UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _____
COMMISSION FILE NUMBER 000-25132
MYMETICS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 25-1741849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ ]
If this report is a an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed be 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 (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
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. $2,683,6 as of December 31, 2005, 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 31, 2006, there were 95,020,464 shares of the Registrant's Common Stock outstanding.
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 31, 2006, 1 Euro was convertible into 1.2074 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 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).
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, 2005, we sustained net losses of approximately E1,939,000. In the years ended December 31, 2004 and December 31, 2003, we sustained net losses of approximately E 2,202,000 and E 2,786,000, 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, 2005, we had an accumulated deficit of approximately E14,087,000. Total cash disbursed since 1990 for operating activities, including Research and Development, is E 8,901,000. 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, 2006 of approximately Euro 14 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 few companies currently compete with us in the market for our products. Some 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 June 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 June 2006 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 FULLY 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, HEAD OF OUR VACCINE DEVELOPMENT PROGRAM, 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.
Although we are a company incorporated under the laws of Delaware, all 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.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS....................................................... 1
ITEM 2. PROPERTIES .................................................... 13
ITEM 3. LEGAL PROCEEDINGS ............................................. 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................ 15
ITEM 6. SELECTED FINANCIAL DATA ....................................... 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................ 19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.................................................... 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ................... 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................ 31
ITEM 9A. CONTROLS AND PROCEDURES........................................ 31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............ 32
ITEM 11. EXECUTIVE COMPENSATION ........................................ 35
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS................. 41
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................ 43
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES......................... 44
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.................................................... 45
SIGNATURES................................................................ 68
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PART I
ITEM 1. BUSINESS
THE CORPORATION
OVERVIEW
We are a biotechnology research and development company devoted to fundamental and applied research in the area of human biology and medicine conducting our business from our European offices located in Lausanne and Nyon (near Geneva), Switzerland. 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 6543 Luxembourg S.A., a joint stock company organized in 2001 under the laws of Luxembourg, and Mymetics S.A. (formerly Hippocampe S.A.), a company organized in 1990 under the laws of France ("Mymetics S.A."), which is a wholly-owned subsidiary of 6543 Luxembourg S.A. 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 6543 Luxembourg S.A., 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 share exchanges were substantially similar to the terms of the share exchange that occurred in March 2001. In 2004, all the remaining convertible shares of 6543 Luxembourg S.A. not already held by Mymetics Corporation have been converted into shares of Mymetics Corporation.
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 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. Our previous management 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, it decided to limit these activities in January 2003. Following the management changes of July 2003, our activities have again been conducted exclusively in Europe, with certain in-vitro and pre-clinical 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) and Professor Marc Girard, DVM, D.Sc. (Head of Vaccine Development). Any given project is first subdivided into "technology 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. 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 also believe that having such specialized expertise in-house would make us dependant on the staff required to carry out such tasks. 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 human clinical phase I trials are completed. We hope this could happen before June 2007. 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 2009-2010.
LUXEMBOURG 6543 S.A.
Our Luxembourg subsidiary, Luxembourg 6543 S.A., was founded in 2001 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 necessary resources to do so will be available. In that case, the shares of Mymetics S.A. held by Luxembourg 6543 S.A. will be transferred to Mymetics Corporation.
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 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. At this time, it is not possible to transfer these patents to any non-French legal entity without the French tax authorities' approval. This approval implies an assessment of the actual economic value of the patents, which in turn will only be assessable once the technology protected by the patents is licensed or sold to a third party in one or more arms-length transactions. 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 new staff in France in the foreseeable future, as all R&D will be carried on under Mymetics Corporation's responsibility.
On February 7, 2006 the Tribunal de Commerce in Lyon, France placed Mymetics S.A., under receivership ("Redressement Judiciaire") as a result of an ongoing dispute between Mymetics Corporation and a former officer and director, Dr. Pierre-Francois Serres, who obtained a judgment against Mymetics S.A. in France (that is now under appeal) in the amount of E173,000 for an alleged wrongful termination by the Company's prior management during 2003. The court appointed two judges to oversee the case, a lawyer to represent the creditors and a judicial administrator to manage Mymetics S.A., all of whom are considered agents of the court. The court further imposed a "two-month observation period" during which management and the administrator should strive to find a solution to the crisis. We expect to come up with a viable solution before the end of this observation period.
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. However, fusion process is a late event that likely takes place after the transcytosis event, which corresponds to the step event that allows the virus to penetrate into the body generally across the genital-reproductive mucosal barriers. Therefore, vaccines or therapies for preventing this very early event of HIV transcytosis became another important research aspect.
Until recently, vaccine development was focusing on clade B strains, which dominate the epidemic in industrialized countries but cause only about 12% of infections globally. Development of non-clade B candidates, having clade C as a key target became a priority and Mymetics seriously intends to invest all its research effort in developing its "universal" vaccine, with a primary interest for the clade C because of its world dominance, especially in countries under development like Africa, India and Asia..
Generally, HIV transmission occurs through sexual contacts. Indeed, semen and cervico-vaginal secretions may potentially transmit HIV to the gastrointestinal, anorectal and genitourinary tracts because they contain cell-free HIV particles
and numerous HIV-infected cells. Contracting HIV infection may be subdivided into two main events. The first event, considered as a very early step, corresponds to viral transcytosis on mucosal surface that facilitates virus translocation and spreading into the body (entry into the body across the mucosal barrier). The second event, which usually takes place after transcytosis, represents the infection step that leads to virus entry into target cells (ex. CD4+ T lymphocytes).Therefore, the HIV vaccine should ideally elicit immune responses not only in the blood but most importantly, also at the primary entry site, which corresponds to two important anatomically compartments: genital-reproductive tracts and intestine/rectal mucosal tissues.
MYMETICS' APPROACH
Mymetics proposes an innovative vaccine by combining three important concepts:
1- Minimal mimicry, which consists to remove in part or entirely the human homologies naturally present in some HIV protein that serve as vaccine component. To achieve that objective, Mymetics intends to use as candidate vaccine the smallest engineered viral antigen sequence for two main reasons. First, the smaller is the protein, the more limited are the homologies with human proteins. Second, its easier to remove human homologies into a small viral protein because of their limited distribution. Furthermore, our approach should significantly reduce the risk of developing potential autoimmunity on a long-term following vaccination.
2- Focused immune response on relevant gp41 epitopes that may induce protective antibodies. Generally, the immune system develops immune responses toward all possible regions of the foreign antigens (peptides, proteins, etc.). However, antigens are often harbouring several immunodominant regions, each eliciting an immune response of different magnitude (low, intermediate or strong recognition/affinity by the immune system) and frequency (region rarely, sometimes or often recognized by the immune system). Therefore, itaE(TM)s frequent to observe an immune response that preferentially recognizes some areas, while others are neglected. Furthermore, viruses have developed antigens that contain often immunodominant regions for distracting the immune system. These immunodistractive regions may have little or no function for the pathogen protein but may blind the immune system. Consequently, immune responses against the pathogen might be sometimes useless. Mymetics is developing vaccines that contain antigens expressing limited immunodominant regions, while immunodistractive regions have been removed or altered without affecting the immunogenicity of the antigen.
3- Induction of mucosal and blood protection in different anatomical compartments. Induction of mucosal antibodies (anti-transcytosis) should block the early event of HIV translocation at the genito-reproductive and intestine tracts, thus preventing HIV entry and spreading in the body, while blood (systemic) antibodies will act on a later event that consists to prevent the infection of target cells (neutralizing antibodies).
Mymetics is developing a "universal" HIV-1 vaccine constituted by at least two different molecules: a recombinant engineered trimeric gp41 protein and gp41peptides, both containing key conserved regions and each of them eliciting potentially two major types of antibodies not mutually exclusive and with a broad activity spectrum:
1) mucosal antibodies to inhibit transcytosis and cell infections at the submucosa level;
2) neutralizing antibodies to block HIV fusion with cells for preventing infection.
By carefully modifying parts of the HIV gp41 molecule, we have obtained peptides and engineered molecules that:
- May form stable dimers, trimers or tetramers and the protein folding is close to the native protein;
- Are soluble in the absence of detergent and can be incorporated into an artificial lipidic membrane, which is more suitable for in vivo work;
- Can be chemically synthesized or easily produced by recombinant bacteria like E. coli;
- Have been stripped of an immunodominant area that generates numerous non-neutralizing antibodies, which may fool the immune response.
- Have been stripped of its key IL-2-like sequence, 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 with a broad spectrum of action (cross-clade neutralization like A, B and C): blocking virus translocation across the mucosal barrier and/or to inhibit virus-cell fusion, thus preventing HIV-1 infection.
Based on our recent research results, we believe that our vaccine candidate and 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.
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 AND AIDS
The HIV (Human immunodeficiency virus) is a retrovirus that gradually destroys the immune system and ultimately leads to AIDS, is famously the most genetically diverse viral pathogen known, specially in Africa where HIV is also rapidly mutating. Indeed, HIV exists under many different versions like members of a large family, they are different from, but related to each other.
By sequencing the viral genomes (genes), researchers have been able to map out the family tree of HIV. At the root of the tree, there are three groups called M, N and O, group M being responsible for the current AIDS pandemic. Group M is split into nine genetic subtypes, also called nine clades (designated A through K, with no E or I). The original definition of clades was based on short genomic sequences, mostly within the HIV envelope protein (Env: gp160).
These nine clades have uneven geographic distribution patterns. Clade C
circulates in South Africa, India and parts of China. Clade A and D are common
in East Africa and clade B is common in North & South America and Western
Europe. Looking at the global numbers, it emerges that four clades (A, B, C and
D) plus two recombinant forms called CRFs 01 and 02 (both of which are about 70%
clade A) account for over 90% of all infections worldwide. From this
perspective, diversity can be mostly limited to 4 key major clades, plus small
contributions from the non-A segments of these two CRFs. According to the
statistics, clade C represents the world dominant HIV (>50%).
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.
HIV proves itself an elusive target because it:
- reproduces itself at an extraordinary rate (several billion new virus particles are created daily)
- 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 four years as starting point for developing a safe HIV-1 candidate vaccine capable of eliciting protective 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. 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 from clade B (Bx-08 and SF-162) and clade C (TV1) were respectively neutralized at 70%, 80% and 90% 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 20ug/ml, using three primary HIV-1 strains. These results are similar to those obtained with the 2F5 monoclonal antibody (>90% inhibition), one of the most potent neutralizing antibodies so far identified. Infection of primary human macrophages by primary HIV-1 strains was also strongly inhibited (>90%) with a low antibody concentration (<2ug/ml). These preliminary results were 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. However, several technical difficulties were encountered during the production of this antigen. First, these gp41 proteins formed inclusion bodies in bacteria that were difficult to solubilize. Gp41 proteins obtained after denaturation and refolding were forming dimer of trimers instead of the natural trimeric form, as observed with the gp41 1st generation. Despite of this, 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 been achieved from Fall 2004 to Winter 2005 and animal sera were tested. Not surprisingly, this gp41 2nd generation did not elicit neutralizing antibodies in rabbits, as we initially expected. When mixed with liposomes, the gp41 2nd generation can form proteo-liposomes that are unstable. Furthermore, gp41 proteins can bind randomly to liposomes with no preferential orientation. In such situation, some key epitopes like the 2F5 may not be properly maintained or presented to the immune system and consequently, these epitopes are ignored or poorly recognized.
