Securities All
Underlying Other
Name and Principal Position Year Salary Bonus Options/SARs Compensation
--------------------------- ---- ------ ----- ------------ ------------
Peter P. McCann, Ph.D. (1) 2004 -- -- -- --
2003 $ 16,164 -- 75,000 --
2002 $ 144,667 -- 11,250 --
Pierre-Francois Serres (2) 2004 -- -- -- --
2003 Euro 82,317 (3) -- -- --
2002 Euro 91,464 (4) -- 1,250 --
Michael K. Allio (5) 2004 -- -- -- --
2003 -- (6) -- -- $ 8,500
(7)
2002 -- (6) -- 101,250 $ 26,000
(7)
Christian J.-F. Rochet (8) 2004 Euro 96,000 (11) -- -- --
2003 Euro 40,000 (11) -- -- --
2002 -- -- -- --
2001 -- -- -- --
Ernst Luebke (9) 2004 Euro 96,000 (10) -- -- --
2003 Euro 40,000 (10) -- -- --
2002 -- -- -- --
Robert Zimmer, M.D. (11) 2004 0 (12) -- -- --
2003 0 (12) -- -- --
2002 -- -- -- --
Sylvain Fleury, Ph. D. (13) 2004 0 (14) -- -- --
2003 0 (14) -- -- --
2002 -- -- -- --
- ----------
39
(1) Dr. McCann was our President and Chief Executive Officer from February 7,
2002 to January 31, 2003.
(2) Dr. Serres was our President and Chief Executive Officer from March 28, 2001
until February 7, 2002. He was our Chief Scientific Officer from March 28, 2001
until terminated by the former Board of directors on May 5, 2003. Dr. Serres was
reinstated as Chief Scientific Officer by the new Board of directors
retroactively from May 5, 2003 until November 3, 2003, when he was promoted as
Head of Exploratory Research, his current position with the Company. In exchange
for being reinstated retroactively, Dr Serres accepted in principle to forfeit
all legal and punitive compensation for having been terminated without cause.
The French Industrial Tribunal ("Prud'hommes") has granted Dr. Serres Euro
45,735 to that effect in its emergency injunction of October 14, 2003. The final
amount which Dr. Serres has claimed in terms of legal and punitive compensation
if the case had been allowed to run its full course is in excess of Euro
175,000. Our French legal counsel believe however that this claim is without
merit as under French law, salaried company directors and officers are only
eligible for severance pay and other compensation if certain, very stringent,
conditions are met which, in our counsels' opinion, is evidently not the case
for Dr. Serres. The agreement between Dr. Serres and the Company has yet to be
finalized.
(3) This amount includes Euro 46,317 credited as compensation to Dr. Serres
under his former status from January 1, 2003 until August 15, 2003 and Euro
36,000 (i.e. Euro 8,000 per month) credited to Dr. Serres since August 16, 2003
as compensation for his reinstated positions, as disclosed under (2) above. No
payments in relation to this amount have actually been made in 2003 to Dr.
Serres who, in accordance with the temporary policy set by the new Board, has
accepted that the actual of any compensation due to him be deferred, either
totally or partially, until the Company's financial position would allow such
payments to be made without jeopardizing the Company's prospects.
(4) These represent amounts paid to Dr. Serres by our subsidiary, Mymetics S.A.
(5) Mr. Allio was our Interim Chief Executive Officer from January 1, 2003 until
July 30, 2003.
(6) Mr. Allio received $ 260,302 in 2002 and $ 217,500 in 2003 under a
consulting agreement which, in our opinion and on account of the context and the
services Mr. Allio was to provide Mymetics under his consulting agreement, made
him a de facto executive of the Company.
(7) Mr. Allio received $ 26,000 in 2002 and $ 8,500 in 2003 for his
participation on the Board of Directors of Mymetics Corporation.
(8) Mr. Rochet has been our President and Chief Executive Officer since July 31,
2003.
(9) Mr. Luebke has been our Chief Financial Officer and Treasurer since July 31,
2003 and our Secretary since August 29, 2003.
(10) As explained under (3) above, the temporary policy set by the new Board,
states that the actual payment of any compensation due to directors and officers
of Mymetics be deferred, either totally or partially, until the Company's
financial position would allow such payments to be made without jeopardizing the
Company's prospects. As a result, the Company owed Mr. Rochet and Mr. Luebke at
year end respectively Euro 51,230 and Euro 115,494 as salary and reimbursement
of actual travel and other expenses disbursed by them on account of Mymetics.
(11) Dr. Zimmer has been our VP, Business Development from July 31, 2003 until
September 1, 2003.
40
(12) Dr. Zimmer has given up any direct compensation for his short tenure as VP,
Business Development. As outside director since September 1, 2003, Dr Zimmer
receives no compensation other than the 400,000 common shares of Mymetics the
Board has decided to issue him in 2003, as disclosed elsewhere in our Form 10-K
for that year.
(13) Dr. Fleury has been appointed as our Chief Scientific Officer on November
3, 2003.
(14) Dr. Fleury has given up any direct compensation for the interim period
between his formal appointment as our Chief Scientific Officer on November 3,
2003 and January 1, 2004, the reference date of the Consulting Agreement signed
by Dr. Fleury, Mymetics and the Centre Hospitalier Universitaire Vaudois (CHUV),
with which Dr. Fleury shares his time. The Board has decided to issue Dr. Fleury
500,000 common shares of Mymetics in appreciation of his past services and as
partial compensation for the sacrifices Dr. Fleury has accepted in terms of
compensation and career when he accepted to join the Company.
OPTION GRANTS IN LAST FISCAL YEAR
None.
COMPENSATION OF DIRECTORS
Employee directors are not compensated for their role as directors.
Pursuant to our 2001 Stock Option Plan, all directors are entitled to receive
stock options pursuant to the terms and provisions of such plan. Until July 30,
2003, the Company practice had been to grant each director (i) 10,000 stock
options upon initial election as a director and (ii) 1,250 additional stock
options for each subsequent year of service after the initial year. During the
fiscal year ended December 31, 2004, no options were granted to our directors
under our 2001 Stock Option Plan, nor do we expect to grant any such options in
the near future.
CONSULTING AGREEMENT WITH Dr. SYLVAIN FLEURY
Before joining Mymetics as Chief Scientific Officer, Dr. Sylvain Fleury was
pursuing his own research project at the Centre Hospitalier Universitaire
Vaudois (CHUV) in Lausanne (Switzerland) funded by a research grant to him
awarded by the Fond National pour la Recherche Scientifique (FNRS), the Swiss
equivalent of the NIH (National Institutes of Health) in the United States. A
legal condition for this grant to continue was that Dr. Fleury retained his
status as an employee of the CHUV. In order to accommodate Mymetics, the CHUV
accepted to "share" Dr. Fleury's time with Mymetics for the duration of the
research project under an ad-hoc 3-way Consulting Agreement signed by CHUV,
Mymetics and Dr. Fleury which is included as Exhibit 10.40.
CONSULTING AGREEMENT WITH Professor MARC GIRARD
Professor Marc Girard, DVM, D.Sc., our Head of Vaccines Development, equally
shared his time in 2004 between Mymetics and a previously acquired consulting
engagement for the World Health Organization in Geneva (Switzerland). Professor
Girard's Consulting Agreement is included as Exhibit 10.41.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUES AT DECEMBER
31, 2004
None of our named former executive officers exercised any stock options during
2004. The following table provides information concerning the number and value
of unexercised options held by our named executive officer(s) at December 31,
2004.
41
Name Shares Value Number of Securities Value of
Acquired Realized Underlying Unexercised Options Unexercised
on Exercise at December 31, 2004 In-the-Money Options at
December 31, 2004(3)
Exercisable Unexercisable Exercisable Unexercisable
Dr. Pierre- - - - - 10,000(1) - - - -(4) - -(4)
Francois
Serres
- - - - 1,250(2) - - - -(4) - -(4)
- ----------
(1) These options are fully vested and exercisable at $3.15 per share.
(2) These options are fully vested and exercisable at $3.50 per share.
(3) The value of unexercised in-the-money options held at December 31, 2004
represents the total gain which an option holder would realize if he or she
exercised all of the in-the-money options held at December 31, 2004, and is
determined by multiplying the number of shares of common stock underlying the
options by the difference between an assumed fair market value per share and the
per share option exercise price. An option is in-the-money if the exercise price
per share of the option is below the assumed fair market value per share.