Based on the experience acquired over the past three years, we strongly believe that orienting the anchorage of gp41 proteins or gp41-derived peptides onto stable synthetic lipid membranes will better present the antigen to the immune system. Therefore, a 3rd generation of recombinant gp41 proteins was engineered during Winter-Spring 2005, which lead to the conclusion that not all epitopes should be present on the same antigenic structure. In fact, to avoid protein aggregation and to improve the yield of protein production, some epitopes most be taken separately from others on different antigens. This approach offers the main advantage to present key epitopes to the immune system, using different antigens, which should eliminate the problem of epitope immunodominance. Furthermore, we intend to better target the mucosal immune system by a more adequate vaccine delivery: nasal administration and epido-dermis junction using micro-needles.
In parallel, during Winter-Spring 2005, and in collaboration with Pevion Biotech Ltd. (Switzerland) and Dr. Bomsel from the Cochin Institute in Paris (France) we have formulated the second vaccine component that consists of peptides derived from the conserved proximal membrane region of the gp41 ectodomain. These peptides were grafted in an oriented manner onto biosynthetic stable spheres. Rabbit immunizations were launched from May to November 2005 for targeting the mucosal immune response. Biological samples were analyzed and all rabbits have produced specific antibodies toward the gp41 peptides. More importantly, when these samples were tested into transcytosis assays, most of these vaginal secretions (diluted 10-fold for the assay) containing antibodies that were able to prevent translocation (transcytosis) of primary R5 clades B and C with an efficiency of 80-90%, which is close to what is achieved with human secretions
isolated from HIV-resistant women.
Starting in Winter 2006, a pre-clinical trial with the peptide approach on non-human primates (macaques) is scheduled in Beijing, China. We expect these macaques to develop specific antibodies at the mucosal levels over the six months vaccination protocol. Following vaccination, macaques should be challenged with viruses to measure the level of protection. In parallel, we are in the process of developing the gp41 4th generation that will combine the best characteristics of the first three generations of gp41 previously synthesized. We plan to launch other pre-clinical trials on macaques in summer 2006 for testing the combined vaccine components, meaning injecting together gp41-derived peptides and recombinant trimeric gp41 proteins, each eliciting different types of antibodies for different anatomical compartments. Clinical lots of gp41 immunogens are planed for late 2006 for toxicology and phamacokinetics evaluations. Human tolerance and immunogenicity of the gp41 immunogens should thereafter take place in a phase I clinical trial in 2007.
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 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 potential 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 kept our vaccine program competitive.
THERAPEUTIC MOLECULES
Based on insights into mimicry, we have developed a series of synthetic peptides, based on the well-conserved IL-2 homologous regions, that might inhibit the fusion between HIV or FIV (the virus causing AIDS in cat) 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 were investigated until 2003. This application would complement available antiretroviral drugs, or may even provide a substitute for the available antiretroviral drugs for FIV and HIV. Meanwhile, FIV cause a disease with a low mortality incidence and the market for such peptides is too limited and hardly profitable. Therefore, we have decided to cease this research activity, especially when our financial situation is limited. Similarly, research on HIV peptides was stopped because new compounds were emerging in the market and we could not remain competitive. However, if our financial situation improves in a short term, we have the possibility to combine our HIV peptide technology with another one for creating a new type of drug orally available, which could become highly attractive.
We currently have compound prototypes potentially capable of commercialization, including:
- Preventive vaccines - administered to healthy subjects (HIV-negative) to prevent infection by HIV.
- Therapeutic molecules (pharmacological agents) - administered to infected subjects to prevent cell infection by HIV and slowing down virus spreading.
Visit our web site www.mymetics.com for more detailed information on our technology platform.
INTERNATIONAL AIDS VACCINE INITIATIVE (IAVI)
Visit the IAVI site (www.iavi.org)for more background information on AIDS or
Download the IAVI Global Report (pdf format) which packs a wealth of useful information about AIDS, vaccines and other related issues in a few easy-to-read pages at (www.iavi.org/pdf/globalscience.pdf).
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-AIDS preventive vaccines and therapeutics. 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 PCT which covers our mutated, trimeric, stable recombinant gp41 protein.
On March 10, 2006, we applied for a new PCT which covers our latest prototype HIV-AIDS preventive vaccine based on our recombinant modified 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 "universal" preventive vaccine against HIV, with a primary interest for the clade C because of its world dominance. Our vaccine shall provide protection against a
broad array of viral HIV-1 strains from different clades such as A, B, C and D.
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 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 is very competitive. Our approach is based on three main aspects: 1) design of lipid membrane anchored-antigens forming dimmers, trimers and tetramers that force the immune system to focus the response only on key conserved regions; 2) the induction of protective antibodies not only in the blood but most importantly in the genito-reproductive and intestinal mucosal compartments (primary HIV entry site) and; 3) on the observed immunological cross-reactivity (or mimicry) between the well preserved, antigenic and immunodominant domain of GP41 and IL-2, and on the observation of expected autoimmune consequences in HIV infected subjects. Overall, our vaccine candidate will provide an advantage over existing and future approaches that have been pursued so far because all our competitors are using DNA, viral vectors, recombinant proteins or peptides with native viral sequences with no or limited deletion of human sequence homologies (linear or tridimensional) and poorly induce mucosal immunity. Therefore, all these vaccine prototypes are potentially harmful on a long-term basis for human health and do not target properly mucosal tissues. Vaccine candidates under development of investigation are including:
- Sub-unit vaccine: a technology addressing a piece of the outer surface of HIV, such as GP160, GP140 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 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 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, 2006, neither our Luxembourg nor our French affiliates had any employees.
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. In addition, Mymetics Corporation had two part-time employees: Dr. Sylvain Fleury, Ph.D., our Chief Scientific Officer, and his assistant, Dr. Eleonora Simeoni, Ph.D., both employed under a three-way agreement with the University Hospital (CHUV) in Lausanne. Dr. Simeoni's contract ended on December 31, 2006. Mymetics Corporation further had one part-time consultant: Professor Marc Girard, DVM, D. SC., our acting Head of Vaccine Development.
In consideration of the high quality and value to our shareholder of Dr. Fleury's
work and results, as well as the considerable risks he took in terms of his career when joining Mymetics, the Board of Directors agreed to compensate him at a level with the other officers of the Company, deducting from this amount any amount paid to CHUV on Dr. Fleury's account.
Under their respective employment or consulting agreements, all our officers have agreed that their credited salaries, fees and out-of-pocket expenses will only be paid to them from time to time and as the Company's financial position would allow it. As a result, Mr. Rochet, Mr. Luebke, Dr. Fleury and Prof. Girard were respectively owed Euro 143,662, Euro 217,606, 83,078 and Euro 90,739 at December 31, 2006. All officers have also agreed in principle that approximately 50% of their respective claims be converted into Mymetics common restricted shares at the current market price at the time such conversion would be formally agreed upon by the Board of Directors.
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 approximately 60 square meters of office space that houses our administrative operations in Nyon, Switzerland (near Geneva), at 14, rue de la Colombiere.
Our CSO and his assistant have been using office and other facilities provided free of charge by the University Hospital (CHUV) in Lausanne.
The lease for our French facilities, previously located at 52, avenue du Chanoine Cartellier in Saint Genis Laval location, has been cancelled on April 30, 2005.
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.
ITEM 3. LEGAL PROCEEDINGS
Our present 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.
Neither Mymetics Corporation nor our wholly owned subsidiary 6543 Luxembourg SA are presently involved in any litigation incident to our business.
As disclosed in our Form 8-K dated February 13, 2006, our French subsidiary Mymetics S.A. was placed under receivership ("Redressement Judiciaire") on February 7, 2006 by the Tribunal de Commerce in Lyon, France, as a result of an ongoing dispute between Mymetics Corporation and a former officer and director, Dr. Pierre-Francois Serres, who has a judgment against Mymetics S.A. in France (that is now under appeal) in the amount of E173,000 for an alleged wrongful termination by the Company's prior management during 2003. The court appointed two judges to oversee the case, a lawyer to represent the creditors and a judicial administrator to manage Mymetics S.A., all of whom are considered agents of the court. The court further imposed a "two-month observation period" during
which management and the administrator should strive to find a solution to the crisis, which we are attempting to do. On April 4, 2006, the court extended the observation period until July 18, 2006, based on a favorable report about the future of Mymetics delivered by the judicial administrator. We are actively working on a plan which we expect would allow our French subsidiary to emerge from "Redressement Judiciaire" on or about that date.
By way of background, Dr. Serres was terminated by the Company's previous management and later reinstated by existing management as Chief Scientific Officer retroactively commencing May 5, 2003. In November 2003 Dr. Serres was appointed Head of Exploratory Research. Dr. Serres resigned on June 13, 2005 as director of the Company and as an officer of the Company on December 26, 2005. Previously, the Lyon Industrial Tribunal had granted Dr. Serres an emergency injunction on October 14, 2003. In consideration for being reinstated by the Company's new management, Dr. Serres agreed in August 2003 to forfeit all legal and punitive compensation for having been terminated by the Company's prior management. Despite this pledge, Dr. Serres maintained his proceeding and on November 3, 2005, the Lyon Industrial Tribunal awarded Dr. Serres the full E173,000 he was seeking, of which approximately E100,000 is payable immediately despite the fact that we immediately appealed the judgment. We have attempted without success to negotiate with Dr. Serres regarding the payments immediately due to him under the judgment. In light of limited financial resources at that time, we did not have enough funds to both pay Dr. Serres the amount immediately due for approximately E100,000 and to initiate new rounds of animal preclinical trials supported by the latest encouraging scientific results. We decided to allocate existing financial resources to the preclinical trials and to contest the judgment of the Lyon Industrial Tribunal based upon advice of our French counsel that the judgment was illegal under French law and that an appeal should be successful. Dr. Serres pursued a strategy of raising pressure on the Company to pay his judgment by seeking to have our subsidiary liquidated through the Tribunal de Commerce in Lyon. We intend, therefore, to raise the money necessary to pay Dr. Serres and remove Mymetics S.A. from receivership. At the same time, we expect to prevail on the appeal of the decision by the Lyon Industrial Tribunal and should we do so, we understand that Dr. Serres will have to reimburse us for all monies we have paid to him under the Industrial Tribunal judgment.
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.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) 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.
(b) Market Information. The Corporation's common stock was quoted on the OTC Bulletin Board under the trading symbol "MYMX" until December 30, 2005 when it was moved to the "Pink Sheet" market (trading symbol "MYMX.PK") due to our inability to file in a timely manner our report on Form 10-Q for the period ended September 30, 2005 with the Securities and Exchange Commission.
(c) 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 -------------------- ------ ------ 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 2005 March 31............ $ 0.18 $0.31 June 30............. 0.045 0.25 September 30........ 0.045 0.08 December 31......... 0.035 0.14 (*) |
(*) at December 30, 2005, last day of OTC trading
(b) Stockholders. At March 31, 2006, the Corporation had approximately 605 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, 2005.
Number of Securities remaining
Number of Securities to be Weighted Average Exercise available for issuance under
issued upon exercise of Price of Outstanding equity compensation plans
Options, Warrants and Options, Warrants and (excluding securities reflected
Rights Rights in column (a))
Plan Category (a) (b) (c)
------------- -------------------------- ------------------------- -------------------------------
Equity Compensation Plans
Approved by Security Holders (1) 455,000 (2) U.S. $0.97 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 and (ii) 12,500 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, 2005 and ending on March 31, 2006. 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.
- On March 7, 2005, we issued MFC Merchant Bank SA 500,000 shares as fee for the restructuring of its E3.4 million loan.
- On March 15, 2005, we issued Professor Stanley A. Plotkin 200,000 shares as initial fee for joining our Board of Directors.
- On March 15, 2005, we issued Northern Light International 1,500,000 shares as fee for consulting services.
- On April 21, 2005, we issued our French animal farm 60,000 shares as settlement of invoices totaling E11,680, or approximately $.23 per share.
- On May 5, 2005, we issued one investor 52,000 common shares of Mymetics Corporation for E5,000, or approximately $.125 per share.
- On June 16, 2005, we issued two investors 50,000 common shares of Mymetics Corporation for $4,000 each, or approximately $.08 per share.
- On June 20, 2005, we issued one investor 343,500 common shares of Mymetics Corporation for E5,000, or approximately $.063 per share.
- On June 22, 2005, we issued the same investor 83,300 common shares of Mymetics Corporation for $4,998, or $.06 per share.
- On June 24, 2005, we issued another investor 100,000 common shares of Mymetics Corporation for $6,000, or $.06 per share.
- On July 7, 2005, we issued another investor 144,516 common shares of Mymetics Corporation for E7,000, or approximately $.06 per share.
- On July 8, 2005, we issued the same investor 144,516 common shares of Mymetics Corporation for E7,000, or approximately $.06 per share.
- On July 11, 2005, we issued the same investor 144,516 common shares of Mymetics Corporation for E7,000, or approximately $.06 per share.
- On August 2, 2005, we issued the same investor 206,452 common shares of Mymetics Corporation for E10,000, or approximately $.06 per share.
- On August 16, 2005, we issued another investor 50,000 common shares of Mymetics Corporation for $2,500, or $.05 per share.
- On September 27, 2005, we issued six individuals a total of 2,041,200 shares as fee for various services in lieu of cash at $.03 per share.
- On October 19, 2005, we issued a previous investor 87,459 common shares of Mymetics Corporation for E3,000, or approximately $.03 per share.
- On October 20, 2005, we issued the same investor 174,918 common shares of Mymetics Corporation for E6,000, or approximately $.03 per share.
- On October 20, 2005, we issued our CEO's free-lance secretary 185,000 shares as settlement of invoices totaling CHF 12,000, or approximately $.05 per share.
- On October 21, 2005, we issued a previous investor 116,612 common shares of Mymetics Corporation for E4,000, or approximately $.03 per share.
- On October 28, 2005, we issued the same investor 116,612 common shares of Mymetics Corporation for E4,000, or approximately $.03 per share.
- On November 24, 2005, we issued the same investor 390,667 common shares of Mymetics Corporation for E6,000, or approximately $.03 per share.
- On December 12, 2005, we issued the same investor 781,337 common shares of Mymetics Corporation for E12,000, or approximately $.03 per share.
- On December 20, 2005, we issued another investor 6,000,000 common shares of Mymetics Corporation for $300,000, or $.05 per share.
- On January 12, 2006, we issued MFC Merchant Bank SA 2,500,000 shares as fee for the restructuring of its E3.7 million loan.
- On January 30, 2006, we issued one bank and one individual 50,000 shares each as fee for introduction services at $.035 per share.
- On January 30, 2006, we issued a previous investor 4,000,000 common shares of Mymetics Corporation for $200,000, or $.04 per share.
- On March 3, 2006, we issued another previous investor 3,000,000 common shares of Mymetics Corporation for E100,000, or $.04 per share.
- On March 7, 2006, we issued another previous investor 2,750,000 common shares of Mymetics Corporation for $110,000, or $.04 per share.
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, 2006, 2005, 2002, 2001 and 2000, respectively.
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,
2005, 2004 2003 2002 2001
------- ------- ------- ------- -------
(EUROS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA
Operating revenues 0 0 0 8 26
Research & Development
Expenses 489 612 1,263 1,878 482
General & Administrative
Expenses 1,138 1,264 1,090 1,293 1,034
Loss from continuing
Operations 1,939 2,202 2,786 (3,622) (1,848)
COMMON SHARE DATA(1)
Loss from continuing
operations per
common share (0.03) (0.04) (0.05) (0.07) (0.04)
Weighted average common
shares outstanding
(in thousands) 71,972 62,145 51,285 50,046 42,460
BALANCE SHEET DATA
Working capital (6,051) (2,035) (4,294) (2,306) 504
Total assets 166 192 367 477 1,692
Long-term obligations 281 3,110 242 242 242
Total stockholders'
equity (6,280) (5,065) (4,400) (2,349) 693
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(1) Basic and diluted common share data is the same.
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, 2005, 2004 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, 2005 COMPARED TO YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2003
We did not achieve any revenue for the years ended December 31, 2005 or December 31, 2004. 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.
Costs and expenses decreased to E1,939,000 for the year ended December 31, 2005 from E2,202,000 for the year ended December 31, 2004, a decline of 11.9%. 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 of 20.9%.
Research and development expenses decreased to E489,000 in the current period from E612,000 in the comparative period of 2004, a decline of 20.1%. Research and development expenses decreased to E612,000 in the period ended December 31, 2004 from E1,263,000 in the comparative period of 2003, a decline of 51.5%.
The successive decreases of R&D expenses during the years 2004 and 2005 were mostly due to our decision taken in 2003 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.
In addition, it is worth noting that 2004 was a year of development of our key recombinant gp41 vaccine protein, which induced sizeable expenses, while 2005 was a consolidation year during which our latest vaccine prototype was tested on rabbits, which implies limited costs but requires more time to complete, such time depending on biological factors and not on the amount of money invested.
General and administrative expenses decreased to E1,138,000 in the year ended December 31, 2005 from E1,264,000 in the comparable period of 2004, or 10.0%. This was mostly due to our continuing efforts at limiting G&A expenses wherever and whenever possible. While this may sound like a wise move, its effect has been to severely hamper our ability to operate under normal business conditions. It has also increased the level of risks under which we operate, as none of our critical employee or officer has a backup ready to step in should a critical need arise. We expect to return to normal operating conditions, and in particular to
backup our critical employees and officers, as soon as our financial conditions will allow us to do so. This decrease in G&A expenses was achieved despite an increase in our officers' credited (but mostly unpaid) annual salary, from E96,000 in 2004 to E144,000 in 2005, a decision taken to i) compensate our CEO and CFO for the high level of personal risks taken by accepting to operate without D&O insurance coverage and ii) to bring their salaries closer to prevailing market conditions.
General and administrative expenses increased to E1,264,000 in the year ended December 31, 2004 from E1,090,000 in the comparable period of 2003, a net increase of 16.0% resulting from i) 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 and ii) a general decrease of E62,000 in operating expenses such as rent, lawyers fees, etc. and iii) 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.
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, 2005 and 2004 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.
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 second generation of recombinant, mutated, trimeric gp41 proteins, and we have conducted the production, purification and characterization of the third generation of gp41, involving four laboratories in France. Despite the no or low induction of neutralizing antibodies with the gp41 second generation, these results were extremely important and crucial for a better understanding of our vaccine candidate. These results lead us to a third generation of gp41, still not optimal, for testing certain protein properties and behaviors. Step by step, we conluded that the the best trimeric gp41 protein folding and oriented epitope presentation should be optimal if a vaccine candidate is constituted not by one single gp41 protein harboring all the immunogenic regions (epitopes), but rather by two gp41 proteins presenting various protein subregions, each targeting a different anatomical compartment (blood or mucosal protection). We have hypothesized that this approach would offer the main advantage of presenting key epitopes to the immune system, using different antigens, to avoid the problem of epitope immunodominance. For testing our hypothesis, we have initiated in Spring 2005 rabbit immunizations with a gp41 peptide, one of the two potential gp41 subunits that will constitute our final vaccine candidate. Our results obtained at the end of 2005 were extremely encouraging. Most of our rabbits have produced specific antibodies and vaginal protection is likely possible because vaginal seretions were containing antibodies capable of bloking up to 90% of the virus translocation (transcytosis) of primary HIV strains from clades B and C. To evaluate if there is a real level of protection at the mucosa level (preventing HIV to cross the vaginal epithelium), only macaque study will allow to answer this question.
- We plan to continue to engage in the designing of a fourth generation of gp41 protein and testing its ability to elicit neutralizing antibodies. We intend also to initiate at the beginning of 2006 immunizations in non-human primates with gp41 peptides and later in 2006 with recombinant gp41 proteins for eliciting protective antibodies in blood and at the mucosa level. Depending on the pre-clinical trial results on macaques, a phase I clinical trial for human tolerance and immunogenicity could take place in 2007.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation had E70m000 cash at December 31, 2005, compared to no/immaterial cash at December 31, 2004 and E125,000 at December 31, 2003.
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 E425,000 in current year, E241,000 in the comparative period last year and E1,138,000 in 2003. The non-revolving term facility is in the principal amount of up to E3.8 million and matures on December 31, 2006, with partial repayments of E900,000 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, 2005, Mymetics had borrowed an aggregate of E3,754,000 pursuant to this non-revolving term facility.
As of December 31, 2005, we had an accumulated deficit of approximately E14 million and we incurred losses of E1,939,000 in the twelve-month period ending December 31, 2005. 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 E0 of stock based
compensation and approximately E34,000 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 E2,095,000 at December 31, 2005, include E535,000 due to our officers as unpaid salaries, fees and out-of-pocket expenses and E1,560,000 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, 2005, 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. As a result of having put our French subsidiary in receivership (see Item 3. Legal Proceedings), Dr. Serres has made it impossible for Mymetics SA to ever returning to "better times". Consequently, this amount will never have to be repaid and we shall have to reverse this amount due as soon as the French courts close the Mymetics SA file.