(4) The fair market value of the stock underlying these options was $0.05 per
share on December 31, 2004, based on the closing market price of our common
stock on such date. The exercise price of these options exceeds the fair market
value on December 31, 2004. Accordingly, these options were not in-the-money on
December 31, 2004.
42
EMPLOYMENT AGREEMENTS
On May 3, 2001, Mymetics entered into an employment agreement with Dr. Serres
pursuant to which he received a monthly salary of Euro 7,622 (paid by our
subsidiary Mymetics S.A.) and normal benefits. In addition, Dr. Serres was
permitted to participate in our 2001 Stock Option Plan, as well as receive
discretionary bonuses as approved by the Board. On May 5, 2003, Dr. Serres'
employment agreement was terminated by the former Board. On July 31, 2003, Dr.
Serres was reinstated by the new Board, however on different terms as explained
below.
On March 18, 2002, Mymetics entered into an employment agreement with Dr.
McCann, pursuant to which he received an annual salary of one hundred seventy
thousand U.S. Dollars ($170,000) and normal benefits. In addition, Dr. McCann
was permitted to participate in our 2001 Stock Option Plan, as well as receive
discretionary bonuses as approved by the Board. Effective January 31, 2003, Dr.
McCann resigned from our Board and as our Chief Executive Officer and President.
In connection with Dr. McCann's resignation, the former Board granted him
options to purchase 75,000 shares of our common stock at an exercise price of
$0.14 per share.
The new directors and officers elected and/or appointed since July 31, 2003 have
agreed to work without the benefit of a written agreement, relying only on
general terms agreed by the Board of directors in the matter of compensation,
which was set at nil for directors, and at E8,000 per month on a full time basis
for officers, plus reimbursement of reasonable travel and other expenses. The
actual payment of such amounts shall be deferred until the Company's financial
position has been stabilized. The directors and officers have further agreed to
work without the benefit of D&O insurance coverage, no insurance company having
accepted so far to cover such risks.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All executive officer compensation decisions are made by the Compensation
Committee of the Board. The Compensation Committee reviews and recommends the
compensation arrangements for officers and other senior level employees, and
takes such other action as may be required in connection with the Company's
compensation and incentive plans. From January 1, 2003 until July 30, 2003, the
members of the Compensation Committee were Mr. Allio, Mr. Demers and Dr.
43
McCann. For part of 2002 and 2003, Dr. McCann served as our chief executive
officer. From July 31, 2003, the members of the Compensation Committee were Mr.
Rochet, Mr. Luebke, Dr. Serres and Dr. Zimmer.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information about the beneficial ownership of our
common stock as of March 18, 2004, by: (a) each of our named executive officers;
(b) each of our directors; (c) each person known to us to be the beneficial
owner of more than 5% of our outstanding voting securities; and (d) all of our
current executive officers and directors as a group. The following is based
solely on statements and reports filed with the Securities and Exchange
Commission or other information we believe to be reliable.
There were 70,647,864 shares of our common stock outstanding on March 26, 2005.
We have determined beneficial ownership in accordance with the rules of the
Securities and Exchange Commission. Except as indicated by the footnotes below,
we believe, based on the information furnished to us, that the persons and
entities named in the tables below have sole voting and investment power with
respect to all shares of common stock that they beneficially own, subject to
applicable community property laws.
In computing the number of shares of common stock beneficially owned by a person
and the percentage ownership of that person, shares of common stock subject to
options or warrants held by that person that are currently exercisable or
exercisable within 60 days of March 31, 2005, are deemed outstanding. These
shares of common stock, however, are not deemed outstanding for the purposes of
computing the percentage ownership of any other person.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER TITLE OF CLASS BENEFICIAL OWNERSHIP CLASS
---------------- -------------- -------------------- ----------
Martine Reindle Common 9,022,653 12.77%
CP 18
CH - 1295 Mies, Switzerland
Dr. Pierre-Francois Serres (1) Common 6,585,618 (2) 9.32%
Head of Exploratory Research and Director
Ernst Luebke (1) Common 4,079,417 (4) 5.77%
Chief Financial Officer, Secretary and Director
Dr. Sylvain Fleury (1) Common 500,000 (3) 0.71%
Chief Scientific Officer
Prof. Marc Girard (1) Common 400,000 (3) 0.57%
Head of Vaccine Development and member of the SAB
Dr. Robert Zimmer (1) Common 400,000 (3) 0.57%
Christian Rochet (1) Common 377,138 (4) 0.53%
Chief Executive Officer, President and Director
Professor Stanley A. Plotkin (1) Common 200,000 (3) 0.28%
All current executive officers and Common 12,542,173 17.75%
directors as a group (7 persons)
- ----------
44
(1) Address is Mymetics Corporation, European Executive Office, 14, rue de la
Colombiere, CH-1260 Nyon (Switzerland).
(2) Includes 11,250 shares of common stock which Dr. Serres presently has the
right to acquire pursuant to vested stock options granted under our 2001 Stock
Option Plan.
(3) Granted for services.
(4) Acquired prior to being elected as director and appointed as officer.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
During 2003, there were no transactions (or series of similar transactions), and
there are currently no proposed transactions (or series of similar
transactions), to which we were, are or will be a party in which the amount
involved exceeds $60,000 and in which any of our directors, executive officers
or holders of more than 5% of our common stock, or an immediate family member of
any of the foregoing, had or will have a direct or indirect interest.
Furthermore, it is our intention to ensure that all future transactions,
including loans, between us and our officers, directors and principal
stockholders and their affiliates are on terms no less favorable to us than
those that we could obtain from unaffiliated third parties.
CREDIT FACILITY WITH MFC MERCHANT BANK S.A.
MFC Merchant Bank S.A. ("MFC Bank") is a wholly-owned Swiss banking subsidiary
of MFC Bancorp Ltd., a Canadian company currently listed on the NASDAQ. MFC Bank
has been instrumental in arranging in December 2000: (i) the acquisition of a
French biotech company, Hippocampe S.A. (later renamed Mymetics S.A.), and (ii)
a credit facility in the amount of Euro 1.3 million. Between 2001 and 2003, the
credit facility was amended and restated a number of times, last on July 30,
2003, when a second amendment was executed to: (i) increase the principal amount
to E3,15 million, (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. The Lender later
agreed twice to postpone the repayment date of the loan, first to June 30, 2004,
then to December 31, 2004. On that date, the Company, MFC Merchant Bank SA (the
Lender) and MFC Bancorp Ltd. (Guarantor) executed a third Amendment to the Loan
Agreement which i) increased the amount to Euro 3.7 million, ii) set a new
repayment date to December 31, 2005 and iii) provided for partial repayments of
Euro 200,000 on March 31, 2005, Euro 300,000 on June 30, 2005 and Euro 400,000
on September 30, 2005. Finally, the Loan Agreement was amended a fourth time on
February 16, 2005 to i) set a new repayment date to December 31, 2006, ii)
provide for partial repayments of Euro 200,000 on June 30, 2005, Euro 300,000 on
December 31, 2005 and Euro 400,000 on June 30, 2006, and iii) allow the Lender,
at its sole discretion, to convert all or part of any repayment made under the
Loan Agreement to be converted into Mymetics common shares ("rule 144
restricted") at $0.30 per share. The third and fourth Amendments were duly
reported on Form 8-K dated February 19, 2005 to the Securities and Exchange
Commission.
COMPENSATION AGREEMENTS
We have entered into compensation arrangements with certain of our directors.
The terms of these arrangements are described in more detail under "Compensation
of Directors"
45
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table provides information about the fees billed to the registrant
for professional services rendered by Peterson Sullivan PLLC during fiscal 2003
and 2002:
2004 2003
-------- --------
Audit Fees $ 38,256 $ 30,461
Audit-Related Fees - -
Tax Fees $ 8,829 20,547
All Other Fees - -
-------- --------
Total $ 47,085 $ 51,008
======== ========
Audit Fees. Audit fees consist of fees for the audit of the registrant's annual
financial statements or services that are normally provided in connection with
statutory and regulatory filings or engagements.
Audit-Related Fees. Audit-related fees consist of fees for assurance and related
services that are reasonably related to the performance of the audit or review
of the registrant's financial statements and are not reported as Audit Fees.
During fiscal 2004 and 2003, the services provided in this category included due
diligence reviews, audits of employee benefit funds, and consulting on
accounting standards and transactions.