Net cash used by operating activities was E561,000 for the year ended December 31, 2005, compared to E1,241,000 for the year ended December 31, 2004 and E1,773,000 for the year ended December 31, 2003. The major factor were successive increases in accounts payable, which provided cash of E604,000, E259,000 and E780,000 for the years ended December 31, 2005, 2004 and 2003 respectively.
Investing activities provided immaterial cash for the years ended December 31, 2005 and 2004, and 2003.
Financing activities provided cash of E781,000 for the year ended December 31, 2005 compared to E928,000 in the same period last year and E1,263,000 in 2003.
Proceeds from issuance of common stock provided cash of E356,000 for the year ended December 31, 2005 compared to E687,000 in the same period in 2004 and E125,000 during the year 2003.
Our budgeted monthly cash outflow, or cash burn rate, for 2006 is approximately 320,000 per month for fixed and normal recurring expenses, as follows, assuming we will be able to obtain the necessary financing:
Monthly 12 Months
-------- ---------
2006 budget
Management salaries, social costs and fees E 60,000 720,000
Travelling 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 E129,000 1,548,000
-------- ---------
Internal R&D (salaries and Laboratory reagents) 18,000 216,000
Pre-clinical trials (not financed by the US NIH
or other donors) 105,000 1,260,000
External collaborators 68,000 816,000
-------- ---------
Total Research and Development expenses 191,000 2,292,000
-------- ---------
Total E320,000 3,840,000
======== =========
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We expect that the monthly cash outflow may increase significantly in 2006 over 2005 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 E24,000 per month. Since January 1, 2004 and until November 30 of that year, payments of $CHF 9,000 (approx. E6,000) per month for Dr. 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. In April 2005, this agreement was extended to include the services of a qualified virologist under Dr. Fleury's supervision in order to reduce the cost and turn-around time of certain scientific work previously outsourced by the Company to third parties. Payments under this agreement were suspended in December 2004 due to lack of funds. CHUV accepted nevertheless to maintain the agreement in force and to finance the resulting expenses until such time as additional funds could be raised by the Company. The debt owed CHUV peaked at over CHF 200,000 (E129,000) in December 2005, when CHUV threatened to terminate the agreement unless a significant portion of the outstanding amount was repaid, which would have meant the loss of a major Company resource. On December 20, 2005 and March 8, 2006 the Company was able to pay CHUV CHF 50,000 (E32,000) and CHF 100,000 (USD 77,000) respectively, a total amount considered sufficient by CHUV in the light of our latest scientific achievements to suspend all threats of termination.
Since January 15, 2004, payments of E4,000 per month for Professor Marc Girard's services as our Head of Vaccines Development were due pursuant to a consulting agreement dated June 10, 2004, as disclosed in our filing on Form 10-Q for the period ended June 30, 2004 to the Securities and Exchange Commission. We have not been able to make the payments due under the agreement on a regular basis and we owed Professor Girard approximately E91,000 at December 31, 2005. We have been able to make a significant payment recently to Professor Girard and expect that the matter of payments owed will soon be settled amicably.
Monthly fixed and recurring expenses for "Property leases" of E1,000 represents the monthly lease and maintenance payments to unaffiliated third parties for our executive offices located at 14, rue de la Colombiere in Nyon (Switzerland) (600 square feet), which can be cancelled on one month notice. Despite the fact that the lease of our French facility expired in January 2006, we have been able to cancel it at no additional cost as of April 30, 2005 as no more company work is performed in France since that date. We do not lease any research facilities since Dr. Fleury's facilities are 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 now that Dr. Fleury's FNRS project has ended. We are planning to lease in the next few months facilities on the campus of the Swiss Federal Institute of Technology (EPFL) in Lausanne (Switzerland), located 15 miles from our Nyon office.
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 31, 2006, we had two full-time salaried executives, exclusive of our contracts for the consulting services of our Chief Scientific Officer, his assistant 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 stock of Mymetics at the current market price.
We anticipate hiring an assistant to our CFO as well as a part-time laboratory technician in the first half of 2006, 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 debt or equity financings, donors and/or potential pharmaceutical partners before we commence the human trials.
In the past we have financed our research and development activities primarily through debt and equity financings from various parties.
The Corporation anticipates its operations will require approximately E3.8 million in the year ending December 31, 2006. The Corporation will seek to raise the required capital from equity or debt financings, donors and/or potential partnerships with major international pharmaceutical and biotechnology firms. However, there can be no assurance that the 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
In May 2005, our share price decreased suddenly from USD 0.30 to USD 0.05, making it extremely difficult to attract new investors under Regulation S. In June 2005, the animal farm hosting our rabbit tests threatened to destroy the animals unless their invoices were paid on a continuous basis. This could only be done if we allocated all our remaining financial resources to our ongoing scientific work while stopping all payment to corporate service providers such as auditors, lawyers, tenant, etc. Considering that losing our test animals at this time would have meant in practice the end of Mymetics, our Management decided to "go for broke" by allocating all our remaining cash to the ongoing animal test, accepting the consequences of this strategic decision, notably that we could not keep current on our filings with the Securities and Exchange Commission and that we would probably be "Pink Sheeted" as a result. We did indeed miss the deadline for filing our Form 10-Q at September 30, 2005 and were subsequently demoted from the Bulletin Board to the Pink Sheet market on December 30, 2005. We expect to return to the Bulletin Board in the near future.
Our decision to maintain our scientific work at all cost was finally vindicated in late 2005, when our scientific results turned out to be largely beyond our best expectations. New investors could be convinced, critical debts could be repaid, our overdue filing could be filed and above all, our results could be presented to the US National Institutes of Health (NIH), who decided to test our prototype vaccine at their own US facilities, and finally to the world scientific and pharmaceutical business community at the March 2006 Keystone Meeting in Colorado, where they attracted considerable attention.
We anticipate using our current funds and those we receive in the future both to meet our working capital needs and for funding the ongoing research costs associated with our gp41 testing. Provided we can obtain sufficient financing resources, we expect to begin phase I clinical trials in 2007. As in the past and to the extent this research work will not be conducted by institutions such as the US National Institutes of Health (NIH), the International AIDS Vaccine Initiative (IAVI) or the Center for HIV/AIDS Vaccine Immunology (CHAVI), we will subcontract such 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 three months. We do not have enough cash presently on hand, based upon our current levels of expenditures and anticipated needs during this period, and we will need additional proceeds from the exercise of warrants and options and other sources such as private placements under Regulation D and Regulation S under the Securities Act of 1933. The extent and timing of our future capital requirements will depend primarily upon the rate of our progress in the research and development of our technologies, our ability to enter into a partnership agreement with a major pharmaceutical company, and the results of future clinical trials.
To date we have generated no material revenues from our business operations. We are unable to predict when or if we will be able to generate revenues from licensing our technology or the amounts expected from such activities. These revenue streams may be generated by us or in conjunction with collaborative partners or third party licensing arrangements, and may include provisions for one-time, lump sum payments in addition to ongoing royalty payments or other revenue sharing arrangements. However, we presently have no commitments for any such payments.
Sources of additional capital include funding through future collaborative arrangements, licensing arrangements, and debt and equity financings. We do not know whether additional financing will be available on commercially acceptable terms when needed. If we cannot raise funds on acceptable terms when needed, we may not be able to successfully commercialize our technologies, take advantage of future opportunities, or respond to unanticipated requirements. If we are unable to secure such additional financing when needed, we will have to curtail or suspend all or a portion of our business activities and we could be required to cease operations entirely. Further, if we issue equity securities, our shareholders may experience severe dilution of their ownership percentage.
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)
-------------------------------------------
LESS MORE
THAN 1 - 3 3 - 5 THAN
CONTRACTUAL OBLIGATION TOTAL 1 YEAR YEARS YEARS 5 YEARS
---------------------- ----- ------ ----- ----- -------
Long-term debt E 0 E 0 E 0 E 0 E0
Capital Lease Obligations E 0 E 0 E 0 E 0 E0
Operating Lease Obligations E 0 E 0 E 0 E 0 E0
Purchase Obligations E175(1,2) E115 E30 E 30 E0
Other Long-Term Liabilities Reflected on
Mymetics Balance Sheet under GAAP E242(3) E 0 E 0 E242 E0
---- ---- --- ---- ---
TOTAL E417 E115 E30 E272 E0
==== ==== === ==== ===
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(1) Represents various amounts due to suppliers and partners in respect of the neutralizing antibodies tests currently under way.
(2) French auditors ("Commissaire aux Comptes") are elected for 6 years and cannot be terminated. Our French auditor has been re-elected in 2003. Based on current budget and cost estimates, we posted E15,000 per year for the audits 2005 until 2009.
(3) Due to P.-F. Serres, one of our former directors, repayable only after certain conditions related to our French subsidiary's financial situation have been met. We do not expect having to repay this amount at any time in the future.
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, 2005 and 2004 and expected cash flows from these debt obligations.
EXPECTED FUTURE CASH FLOW
YEAR ENDING DECEMBER 31, 2005
(IN THOUSANDS)
-------------------------------------------------------------------
CARRYING FAIR
VALUE VALUE 2006 2007 2008 2009 2010 THEREAFTER
-------- ------ ------ ---- ---- ---- ---- ----------
Debt obligations...... E3,754 E3,754 E3,754 E-- E-- E-- E-- E--
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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--
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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, 2005, an evaluation of the effectiveness of the registrant's "disclosure controls and procedures" (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) was carried out by the registrant's principal executive officer and principal financial officer. Based upon that evaluation, the registrant's principal executive officer and principal financial officer have concluded that as of the end of that fiscal year, the registrant's disclosure controls and procedures are effective to ensure that information required to be disclosed by the registrant in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
It should be noted that while the registrant's principal executive officer and principal financial officer believe that the registrant's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the registrant's disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
(b) Changes in Internal Control Over Financial Reporting. During the fiscal year ended December 31, 2005, 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.
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 2007 annual meeting of stockholders, the term of the Class II directors will expire at our 2008 annual meeting of stockholders, and the term of the Class III directors will expire at our 2006 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 three vacancies on the Board caused by the resignation of Dr. Pierre-Francois Serres, who was a Class III director whose term would have expired at our 2006 annual meeting of stockholders, Dr. Robert Zimmer, who was a Class II director whose term would have expired at our 2008 annual meeting of stockholders and Professor Stanley A. Plotkin, who was a Class I director, whose term would have expired at our 2007 annual meeting of stockholders.
On January 11, 2006, Dr. Sylvain Fleury, Ph. D., our current Chief Scientific Officer, was elected to fill the vacancy caused by the resignation of Dr. Serres. The positions left vacant by the resignation of Dr. Robert Zimmer and Professor Plotkin will be reserved for potential investors and/or candidates related to the securing of a strategic partner.
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 57 2008 (Class II)
And Director (appointed July 31, 2003)
Ernst Luebke Chief Financial Officer, Treasurer, 60 2007 (Class I)
Secretary and Director (appointed
July 31, 2003)
Sylvain Fleury, Ph. D. Chief Scientific Officer (appointed 43 2006 (Class III)
November 3, 2003) and Director
(appointed January 11, 2006)
Marc Girard, DVM, D. Sc. Head of Vaccine Development 69 n/a
(appointed January 15, 2004)
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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. 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. Together with Mr. 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.
SYLVAIN FLEURY, Ph.D.
Dr. Fleury was appointed as our Chief Scientific Officer in November 2003 and as a Director on January 11, 2006. In addition to serving as our Chief Scientific Officer, Dr. Fleury has maintained his academic research activity on lentiviral gene therapy in heart transplantation at the Department of Experimental Surgery from the Centre Hospitalier Universitaire Vaudois (CHUV) in Lausanne, Switzerland. Dr. Fleury moved to the CHUV in January 1997 where he initially worked as Assistant to Professor Giuseppe Pantaleo until June 2000, a leading expert in AIDS. During that time, he studied the immune regeneration of HIV infected subjects under highly active anti-retroviral therapy. He then moved to the Division of Cardiology (CHUV) as Project leader for developing new research activities in gene therapy applied to heart transplantation, in collaboration with Novartis, and genetic studies involving chemokines and chemokine receptors in heart rejection. In January 2004, Dr. Fleury was transferred to the Department of Experimental Surgery directed by Professor Yann Barrandon, a world leader on stem cells. The agreement between the CHUV and Mymetics has allowed Dr. Fleury to maintain an office and access to all the research facilities from the hospital, in addition to conducting research for Mymetics in other laboratories. Dr. Fleury obtained his B.Sc. in Microbiology in 1985 from the University of Montreal (Canada), his M.Sc. in Virology in 1988 from the Institut Armand-Frappier (Laval, Canada) and his Ph.D. in 1992 from the Clinical Research Institute of Montreal in Canada with Rafick Sekaly. During his Ph.D., Dr. Fleury worked on the CD4 molecule, which is the primary HIV cellular receptor. From 1993-1996, Dr. Fleury completed his postgraduate studies in Bethesda (USA) at the NIAID, National Institutes of Health (NIH), with Dr. Ronald N. Germain, a world renowned Immunologist. Dr. Fleury is the recipient of several awards and prizes and has published articles in his field of study in scientific journals with a high impact such as Science, Cell, Nature, Nature Medicine, Circulation.
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 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 two of our directors as members of our Audit Committee, i.e. Mr. Christian Rochet and Mr. Ernst Luebke 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, 2005, 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, Ms. Reindle and a Swiss bank acting on behalf of several of its clients.
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 our directors and officers.
Long Term Compensation
---------------------------
Awards Payouts
Annual Compensation Securities All
------------------------------- Underlying Other
Name and Principal Position Year Salary Bonus Options/SARs Compensation
--------------------------- ---- ------------ ----- ------------ ------------
Peter P. McCann, Ph.D. (1) 2005 -- -- -- --
2004 -- -- -- --
2003 $ 16,164 -- 75,000 --
Pierre-Francois Serres (2) 2005 -- -- -- --
2004 -- -- -- --
2003 -- -- -- --
Michael K. Allio (3) 2005 -- -- -- --
2004 -- -- -- --
2003 -- (4) -- -- $8,500 (5)
Christian J.-F. Rochet (6) 2005 Euro 144,000 (8) -- -- --
2004 Euro 96,000 (8) -- -- --
2003 Euro 40,000 (8) -- -- --
Ernst Luebke (7) 2005 Euro 144,000 (8) -- -- --
2004 Euro 96,000 (8) -- -- --
2003 Euro 40,000 (8) -- -- --
Robert Zimmer, M.D. (9) 2005 -- (10) -- -- --
2004 -- (10) -- -- --
2003 -- (10) -- -- --
Sylvain Fleury, Ph. D. (11) 2005 Euro 144,000 (12) -- -- --
2004 Euro 96,000 (12) -- -- --
2003 -- (11) -- -- --
Marc Girard, DVM, D.Sc. (13) 2005 Euro 48,000 (8) -- -- --
2004 Euro 46,000 (8) -- -- --
2003 -- (8) -- -- --
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(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 in August 2003 retroactively from May 5, 2003 until November 3, 2003, when he was promoted as Head of Exploratory Research, a position he resigned on December 26, 2005, following his earlier resignation as a director on June 13, 2005. Considering Dr. Serres' behavior after his reinstatement (see Part I, Item 3 LEGAL PROCEEDINGS) and the facts that he had (i) not contributed any useful work to the Company, (ii) not negotiated in good faith an employment agreement with the Company and (iii) reneged on his pledge not to claim compensation for having been terminated by the previous Board of directors in May 2003, the directors have decided to reverse all unpaid amounts previously credited to Dr. Serres (see note (8) hereafter). In accordance with prudent accounting principles, we have instead provided a full allowance to cover the risk of not prevailing in our appeal against the judgment awarded to Dr. Serres by the Industrial Tribunal.
(3) Mr. Allio was our Interim Chief Executive Officer from January 1, 2003 until July 30, 2003.
(4) Mr. Allio received $ 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.
(5) Mr. Allio received $ 8,500 in 2003 for his participation on the Board of Directors of Mymetics Corporation.
(6) Mr. Rochet has been our President and Chief Executive Officer since July 31, 2003.
(7) Mr. Luebke has been our Chief Financial Officer and Treasurer since July 31, 2003 and our Secretary since August 29, 2003.
(8) The temporary policy set by the Board of directors in August 2003 stated 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, Mr. Luebke, Dr. Fleury and Professor Girard at year end respectively Euro 143,662, Euro 217,606, Euro 83,078 and Euro 90,739 as salary and reimbursement of actual travel and other expenses disbursed by them on account of Mymetics.
(9) Dr. Zimmer has been our VP, Business Development from July 31, 2003 until September 1, 2003.
(10) Dr. Zimmer has given up any direct compensation for his short tenure as VP, Business Development. As outside director from September 1, 2003 until June 7, 2005, Dr Zimmer received no compensation other than the 400,000 common shares of Mymetics the Board has decided to issue him in 2003, as disclosed in our Form 10-K for that year.
(11) Dr. Fleury has been appointed as our Chief Scientific Officer on November 3, 2003. 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 part time 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.
(12) In acknowledgement of the exceptional quality of the work done and the unique results obtained by Dr. Fleury, the Board has decided that Dr. Fleury's compensation should be on a par with the compensation of full time officers of the Company despite the fact that under the three-way agreement referred to under (11) above, Dr. Fleury devotes only 30% of his legal work time to Mymetics (and 70% to CHUV), as ideas and insights are indeed independent of the amount of time spent on solving a problem. Accordingly, Dr. Fleury's current account with the Company is credited with the gross amounts indicated here and debited with all amounts paid to CHUV under said Agreement. As all Company officers, Dr. Fleury has accepted that the payment of the balance owed to him be deferred until the Company's financial position will allow it (see (8) above).
(13) Professor Girard has been appointed on January 9, 2004 by our Board of Directors as Head of Vaccine Development, effective January 15, 2004, under a part time consulting agreement formally signed on June 9, 2004.
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, 2005, no options were granted to our directors under our 2001 Stock Option Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUES AT DECEMBER
31, 2005
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, 2005.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Options at December 31, 2005 December 31, 2005(3)
Acquired Value ---------------------------- ---------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ------------ ------------- ----------- -------------
Dr. Pierre- -- -- 10,000(1) -- --(4) --(4)
Francois
Serres
-- -- 1,250(2) -- --(4) --(4)
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(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, 2005 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, 2005, 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 $0.035 per share on December 31, 2005, 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, 2005. Accordingly, these options were not in-the-money on December 31, 2005.
EMPLOYMENT AGREEMENTS
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. This amount was subsequently increased to E12,000 per month effective January 1, 2005. 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. 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, the latter two until their resignation only, i.e. June 7 and June 13, 2005 respectively.
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 31, 2006, 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 95,020,464 shares of our common stock outstanding on March 31, 2006. 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
BENEFICIAL OWNER TITLE OF CLASS BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------- -------------- -------------------- ----------------
Martine Reindle Common 9,022,653 9.50%
CP 18
CH - 1295 Mies, Switzerland
Anglo Irish Bank (Suisse) SA Common 13,450,000 14.15%
7, place des Alpes
CH - 1201 Geneva, Switzerland
Ernst Luebke (1) Common 4,079,418(3) 4.29%
Chief Financial Officer, Secretary and Director
Dr. Sylvain Fleury (1) Common 500,000(2) 0.53%
Chief Scientific Officer
Prof. Marc Girard (1) Common 500,000(2) 0.53%
Head of Vaccine Development and member of the SAB
Christian Rochet (1) Common 377,138(3) 0.40%
Chief Executive Officer, President and Director
All current executive officers and Common 5,456,556 5.75%
directors as a group (4 persons)
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(2) Granted for services.
(3) Acquired prior to being elected as director and appointed as officer.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
During 2005, 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 KHD Humbold Wedag Ltd. (formerly 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, 2005. 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. On August 30, 2005, we entered into a Fifth Amendment Agreement to the Loan Agreement, dated for reference August 21, 2005, which provided for an extension of the first repayment of Euro 200,000, initially due on June 30, 2005, to December 31, 2005, all other clauses of the Credit Facility as previously amended remaining identical. On January 11, 2006, we entered into a sixth Amendment Agreement to the Loan Agreement, dated for reference December 21, 2005, which provided for an extension of the first repayment of Euro 200,000, initially due on December 31, 2005, to June 30, 2006, for a total amount due on that date of E900,000, all other clauses of the Credit Facility as previously amended remaining identical.
The third, fourth and fifth Amendments were duly reported on Form 8-K dated February 19and August 30, 2005 respectively to the Securities and Exchange Commission. Copy of the sixth Amendment is included in this report on Form 10-K as Exhibit 10.45.
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"
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 2005 and 2004:
2005 2004
------- -------
Audit Fees $43,027 $38,256
Audit-Related Fees - -
Tax Fees $ 1,649 8,829
All Other Fees - -
------- -------
Total $44,676 $47,085
======= =======
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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 2005 and 2004, 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 2005 and 2004, 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 February 14, 2006, Our Board of Directors pre-approved all services to be provided by Peterson Sullivan PLLC.