Tax Fees. Tax fees consist of fees for tax compliance services, tax advice and
tax planning. During fiscal 2004 and 2003, the services provided in this
category included assistance and advice in relation to the preparation of
corporate income tax returns.
All Other Fees. Any other fees not included in Audit Fees, Audit-Related Fees or
Tax Fees.
Pre-Approval Policies and Procedures.
Prior to March 11, 2005, Our Board of Directors pre-approved all services to be
provided by Peterson Sullivan PLLC.
46
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Index to Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a)(2) ALL OTHER SCHEDULES HAVE BEEN OMITTED BECAUSE THEY ARE NOT
APPLICABLE OR THE REQUIRED INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR
NOTES THERETO.
(3) List of Exhibits
2.1 Share Exchange Agreement dated December 13, 2001 between the
Corporation and the stockholders of Mymetics S.A. listed on the
signature page thereto (1)
2.2 Share Exchange Agreement dated December 13, 2001 between the
Corporation and the stockholders of Mymetics S.A. listed on the
signature page thereto (1)
2.3 Purchase Agreement dated October 17, 1998 between the
Corporation and the majority stockholders of Nazca Holdings Ltd.
(2)
2.4 Amendment to the Purchase Agreement dated October 17, 1998
between the Corporation and the majority stockholders of Nazca
Holdings Ltd. (3)
2.5 Revised Purchase Agreement dated July 28, 1999 between the
Corporation and the majority stockholders of Nazca Holdings Ltd.
(4)
2.6 Share Exchange Agreement dated July 30, 2002 between the
Corporation and the stockholders of Mymetics S.A. listed on the
signature page thereto (5)
3(i) Articles of Incorporation of the Corporation (as amended through
May 10, 2002) (6)
3(ii) Bylaws (7)
4.1 Form of Specimen Stock Certificate (8)
4.2 Form of letter regarding Warrant
4.3 Form of Share Exchange Agreement
47
9.1 Voting and Exchange Trust Agreement dated March 28, 2001,
Among the Corporation, 6543 Luxembourg S.A. and MFC Merchant
Bank S.A. (8)
10.1 Services Agreement dated May 31, 2001, between the Corporation
and MFC Merchant Bank, S.A.(7)
10.2 Employment Agreement dated May 3, 2001, between Pierre-Francois
Serres and the Corporation (7)
10.3 Indemnification Agreement dated March 28, 2001, between the
Corporation and MFC Bancorp Ltd. (7)
10.4 Agreement dated for reference May 15, 2000, between the
Corporation and Maarten Reidel (7)
10.5 Preferred Stock Redemption and Conversion Agreement dated for
reference December 21, 2000, between the Corporation and Sutton
Park International Ltd. (10)
10.6 Preferred Stock Conversion Agreement dated for reference
December 21, 2000, between the Corporation and Med Net
International Ltd. (11)
10.7 Preferred Stock Conversion Agreement dated December 21, 2000,
between the Corporation and Dresden Papier GmbH (11)
10.8 Assignment Agreement dated December 29, 2000, among the
Corporation, Mymetics S.A. and MFC Merchant Bank S.A. (1)
10.9 Credit Facility Agreement dated July 27, 2000, between MFC
Merchant Bank, S.A. and the Corporation (1)
10.10 Amended Credit Facility Agreement dated for reference August 13,
2001, between MFC Merchant Bank, S.A. and the Corporation (16)
10.11 Second Amended Credit Facility Agreement dated for reference
February 27, 2002, between MFC Merchant Bank, S.A. and the
Corporation (16)
10.12 Amended and Restated Credit Facility Agreement dated for
reference February 28, 2003, among MFC Merchant Bank, S.A., MFC
Bancorp Ltd., and the Corporation (16)
10.13 Guarantee dated for reference February 28, 2003, by MFC Bancorp
Ltd. to MFC Merchant Bank S.A. (16)
10.14 Shareholder Agreement dated March 28, 2001, among the
Corporation, the Holders of Class B Exchangeable Preferential
Non-Voting Shares of 6543 Luxembourg S.A. signatory thereto and
6543 Luxembourg S.A.(8)
10.15 Support Agreement dated March 28, 2001, between the Corporation
48
and 6543 Luxembourg S.A. (8)
10.16 1995 Qualified Incentive Stock Option Plan (12)
10.17 Amended 1994 Stock Option Plan (13)
10.18 2001 ICHOR Corporation Stock Option Plan (7)
10.19 Employment Agreement dated March 18, 2002, between the
Corporation and Peter P. McCann (14)
10.20 Consulting Agreement dated August 31, 2001, between the
Corporation and Michael K. Allio (8)
10.21 Amendment to Consulting Agreement dated August 21, 2002, between
the Corporation and Michael K. Allio (16)
10.22 Employment Agreement dated March 18, 2002, between the
Corporation and Dr. Joseph D. Mosca (15)
10.23 Separation Agreement and Release dated January 31, 2003, between
the Corporation and Peter P. McCann (16)
10.24 Director and Non-Employee Stock Option Agreement dated July 19,
2001, between the Corporation and Robert Demers (8)
10.25 Director and Non-Employee Stock Option Agreement dated July 19,
2001, between the Corporation and Michael K. Allio (8)
10.26 Director and Non-Employee Stock Option Agreement dated July 19,
2001, between the Corporation and John M. Musacchio (8)
10.27 Director and Non-Employee Stock Option Agreement dated July 19,
2001, between the Corporation and Patrice Pactol (8)
10.28 Director and Non-Employee Stock Option Agreement dated July 19,
2001, between the Corporation and Pierre-Francois Serres (8)
10.29 Director and Non-Employee Stock Option Agreement dated July 23,
2002, between the Corporation and Pierre-Francois Serres (16)
10.30 Director and Non-Employee Stock Option Agreement dated July 23,
2002, between the Corporation and Patrice Pactol (16)
10.31 Director and Non-Employee Stock Option Agreement dated July 23,
2002, between the Corporation and Robert Demers (16)
10.32 Director and Non-Employee Stock Option Agreement dated July 23,
2002, between the Corporation and John M. Musacchio (16)
10.33 Director and Non-Employee Stock Option Agreement dated July
49
23, 2002, between the Corporation and Michael K. Allio (16)
10.34 Director and Non-Employee Stock Option Agreement dated August
21, 2002, between the Corporation and Michael K. Allio (16)
10.35 Director and Non-Employee Stock Option Agreement dated June 20,
2002, between the Corporation and Peter P. McCann (16)
10.36 Director and Non-Employee Stock Option Agreement dated July 23,
2002, between the Corporation and Peter P. McCann (16)
10.37 Director and Non-Employee Stock Option Agreement dated February
6, 2003, between the Corporation and Peter P. McCann (16)
10.38 Patent Pledge Agreement dated November __, 2002 among Mymetics
S.A., Mymetics Deutschland GmbH, the Corporation and MFC
Merchant Bank S.A. (16)
11.1 Statement Regarding Calculation of Per Share Earnings.
21.1 List of Subsidiaries
24.1 Powers of Attorney (included on the signature page hereto)
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or 15d-14 of the Securities Exchange Act of 1934
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or 15d-14 of the Securities Exchange Act of 1934
32.1 Section 1350 Certification of Chief Executive Officer and Chief
Financial Officer
- ----------------
(1) Incorporated by reference to the Corporation's Schedule 14C filed with
the Securities and Exchange Commission on April 26, 2001.
(2) Incorporated by reference to the Corporation's report on Form 8-K filed
with the Securities and Exchange Commission on October 22, 1998.
(3) Incorporated by reference to the Corporation's report on Form 8-K/A
filed with the Securities and Exchange Commission on April 15, 1999.
(4) Incorporated by reference to the Corporation's report on Form 8-K/A
filed with the Securities and Exchange Commission on August 13, 1999.
(5) Incorporated by reference to the Corporation's Amendment No. 1 to Form
S-1 filed with the Securities and Exchange Commission on August 8,
2002.
(6) Incorporated by reference to the Corporation's report on Form 10-Q for
the quarter ended March 31, 2002, filed with the Securities and
Exchange Commission on May 15, 2002.
50
(7) Incorporated by reference to the Corporation's report on Form 10-Q for
the quarter ended June 30, 2001, filed with the Securities and Exchange
Commission on August 14, 2001.
(8) Incorporated by reference to the Corporations Registration Statement on
Form S-1, File No. 333-88782, filed with the Securities and Exchange
Commission on May 22, 2002.