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
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)
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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)
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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 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)
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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
----------
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(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 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, 2003, 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, 2004, 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, 2005, we did not file any reports on Form 8-K with the Securities and Exchange Commission.
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, 2005 and 2004, and the related consolidated statements of operations and comprehensive loss, changes in shareholders' equity (deficit), and cash flows for the years ended December 31, 2005, 2004, and 2003, and for the period from May 2, 1990 (inception) to December 31, 2005. 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 the 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, 2005 and 2004, and the results of their operations and their cash flows for the years ended December 31, 2005, 2004, and 2003, and for the period from May 2, 1990 (inception) to December 31, 2005, in conformity with accounting principles generally accepted in the United States.
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 E6,051 as of December 31, 2005, 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 April 1, 2006 |
MYMETICS CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
(In Thousands of Euros)
2005 2004
-------- --------
ASSETS
Current Assets
Cash E 70 E --
Receivables 42 110
Prepaid expenses 2 2
-------- --------
Total current assets 114 112
Patents 52 80
-------- --------
E 166 E 192
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable E 2,095 E 1,491
Taxes and social costs payable 15 40
Current portion of note payable 3,754 500
Other 301 116
-------- --------
Total current liabilities 6,165 2,147
Payable to Shareholders 242 242
Note Payable, less current portion 39 2,868
-------- --------
Total liabilities 6,446 5,257
Shareholders' Equity (Deficit)
Common stock, U.S. $.01 par value;
495,000,000 shares authorized; issued and outstanding 82,670,464
at December 31, 2005 and 68,447,864 at December 31, 2004 778 720
Common stock issuable 59
Preferred stock, U.S. $.01 par value;
5,000,000 shares authorized; none issued or outstanding -- --
Additional paid-in capital 6,227 5,522
Deficit accumulated during the development stage (14,087) (12,148)
Accumulated other comprehensive income 743 841
-------- --------
(6,280) (5,065)
-------- --------
E 166 E 192
======== ========
|
The accompanying notes are an integral part of these financial statements.
MYMETICS CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Years Ended December 31, 2005, 2004 and 2003, and the Period from May 2, 1990 (Inception) to December 31, 2005
(In Thousands of Euros, Except Per Share Data)
Accumulated
During
Development
Stage
(May 2, 1990 to
December 31,
2005 2004 2003 2005)
------- ------- ------- ---------------
Revenues
Sales E -- E -- E -- E 224
Interest -- -- -- 34
------- ------- ------- --------
-- -- -- 258
Expenses
Research and development 489 612 1,263 5,086
General and administrative 1,138 1,264 1,090 6,400
Bank fee -- 66 -- 935
Interest 222 201 176 964
Goodwill impairment -- -- -- 209
Amortization 80 59 64 461
Directors' fees -- -- 193 274
Other 10 -- -- 10
------- ------- ------- --------
1,939 2,202 2,786 14,339
------- ------- ------- --------
Loss before income tax provision (1,939) (2,202) (2,786) (14,081)
Income tax provision -- -- -- 6
------- ------- ------- --------
Net loss (1,939) (2,202) (2,786) (14,087)
Other comprehensive income
Foreign currency translation
adjustment (98) 191 453 743
------- ------- ------- --------
Comprehensive loss E(2,037) E(2,011) E(2,333) E(13,344)
======= ======= ======= ========
Basic and diluted loss per share E (0.03) E (0.04) E (0.05)
======= ======= =======
|
The accompanying notes are an integral part of these financial statements.
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, 2005
(In Thousands of Euros)
Accumulated
Other
Deficit Comprehensive
Accumulated Income - Foreign
Additional During the Currency
Date of Number of Par Paid-in Development Translation
Transaction Shares Value Capital Stage Adjustment Total
-------------- ---------- ----- ---------- ----------- ---------------- -------
Balance at May 2, 1990
Shares issued for cash June 1990 33,311,361 E119 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 E720 E5,522 E(12,148) E841 E(5,065)
========== ==== ====== ======== ==== =======
Issuance of shares for services January 2005 500,000 4 83 -- -- 87
Issuance of shares for services March 2005 200,000 2 33 -- -- 35
Issuance of shares for services March 2005 1,500,000 11 247 -- -- 258
Issuance of shares for services April 2005 60,000 1 10 -- -- 11
Issuance of shares for cash May 2005 52,000 -- 5 -- -- 5
Issuance of shares for cash June 2005 50,000 -- 3 -- -- 3
Issuance of shares for cash June 2005 50,000 -- 3 -- -- 3
Issuance of shares for cash June 2005 343,500 3 14 -- -- 17
Issuance of shares for cash June 2005 83,300 1 3 -- -- 4
Issuance of shares for cash June 2005 100,000 1 4 -- -- 5
Issuance of shares for cash July 2005 144,516 1 6 -- -- 7
Issuance of shares for cash July 2005 144,516 1 6 -- -- 7
Issuance of shares for cash July 2005 144,516 1 6 -- -- 7
Issuance of shares for cash August 2005 206,452 2 8 -- -- 10
Issuance of shares for cash August 2005 50,000 -- 2 -- -- 2
Issuance of shares for services September 2005 500,000 4 8 -- -- 12
Issuance of shares for services September 2005 500,000 4 8 -- -- 12
Issuance of shares for services September 2005 500,000 4 8 -- -- 12
Issuance of shares for services September 2005 300,000 3 5 -- -- 8
Issuance of shares for services September 2005 68,000 1 1 -- -- 2
Issuance of shares for services September 2005 173,200 1 3 -- -- 4
Issuance of shares for cash October 2005 87,459 1 2 -- -- 3
Issuance of shares for services October 2005 185,000 2 6 -- -- 8
Issuance of shares for cash October 2005 174,918 1 5 -- -- 6
Issuance of shares for cash October 2005 116,612 1 3 -- -- 4
Issuance of shares for cash November 2005 116,611 1 3 -- -- 4
Issuance of shares for cash November 2005 390,667 3 3 -- -- 6
Issuance of shares for services November 2005 20,000 -- -- -- -- --
Issuance of shares for services November 2005 20,000 -- -- -- -- --
Issuance of shares for services November 2005 20,000 -- -- -- -- --
Issuance of shares for services November 2005 500,000 5 9 -- -- 14
Issuance of shares for services December 2005 140,000 2 2 -- -- 4
Issuance of shares for cash December 2005 390,667 3 3 -- -- 6
Issuance of shares for cash December 2005 390,666 3 3 -- -- 6
Issuance of shares for cash December 2005 6,000,000 50 200 -- -- 250
Net loss for the year -- -- -- (1,939) -- (1,939)
Translation adjustment -- -- -- -- (98) (98)
---------- ---- ------ -------- ---- -------
Balance at December 31, 2005 82,670,464 837 6,227 (14,087) 743 (6,280)
========== ==== ====== ======== ==== =======
|
The accompanying notes are an integral part of these financial statements.
MYMETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2005, 2004 and 2003 and the Period from May 2, 1990 (Inception) to December 31, 2005
(In Thousands of Euros)
Total
Accumulated
During
Development
Stage
(May 2, 1990 to
December 31,
2005 2004 2003 2005)
------- ------- ------- ---------------
Cash Flows from Operating Activities
Net loss E(1,939) E(2,202) E(2,786) E(14,087)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization 80 59 64 461
Goodwill impairment -- -- -- 209
Fees paid in warrants -- 148 12 223
Services and fees paid in common stock 466 511 145 1,928
Amortization of debt discount -- -- -- 210
Changes in current assets and liabilities
net of effects from reverse purchase
Receivables 68 (10) (41) (4)
Accounts payable 604 259 780 1,797
Taxes and social costs payable (25) (13) (66) 15
Other 185 7 119 347
------- ------- ------- --------
Net cash used in operating activities (561) (1,241) (1,773) (8,901)
Cash Flows from Investing Activities
Patents and other (52) (3) (1) (393)
Cash acquired in reverse purchase -- -- -- 13
------- ------- ------- --------
Net cash provided by (used in)
investing activities (52) (3) (1) (380)
Cash Flows from Financing Activities
Proceeds from the issuance of
common stock and warrants 356 687 125 4,019
Borrowings from shareholders -- -- -- 242
Increase in note payable and other
short-term advances 425 241 1,138 4,477
Loan fees -- -- -- (130)
------- ------- ------- --------
Net cash provided by financing activities 781 928 1,263 8,608
Effect of exchange rate changes on cash (98) 191 453 743
------- ------- ------- --------
Net increase (decrease) in cash 70 (125) (58) 70
Cash, beginning of period -- 125 183 --
------- ------- ------- --------
Cash, end of period E 70 E -- E 125 E 70
======= ======= ======= ========
|
The accompanying notes are an integral part of these financial statements.
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, 2005, 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 E6,280 at December 31, 2005. Deficits in operating cash flows since inception have been financed through debt and equity funding sources. In order to remain a going concern and continue the Company's research and development activities, management intends to seek additional funding. Further, the Company's current liabilities exceed its current assets by E6,051 as of December 31, 2005, 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 E164 in 2005, E201 in 2004, E176 and in 2003. 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, 2005 and 2004, 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 71,972,491 for the year ended December 31, 2005, 62,177,629 for the year ended December 31, 2004, and 51,285,044 for the year ended December 31, 2003. 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, 2005. 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.
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.
Total Accumulated
During Development
Stage (May 2, 1990
2005 2004 2003 to December 31, 2005)
------- ------- ------- ---------------------
Net Income (Loss)
As reported E(1,939) E(2,202) E(2,786) E(14,087)
Deduct: Total stock-based employee
compensation expense determined under
fair value based methods for all
awards, net of any related tax effects -- -- (27) (320)
------- ------- ------- --------
Pro forma E(1,939) (2,202) E(2,813) E(14,407)
======= ======= ======= ========
Basic and Diluted Earnings (Loss) Per Share
As reported E (.03) E (.04) E (.05)
Pro forma E (.03) E (.04) E (.05)
|
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 2005 and 2004. The assumptions used in calculating fair value for 2003 are as follows:
Risk-free interest rate 4.00% Expected life of the options 7 years Expected volatility 164.02% - 206.16% Expected dividend yield 0% |
The issuance of common shares for services is recorded at the quoted price of the shares on the date the services are rendered.
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
SFAS No. 151, "Inventory Costs," is effective for fiscal years beginning after June 15, 2005. This statement amends the guidance in APB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). The adoption of SFAS No. 151 is expected to have no impact on the Company's consolidated financial statements.
SFAS No. 152, "Accounting for Real Estate Time-Sharing Transactions," is effective for fiscal years beginning after June 15, 2005. This Statement amends SFAS No. 66, "Accounting for Sales of Real Estate," to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position 04-2, "Accounting for Real Estate Time-Sharing Transactions." The adoption of SFAS No. 152 is expected to have no impact on the Company's consolidated financial statements.
SFAS No. 123(R), "Share-Based Payment," replaces SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." This statement requires that the compensation cost relating to share-based payment transactions be recognized at fair value in the financial statements. The Company is required to apply this statement in the first interim period that begins after December 15, 2005. The Company is currently analyzing the requirements of the adoption of SFAS No. 123(R).
SFAS No. 153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29," is effective for fiscal years beginning after June 15, 2005. This Statement addresses the measurement of exchange of nonmonetary assets and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with an exception for exchanges that do not have commercial substance. The adoption of SFAS No. 153 is expected to have no impact on the Company's consolidated financial statements.
The EITF reached consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments," which provides guidance on determining when an investment is considered impaired, whether that impairment is other than 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 adoption of this consensus or FSP is expected to have no impact on the Company's consolidated financial statements.
Financial Accounting Standards Board Interpretation ("FIN") No. 47, "Accounting for Conditional Asset Retirement Obligations," ("FIN 47"), was issued in March 2005. FIN 47 clarifies that an entity must record a liability for a conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. Asset retirement obligations covered by FIN 47 are those for which an entity has a legal obligation to perform an asset retirement activity, even if the timing and method of settling the obligation are conditional on a future event that may or may not be within the control of the entity. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The adoption of FIN 47 is expected to have no impact on the Company's consolidated financials statements.
SFAS No. 154, "Accounting Changes and Error Corrections," a replacement of APB No. 20, "Accounting Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements." SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Previously, most voluntary changes in accounting principles required recognition via a cumulative effect adjustment within net income of the period of the change. SFAS No. 154 requires retrospective application to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, this statement does not change the transition provisions of any existing accounting pronouncements. The adoption of SFAS No. 154 is expected to have no impact on the Company's consolidated financial statements.
In September 2005, the EITF reached consensus on Issue No. 05-08, "Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature." EITF 05-08 is effective for financial statements beginning in the first interim or annual reporting period beginning after December 15, 2005. The adoption of EITF 05-08 is expected to have no impact on the Company's consolidated financial statements.
In September 2005, the EITF reached consensus on Issue No. 05-02, "The Meaning of 'Conventional Convertible Debt Instrument' in EITF Issue No. 00-19, 'Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.'" EITF 05-02 is effective for new instruments entered into and instruments modified in reporting periods beginning after June 29, 2005. The adoption of EITF 05-02 is expected to have no impact on the Company's consolidated financial statements.
In September 2005, the EITF reached consensus on Issue No. 05-07, "Accounting for Modifications to Conversion Options Embedded in Debt Instruments and Related Issues." EITF 05-07 is effective for future modifications of debt instruments beginning in the first interim or annual reporting period beginning after December 15, 2005. The adoption of EITF 05-07 is expected to have no impact on the Company's consolidated financial instruments.
Note 2. Receivables
2005 2004
---- ----
Trade receivables E-- E 31
Value added tax refund 42 101
Other -- 7
--- ----
42 139
Allowance for doubtful accounts -- (29)
--- ----
E42 E110
=== ====
|
Note 3. Goodwill and Other Intangible Assets
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, 2003, 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 and US patent offices. At December 31, 2005 and 2004, the carrying amount of patents was E52 and E80 net of accumulated amortization of E328 and E248, respectively. Amortization expense relating to patents was E80, E59, and E64 for 2005, 2004 and 2003, respectively. Amortization expense is expected to amount to E52 during 2006, which will completely amortize this asset unless new patents are filed during that year.
Note 4. 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 6.40% at December 31, 2005), with an installment of E900 repayable on June 30, 2006 and the balance due December 31, 2006, collateralized by all of the Company's assets plus any future patents. The Company owed E3,754 and E3,368 under this facility as of December 31, 2005 and 2004, 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, 14,765,733 shares have been reserved at December 31, 2005, for potential issuance.
The Company incurred fees of E87 and E66(paid with shares of the Company) to MFC Bank in 2005 and 2004, 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.
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 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.
The Company owes officers and directors approximately E529 at December 31, 2005, 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 5. Income Taxes
The reconciliation of income tax on income computed at the federal statutory rates to income tax expense is as follows:
2005 2004 2003
----- ----- -----
U.S. Federal statutory rates on loss from
operations E(659) E(749) E(947)
Nondeductible fee paid in warrants and common
stock -- 224 50
Effect of exchange rate changes on
U.S. net operating loss carryforward (235) 103 242
Change in valuation allowance 894 423 582
Other -- (1) 73
----- ----- -----
Income tax provision E -- E -- E --
===== ===== =====
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Deferred tax asset is composed of the following:
2005 2004
------- -------
Difference in book and tax basis of amounts payable to shareholder E 82 E 82
Net operating loss carryforwards
United States 2,224 1,357
France 1,253 1,226
------- -------
3,559 2,665
Less valuation allowance for deferred tax asset (3,559) (2,665)
------- -------
Net deferred tax asset E -- E --
======= =======
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The Company's provision for income taxes was derived from U.S. and French operations. At December 31, 2005, 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
2010 -- 80
2011-2025 6,542 --
------ ------
E6,542 E3,685
====== ======
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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:
Weighted
Number Average
of Exercise
Shares Price
------- ----------
Outstanding and exercisable
at December 31, 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
Expired in 2005 (1,250) .75
-------
Outstanding and exercisable
at December 31, 2005 12,500 U.S. $1.15
======= ==========
Reserved for future grants at
December 31, 2005 --
=======
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At December 31, 2005, 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
Number Average
of Exercise
Shares Price
-------- ----------
Outstanding and exercisable
at December 31, 2004 and 2003 100,000 U.S. $.75
Expired in 2005 (100,000) .75
Outstanding and exercisable
At December 31, 2005 -- --
======== =========
Reserved for future grants
at December 31, 2005 --
========
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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 and 2005. 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:
Weighted
Number Average
of Exercise
Shares Price
--------- ---------
Outstanding and exercisable
at December 31, 2003 217,500 U.S. $1.83
==========
Granted in 2003 225,000 U.S. $ .14
---------
Outstanding and exercisable
at December 31, 2003, 2004
and 2005 442,500 U.S. $ .97
========= ==========
Reserved for future grants
at December 31, 2005 4,557,500
=========
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Almost all options have an expiration date ten and a half years after issuance.
At December 31, 2005, exercise prices range from $0.12 to $3.50.
Note 8. Commitments and Contingencies
The Company leased property under noncancelable operating leases through January 2006. This could however be cancelled without penalty in March 2005.
Total rent expense per year was E15 for 2005, E32 for 2004, and E24 for 2003.
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 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.
Note 9. Subsequent Events
In January 2006, the Company issued 2,500,000 common shares to MFC Merchant Bank S.A. as a fee for postponing the partial repayment due on December 31, 2005 to June 30, 2006, 4,000,000 common shares to an investor for $200,000 and 50,000 common shares to a bank as introduction fee. In March 2006, 200,000 shares were issued to an individual as introduction fee and 5,750,000 common shares to two investors for $230,000.
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 14, 2006.
Mymetics Corporation
By: /s/ Christian Rochet
------------------------------------
Name: Christian J.F. Rochet
Title: Chief Executive Officer
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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 April 14, 2006.
Signature Title --------- ----- /s/ Christian J.F. Rochet Chief Executive Officer and Director ------------------------------------- (Principal Executive Officer) Christian J.F. Rochet /s/ Ernst Luebke Chief Financial Officer and Director ------------------------------------- (Principal Financial and Accounting Officer) Ernst Luebke /s/ Sylvain Fleury Chief Scientific Officer and ------------------------------------- Director Sylvain Fleury, Ph. D. |
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)
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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)
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 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, 2005, 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. (18)
10.42 Consulting Agreement dated for reference January 1, 2004, between the
Corporation and Professor Marc Girard, DVM, D.Sc. (18)
10.43 Cooperation and Option Agreement dated March 10, 2005, between the
Corporation and Pevion A.G. (18)
10.44 Consulting Agreement dated March 23, 2005, between the
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Corporation and Northern Light International. (18)
10.45 Sixth Amended Credit Facility Agreement dated for reference December
31, 2005, between MFC Merchant Bank, S.A. and the Corporation
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
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(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 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, 2003, 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, 2004, 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, 2004, filed with the Securities and Exchange Commission on March 30, 2004.
Exhibit 10.45
THIS AGREEMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION
TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED HEREIN) PURSUANT TO REGULATION S
("REGULATION S") UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT").
NONE OF THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN) EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
SIXTH AMENDMENT AGREEMENT
TO CREDIT FACILITY AGREEMENT
THIS SIXTH AMENDMENT AGREEMENT is dated for reference the 11th day of January 2006, and shall be effective as of December 31st, 2005
AMONG:
MFC MERCHANT BANK S.A., a bank organized under the laws of Switzerland
(hereinafter, the "Lender")
AND:
MYMETICS CORPORATION, a corporation organized under the laws of the State of Delaware (hereinafter, the "Borrower")
AND:
KHD HUMBOLDT WEDAG INTERNATIONAL LTD. (FORMERLY MFC BANCORP LTD.), a corporation continued under the laws of the Province of British Columbia
(hereinafter, the "Guarantor")
WHEREAS:
A. The Lender agreed to make the Credit Facility available to the Borrower pursuant to and in accordance with the terms of an amended and restated credit facility agreement dated for reference the 28th day of February, 2003 among the Lender, the Borrower and the Guarantor (the "February 28, 2003 Agreement");
B. The Lender, the Borrower and the Guarantor agreed to amend the February 28, 2003 Agreement pursuant to and in accordance with the terms of an amendment agreement dated for reference July 9, 2003, to provide for: (i) the extension of the Maturity Date of the Credit Facility to December 15, 2003; and (ii) an increase in the principal amount of the Credit Facility; and
C. The Lender, the Borrower and the Guarantor agreed to amend the February 28, 2003 Agreement pursuant to and in accordance with the terms of an amendment agreement dated for reference July 30, 2003, to provide for: (i) an increase in the principal amount of the Credit Facility; and (ii) conversion of the Credit Facility from a term credit facility maturing on December 15, 2003 to a demand credit facility; and
D. The Lender, the Borrower and the Guarantor agreed to amend the February 28, 2003 Agreement pursuant to and in accordance with the terms of an amendment agreement dated for reference December 31, 2004, to provide for: (i) an increase in the principal amount of the Credit Facility; and (ii) conversion of the Credit Facility from a demand credit facility to a credit facility maturing on March 31, 2005 regarding Euro 200'000, on June 30, 2005 regarding Euro 300'000, on September 30, 2005 regarding Euro 400'000 and on December 31, 2005, regarding the remaining balance; and
E. The Lender, the Borrower and the Guarantor agreed to amend the February 28, 2003 Agreement pursuant to and in accordance with the terms of an amendment agreement dated for reference February 16th 2005, to provide for: (i) the extension of the Maturity Date of the Credit Facility; and (ii) the possibility to convert all or part of the Credit Facility into common shares of the Borrower, all on the terms and conditions set out therein; and
F. The Lender, the Borrower and the Guarantor agreed to amend the February 28, 2003 Agreement pursuant to and in accordance with the terms of an amendment agreement dated for reference August 21st 2005, to provide for: (i) the extension of the Maturity Date of the Credit Facility,
G. The Lender, the Borrower and the Guarantor have agreed to further amend the February 28, 2003 Agreement to provide for the extension of the maturity date of the 1st repayment of the Credit Facility to June 30, 2006; all on the terms and conditions set out herein (the February 28, 2003 Agreement, as amended by the July 9, 2003, the July 30, 2003, the December 31, 2004, the February 16, 2005, and August 21, 2005 amendment agreement and hereby, is referred to as the "Credit Agreement"),
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT, in consideration of the premises and the covenants contained herein the parties hereto agree as follows:
1. Defined Terms. Terms used as defined terms herein and not otherwise defined have the meanings given to them in the Credit Agreement.