(9) Incorporated by reference to the Corporation's report on Form 8-K/A
filed with the Securities and Exchange Commission on August 9, 2000.
(10) Incorporated by reference to Schedule 13D/A filed by MFC Bancorp Ltd.
with the Securities and Exchange Commission on dated January 2, 2001.
(11) Incorporated by reference to the Corporation's report on Form 10-K for
the fiscal year ended December 31, 2000, filed with the Securities and
Exchange Commission on March 14, 2001.
(12) Incorporate by reference to the Corporation's Registration Statement on
Form S-8, File No. 333-15831, filed with the Securities and Exchange
Commission on November 8, 1996.
(13) Incorporated by reference to the Corporation's Registration Statement
on Form S-8, File No. 333-15829, filed with the Securities and
Exchange Commission on November 8, 1996.
(14) Incorporated by reference to the Corporation's report on Form 10-K for
the fiscal year ended December 31, 2002, and filed with the Securities
and Exchange Commission on March 29, 2002.
(15) Incorporated by reference to the Corporation's report on Form 10-Q for
the quarter ended March 31, 2002, filed with the Securities and
Exchange Commission on May 15, 2002.
(16) Incorporated by reference to the Corporation's report on Form 10-K for
the fiscal year ended December 31, 2003, and filed with the Securities
and Exchange Commission on March 27, 2003.
(b) Reports on Form 8-K
During our fourth quarter ended December 31, 2004, we filed with the
Securities and Exchange Commission the following reports on Form 8-K:
On October 25, 2004, we filed a Current Report on Form 8-K pursuant to
Item 8.01 to report that, under the terms of funding agreements with Cornell
Capital Partners, Mymetics obtained a firm commitment of $5 million under a
Standby Equity Distribution Agreement.
On December 21, 2004, we filed a Current Report on Form 8-K pursuant to
Items 8.01 and 9.01 to report that, on December 17, 2004, we announced an
agreement with the National Institute of Allergy and Infectious Diseases,
National Institutes of Health to perform and fund our first non-human macaque
trials.
51
PETERSON SULLIVAN PLLC
601 UNION STREET SUITE 2300
SEATTLE WA 98101
(206) 382-7777 FAX 382-7700
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders
Mymetics Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Mymetics
Corporation (a development stage company) and Subsidiaries as of December 31,
2004 and 2003, and the related consolidated statements of operations and
comprehensive loss, changes in shareholders' equity (deficit), and cash flows
for the years ended December 31, 2004, 2003, and 2002, and for the period from
May 2, 1990 (inception) to December 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company has
determined that it is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mymetics Corporation
(a development stage company) and Subsidiaries as of December 31, 2004 and 2003,
and the results of their operations and their cash flows for the years ended
December 31, 2004, 2003 and 2002, and for the period from May 2, 1990
(inception) to December 31, 2004, in conformity with accounting principles
generally accepted in the United States. As discussed in Note 2, the financial
statements for 2001 have been restated.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has not developed a commercially
viable product and, therefore, has not been able to generate revenues, which has
resulted in significant losses being incurred. Further, the Company's current
liabilities exceed its current assets by E2,035 as of December 31, 2004, and
there is no assurance that cash will become available to pay current liabilities
in the near term. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding these
matters are also described in Note 1. These consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
/s/ Peterson Sullivan PLLC
Peterson Sullivan PLLC
Seattle, Washington
March 26, 2005
52
MYMETICS CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2003
(In Thousands of Euros)
2003
ASSETS 2004 (Restated)
--------- ----------
Current Assets
Cash E - E 125
Receivables 110 100
Prepaid expenses 2 6
--------- ---------
Total current assets 112 231
Patents 80 136
--------- ---------
E 192 E 367
========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current Liabilities
Accounts payable E 1,491 E 1,232
Taxes and social costs payable 40 53
Current portion of note payable 500 3,127
Other 116 113
--------- ---------
Total current liabilities 2,147 4,525
Payable to Shareholders 242 242
Note Payable, less current portion 2,868 -
--------- ---------
Total liabilities 5,257 4,767
Shareholders' Equity (Deficit)
Common stock, U.S. $.01 par value;
495,000,000 shares authorized; issued and outstanding 68,447,864
at December 31, 2004 and 54,344,454 at
December 31, 2003 720 607
Preferred stock, U.S. $.01 par value;
5,000,000 shares authorized; none issued or outstanding - -
Additional paid-in capital 5,522 4,289
Deficit accumulated during the development stage (12,148) (9,946)
Accumulated other comprehensive income 841 650
--------- ---------
(5,065) (4,400)
--------- ---------
E 192 E 367
========= =========
The accompanying notes are an integral part of these financial statements.
53
MYMETICS CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Years Ended December 31, 2004, 2003 and 2002,
and the Period from May 2, 1990 (Inception) to December 31, 2004
(In Thousands of Euros, Except Per Share Data)
Accumulated
During
Development
Stage
(May 2, 1990 to
December 31,
2004 2003 2002 2004) (Restated)
---- ---- ---- ----------------
Revenues
Sales E - E - E - E 224
Interest - - 8 34
--------- -------- --------- --------
- - 8 258
Expenses
Research and development 612 1,263 1,878 4,597
General and administrative 1,264 1,090 1,293 5,262
Bank fee 66 - 63 935
Interest 201 176 60 742
Goodwill impairment - - 209 209
Amortization 59 64 64 381
Directors' fees - 193 63 274
--------- -------- --------- --------
2,202 2,786 3,630 12,400
--------- -------- --------- --------
Loss before income tax provision (2,202) (2,786) (3,622) (12,142)
Income tax provision - - - 6
--------- -------- --------- --------
Net loss (2,202) (2,786) (3,622) (12,148)
Other comprehensive income
Foreign currency translation
adjustment 191 453 97 841
--------- -------- --------- --------
Comprehensive loss E (2,011) E (2,333) E (3,525) E(11,307)
========= ======== ========= ========
Basic and diluted loss per share E (0.04) E (0.05) E (0.07)
========= ======== =========
The accompanying notes are an integral part of these financial statements.
54
MYMETICS CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Period from May 2, 1990 (Inception) to December 31, 2004
(In Thousands of Euros)
Accumulated
Other
Deficit Comprehensive
Income -
Additional Accumulated Foreign
Paid-in During the Currency
Date of Number of Capital Development Translation
Par Stage
Transaction Shares Value (Restated) (Restated) Adjustment Total
-------------------------- ------ ---------- ----------- -------------- ---------
Balance at May 2, 1990
Shares issued for cash June 1990 33,311,361 E 119 E - E - E - E 119
Net losses to December 31, 1999 - - - (376) - (376)
---------- ------ --------- ------------ -------------------------
Balance at December 31, 1999 33,311,361 119 - (376) - (257)
Bank fee - - 806 - - 806
Net loss for the year - - - (1,314) - (1,314)
---------- ------ --------- ------------ -------------------------
Balance at December 31, 2000 33,311,361 119 806 (1,690) - (765)
Effect on capital structure
resulting from a business
combination March 2001 8,165,830 354 (354) - - -
Issuance of stock purchase warrants
in connection with credit
facility (restated) March 2001 - - 210 - - 210
Issuance of shares for bank fee March 2001 1,800,000 21 (21) - - -
Issuance of shares for bank fee June 2001 225,144 3 (3) - - -
Issuance of shares for cash June 2001 1,333,333 15 2,109 - - 2,124
Exercise of stock purchase warrants
in repayment of debt June 2001 1,176,294 13 259 - - 272
Exercise of stock purchase
warrants for cash December 2001 3,250,000 37 563 - - 600
Net loss for the year (restated) - - - (1,848) - (1,848)
Translation adjustment - - - - 100 100
---------- ------ --------- ------------ -------------------------
Balance at December 31, 2001 49,261,962 562 3,569 (3,538) 100 693
Exercise of stock options March 2002 10,000 - 8 - - 8
Issuance of stock purchase warrants
for bank fee June 2002 - - 63 - - 63
Exercise of stock purchase warrants
in repayment of debt July 2002 1,625,567 16 396 - - 412
Issuance of remaining shares from
2001 business combination August 2002 46,976 1 (1) - - -
Net loss for the year - - - (3,622) - (3,622)
Translation adjustment - - - - 97 97
---------- ------ --------- ------------ -------------------------
Balance at December 31, 2002 50,944,505 579 4,035 (7,160) 197 (2,349)
Issuance of shares for services September 2003 400,000 4 29 - - 33
Shares retired October 2003 (51) - - - - -
Issuance of shares for services November 2003 1,500,000 12 100 - - 112
Issuance of shares for cash December 2003 1,500,000 12 113 - - 125
Issuance of stock purchase warrants
for financing fee December 2003 - - 12 - - 12
Net loss for the year - - - (2,786) - (2,786)
Translation adjustment - - - - 453 453
---------- ------ --------- ------------ -------------------------
Balance at December 31, 2003 54,344,454 607 4,289 (9,946) 650 (4,400)
Issuance of shares for services January 2004 550,000 5 27 - - 32
Issuance of shares for cash January 2004 2,000,000 17 150 - - 167
Issuance of stock purchase warrants
for financing fee January 2004 - - 40 - - 40
Issuance of shares for cash February 2004 2,500,000 21 187 - - 208
Issuance of stock purchase warrants
for financing fee February 2004 - - 62 - - 62
Issuance of shares for services April 2004 120,000 1 11 - - 12
Issuance of shares for bank fee May 2004 500,000 4 62 - - 66
Issuance of shares for cash May 2004 2,000,000 16 148 - - 164
Issuance of shares for services August 2004 250,000 2 26 - - 28
Issuance of shares for cash August 2004 1,466,667 12 128 - - 140
Issuance of stock purchase warrants
for financing fee August 2004 - - 46 - - 46
Issuance of shares for services September 2004 520,000 4 29 - - 33
Issuance of shares for cash September 2004 50,000 - 4 - - 4
Issuance of shares for services October 2004 2,106,743 16 132 - - 148
Issuance of shares for services November 2004 2,000,000 15 177 - - 192
Issuance of shares for cash November 2004 40,000 - 4 - - 4
Net loss for the year - - - (2,202) - (2,202)
Translation adjustment - - - - 191 191
---------- ------ --------- ------------ -------------------------
Balance at December 31, 2004 68,447,864 E 720 E 5,522 E (12,148) E 841 E (5,065)
========== ====== ========= ============ =========================
The accompanying notes are an integral part of these financial statements.
55
MYMETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2004, 2003 and 2002
and the Period from May 2, 1990 (Inception) to December 31, 2004
(In Thousands of Euros)
Total
Accumulated
During
Development
Stage
(May 2,
1990 to
December
31,
2004)
2004 2003 2002 (Restated)
----------------------------------------------------------
Cash Flows from Operating Activities
Net loss E (2,202) E (2,786) E (3,622) E (12,148)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization 59 64 64 381
Goodwill impairment - - 209 209
Fees paid in warrants 148 12 63 223
Services and fees paid in common stock 511 145 - 1,462
Amortization of debt discount - - - 210
Changes in current assets and liabilities
net of effects from reverse purchase
Receivables (10) (41) (10) (72)
Accounts payable 259 780 16 1,193
Taxes and social costs payable (13) (66) 36 40
Other 7 119 9 162
----------------------------------------------------------
Net cash used in operating activities (1,241) (1,773) (3,235) (8,340)
Cash Flows from Investing Activities
Patents and other (3) (1) (102) (341)
Short-term investments - - 354 -
Cash acquired in reverse purchase - - - 13
----------------------------------------------------------
Net cash provided by (used in)
investing activities (3) (1) 252 (328)
Cash Flows from Financing Activities
Proceeds from the issuance of common stock
and warrants 687 125 8 3,663
Borrowings from shareholders - - - 242
Increase in note payable and other
short-term advances 241 1,138 2,173 4,052
Loan fees - - - (130)
----------------------------------------------------------
Net cash provided by financing
activities 928 1,263 2,181 7,827
Effect of exchange rate changes on cash 191 453 97 841
----------------------------------------------------------
Net increase (decrease) in cash (125) (58) (705) -
Cash, beginning of period 125 183 888 -
----------------------------------------------------------
Cash, end of period E - E 125 E 183 E -
==========================================================
The accompanying notes are an integral part of these financial statements.
56
MYMETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Summary of Significant Accounting Policies
Basis of Presentation
The amounts in the notes are rounded to the nearest thousand except for per
share amounts.
Mymetics Corporation ("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 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 December 31, 2004, the Company had not
performed any clinical testing and a commercially viable product is not expected
for several more years. 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 also 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
E5,065 at December 31, 2004. 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 E2,035 as of December 31, 2004, 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.
Cash
Cash deposits are occasionally in excess of insured amounts. Interest paid was
57
E201 in 2004, E176 in 2003, and E60 in 2002. The Company has paid no income tax
since its inception.
Revenue Recognition
Revenue related to the sale of products is recognized when all of the following
conditions are met: persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed or determinable, and collectibility is reasonably
assured.
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 December 31, 2004 and 2003, are
sufficient. The Company charges off receivables to the allowance when management
determines that a receivable is not collectible. The Company may retain a
security interest in the products sold.
Goodwill and Other Intangibles
As required, the Company adopted Statement of Financial Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets," beginning January 1, 2002. Under
this standard, goodwill of a reporting unit and intangible assets that have
indefinite useful lives are not amortized but are tested annually for
impairment. Intangible assets with a finite life are amortized over their
estimated useful lives.
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 62,177,629 for the year ended
December 31, 2004, 51,285,044 for the year ended December 31, 2003, and
50,045,658 for the year ended December 31, 2002. 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.
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock. No shares are
issued or outstanding at December 31, 2004. The preferred stock is issuable in
several series with varying dividend, conversion and voting rights. The specific
series and rights will be determined upon any issuance of preferred stock.
58
Stock-Based Compensation
The Company has a stock-based employee compensation plan, which is described
more fully in Note 7. The Company accounts for options and other stock-based
compensation under the recognition and measurement principles of Accounting
Principles Board 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 expense for stock options and warrants to purchase stock granted
to non-employees is measured using a fair value valuation model at the date of
grant multiplied by the number of options granted. 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.
59
Total Accumulated
During Development
Stage (May 2, 1990
to December 31, 2004)
2004 2003 2002 (Restated)
---------- ---------- ---------- ---------------------
Net Income (Loss)
- - -----------------
As reported E (2,202) E (2,786) E (3,622) E (12,148)
Deduct: Total stock-based employee
compensation expense determined under
fair value based methods for all
awards, net of any related tax effects - (27) (72) (320)
---------- ---------- ---------- -------------
Pro forma E (2,202) (2,813) E (3,694) E (12,468)
========== ========== ========== =============
Basic and Diluted Earnings (Loss) Per Share
- - -------------------------------------------
As reported E (.04) E (.05) E (.07)
Pro forma E (.04) E (.05) E (.07)
For purposes of proforma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period.
The fair value of each option granted was estimated for proforma purposes on the
grant date using the Black-Scholes model (use of this model for proforma
purposes is not intended to indicate the value of the Company as a whole). There
were no options issued in 2004. The assumptions used in calculating fair value
for 2003 and 2002 are as follows:
60
2003 2002
-------------------- --------------------
Risk-free interest rate 4.00% 4.75%
Expected life of the options 7 years 7 years
Expected volatility 164.02% - 206.16% 71.10% - 243.12%
Expected dividend yield 0% 0%
The issuance of common shares for services is recorded at the quoted price of
the shares on the date the services are rendered.
The Company has offered 2,000,000 common shares to an individual upon acceptance
of an offer as board chairman. The fair value of these shares was approximately
E400 at December 31, 2004. These shares have not been considered issued for
purposes of these financial statements.
Estimates
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004),
Share-Based Payments ("SFAS 123R") eliminates the option to apply the intrinsic
value measurement provisions of Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees, to stock compensation awards
issued to employees. Management is analyzing the requirements of this statement.
SFAS No. 151, Inventory Costs an amendment of ARB No. 43, Chapter 4 deals with
inventory pricing with respect to abnormal amounts of idle facility expenses,
freight, handling costs, and spoilage. Management is analyzing the requirements
of this new standard and believes that its adoption will not have any
significant impact on the Company's financial statements.
SFAS No. 153, Exchanges of Nonmonetary Assets amends Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. Management is analyzing the requirements of this new
standard and believes that its adoption will not have any significant impact on
the Company's financial statements.
FIN No. 46(R) revised FIN No. 46, "Consolidation of Variable Interest Entities",
requiring the consolidation by a business of variable interest entities in which
it is the primary beneficiary. Management is analyzing the requirements of this
new standard and believes that its adoption will not have any significant impact
on the Company's financial statements.