2. Extension of Maturity and Repayment of the Credit Facility.
Without affecting the validity of Sections 3.1 (a), 3.1 (b) and 3.1 (c) added to the Credit Agreement with amendment dated for reference February 16th, 2005, which shall remain in full force and effect, Section 3.1 of the Credit Agreement is deleted in its entirety and replaced with the following:
"Section 3.1. Payments. 1st repayment shall be on June 30, 2006, the borrower shall repay Euro 900'000.--. Final repayment of the remaining open balance shall occur on December 31, 2006 (the "Payment Date"). On the Payment Date, the Borrower shall pay to the Lender all amounts outstanding under the Credit Facility, including all principal, Interest and other Obligations accruing due there under."
3. Continued Perfection and Further Security. The Borrower and the Guarantor covenant and agree to take such actions and execute and deliver to the Lender such further agreements, conveyances, deeds and other documents and instruments as the Lender shall reasonably request for the purpose of establishing, perfecting, preserving and protecting the Security and any additional security given to the Lender to secure the obligations of the Borrower and the Guarantor under the Credit Agreement, including, without limitation, the additional security and amended Security Documents contemplated by Section 4.1 of the Credit Agreement, in each case forthwith upon request therefor by the Lender and in form and substance reasonably satisfactory to the Lender.
4. Representations and Warranties of the Lender. The Lender represents and warrants to the Borrower (which representations and warranties shall survive the closing of the transactions contemplated in this Agreement), with the intent that the Borrower will rely thereon in entering into this Agreement, that the Lender:
(a) is not a U.S. Person (as such term is defined in Regulation S of the 1933 Act) and will not be acquiring any common shares of the Borrower for the account or benefit of, directly or indirectly, any U.S. Person;
(b) is outside the United States when receiving and executing this Agreement; and
(c) will be acquiring the common shares of the Borrower for investment only and not with a view to resale or distribution and, in particular, the Lender has no intention to distribute either directly or indirectly any of the common shares of the Borrower in the United States or to U.S. Persons, except in compliance with the registration provisions of the 1933 Act or an exemption therefrom.
5. Acknowledgements of the Lender. The Lender acknowledges and agrees that:
(a) the common shares of the Borrower have not been registered under the 1933 Act, or under any state securities or "blue sky' laws of any state of the United States, and, unless so registered, may not be offered or sold in the United States or, directly or indirectly, to U.S. Persons, except in accordance with the provisions of Regulation S, pursuant to an effective registration statement under the 1933 Act, or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the 1933 Act and in each case only in accordance with any applicable securities laws;
(b) offers and sales of any of the common shares of the Borrower, prior to the expiration of a period of one year after the date of issuance of such common shares of the Borrower (the "Distribution Compliance Period'), shall only be made in compliance with the safe harbor provisions set forth in Regulation S, pursuant to the registration provisions of the 1933 Act or an exemption therefrom, and that all offers and sales after the Distribution Compliance Period shall be made only in compliance with the registration provisions of the 1933 Act or an exemption therefrom and in each case only in accordance with all applicable securities laws;
(c) the Lender shall not engage in any hedging transactions involving the common shares of the Borrower, prior to the end of the Distribution Compliance Period unless such transactions are in compliance with the provisions of the 1933 Act;
(d) the Lender has not acquired the conversion right entitling it to acquire common shares of the Borrower as a result of, and will not itself engage in, any "directed selling efforts' (as defined in Regulation S) in the United States in respect of any of the common shares of the Borrower which would include any activities undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the resale of any of the common shares of the Borrower, provided, however, that the Lender may sell or otherwise dispose of any of the common shares of the Borrower pursuant to registration of any of the common shares of the Borrower pursuant to the 1933 Act and any applicable state securities laws or under an exemption from such registration requirements and as otherwise provided herein; and
(e) a legend may be placed on the certificates representing the common shares of the Borrower to the effect that the Shares represented by such certificates are subject to a Distribution Compliance Period and may not be traded until the expiry of such except as permitted by applicable securities legislation. The
Purchaser hereby acknowledges and agrees to the Company making a notation on its records or giving instructions to the registrar and transfer agent of the Company in order to implement the restrictions on transfer set forth and described in this Agreement.
6. Representations of the Borrower. The Borrower represents and warrants that is has full power and authority to issue the shares of common stock issuable for the purpose of the conversion pursuant to Sections 3.1.(a), 3.1.(b) and 3.1.(c) of the Credit Agreement and that the undertakings relating to the conversion are legal, valid and binding obligations of the Borrower.
7. Conditions Precedent to Amendment. The Lender shall have no obligation to amend the Credit Agreement by this Agreement unless the Lender has received:
(a) this Agreement duly executed by the Borrower and the Guarantor; and
(b) a copy of the authorizing resolutions of the board of directors of the Borrower, authorizing the execution and delivery of this Agreement, together with any replacements, confirmations, amendments, supplements, extensions or renewals to or of the Security as may be required by the Lender, all in form and content satisfactory to the Lender and its counsel.
8. Compensation. The parties have agreed on the compensation of the Lender for the extension of the Credit Facility by this Agreement.
9. Governing Law. This Agreement shall be construed, performed and enforced in accordance with, and governed by, the internal laws of Switzerland, without giving effect to the principles of conflict of law thereof.
10. Consent to Jurisdiction. (1) Each of the parties hereto hereby irrevocably
attorns to the exclusive jurisdiction of the Courts of Herisau (Switzerland) in
any action or proceeding arising to this Agreement, in modification of its
Section 9.8., the February 28, 2003 Agreement and the Credit Agreement. The
Borrower agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by Law.
(2) Nothing in this Section 9(1) shall affect the right of the Lender to serve legal process in any other manner permitted by Law or affect the right of the Lender to bring any action or proceeding against the Borrower or its property in the courts of other jurisdictions.
11. English Version. The parties hereby represent, warrant, acknowledge and agree that: (i) they have agreed that this Agreement be drawn up in the English language; and (ii) the English version of this Agreement shall govern for all purposes.
12. Severability. If one or more provisions of this Agreement is or becomes invalid or unenforceable in whole or in part in any jurisdiction, the validity of the remaining provisions of this Agreement shall not be
affected. The parties hereto undertake to replace any such invalid provision without delay with a valid provision which as nearly as possible duplicates the economic intent of the invalid provision.
13. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, heirs, executors, administrators, legal representatives and assigns.
14. Full Force and Effect. All of the other provisions of the Credit Agreement shall continue in full force and effect and shall not be modified hereby.
15. Counterparts. This Agreement may be executed in counterparts, each of which will be an original and all of which will constitute the same document.
16. Facsimile. The parties hereto agree that this Agreement may be transmitted by facsimile or such similar device and that the reproduction of signatures by facsimile or such similar device will be treated as binding as if originals and each party hereto undertakes to provide each and every other party hereto with a copy of this Agreement bearing original signatures forthwith upon demand.
THE LENDER: THE BORROWER:
MFC MERCHANT BANK S.A. MYMETICS CORPORATION
Per: Per:
-------------------------------- -----------------------------------
Authorized Signatory Authorized Signatory
Per: Per:
-------------------------------- -----------------------------------
Authorized Signatory Authorized Signatory
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THE GUARANTOR:
KHD HUMBOLDT WEDAG INTERNATIONAL LTD.
(FORMERLY MFC BANCORP LTD.)
Exhibit 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
COMPUTATION OF PER SHARE EARNINGS
For the Years Ended December 31, 2004, 2002, and 2001
(In Thousands of Euros, Except for Per Share Amounts)
BASIC EPS
---------------------------------------
2003 2002 2001
----------- ----------- -----------
Net loss per
financial statements E (2,786) E (3,622) E (1,848)
=========== =========== ===========
Weighted average
shares outstanding 51,285,044 50,045,658 42,459,784
Basic earnings (loss)
per share E (.05) E (.07) E (.04)
=========== =========== ===========
DILUTED EPS
---------------------------------------
2003 2002 2001
----------- ----------- -----------
Net loss per
financial statements E (2,786) E (3,622) E (1,848)
=========== =========== ===========
Weighted average
shares outstanding 51,285,044 50,045,658 42,459,784
Diluted earnings (loss)
per share* E E (.05) E (.07) E (.04)
=========== =========== ===========
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* - Anti-dilutive
Exhibit 21.1
SUBSIDIARIES
Mymetics Corporation has two subsidiaries:
1. 6543 Luxembourg S.A. (a majority-owned subsidiary of Mymetics Corporation) is a joint stock company organized under the laws of Luxembourg and does business under the name "6543 Luxembourg S.A."
2. Mymetics S.A. (a wholly-owned subsidiary of 6543 Luxembourg S.A.) is a company organized under the laws of France and does business under the name "Mymetics S.A."
Exhibit 31.1
Certification Pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934
I, Christian J.F. Rochet, certify that:
1. I have reviewed this annual report on Form 10-K of Mymetics Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: April 14, 2006 /s/ Christian J.F. Rochet
----------------------------------------
Christian J.F. Rochet
Chief Executive Officer
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Exhibit 31.2
Certification Pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934
I, Ernst Luebke, certify that:
1. I have reviewed this annual report on Form 10-K of Mymetics Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: April 14, 2006 /s/ Ernst Luebke
----------------------------------------
Ernst Luebke
Chief Financial Officer
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Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Mymetics Corporation (the "Company") on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Christian J.F. Rochet, Chief Executive Officer of the Company, and Ernst Luebke, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By: /s/ Christian J.F. Rochet
-----------------------------
Christian J.F. Rochet
Chief Executive Officer
By: /s/ Ernst Luebke
-----------------------------
Ernst Luebke
Chief Financial Officer
April 14, 2006
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