The Emerging Issues Task Force ("EITF") reached consensus on Issue No. 03-1,
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" ("EITF 03 1") which provides guidance on determining when an
investment is considered impaired, whether that impairment is other than
61
temporary and the measurement of an impairment loss. The FASB issued FSP EITF
03-1-1, "Effective Date of Paragraphs 10-20 of EITF Issue No. 03 1, 'The Meaning
of Other-Than-Temporary Impairment and Its Application to Certain Investments",
which delays the effective date for the measurement and recognition criteria
contained in EITF 03-1 until final application guidance is issued. The Company
does not expect the adoption of this consensus or FSP to have a material impact
on its consolidated financial statements.
The EITF reached a consensus on Issue No. 04-8, "The Effect of Contingently
Convertible Debt on Diluted Earnings Per Share" ("EITF 04-8"), which addresses
when the dilutive effect of contingently convertible debt instruments should be
included in diluted earnings (loss) per share. Upon ratification by the
Financial Accounting Standards Board, EITF 04-8 will become effective for
reporting periods ending after December 15, 2004. The adoption of EITF 04-8 did
not have an impact on diluted earnings (loss) per share.
Note 2. Restatement of 2001 Financial Statements
In 2004, the Company determined that it had made an error in its accounting for
warrants issued in March 2001 to MFC Merchant Bank SA ("MFC Bank") in connection
with a credit facility provided to the Company by MFC Bank. The fair value of
the warrants, which entitled MFC Bank to purchase 6,001,693 of the Company's
common shares, had been determined to be E14,063 based on the Black Scholes
valuation model. This amount was recorded in 2001 as bank fee expense.
The financial statements for 2001 have been restated to account for the issuance
of the warrants as a debt discount against the carrying amount of the credit
facility to which the warrants related. The debt discount amounted to E210 and
was amortized as interest expense using the effective interest method over the
original term of the loan through its maturity on August 31, 2001. The debt
discount was determined by an allocation of the credit facility proceeds of E228
based on the relative fair values of the warrants and the maximum credit
facility limit of E1,300. The effect of the restatement was to reduce the net
loss for 2001 and for the development stage period by E13,853. This restatement
reduced net loss per share by E0.33 for 2001.
Note 3. Receivables
2004 2003
------------ ------------
Trade receivables (including E239 from a
shareholder in 2004 and 2003) E 31 E 37
Value added tax refund 101 72
Other 7 20
----------- ------------
139 129
Allowance for doubtful accounts (including
E23 from a shareholder in 2004 and 2003) (29) (29)
----------- ------------
E 110 E 100
=========== ============
Note 4. Goodwill and Other Intangible Assets
62
Prior to January 1, 2002, the Company was amortizing goodwill over a five-year
period. In accordance with current accounting standards, goodwill is not to be
amortized beginning January 1, 2002. Based on a review of the fair value of the
Company's only reporting unit at December 31, 2002, management determined that
the recorded goodwill was fully impaired. Accordingly, an impairment loss of
E209 was recorded in the 2002 statement of operations.
Other intangible assets consist of patents which are stated at cost of the fees
paid to the French patent office. At December 31, 2004 and 2003, the carrying
amount of patents was E80 and E136 net of accumulated amortization of E248 and
E189, respectively. Amortization expense relating to patents was E59, E64, and
E64 for 2004, 2003 and 2002, respectively. Amortization expense is expected to
amount to E60 during 2005 and E20 during 2006, which will completely amortize
this asset.
Note 5. Transactions With Affiliates
During 2000, the Company agreed to pay a fee in common stock to MFC Bank for
services provided in a business combination transaction. The parent of MFC Bank
is a shareholder of the Company. The common shares were not issued in 2000. The
fair value of the shares at the measurement date, amounting to E806 (which may
not be indicative of the value of the Company as a whole), was included in
additional paid-in capital at December 31, 2000. In 2001, a total of 2,025,144
common shares were issued to MFC Bank which resulted in E24 being reclassified
to common stock based on the par value of the shares.
The Company has a non-revolving term credit facility with MFC Bank which allowed
the Company to borrow up to E3,700 at LIBOR plus 4% (approximately 6.16% at
December 31, 2004), repayable in installments of E200, E300, and E400 on June
30, 2005, December 31, 2005, and June 30, 2006, with the balance due December
31, 2006, collateralized by all of the Company's assets plus any future patents.
The Company owed E3,368 and E3,127 under this facility as of December 31, 2004
and 2003, respectively. The fair value of this note approximates carrying value
because the note is short-term and has a market rate of interest.
The agreement allows MFC Bank to convert the loan balance into common stock at
U.S.$0.30 per share. Accordingly, 15,202,000 shares have been reserved at
December 31, 2004, for potential issuance.
The Company incurred fees of E66 (paid with shares of the Company) and E37 to
MFC Bank in 2004 and 2003, respectively, related to management and financing
services.
In March 2001, the Company granted warrants under the agreements with MFC Bank
which entitled MFC Bank to purchase 6,001,693 of the Company's common shares.
The warrants allowed MFC Bank to convert to shares an amount equal to the
maximum of the credit facility including unpaid interest plus the arrangement
and retainer fees. The warrants were exercisable within a three-year period
beginning August 2000 at approximately E0.2319 per common share. Proceeds from
the credit facility were allocated pro-rata based on the relative fair values of
the credit facility and related warrants as the proceeds were received up to the
maximum proceeds available under the credit facility. The maximum limit of the
credit facility was E1,300 and the balance outstanding representing proceeds
received under the credit facility was E228. The amount attributable to the
warrants of E210 was recorded as a discount against the carrying amount of the
credit facility and a credit to additional paid-in-capital. The discount was
amortized using the effective interest method over the original term of the
credit facility, which was due August 31, 2001 (see Note 2).
During 2001, MFC Bank exercised warrants to acquire 1,176,294 common shares in
exchange for the arrangement fee and the retainer fee plus E52 in accrued
63
interest. MFC also exercised warrants to acquire 3,250,000 common shares for
cash in 2001. In 2002, the Company granted 26,775 additional warrants under the
original agreements with MFC Bank. The fair value of the beneficial conversion
feature on these warrants was calculated using the Black-Scholes model which
amounted to E63. This amount was recorded as paid-in capital of E63 and
allocated to bank fee expense in 2002. During 2002, MFC Bank exercised the
remaining warrants to acquire 1,602,174 common shares. This resulted in a
decrease of E372 due on the revolving term credit facility with MFC Bank. This
is a non-cash transaction for purposes of the statement of cash flows.
In June 2001, the Company issued additional warrants to MFC Bank to purchase
103,559 common shares at U.S. $1.725 per share exercisable during a three-year
period. These warrants were issued in connection with MFC Bank's placement of
1,333,333 of the Company's common shares. The warrants were valued at E118 based
on the fair value of the placement fees rendered and was a cost of the
placement. In 2002, MFC Bank exercised warrants to acquire 23,393 common shares.
This resulted in a decrease of E40 due on the revolving term credit facility
with MFC Bank. This is a non-cash transaction for purposes of the statement of
cash flows.
In July 2003, the Company sold a nonoperating subsidiary to an affiliate of MFC
Bank for cash of E25, resulting in no gain or loss.
In May 2004, the Company issued 500,000 shares of common stock to MFC Bank as
consideration for the bank's extension of the due date of the note payable to
the bank. The Company recorded a bank fee for E66 as a result of this issuance.
The amounts payable to shareholders bear no interest, have no collateral, and
are repayable upon the Company becoming profitable. Since the timing of the
Company becoming profitable cannot be determined, the fair value of the amounts
payable to shareholders cannot be determined. The Company is not expected to
become profitable in the near-term, therefore, the amounts payable to
shareholders have been classified as long-term.
During 2003, the Company incurred fees to its Chairman of E239 for consulting
from a company owned by him, and E27 in 2001 from a company owned by the former
Chief Financial Officer of the Company. Accounts payable at December 31, 2002,
includes E23 of these fees.
The Company owes officers and directors approximately E326 at December 31, 2004,
for salaries and fees and also for expenses paid on behalf of the Company. These
amounts are unsecured, do not bear interest and are included in accounts
payable.
Note 6. Income Taxes
The reconciliation of income tax on income computed at the federal statutory
rates to income tax expense is as follows:
64
2004 2003 2002
--------------- --------------- ---------------
U.S. Federal statutory rates on loss from
operations E (749) E (947) E (1,231)
Nondeductible fee paid in warrants and common
stock 224 50 21
Effect of exchange rate changes on
U.S. net operating loss carryforward 103 242 101
Change in valuation allowance 423 582 1,114
Other (1) 73 (5)
--------------- --------------- ---------------
Income tax provision E - E - E -
=============== =============== ===============
Deferred tax asset is composed of the following:
2004 2003
--------------- ---------------
Difference in book and tax basis of amounts payable to shareholder E 82 E 82
Net operating loss carryforwards
United States 1,357 1,373
France 1,226 787
--------------- ---------------
2,665 2,242
Less valuation allowance for deferred tax asset (2,665) (2,242)
--------------- ---------------
Net deferred tax asset E - E -
=============== ===============
65
The Company's provision for income taxes was derived from U.S. and French
operations. At December 31, 2004, the Company had estimated net operating loss
carryforwards which expire as follows:
United States France
------------- ------------
2005 E - E 94
2006 - 381
2007 - 1,039
2008 - 801
2009 - 1,290
2021-2023 3,992 -
-------------- -------------
E 3,992 E 3,605
============== =============
Note 7. Stock Option Plans
1994 Amended Stock Option Plan
The Company's 1994 stock option plan provided for the issuance of up to 350,000
shares of the Company's common stock to employees and non-employee directors.
The plan was terminated during 2002. The following table summarizes information
with respect to this plan:
66
Weighted
Average
Number of Shares Exercise Price
---------------- --------------
Outstanding and exercisable
at December 31, 2002 and 2003 63,750 U.S. $ .83
Expired in 2004 (50,000) .75
----------------
Outstanding and exercisable
at December 31, 2004 13,750 U.S. $ 1.11
================ ==============
Reserved for future grants at
December 31, 2004 -
================
At December 31, 2004, exercise prices ranged from $0.75 to $1.1875.
1995 Qualified Incentive Stock Option Plan
The Company's board of directors approved a stock option plan on August 15,
1996, which provided for the issuance of up to 150,000 shares of the Company's
common stock to key employees. The plan was terminated during 2002. The
following table summarizes information with respect to this plan:
Weighted
Average
Number of Shares Exercise Price
---------------- --------------
Outstanding and exercisable
at December 31, 2004, 2003 and 2002 100,000 U.S. $ .75
================ ==============
Reserved for future grants
at December 31, 2004 -
================
The exercise price on these options is $0.75.
2001 Qualified Incentive Stock Option Plan
The Company's board of directors approved a stock option plan on June 15, 2001,
which provides for the issuance of up to 5,000,000 shares of the Company's
common stock to employees and non-employee directors. No options were issued in
2004. The weighted average fair value of these options at the grant dates were
E0.12 and E0.62 per option in 2003 and 2002, respectively. The following table
summarizes information with respect to this plan:
67
Weighted
Average
Number of Shares Exercise Price
---------------- --------------
Outstanding and exercisable
at December 31, 2001 100,000 U.S. $ 2.86
==============
Granted in 2002 117,500 U.S. $ .99
----------------
Outstanding and exercisable
at December 31, 2002 217,500 U.S. $ 1.83
==============
Granted in 2003 225,000 U.S. $ .14
---------------
Outstanding and exercisable
at December 31, 2003 and 2004 442,500 U.S. $ .97
=============== ==============
Reserved for future grants
at December 31, 2004 4,557,500
===============
Almost all options have an expiration date ten and a half years after issuance.
At December 31, 2004, exercise prices range from $0.12 to $3.50.
Note 8. Commitments and Contingencies
The Company leases property under noncancelable operating leases through January
2006. Future minimum lease payments under noncancelable operating leases are as
follows:
2005 E 6
2006 1
------------
E 7
============
Total rent expense per year was E32 for 2004, E24 for 2003, and E30 for 2002.
The Company is subject to a judgment against a subsidiary Mymetics S.A. issued
in July 2004 by a court ("Tribunal de Prud'hommes") in Nantes (France). A former
employee received a temporary judgment against the Company for E4 for alleged
wrongful termination by the former management of Mymetics S.A. The Company
intends to appeal the judgment.
The Company was party to a second case in which a creditor claims that the
Company owes it approximately E30. The claim was filed before a court in Lyon
("Tribunal de Grande Instance") on June 29, 2004.
The Company is subject to a proceeding brought by Dr. Serres, a current director
and former officer, for alleged wrongful termination of Dr. Serres by the
Company's previous management. Dr. Serres was reinstated as Chief Scientific
Officer by the new Board of Directors retroactively from May 5, 2003 until
November 3, 2003, when he was promoted as Head of Exploratory Research, his
current position with the Company. In exchange for being reinstated
retroactively, Dr. Serres agreed to forfeit all legal and punitive compensation
for having been terminated without cause. The French Industrial Tribunal granted
68
Dr. Serres E46 in an emergency injunction on October 14, 2003. The final amount
which Dr. Serres has claimed in terms of legal and punitive compensation if the
case had been allowed to run its full course is in excess of E175. The Company's
French legal counsel believes however that this claim is without merit as under
French law, salaried company directors and officers are only eligible for
severance pay and other compensation if certain, very stringent, conditions are
met which, in the Company's counsel's opinion, is evidently not the case for Dr.
Serres. The agreement between Dr. Serres and the Company has yet to be
finalized.
Other Financing
The Company has entered into an agreement to issue shares to an investor at 98%
of the current market price over 24 months. Total issuance cannot exceed
U.S.$5,000 or 9.9% of the Company's outstanding stock. No shares can be issued
under this agreement until the shares are registered which is expected to be
completed in 2005.
Note 9. Subsequent Events
In January 2005, the Company received a loan for E37 from a shareholder. The
loan bears interest at 15% and is due in January 2006.
In March 2005, the Company issued a total of 500,000 common shares to MFC
Merchant Bank S.A. and 1,500,000 to another company for consulting services.
Also in March 2005, 200,000 shares were issued to an individual as a fee for
becoming a member of the Company's Board of Directors.
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on April 15, 2005.
Mymetics Corporation
By: /s/ Christian Rochet
---------------------------
Name: Christian J.F. Rochet
Title: Chief Executive Officer
70
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Ernst Luebke as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments to this Annual
Report on From 10-K, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the U.S. Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacity and on March 31, 2005.
Signature Title
--------- -----
/s/Christian J.F. Rochet
--------------------------- Chief Executive Officer and
Christian J.F. Rochet Director (Principal Executive
Officer)
/s/ Ernst Luebke
--------------------------- Chief Financial Officer and
Ernst Luebke Director (Principal Financial and
Accounting Officer)
/s/ Pierre-Francois Serres
--------------------------- Director
Pierre-Francois Serres
71
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Share Exchange Agreement dated December 13, 2001 between the
Corporation and the stockholders of Mymetics S.A. listed on the
signature page thereto (1)
2.2 Share Exchange Agreement dated December 13, 2001 between the
Corporation and the stockholders of Mymetics S.A. listed on the
signature page thereto (1)
2.3 Purchase Agreement dated October 17, 1998 between the Corporation and
the majority stockholders of Nazca Holdings Ltd. (2)
2.4 Amendment to the Agreement dated October 17, 1998 between the
Corporation and the majority stockholders of Nazca Holdings Ltd. (3)
2.5 Revised Purchase Agreement dated July 28, 1999 between the Corporation
and the majority stockholders of Nazca Holdings Ltd. (4)
2.6 Share Exchange Agreement dated July 30, 2002 between the Corporation
and the stockholders of Mymetics S.A. listed on the signature page
thereto (5)
3(i) Articles of Incorporation of the Corporation (as amended through May
10, 2002) (6)
3(ii) Bylaws (7)
4.1 Form of Specimen Stock Certificate (8)
4.2 Form of letter regarding Warrant
4.3 Form of Share Exchange Agreement
9.1 Voting and Exchange Trust Agreement dated March 28, 2001, among the
Corporation, 6543 Luxembourg S.A. and MFC Merchant Bank S.A. (8)
10.1 Services Agreement dated May 31, 2001, between the Corporation and MFC
Merchant Bank, S.A.(7)
10.2 Employment Agreement dated May 3, 2001, between Pierre-Francois Serres
and the Corporation (7)
10.3 Indemnification Agreement dated March 28, 2001, between the
Corporation and MFC Bancorp Ltd. (7)
10.4 Agreement dated for reference May 15, 2000, between the Corporation
and Maarten Reidel (7)
10.5 Preferred Stock Redemption and Conversion Agreement dated for
reference December 21, 2000, between the Corporation and Sutton Park
International Ltd. (10)
72
10.6 Preferred Stock Conversion Agreement dated for reference December 21,
2000, between the Corporation and Med Net International Ltd. (11)
10.7 Preferred Stock Conversion Agreement dated December 21, 2000, between
the Corporation and Dresden Papier GmbH (11)
10.8 Assignment Agreement dated December 29, 2000, among the Corporation,
Mymetics S.A. and MFC Merchant Bank S.A. (1)
10.9 Credit Facility Agreement dated July 27, 2000, between MFC Merchant
Bank, S.A. and the Corporation (1)
10.10 Amended Credit Facility Agreement dated for reference August 13, 2001,
between MFC Merchant Bank, S.A. and the Corporation (16)
10.11 Second Amended Credit Facility Agreement dated for reference February
27, 2002, between MFC Merchant Bank, S.A. and the Corporation (16)
10.12 Amended and Restated Credit Facility Agreement dated for reference
February 28, 2003, among MFC Merchant Bank, S.A., MFC Bancorp Ltd.,
and the Corporation (16)
10.13 Guarantee dated for reference February 28, 2003, by MFC Bancorp Ltd.
to MFC Merchant Bank S.A. (16)
10.14 Shareholder Agreement dated March 28, 2001, among the Corporation, the
Holders of Class B Exchangeable Preferential Non-Voting Shares of 6543
Luxembourg S.A. signatory thereto and 6543 Luxembourg S.A.(8)
10.15 Support Agreement dated March 28, 2001, between the Corporation and
6543 Luxembourg S.A. (8)
10.16 1995 Qualified Incentive Stock Option Plan (12)
10.17 Amended 1994 Stock Option Plan (13)
10.18 2001 ICHOR Corporation Stock Option Plan (7)
10.19 Employment Agreement dated March 18, 2002, between the Corporation and
Peter P. McCann (14)
10.20 Consulting Agreement dated August 31, 2001, between the Corporation
and Michael K. Allio (8)
10.21 Amendment to Consulting Agreement dated August 21, 2002, between the
Corporation and Michael K. Allio (16)
10.22 Employment Agreement dated March 18, 2002, between the Corporation and
Dr. Joseph D. Mosca (15)
10.23 Separation Agreement and Release dated January 31, 2003, between the
Corporation and Peter P. McCann (16)
10.24 Director and Non-Employee Stock Option Agreement dated July 19, 2001,
between the Corporation and Robert Demers (8)
10.25 Director and Non-Employee Stock Option Agreement dated July 19, 2001,
between the Corporation and Michael K. Allio (8)
73
2001, between the Corporation and John M. Musacchio (8)
10.27 Director and Non-Employee Stock Option Agreement dated July 19,
2001, between the Corporation and Patrice Pactol (8)
10.28 Director and Non-Employee Stock Option Agreement dated July 19,
2001, between the Corporation and Pierre-Francois Serres (8)
10.29 Director and Non-Employee Stock Option Agreement dated July 23,
2002, between the Corporation and Pierre-Francois Serres (16)
10.30 Director and Non-Employee Stock Option Agreement dated July 23,
2002, between the Corporation and Patrice Pactol (16)
10.31 Director and Non-Employee Stock Option Agreement dated July 23,
2002, between the Corporation and Robert Demers (16)
10.32 Director and Non-Employee Stock Option Agreement dated July 23,
2002, between the Corporation and John M. Musacchio (16)
10.33 Director and Non-Employee Stock Option Agreement dated July 23,
2002, between the Corporation and Michael K. Allio (16)
10.34 Director and Non-Employee Stock Option Agreement dated August
21, 2002, between the Corporation and Michael K. Allio (16)
10.35 Director and Non-Employee Stock Option Agreement dated June 20,
2002, between the Corporation and Peter P. McCann (16)
10.36 Director and Non-Employee Stock Option Agreement dated July 23,
2002, between the Corporation and Peter P. McCann (16)
10.37 Director and Non-Employee Stock Option Agreement dated February
6, 2003, between the Corporation and Peter P. McCann (16)
10.38 Patent Pledge Agreement dated November __, 2002 among Mymetics
S.A., Mymetics Deutschland GmbH, the Corporation and MFC
Merchant Bank S.A. (16)
10.39 Third Amendment to the Credit Facility Agreement dated for
reference December 31, 2004, between MFC Merchant Bank, S.A. and
the Corporation (17)
10.40 Fourth Amendment to the Credit Facility Agreement dated for
reference February 16, 2005, between MFC Merchant Bank, S.A. and
the Corporation (17)
10.41 Consulting Agreement dated for reference January 1, 2004,
between the Centre Hospitalier Universitaire Vaudois (CHUV),
the Corporation and Dr. Sylvain Fleury, Ph.D.
10.42 Consulting Agreement dated for reference January 1, 2004,
between the Corporation and Professor Marc Girard, DVM, D.Sc.
10.43 Cooperation and Option Agreement dated March 10, 2005, between
the Corporation and Pevion A.G.
10.44 Consulting Agreement dated March 23, 2005, between the
75
Corporation and Northern Light International.
11.1 Statement Regarding Calculation of Per Share Earnings.
21.1 List of Subsidiaries
24.1 Powers of Attorney (included on the signature page hereto)
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or 15d-14 of the Securities Exchange Act of 1934
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or 15d-14 of the Securities Exchange Act of 1934
32.1 Section 1350 Certification of Chief Executive Officer and
Chief Financial Officer
- ---------------
(1) Incorporated by reference to the Corporation's Schedule 14C filed with
the Securities and Exchange Commission on April 26, 2001.
(2) Incorporated by reference to the Corporation's report on Form 8-K filed
with the Securities and Exchange Commission on October 22, 1998.
(3) Incorporated by reference to the Corporation's report on Form 8-K/A
filed with the Securities and Exchange Commission on April 15, 1999.
(4) Incorporated by reference to the Corporation's report on Form 8-K/A
filed with the Securities and Exchange Commission on August 13, 1999.
(5) Incorporated by reference to the Corporation's Amendment No. 1 to Form
S-1 filed with the Securities and Exchange Commission on August 8, 2002.
(6) Incorporated by reference to the Corporation's report on Form 10-Q for
the quarter ended March 31, 2002, filed with the Securities and Exchange
Commission on May 15, 2002.
(7) Incorporated by reference to the Corporation's report on Form 10-Q for
the quarter ended June 30, 2001, filed with the Securities and Exchange
Commission on August 14, 2001.
(8) Incorporated by reference to the Corporations Registration Statement on
Form S-1, File No. 333-88782, filed with the Securities and Exchange
Commission on May 22, 2002.
(9) Incorporated by reference to the Corporation's report on Form 8-K/A
filed with the Securities and Exchange Commission on August 9, 2000.
(10) Incorporated by reference to Schedule 13D/A filed by MFC Bancorp Ltd.
with the Securities and Exchange Commission on dated January 2, 2001.
(11) Incorporated by reference to the Corporation's report on Form 10-K for
the fiscal year ended December 31, 2000, filed with the Securities and
Exchange Commission on March 14, 2001.
(12) Incorporate by reference to the Corporation's Registration Statement on
Form S-8, File No. 333-15831, filed with the Securities and Exchange
Commission on November 8, 1996.
(13) Incorporated by reference to the Corporation's Registration Statement
76
on Form S-8, File No. 333-15829, filed with the Securities and Exchange
Commission on November 8, 1996.
(14) Incorporated by reference to the Corporation's report on Form 10-K for
the fiscal year ended December 31, 2002, and filed with the Securities
and Exchange Commission on March 29, 2002.
(15) Incorporated by reference to the Corporation's report on Form 10-Q for
the quarter ended March 31, 2002, filed with the Securities and Exchange
Commission on May 15, 2002.
(16) Incorporated by reference to the Corporation's report on Form 10-K for
the fiscal year ended December 31, 2003, filed with the Securities and
Exchange Commission on March 27, 2003.
(17) Incorporated by reference to the Corporation's report on Form 8-K filed
With the Securities and Exchange Commission on February 18, 2005.
(18) Incorporated by reference to the Corporation's report on Form 10-K for
the fiscal year ended December 31, 2003, filed with the Securities and
Exchange Commission on March 30, 2004.
77